8. THE DISTRIBUTION WATERFALL: WHERE YOUR MONEY COMES FROM

What Is a Distribution Waterfall?

A waterfall is the order in which money flows from hotel operations to different parties.

Think of it like a real waterfall:

Water (cash) flows from the top (hotel revenue)
Each level (tier) takes its share
What's left flows to the next level
HPOT holders are near the bottom (after reserves and priorities)

Why it's called a waterfall: Money "cascades" down through priorities until it reaches you.

The Homeunity Distribution Waterfall (Simplified)

Tier 1: Operating Expenses (First Priority)

Who: Hotel itself (staff, utilities, supplies, etc.)

Amount: Whatever it costs to operate (~40-55% of revenue)

Why first: Without paying operating expenses, hotel shuts down. Everything else depends on keeping the lights on.

Example:

Revenue: $5,000,000
Operating Expenses: $2,300,000
Remaining after Tier 1: $2,700,000 (NOI)

Tier 2: Reserve Fund Allocation (Second Priority)

Who: Reserve fund (held by SPV for future CapEx and emergencies)

Amount: 20% of NOI

Why second: Hotels need ongoing capital improvements (renovations, furniture replacement, major repairs). Without reserves, property deteriorates.

Example:

NOI: $2,700,000
Reserve allocation (20%): $540,000
Remaining after Tier 2: $2,160,000

Reserve fund details:

Held in separate SPV bank account
Managed by fiduciary administrator
Used only for approved CapEx or emergency shortfall coverage
Target balance: 10-15% of hotel value (once reached, excess may be distributed)

Tier 3: Priority Fees (Third Priority)

Who: Fiduciary administrator + platform fee

Amount: ~1-2% of total HPOT issuance annually (fixed dollar amount, not % of NOI)

Components:

A. Fiduciary Administrator Fee (Fuchs Treuhand AG)

Function: Registry administration, distribution authorization, compliance oversight
Amount: 0.25% - 0.5% of series value annually
Example: $10M series × 0.35% = $35,000/year

B. Platform Fee (Homeunity)

Function: Technology infrastructure, monitoring systems, reporting, customer support
Amount: 0.5% - 1% of series value annually
Example: $10M series × 0.75% = $75,000/year

Total priority fees: $110,000/year (for $10M series)

Example:

Remaining after Tier 2: $2,160,000
Priority fees: $110,000
Remaining after Tier 3: $2,050,000

Tier 4: HPOT Holder Distributions (Fourth Priority — This Is You)

Who: All HPOT holders (pro-rata based on holdings)

Amount: Everything remaining after Tiers 1-3

Distribution:

Your Distribution = (Your HPOT / Total HPOT) × Remaining Amount

Example:

Remaining: $2,050,000
Total HPOT: 10,000,000
Your HPOT: 50,000 (0.5%)
Your annual distribution: 0.5% × $2,050,000 = $10,250

Paid quarterly: $10,250 / 4 = $2,562.50 per quarter

Tier 5: Operator Performance Fee (Optional — Fifth Priority)

Who: Hotel operator (management company)

Amount: Variable (if structured as subordinated fee)

Why last: Aligns operator incentives with participant returns. Operator only gets extra compensation after participants are paid.

Example structure:

Base management fee: 3% of revenue (paid as operating expense in Tier 1)
Performance fee: 10% of distributable amount after HPOT distributions exceed 6% annual yield

Example calculation:

HPOT distribution (from Tier 4): $2,050,000
Series size: $10M
Yield to HPOT holders: 20.5%
Threshold: 6% yield = $600,000
Excess above threshold: $2,050,000 - $600,000 = $1,450,000
Operator performance fee: 10% × $1,450,000 = $145,000

In this structure:

Operator earns performance fee only when participants get high returns
If yield is <6%, operator gets zero performance fee
Alignment of interests

Not all series use this structure (varies by operator agreement — see asset factsheet).

Visual Waterfall Diagram

Vector figure — matches illustrative tiers from source graphic; not financial advice.

Scenario Analysis: How Different Outcomes Affect You

Scenario A: Strong Performance Year

Assumptions:

Revenue: $5,500,000 (+10%)
Operating Expenses: $2,400,000 (+4.3%)
NOI: $3,100,000 (+14.8%)

Waterfall:

Operating Expenses: $2,400,000 ✅
Reserves (20%): $620,000 ✅
Priority Fees: $110,000 ✅
HPOT Distribution: $2,370,000 (23.7% yield on $10M series)
Operator Performance Fee: $177,000

Your distribution (0.5% holding):

0.5% × $2,370,000 = $11,850 annually ($2,962.50/quarter)

Your yield: 23.7% (on $50K investment)

Scenario B: Average Year (Baseline)

Already covered above:

NOI: $2,700,000
HPOT Distribution: $2,050,000 (20.5% yield)
Your distribution: $10,250 annually

Scenario C: Weak Year (Recession)

Assumptions:

