Methodology
How the Investment Studio calculates.
Purpose and limits
The Investment Studio gives owners and investors a fast, structured first view of a hotel’s economics. It is a simplified annual model. It is not a feasibility study, a valuation or investment advice.
Revenue
Rooms revenue = keys × 365 × occupancy × ADR.
ADR starts at your year-1 figure and grows by the ADR growth rate each year.
Occupancy in year 1 = stabilised occupancy × your year-1 factor; year 2 uses the year-2 factor; from the stabilisation year it is the stabilised figure (capped at 97%) — the stabilisation year defaults to year 3 and is adjustable (2–10) in the calculator.
Ancillary and F&B revenue = rooms revenue × your ancillary share.
Operating costs and GOP
Base operating costs = stabilised revenue at year-1 prices × your cost ratio. A share of these costs is fixed and grows with fixed-cost inflation. The rest is variable and scales with revenue.
GOP = revenue − fixed costs − variable costs. Because part of the cost base is fixed, a drop in occupancy reduces margin more than proportionally, which is how real hotels behave.
Fees, reserve and NOI
Base fee = revenue × base fee rate. Marketing / loyalty levy = revenue × levy rate (optional, 0 by default) — USALI 12th edition keeps the brand marketing-fund and loyalty-program contributions separate from the base fee. Incentive fee = GOP × incentive rate (when GOP is positive). Insurance and other fixed charges = revenue × rate. FF&E reserve = revenue × rate.
NOI = GOP − base fee − incentive fee − fixed charges − FF&E reserve. This is the owner’s income before debt service and tax.
Exit value
Exit value = exit NOI ÷ exit cap rate. Net sale proceeds = exit value × (1 − selling costs).
The exit NOI basis is selectable. The default (trailing) capitalises the final modelled year’s NOI — the convention used by default everywhere in the tool, including the comparison and redevelopment tabs. The forward option capitalises a forward NOI: the final modelled year grown one more year at the model’s inflation rate, which mirrors sale valuations that price next year’s income. Many sale valuations capitalise a forward year’s NOI; neither convention is universally correct, and the choice can materially affect exit value and IRR — so the results always show the exit value under the other basis as well.
Debt
Loan = loan-to-cost × development cost. During the interest-only years the owner pays interest only. After that the loan amortises in level annual payments over the remaining tenor — or, with the optional monthly-debt-service module, in level monthly payments at rate ÷ 12 (see Monthly debt service below). The outstanding balance is repaid at exit.
Construction period (IDC): when a build period in months is entered, interest during construction is capitalised into the loan at completion: IDC = loan-to-cost × development cost × interest rate × (months ÷ 12). The facility is assumed fully drawn from day one — conservative; a staged drawdown would reduce IDC. The IDC-inclusive balance then amortises exactly like the base loan. IDC is assumed fully debt-funded at the same loan-to-cost, so the equity requirement is unchanged; debt service, DSCR and the ramp-up gap all reflect it.
Debt sizing from constraints (optional)
By default the loan equals the loan-to-cost input times development cost. The optional sizing mode instead sets the loan to the least of four constraints: loan-to-cost × development cost; a loan-to-value ceiling on the stabilised, direct-capitalised value; the DSCR-sized amount (stabilised NOI ÷ your DSCR minimum, via the payment factor for your rate, tenor and interest-only years); and the debt-yield-sized amount (stabilised NOI ÷ your debt-yield floor). The binding constraint is reported. Operating NOI is independent of the loan, so sizing is exact rather than iterative; interest during construction is then capitalised on the sized loan as usual.
Lender metrics
Debt yield = stabilised-year NOI ÷ the original loan at completion. A 10–12% floor is a common hotel-lending underwriting constraint — often the binding one when cap rates are low; the model flags a result under your floor (default 10%).
LLCR (loan life coverage ratio) = the present value of NOI over the loan term, discounted at the loan interest rate, divided by the original loan. Years beyond the hold period use the final modelled year’s NOI grown at the exit inflation rate, consistent with the forward-exit convention. LLCR is a sizing-date metric: it is computed on the original loan and is not re-based by a later refinancing.
LTV and LTC in the lender pack: LTC = loan ÷ development cost; LTV = loan ÷ (stabilised NOI ÷ exit cap).
Optional modules
Every module below is off by default; switching one on never changes the engine’s results with it off. Each is documented inside the tool next to its own switch.
