What is a hotel worth?

A hotel’s price rarely tracks its room count. Two properties with a similar number of keys, in similar markets, can sell for very different multiples of the same revenue, because a buyer is really paying for a mix of the hotel’s RevPAR trend, the pull of its franchise brand — where it carries one — and the physical and contractual condition standing behind both. A branded hotel with strong RevPAR looks like the safer bet on paper, but that same brand agreement often carries a property improvement plan obligation the buyer inherits on closing, which can offset a meaningful share of the premium the brand appears to justify. Sorting out which element is driving the number is the difference between a real valuation conversation and a guess dressed up as one.

What a buyer is actually pricing

Revenue per available room, or RevPAR, sits at the centre of any hotel valuation because it blends occupancy and rate into one figure reflecting both how full the hotel runs and what it actually collects per room. A buyer wants the RevPAR trend over several years against the hotel’s competitive set, not a single strong quarter. Alongside RevPAR, a buyer looks closely at the demand generators feeding the property — an airport, a highway interchange, a corporate campus, a tourism draw — and how many independent sources of demand exist rather than one dominant one. Food and beverage, meeting space and other ancillary revenue matter too, both for the top line and for smoothing income across a year that would otherwise track room demand alone.

The brand flag cuts both ways

A recognized franchise brand typically supports a RevPAR premium over an equivalent independent property, because the flag brings a reservation system, a loyalty program and instant name recognition an independent hotel has to build for itself. Lenders also tend to view a branded property more comfortably, since the brand gives them a benchmarkable performance history to underwrite against. But the brand comes with an obligation attached: a franchise agreement generally requires the franchisor’s consent to assign on a sale, and that consent process commonly triggers a property improvement plan review — a defined, often substantial capital renovation requirement the incoming owner must fund to bring the property up to the brand’s current standard. An independent hotel avoids that obligation but gives up the brand’s demand pull and financing comfort. Neither position is automatically better; it depends on how large the gap actually is.

What gets discounted

A buyer working through a hotel’s numbers will typically discount for a specific set of risks in this sub-sector:

• A property improvement plan whose scope has not yet been formalized by the franchisor, since the buyer is effectively pricing an unknown capital obligation
• Deferred maintenance on major building systems — roof, HVAC, elevators — that a routine inspection has not yet caught
• A franchise agreement nearing expiry with no indication of renewal terms
• Heavy reliance on a single demand generator, such as one large employer or attraction, that could soften without warning
• A unionized workforce whose collective agreement terms the buyer inherits without room to renegotiate immediately

How earnings get recast for a hotel

Recasting a hotel’s earnings starts with separating rooms revenue, the highest-margin and most durable income line, from food and beverage and banquet revenue, which carries lower margins and swings more with a strong or weak season of group bookings. From there the usual add-backs apply — above-market owner compensation, one-time capital items, personal expenses on the books — but a hotel-specific step follows: pricing in the capital needed for a property improvement plan or deferred building-systems work, rather than treating either as a surprise for later. A recast that ignores a PIP behind the franchise renewal is not complete, and a buyer’s advisor will build that assumption into the price.

Why two similar-RevPAR hotels price differently

Put the pieces together and the spread between two hotels posting comparable RevPAR stops being mysterious. One carries a franchise agreement nearing renewal with an unformalized PIP looming, leans on a single nearby employer for most of its demand, and has let maintenance slide. The other holds a brand agreement with real term remaining and a documented, already-funded improvement plan, draws demand from a genuine mix of sources, and has kept its systems current. The second hotel is structurally more durable, and the gap between the two reflects how much of today’s RevPAR would survive a change of ownership and the capital obligations already on the horizon.

Who is pricing the asset shapes the number

The buyer across the table changes what is actually being valued. A hotel-focused real estate investor or REIT prices largely on RevPAR and real estate fundamentals, and may pay for a property with a softer brand position if the land and building justify it alone. A regional or national hotel management group prices more on operating synergy — how the property fits a portfolio it runs — and can sometimes pay a premium for strategic fit a standalone valuation would not support. A franchise-approved owner-operator prices on personal debt-service capacity and brand fit, and is frequently the only buyer who can close on a smaller or limited-service property, since franchisor approval and financing scale can exclude institutional buyers from that end of the market.