Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
ADR stands for “average daily rate”…which is a financial measurement in the lodging industry.
The Formula
ADR = Room Revenue Earned/Number of Rooms Sold
So, it’s the average daily rate paid by guests over the period. Note: The calculation does not take into consideration all rooms that went unoccupied.
What does this metric tell us?
ADR shows the average revenue made per occupied room. The higher, the better. The metric is helpful because rooms often rent for different rates on different days. Weekdays vs. weekends for example.
ADR is then used to compare one hotel to another. Or against the historical performance of the same hotel.
Hotel operators can increase ADR by focusing on pricing strategies. This includes upselling, cross-sale promotions and complimentary offers such as free shuttle service to the local airport. The overall economy is a big factor in setting prices, with hotels and motels adjusting room rates to match current demand.
Example
In a given month, if a hotel has $50,000 in room revenue and 500 rooms sold…the ADR would be $100. (Rooms used for in-house use, such as those set aside for hotel employees and complimentary ones are excluded from the calculation.)
As a real-life example consider Marriott International, a major publicly traded hotelier that reports ADR. For the 2nd quarter of 2018, Marriott’s ADR increased 1.9% to $163.05 in North America.
Limitations
ADR does not tell the complete story about a hotel’s revenue. For instance, it does not include the charges a lodging company may charge if a guest does not show up. The figure also does not subtract items such as commissions and rebates offered to customers if there is a problem. A property’s ADR may increase as a result of price increases. However, this provides limited information in isolation. Occupancy could have fallen, leaving overall revenue lower.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com