Two Occupancies, One Hotel: OOO Rooms, Complimentary Rooms, and the RevPAR Index
A 240-room select-service hotel reports October (31 days) to ownership. The PMS shows 5,420 rooms sold and rooms revenue of $949,000. For 20 days, 24 rooms were out of order for a corridor renovation, and 240 of the 5,420 occupied rooms were complimentary (loyalty redemptions and house use). The comp set reported October occupancy of 71.4% and ADR of $176. The asset manager has two internal summaries in front of her: one shows occupancy of 72.8%, the other 77.9%. She wants to know which is right, why the hotel's RevPAR index shifts so much depending on the basis, and how badly the complimentary rooms are distorting ADR.
1. Reconcile the two occupancy figures. State which basis is correct for which purpose and compute RevPAR both ways.
Read the worked answer
Room-night base
- Total inventory: 240 × 31 = 7,440
- Out of order: 24 × 20 = 480
- Sellable: 7,440 − 480 = 6,960
Two occupancies, both arithmetically correct
- On total inventory: 5,420 ÷ 7,440 = 72.8%
- On sellable rooms: 5,420 ÷ 6,960 = 77.9%
Which to use
- Operating decisions (staffing, laundry, breakfast covers, housekeeping hours): sellable basis. 77.9% is the demand pressure the building actually felt.
- Benchmarking: total-inventory basis, because the comp set's supply almost certainly includes its own out-of-order rooms. Quoting 77.9% against a comp set at 71.4% manufactures 6.5 points of false outperformance.
RevPAR both ways
- $949,000 ÷ 7,440 = $127.55
- $949,000 ÷ 6,960 = $136.35
- Comp set RevPAR: 0.714 × $176 = $125.66
- Index: 101.5 vs. 108.5 - a 7-point swing created purely by the denominator.
2. Quantify the ADR drag from the 240 complimentary rooms and advise how ADR should be presented to ownership.
Read the worked answer
Reported ADR = $949,000 ÷ 5,420 = $175.09. Paid rooms = 5,420 − 240 = 5,180. Paid ADR = $949,000 ÷ 5,180 = $183.20. Dilution = $8.11 per occupied room, 4.4% of ADR.
That dilution is a reporting artifact, not automatically an economic loss. In October the hotel sold only 77.9% of sellable rooms, so most comp rooms filled inventory that would otherwise have gone empty; their true cost is closer to the marginal cost of a room ($35–45) than to $183. Only comps given on high-demand nights displaced real revenue.
How to present it:
- Headline ADR of $175.09 - the STR convention, where comp rooms sit inside occupied rooms and contribute no revenue.
- A reconciliation line: "ADR ex-comps $183.20; 240 comp/house-use rooms = 4.4% of occupied rooms."
- Never quote $183.20 as ADR. It will not tie to the brand report, the comp set, or a management-fee calculation based on reported revenue and rooms.
3. The owner asks whether the renovation was worth it. What analysis do you give, and what caveats must accompany it?
Read the worked answer
Upper bound of displaced capacity 480 lost room nights × $175.09 achieved ADR = $84,043 of rooms revenue at 100% displacement. That is a ceiling, not an answer.
Adjust for demand The hotel ran 77.9% on sellable rooms, so roughly 22% of that capacity would have gone empty anyway. Realistic displacement ≈ 480 × 0.78 × $175.09 ≈ $65,600 of revenue, or about $50,000 of contribution at roughly $140 per room (ADR less ~$35 variable cost).
Caveats to state explicitly
- The renovation may support a rate increase: compare post-renovation ADR by room type against the like-for-like comp set rather than against the pre-renovation mix.
- Variable cost and utilities fell during the OOO period, partly offsetting the loss.
- 72.8% of total inventory versus 77.9% of sellable rooms are different stories; the headline occupancy overstates the damage.
Present a range - roughly $50,000 to $65,000 of contribution - with the assumptions named, plus the qualitative benefit (product quality, review scores, rate positioning) that never appears on the P&L.