What does falling RevPAR mean in terms of NOI and values?
Moody’s summary of the analyst’s opinions suggests a potential 30% further decline in hotel values for 2009 (on top of the damage already done in 2008). . I found one of the most interesting parts of the Moody’s Special Report to be analyzing the impact of declining RevPAR on NOI, and resulting changes in value. They concluded that a 7% hit to the top line would translate into a 16% decline in net cash flow at a typical full-service hotel because of the relatively high fixed cost structure, and increasing expenses. By itself, this would suggest that a 7% decrease in revenues would cause a 16% drop in value. But industry experts expect further increases in cap rates on hotel valuations. Therefore, on the same 7% decline in revenues, Moody’s calculates that a 100 basis point increase in cap rates would cause hotel values to decline by 24%, and a 200 basis point increase would be translate into a 30% decline in hotel values. PKF Consulting’s latest analysis sees bigger NOI decline — up t
