Just when you thought you had all of the industry lingo down from RevPAR and ADR to cap rates and LTVs, you may have to learn a new term. This one is known as GOPPAR, or gross operating profit per available room, and while it was first introduced more than a decade ago it seems destined to stick around this time.
I will acknowledge I was a bit skeptical upon first hearing about it. In fact, I think my reaction was along the lines of “Great, just what we need: another clumsy acronym to tell us how bad things are in the hotel industry.” But after further review, there is a definite value to this measurement.
Unlike RevPAR—which strictly tells the story of revenue as it relates to guestrooms and is valuable in its own right—GOPPAR is a broader gauge of overall profitability for a property, as it takes into account operations like food and beverage, spa services and meetings business. At a time when many in the industry are having a difficult time determining a property’s worth, not to mention how efficiently it is being operated, this potential key performance indicator could be especially useful.
So why hasn’t GOPPAR caught on throughout the industry? According to Hendersonville, TN-based Smith Travel Research—which provides the lion’s share of the industry’s data—the leading obstacle relates to full disclosure. “The industry leaders we have discussed this with are reluctant to share monthly data below the revenue line because of the extra scrutiny it would place on public companies,” said Jan Freitag, vp of global development at Smith Travel Research.
Freitag went on to note there are “some gray areas that exist regarding expense allocation” in calculating the GOPPAR figure. (Calculating GOPPAR is a little more complex than the standard occupancy percentage times ADR that equates to RevPAR. For GOPPAR, which is actually a derivative of RevPAR, the formula involves overall revenue while factoring in departmental and operational expenses.)
There are reportedly a number of hospitality companies that have utilized GOPPAR to help measure flow-through and the profitability of their portfolios. They obviously see value in it, so the question becomes: will the industry’s rank and file ultimately see the value in it?
During the most recent upswing, we saw how valuable transparency can be as hospitality became the darling of investors, at least for a while. If the only thing holding GOPPAR back is the public companies’ reluctance to disclose their figures for fear of violating the Sarbanes-Oxley Act or some other regulations, there needs to be some sort of compromise to that. Perhaps the GOPPAR figures would have to lag many of the financial reports being filed. There’s still plenty of value in the data even if it’s not right up to the minute.
Freitag went on to say that STR would “continue to examine the issue and move forward with reporting GOPPAR when the industry is ready to embrace it.”
There are already a number of reasons to embrace it and perhaps the most compelling of all is we wouldn’t have to worry about any of those dreaded year-over-year double-digit declines.
