What is an 'Average Daily Rate - ADR'

An average daily rate (ADR) is a metric widely used in the hospitality industry to indicate the average realized room rental per day. Average daily rate is one of the key performance indicators (KPI). Other KPIs are metrics such as occupancy rate and combined with ADR comprise revenue per available room (RevPAR), all of which are used to measure the operating performance of a lodging unit such as a hotel or motel.

BREAKING DOWN 'Average Daily Rate - ADR'

The ADR can be measured against a hotel's historical performance. It can also be used as a measure of relative performance, since the metric can be compared to other hotels that have similar characteristics such as size, clientele and location. The formula is room revenue divided by rooms sold.

Hypothetical Example

If a hotel has $50,000 in room revenue and 500 rooms sold, the ADR would be $100. Rooms used for house use such as those set aside for hotel employees and complimentary ones are excluded from the calculation.

Using ADR in Practice

Hotel operators seek to increase ADR by focusing on pricing strategies. This includes upselling, cross-sale promotions and complementary offers such as free shuttle service to the local airport. The overall economy is a big factor in setting prices, with hotels and motels seeking to adjust room rates to match current demand.

The ADR does not tell a complete story about a hotel’s revenue. For instance, it does not include the charges a lodging 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.

Real Life Examples

Marriott International Inc. (NASDAQ: MAR) reports ADR along with occupancy rate and RevPAR. In 2015, Marriott's ADR increased 4.1% to $152.30. This is on a constant currency basis, which eliminates the effects of currency translations. Occupancy was up 0.8% to 73.7%. Taking $152.30 times 73.7% equates to a RevPAR of $112.25, which is up 5.2% from 2014.

Marriott's management credited overall economic growth, including moderate gross domestic product (GDP) growth in North America, which improved pricing. In particular, the company noted strong demand for rooms with higher rates, reducing the needs for discounting. However, market conditions are monitored, and rooms are priced daily to try to reflect the current demand.

Hilton Worldwide Holdings Inc. (NYSE) reported ADR rose 3.6% in 2015 to $141.19. The company's occupancy rate rose 130 basis points to 75.4% Both metrics combined lead to a RevPAR increase of 5.4% to $106.51.

RELATED TERMS
  1. American Depositary Receipt - ADR

    A negotiable certificate issued by a U.S. bank representing a ...
  2. Occupancy Rate

    In real estate, the number of units in a building that have been ...
  3. Y

    A letter that appears on a Nasdaq stock symbol specifying that ...
  4. Revenue Per Occupied Room - RevPOR

    An industry metric used to evaluate companies in the hotel and ...
  5. Condotel

    A condominium project that is operated as a hotel with a registration ...
  6. SEC Form F-6EF

    A filing with the Securities and Exchange Commission (SEC), also ...
Related Articles
  1. Investing

    Introduction To American Depositary Receipts (ADRs)

    Investors should look beyond the confines of the U.S. borders to diversify and maximize returns. ADRs are one way to diversify your portfolio and help you achieve better returns when the U.S. ...
  2. Investing

    An Introduction To Depositary Receipts

    Learn about a security that allows you to invest in a foreign company through your local exchange.
  3. Personal Finance

    The Top 3 Most Profitable Mid-Priced Hotels

    American hotels recently released earnings. Here's a look at three of the most profitable mid-sized hotels.
  4. Personal Finance

    Are Hotel Chains Too Big? (TRIP, HLT)

    In America, the six largest hotel chains dominate the industry and more likely than not you’ll end up staying at one on your next vacation.
  5. Personal Finance

    The 3 Most Profitable Luxury Hotels

    Staying at a luxury hotel is the stuff of daydreams for most people. The few who do regularly stay, or even live, in upscale hotels know that there is no substitute for a life where anything ...
  6. Personal Finance

    Navigating The Hotel Star System

    Three stars, four stars, gold star, who star? Sometimes the hotel star system can seem as wacky as a Dr. Seuss book.
  7. Investing

    (EZU) iShares Eurozone ETF: Top 5 Holdings

    Learn about the iShares MSCI Eurozone ETF and its top five holdings, which include Anheuser Busch Inbev SA, Sanofi SA, Bayer AG and Siemens AG.
RELATED FAQS
  1. How are American Depository Receipts (ADRs) exchanged?

    Learn specifics about American depositary receipts, including how they are exchanged and some of their advantages and disadvantages. Read Answer >>
  2. Why are big foreign companies considering delisting their American depositary receipts?

    American depositary receipts (ADRs) were developed to give investors an easier way to invest in foreign companies. An ADR ... Read Answer >>
  3. What are the differences between Levels I, II, and III American Depository Receipts ...

    Understand the difference between sponsored American depositary receipts categorized within Level I, II or III. Read Answer >>
  4. What parties are involved in the creation of an American depositary receipt?

    An American depositary receipt (ADR) is a legal certificate issued by a recognized U.S. bank that represents a specific number ... Read Answer >>
  5. Why would an investor want to hold an American Depository Receipt rather than the ...

    Learn about the advantages for investors of using American Depositary Receipts instead of investing directly in the underlying ... Read Answer >>
  6. Is there a difference between ADR and ADS?

    American depositary receipts (ADRs) allow foreign equities to be traded on U.S. stock exchanges; in fact, this is how the ... Read Answer >>
Trading Center