How is the price of a hotel calculated?

A hotel is not valued by the square metre. The buyer is paying for the ability to generate earnings, in a given building, under a given lease and given contracts. Hence the way we work: we read the operation before the bricks and mortar. The price is built in three steps. First, establish the reference earnings. Then value them with several methods that check one another. Finally, move from the value of the asset to the price of what is actually being sold.

Establishing the reference earnings

The starting point is EBITDA, or EBE in French accounts, over the last few financial years, read alongside the indicators that explain it: occupancy, average daily rate, RevPAR, revenue by department, GOP. Reported EBITDA is then adjusted to reflect what the hotel would produce in the hands of another operator:

• owner’s remuneration brought into line with the market, upwards or downwards
• intra-group or family rent replaced by a market rent
• one-off costs and income stripped out
• items that will not transfer with the sale removed

Each adjustment is backed by a document. An investment committee recalculates every one and discards those that are merely convenient. Over-generous adjusted EBITDA does not raise the price: it costs the seller the buyer’s trust.

Four methods that check one another

No method is enough on its own. A multiple compresses many assumptions into one number. A DCF is only as good as its business plan. Comparables are scarce, often poorly documented, and every hotel has its own features. The valuation settles on a range that holds up from several angles at once.

From asset value to price

Once the asset value is established, three factors adjust it.

Planned capex. Compliance works, accessibility, room refurbishment, brand or star-rating requirements: the buyer costs this programme and takes it off their offer, one way or another. Our guide on capex, compliance and star rating explains the mechanism.

The lease, if there is one. Its remaining term, the rent as a share of revenue and the split of major works weigh directly on the value of the business.

The structure. In a share sale, the price starts from the value of the assets, less net debt, adjusted for working capital. Latent tax on the company’s assets is negotiated. The price is then either adjusted on completion accounts or fixed on earlier reference accounts (locked box).

A fictitious example, to show the logic

Take a fictitious 40-room hotel, sold as property and business, with reported EBITDA of around €1.1m. Adjustments (owner’s remuneration, a one-off cost in the year) bring it down to €1m. The valuation applies a value to those earnings, then cross-checks it with a DCF and the value of the property. A technical audit then puts compliance works the buyer will have to fund at around €1.5m: that amount will come off the offers. These figures are rounded, invented, and say nothing about any real market. Only the logic matters.

Asking price and agreed price

The asking price is a reasoned starting point. The agreed price takes shape afterwards: in the letter of intent, then in due diligence, which confirms or corrects the assumptions. A complete file, with known issues disclosed upfront, limits revisions at that stage. An issue found in due diligence is always harder to negotiate than one declared at the outset.

Our guide on how a hotel is valued goes further into methods and indicators. Our hotel valuation is often the first step towards a sale.