Performance & revenue
NOI
Also written: net operating income
What NOI means
Net Operating Income (NOI) is a property’s total operating revenue minus all necessary operating expenses, calculated before deducting taxes, capital expenditures, debt service, and depreciation. Distinct from general real estate accounting, hospitality NOI accounts for departmental revenues and direct costs across rooms, food, and beverage.
Formula
NOI = Total Operating Revenue - Total Operating Expenses
How it is used
Owners and investors rely on NOI to assess operational efficiency and determine property asset value using cap rates. Revenue managers and general managers use NOI to evaluate profit flow-through from top-line gains. A high gross revenue means little if rising labor or utility costs erode NOI. Debt service coverage ratios (DSCR) rely directly on NOI, making it central to refinancing, acquisitions, and setting annual operating budgets.
Worked example
A 200-room hotel generates $8,000,000 in gross annual revenue across rooms, F&B, and administrative fees. Operating expenses—including labor, supplies, utilities, management fees, and property insurance—total $5,800,000. The resulting NOI is $2,200,000 ($8,000,000 - $5,800,000), representing an operating margin of 27.5%.
Common mistake
Confusing NOI with Cash Flow after Debt Service by forgetting to exclude mortgage payments, capital reserves, and owner distributions.
Related terms
NOI in our reporting
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