This is a detailed, well-structured and transparent cash flow model for an acquisition of a hotel. The model includes the following investment stages:
- Acquisition. The model allows you to set the acquisition date, price, and fixed and variable transaction costs.
- Renovation. The model assumes that immediately after the acquisition, the hotel will undergo a renovation program. You can set the amount and timing of various renovation CAPEX items.
- Operation. You can input you average daily rate (ADR) and occupancy assumptions by month to reflect seasonality. You can also model cash flows from other activities such as restaurant and bar, car parking, wellness center, laundry, meetings and events, and transportation services.
- Sale. You can define the holding period, the cap rate and transaction costs at exit. You can choose the method to calculate the NOI for the purposes of valuation (12-month forward, 12-month trailing or 6+6 of each.
- Distribution of profits between shareholders. The model calculates returns to a preferred partner if there is one in the project. It then uses a 4-hurdle carried interest waterfall to calculate the distributions between General Partner (GP) and Limited Partner (LP).
The model assumes the investment will be financed by equity and loan. The following funding structure is considered:
- Acquisition loan to finance the initial investment and renovation. You can set the interest rate, amortization period, interest-only period, arrangement and early repayment fees. You can also choose the loan-to-value (LTV) ratio for the asset and for the renovation costs.
- Refinancing loan. The model allows setting the date of refinancing and parameters of the new loan (interest rate, amortization period, fees etc.). You can refinance just the old amount of loan or take additional funding (as much as refinancing LTV allows) and to distribute (cash out) any extra amounts.
- Mezzanine loan. This loan is drawn at acquisition to bridge any potential gaps in funding. Repaid at exit.
The model produces the cash flow statements at the asset’s and investor’s levels. It also calculates key profitability metrics (IRR, equity multiple, gross return peak equity required amount and date) for every investor.
Sensitivities. The model includes numerous inputs which you can change to see the effect on profitability and cash flows. There is also a data table that shows the IRR and equity multiple at various exit date and cap rate assumptions.
The model is accompanied by professionally designed magazine-quality charts to illustrate the findings.
Every investment is unique and so the model might need to be adjusted to your situation. Contact me if you need help tailoring this model or developing a new one.