What to take into your next appraisal
- Calculate room nights from available rooms and calendar days.
- Separate room revenue, other revenue and owner cash.
- Stress a weak opening period before assuming stabilisation.
Define the hotel and its demand sources
Specify the Saudi city, catchment, room count, positioning, opening programme and target demand segments. Gather evidence for the periods the hotel expects to trade. Do not transfer a seasonal profile from another city or assume event demand repeats every year.
RICS cashflow guidance provides an appraisal framework, not hotel operating forecasts. Operator projections and local market evidence must identify their dates, assumptions and treatment of taxes and service charges.
Calculate revenue from occupied room nights
A fictional 100-room hotel has 3,000 available room nights in a 30-day month. At 60% occupancy and SAR 500 average daily room rate, it sells 1,800 room nights and earns SAR 900,000 room revenue. Revenue per available room is SAR 300.
Assume other operating revenue equals 20% of room revenue, or SAR 180,000. Total operating revenue is SAR 1.08 million. Keep the other revenue assumption separate because food, beverage and ancillary sales have their own margins and capacity constraints.
Bridge revenue to owner cash
For this fictional month, variable operating costs are 35% of total revenue and fixed operating costs are SAR 400,000. Operating surplus before operator fees, replacement reserve, debt and tax is SAR 302,000.
If the assumed operator fee is 3% of total revenue and the replacement reserve is 4%, deduct SAR 32,400 and SAR 43,200 respectively. The resulting cash before debt and tax is SAR 226,400. Actual contracts can define different fee bases and priorities.
Show a low-demand month
At 30% occupancy and the same assumed room rate, room revenue falls to SAR 450,000 and total revenue to SAR 540,000. Under the same simplified expense assumptions, owner cash before debt and tax becomes negative SAR 86,800.
That deficit is not cancelled because the annual average occupancy looks healthy. Model each month, retain unavoidable fixed costs and size the operating reserve for the cumulative cash trough. Opening ramp-up and seasonal weakness may coincide.
Separate hotel value from operating liquidity
An exit appraisal should state the earnings measure being capitalised and whether operator fees, recurring replacement expenditure and owner costs have already been deducted. Avoid using one definition for the yield evidence and another for project income.
The committee should see the opening reserve, seasonal downside, operator obligations and capital replacement plan beside the return. Replace every illustrative rate with project evidence before treating the model as a financeable Saudi hotel proposal.
Sources and further reading
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