Revenue: $3,500,000 (-30%)
Operating Expenses: $2,000,000 (-13%)
NOI: $1,500,000 (-44.4%)

Waterfall:

Operating Expenses: $2,000,000 ✅
Reserves (20%): $300,000 ✅
Priority Fees: $110,000 ✅
HPOT Distribution: $1,090,000 (10.9% yield)
Operator Performance Fee: $0 (below 6% threshold)

Your distribution (0.5% holding):

0.5% × $1,090,000 = $5,450 annually ($1,362.50/quarter)

Your yield: 10.9% (still positive, but much lower)

Scenario D: Crisis Year (Pandemic, Natural Disaster)

Assumptions:

Revenue: $2,000,000 (-60%)
Operating Expenses: $1,500,000 (-35% — many costs are fixed)
NOI: $500,000 (-81.5%)

Waterfall:

Operating Expenses: $1,500,000 ✅
Reserves (20%): $100,000 ✅
Priority Fees: $110,000 ✅
HPOT Distribution: $290,000 (2.9% yield)
Operator Performance Fee: $0

Your distribution (0.5% holding):

0.5% × $290,000 = $1,450 annually ($362.50/quarter)

Your yield: 2.9% (barely positive)

Scenario E: Disaster Year (Hotel Closes, Reserve Depletion)

Assumptions:

Revenue: $1,000,000 (-80% — only 3 months open)
Operating Expenses: $1,200,000 (skeleton crew, fixed costs)
NOI: -$200,000 (LOSS)

Waterfall:

Operating Expenses: $1,200,000 ✅ (partially covered by reserves)
Reserves: DEPLETED (used to cover operating shortfall)
Priority Fees: $0 (deferred until reserves rebuild)
HPOT Distribution: $0
Operator Performance Fee: $0

Your distribution: $0

Reserve fund status: Drawn down to cover losses. Future NOI (when hotel reopens) will go to rebuilding reserves before any distributions resume.

This is the downside risk.

Reserve Fund Deep Dive

Purpose of Reserves

Why we set aside 20% of NOI:

1. Capital Expenditures (CapEx)

Hotels need ongoing improvements:

Year 3-5: Soft goods refresh ($200K - $500K)
Replace carpets, curtains, bedding, furniture
Year 7-10: Hard goods renovation ($1M - $2M)
Bathroom renovations, HVAC replacement, building systems
Ongoing: Smaller items (paint touch-ups, fixture replacements)

Without reserves: Hotel deteriorates → reviews decline → occupancy drops → NOI crashes.

2. Emergency Fund

Unexpected expenses:

Natural disaster damage (if insurance doesn't cover everything)
Major equipment failure (boiler explodes, roof leaks)
Legal/regulatory (sudden compliance requirement, lawsuit settlement)
Operating shortfall (cover losses in bad years)

Reserves prevent forced liquidation during crises.

Reserve Fund Mechanics

Accumulation:

20% of NOI allocated every quarter
Held in separate SPV bank account (segregated from operating account)
Overseen by fiduciary administrator (withdrawals require approval)

Target balance:

10-15% of hotel value
Example: $10M hotel → target reserve = $1M - $1.5M

Once target reached:

Excess reserves may be distributed to HPOT holders
Or: Reserve allocation reduced (e.g., to 10% instead of 20%)
Decided by fiduciary administrator based on CapEx forecast

Depletion scenarios:

Major CapEx (bathroom renovation: -$500K)
Operating loss (bad year: -$200K)
Emergency repair (HVAC replacement: -$300K)

After depletion:

Reserve allocation increases (may go to 30-40% of NOI temporarily) until fund is rebuilt
Distributions to HPOT holders suspended until reserves back to target

Example Reserve Fund Timeline

Year 1:

NOI: $2,700,000
Reserve allocation (20%): $540,000
Reserve balance: $540,000

Year 2:

NOI: $2,800,000
Reserve allocation (20%): $560,000
Reserve balance: $1,100,000 (target = $1.5M, so keep accumulating)

Year 3:

NOI: $2,750,000
Reserve allocation (20%): $550,000
Reserve balance: $1,650,000 (above $1.5M target)

Excess distribution:

Target: $1,500,000
Actual: $1,650,000
Excess: $150,000 released for HPOT distribution

Year 4:

NOI: $2,900,000
Reserve allocation (15% — reduced): $435,000
CapEx: Soft goods refresh (-$400,000)
Reserve balance: $1,685,000

Reserve fund provides stability across the cycle.

Priority Fee Breakdown

Fiduciary Administrator Fee

Fuchs Treuhand AG charges:

0.25% - 0.5% of series value annually

What you're paying for:

Swiss registry administration (record-keeping, updates)
Distribution authorization (reviewing financials, approving payments)
Compliance oversight (regulatory monitoring, reporting)
Participant statements (quarterly reports, annual summaries)

Example:

$10M series × 0.35% = $35,000/year
Per HPOT: $35,000 / 10,000,000 = $0.0035/HPOT/year
On 50,000 HPOT: $175/year (0.35% of your $50K holding)

This is a competitive rate (traditional fund administrators charge 0.5% - 1.5%).