- Amortisation & refinancing — the lender-pack tab shows the full annual schedule (interest, principal, debt service, closing balance) for every loan year, across both loan phases. An optional year-Y refinancing repays loan 1 with a new loan sized to the lowest of: the refi loan-to-value on that year’s capitalised value, the DSCR-sized amount at the new loan’s own rate and tenor on the lower of the refi-year and first payment-year NOI (the same DSCR minimum as the sizing panel), and the debt-yield-sized amount on that same underwriting NOI (the same debt-yield floor) — sizing caps, so the refinance cannot breach the lender’s minimums even when the capitalised value would support more; if the capped loan is smaller than the balance it replaces, the equity cash flow shows the paydown. Net proceeds enter the equity cash flow, and the new loan amortises at its own rate and tenor. Project returns and DSCR history follow the actual loan flows; LLCR stays defined on the original loan.
- Taxes & zakat — desk estimates adding after-tax project and equity IRRs beside the pre-tax figures. Income tax (default 20%) on taxable profit approximated as NOI minus interest; zakat (default 2.5%) on a simplified adjusted base. Loss carry-forwards, group structures, exemptions and the exact ZATCA zakat base are not modelled — confirm the treatment of your structure with your tax advisor.
- Seasonality — redistributes stabilised occupancy across twelve months on an illustrative profile; the Makkah/Madinah profile anchors the Ramadan Umrah peak, Hajj in Dhul Hijjah, the summer season and the Safar trough. Profiles normalise to a day-weighted mean of 1.0: the module redistributes, it does not inflate. Peak months clipping at the 97% ceiling lose the excess — exactly what full houses in Hajj week do to an asset that cannot add rooms. Optional seasonal ADR pricing works the same way on the rate side. Recalibrate annually; Ramadan moves about 11 days earlier in the Gregorian calendar each year.
- Cash-flow timing — by default every flow is discounted and solved at year-end (the conservative choice). The monthly-precision mode instead discounts and solves on the month each flow actually lands.
- Monthly debt service — prices the loan as a level monthly payment at rate ÷ 12 over 12 × (tenor − interest-only) months, per the common hotel-loan convention, instead of the annual default.
- Custom seasonal profiles — a 12-month editor for demand and ADR multipliers, normalised to a day-weighted annual mean of 1.0 and carried in the shared scenario link.
- USALI P&L mode — rebuilds departmental and undistributed lines into the blended GOP ratio, with a reconciled stabilised-year block.
- Pre-opening & working capital — optional investment uses: pre-opening expense, initial working capital and furniture reserves added to the uses stack.
- Joint-venture waterfall (simplified) — a two-tier structure: the LP preferred return is solved, and cash above it splits between LP and GP at the promote.
- Monte Carlo — a 1,000-case seeded simulation on occupancy, ADR and exit cap, reporting percentile IRRs and equity multiples.
Benchmarks and market ranges
The city presets carry illustrative ADR, occupancy and cost-per-key bands (desk estimates, October 2026 — not licensed data). A cost per key outside the preset’s band is flagged. Static context in the form: full-service GOP margins typically land at 30–38% of total revenue (limited-service 40–50%); published 2025–26 survey ranges for exit cap rates run roughly 7.5–11.5% for select-service US assets and up to ~14% for limited-service, with GCC pricing assessed case by case; base management fees typically 2–3.5% of total revenue with incentive fees of 6–10% of GOP. The development spread (yield on cost minus exit cap, shown in basis points) is commonly screened against a 150–250 bps rule of thumb. Treat all bands as context, not as valuations.
Metrics
Yield on cost = year-3 NOI ÷ development cost.
IRR and NPV use year-end cash flows: development cost in year 0, NOI in years 1 to N, and net sale proceeds in year N. Equity IRR uses NOI − debt service, equity in year 0, and net sale proceeds less the loan balance in year N. With the optional mid-year convention, NOI and equity flows are discounted at t − 0.5 and the sale stays at year N — see Cash-flow timing above. With the optional monthly-debt-service module, the annual debt service in these flows is the year-total of a monthly amortisation schedule at rate ÷ 12 — see Monthly debt service above.
DSCR = NOI ÷ debt service. The minimum DSCR is taken from the stabilisation year (default year 3, adjustable in the calculator) onward. Any shortfall in the ramp-up years is shown separately as the ramp-up funding gap.
