Income-based valuation: RevPAR → EBITDA → value
RevPAR (Revenue per Available Room) = ADR × occupancy rate. Multiplied by 365 × number of rooms, it gives annual room revenue. Add F&B and other department revenue to get total revenue. Subtract operating charges (staff, energy, other opex) for GOP, then FF&E reserve (4%) for stabilised EBITDA. DCF value = EBITDA / capitalisation rate.
Reference USALI ratios by category
Budget (1-2★): staff 28-32%, energy 7-9%, other opex 22-26%, GOP 30-40%. Midscale (3★): staff 30-34%, GOP 28-35%. Upscale (4★): staff 32-36%, GOP 25-32%. Luxury (5★): staff 35-40%, GOP 20-28%. Ranges sourced from PKF Hotel Experts and STR Global, calibrated on the European market.
Capitalisation rate: the most sensitive variable
A cap rate of 7% instead of 8% mechanically raises DCF value by 14%. Observed rates in Europe 2025: luxury 4.5-6% (Paris, Milan, Zurich), upscale 6-7.5%, midscale 7-9%, budget 8-11%. For a secondary LU/BE hotel, 7.5-9% is the prudent compromise.
Frequently asked questions
What does 'stabilised EBITDA' mean?
EBITDA in cruising year post-ramp-up, after 3-5 years of operation from acquisition or repositioning. Not the EBITDA of year N-1 if abnormal (covid, works, major local event).
Why 4% FF&E reserve?
Furniture, Fixtures & Equipment: gradual replacement of furniture and equipment. 4% is the USALI 11th ed. standard. A luxury hotel may justify 5-6%, an economy motel holding at 3%.
Should I use DCF or price-per-key?
Both. The DCF approach reflects the unique economic performance of the asset. The price-per-key multiple anchors on market prices. The arithmetic mean typically sets the retained range; a gap > 30% signals an atypical asset.