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 year 3 it is the stabilised figure (capped at 97%).
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. 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. The outstanding balance is repaid at exit.
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.
DSCR = NOI ÷ debt service. The minimum DSCR is taken from the stabilised year (year 3) 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).
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
Tax and zakat, working capital, seasonality within the year, currency effects, financing fees, owner's priority on fees, land leases, property improvement plans (unless included in development cost), and mid-year cash-flow timing. 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
v3.2 · 20 October 2026: sensitivity grids and hurdle solvers now hold the fixed-cost anchor at the base-case level as documented (downside results read lower than v3.1); unlevered break-even solved at NOI = 0; non-positive final-year NOI exits floored at 0 with a warning. v3.1 · 18 October 2026: city presets (illustrative), display currency (SAR/USD/JOD at fixed pegs), adjustable DSCR and development-spread thresholds, "what must be true" lines, and an outcome-dependent call to action. v3.0 · 18 October 2026: added ramp-up, fixed and variable costs, FF&E reserve and fixed charges, debt and DSCR, equity IRR, break-even occupancy, sensitivity, scenario comparison, redevelopment mode and share links. v2.2: single stabilised year, unlevered, exit at 12 times NOI.
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.