Break-even occupancy: the occupancy in the stabilised year at which NOI equals debt service (without debt, the occupancy at which NOI = 0), found by solving the same model.
Payback = years until cumulative operating income repays the development cost (sale proceeds excluded).
RevPAR = rooms revenue ÷ (keys × 365). GOPPAR = GOP ÷ (keys × 365). TRevPAR = total revenue ÷ (keys × 365). RGI (revenue generation index) = your RevPAR ÷ the compset RevPAR you enter × 100 — under 90 reads as trailing the competitive set.
Development spread = yield on cost − exit cap rate, shown in basis points. Occupancy for NPV = 0: the stabilised occupancy at which the unlevered project NPV at your discount rate equals zero, solved on the same model.
Sensitivity, comparison and redevelopment
Sensitivity grids change ADR and stabilised occupancy while holding fixed costs at the base-case level, so the downside is not understated.
The comparison tab runs a second scenario (B) with the changes you enter, on the same model.
The redevelopment tab compares the repositioned hotel with the as-is hotel. The as-is hotel has no ramp-up. The repositioned hotel loses revenue during the closure months, keeps its fixed costs, and ramps up again. Value created = extra final-year NOI ÷ exit cap rate − renovation cost.
What the model leaves out
Beyond the optional tax and zakat module (a simplified desk estimate, not the full ZATCA computation) and the optional seasonality modules (monthly occupancy redistribution, seasonal ADR pricing, custom monthly profiles): intra-week and day-of-week rate effects, currency effects, financing fees, owner’s priority on fees, land leases, property improvement plans (unless included in development cost), month-level expense seasonality (only revenue is redistributed across months; operating costs stay at their annual average), discounting debt service at its exact monthly payment dates (the optional module annualises the amortisation schedule; the flows themselves stay annual), full sequential waterfall mechanics with GP catch-up (the JV module uses a proportional split solved on the pref), correlation between the Monte Carlo factors, exit recovery of working capital, USALI non-operating income and rent structures, and any reconciliation to a statutory operator pack. Use the extended model and a feasibility study for these.
City presets (illustrative)
The city and segment presets fill the inputs with desk estimates for typical ranges: Riyadh (upper-midscale and upper-upscale), Makkah, Madinah, Jeddah, AlUla, the Red Sea and Amman. They are illustrative planning points, not licensed market data and not a valuation — replace every figure with your own feasibility numbers before relying on a result. The Amman preset switches the display currency to JOD.
Display currency
The model is always calculated in SAR. The display-currency selector converts results at fixed pegs: 3.75 SAR per USD and 5.29 SAR per JOD (approximate, October 2026). Inputs stay in SAR, and the shared scenario link records which display currency was in use.
Lender and risk thresholds
Two adjustable thresholds drive the warning flags. The DSCR minimum (default 1.25×) sets the level below which the stabilised coverage ratio is flagged; confirm your lender’s actual requirement before relying on it. The development spread (default 150 bps) sets the minimum gap between yield on cost and the exit cap rate below which the flag appears.
What must be true
Two solved sentences appear under the results. Debt coverage: the occupancy needed in the stabilised year for NOI to cover debt service at your DSCR minimum, found by solving the same model. Return hurdle: the occupancy — and equivalently the ADR — at which the unlevered project IRR equals your required return, found by bisection on the full model. When no occupancy or ADR within the tested ranges reaches the hurdle, the page says so: the return then depends on the exit price.
Outcome-dependent call to action
The suggestion under the results changes with the outcome. A case below your required return, DSCR threshold or spread threshold asks to be stress-tested together; a healthy case asks for validation of the assumptions. It is a navigation aid, not a judgement of the project.
Version log
v4.0 · 22 October 2026 — the institutional underwriting upgrade: every module optional and off by default (engine byte-identical with all modules off); lender metrics (debt-yield floor, LLCR on the original loan, LTV/LTC in the lender pack); constraint-based debt sizing; the full amortisation schedule; optional refinancing, USALI P&L, JV waterfall and Monte Carlo; TRevPAR and compset-based RGI; benchmark context. Earlier releases (v3.x) added the custom seasonal-profiles editor, monthly debt service and the owner-tools suite — the running changelog ships with the tool.
Disclaimer
The results are illustrative and depend entirely on the assumptions you enter. They are not a feasibility study, a valuation, a forecast or investment advice. Seek professional advice before committing capital.