Platform Fee (Homeunity)

What you're paying for:

Blockchain infrastructure (smart contracts, oracles, on-chain data)
Digital twin monitoring system (real-time performance tracking — see §15)
Reporting dashboard (participant portal, analytics)
Travel Club platform integration
Customer support (help desk, technical assistance)
Legal/compliance (ongoing regulatory monitoring, legal opinions)

Fee structure:

0.5% - 1% of series value annually
Example: $10M series × 0.75% = $75,000/year

Why this is reasonable:

Traditional hotel REITs charge 1-2% management fees
Plus 0.5-1% acquisition fees
Plus 0.5-1% disposition fees
Total: 2-4% annually

Homeunity total fees (fiduciary + platform): 1-2% annually (lower than traditional alternatives)

Comparison: Homeunity vs. Traditional Fee Structures

Traditional Hotel REIT

Fee layers:

Management fee: 1-2% of assets under management (AUM)
Acquisition fee: 1-2% of purchase price (one-time)
Disposition fee: 1-2% of sale price (one-time)
Performance fee: 10-20% of profits above hurdle rate
Expense reimbursements: Corporate overhead passed through

Example ($10M hotel, held 10 years):

Management fee: $1.5M (1.5% × $10M × 10 years)
Acquisition fee: $150K (1.5% of $10M)
Disposition fee: $210K (1.5% of $14M sale)
Performance fee: $200K (if applicable)
Total fees: $2,060,000 (20.6% of initial investment)

Homeunity Structure

Fee layers:

Fiduciary fee: 0.35% × $10M × 10 years = $350K
Platform fee: 0.75% × $10M × 10 years = $750K
No acquisition fee
No disposition fee
Optional operator performance fee (only if returns exceed threshold)

Total fees over 10 years: $1,100,000 (11% of initial investment)

Savings: $960,000 (48% lower fees than traditional REIT)

When Distributions Are Paid

Frequency

Typical schedule: Quarterly

Why quarterly (not monthly):

Hotel performance varies seasonally (winter vs. summer, weekday vs. weekend)
Quarterly averages smooth out volatility
Lower administrative burden (fewer distribution events)

Some series may pay semi-annually or annually (check asset factsheet).

Record Dates

How it works:

Record Date set (e.g., March 31 for Q1 distribution)
Swiss registry snapshot taken (who held HPOT on March 31?)
Distribution calculated (pro-rata based on snapshot)
Payment date (typically 30-45 days after record date, e.g., May 10)

If you trade HPOT:

Sell before record date → buyer receives distribution
Buy before record date → you receive distribution
Similar to stock "ex-dividend date"

See §17 for full registry mechanics.

Payment Methods

How you receive distributions:

Option 1: USD wire transfer

Direct to your bank account
Industry standard
Wire fee: Typically $15-25 per transfer (deducted from distribution or paid by you)

Option 2: Stablecoin (USDC, USDT)

Sent to your wallet on BSC
Lower fees (blockchain gas fees ~$0.50)
Instant settlement

Option 3: Reinvestment (Auto-DRIP)

Distribution used to purchase more HPOT in same series (or other series)
No cash received
Compound growth
Similar to dividend reinvestment plans (DRIPs) in traditional stocks

You choose your preference via platform settings.

What Happens If NOI Is Insufficient

Suspension of Distributions

If NOI doesn't cover waterfall priorities:

Example crisis scenario:

NOI: $500,000
Reserves (20%): $100,000
Priority fees: $110,000
Remaining: $290,000 (barely enough for HPOT distribution)

If reserves are below target ($1.5M) and currently at $800,000:

Fiduciary administrator may decide:

Option A: Pay full $290,000 to HPOT holders (small distribution)
Option B: Allocate 50% to reserves ($145K), 50% to HPOT holders ($145K)
Option C: Suspend HPOT distributions entirely, allocate 100% to reserves

Decision factors:

Reserve fund health (how far below target?)
CapEx forecast (major expenses coming soon?)
Outlook (is this a temporary blip or prolonged downturn?)

Fiduciary has discretion (within contractual limits) to prioritize long-term stability.

No "Catch-Up" Distributions

Important: If distributions are suspended, you do not get "back pay" later.

Example:

Q1 2027: Distribution suspended (reserves prioritized)
Q2 2027: NOI rebounds, distributions resume

You receive:

Q1: $0
Q2: Normal distribution (e.g., $2,500)

You do NOT receive:

Q1 + Q2 combined

Missed distributions are gone. (Unlike preferred stock dividends which may accumulate.)

Summary: The Waterfall Explained

Money flows in this order:

Operating expenses (hotel must stay open)
Reserves (20% of NOI for CapEx and emergencies)
Priority fees (fiduciary + platform)
HPOT distributions (you)
Operator performance fee (only if returns exceed threshold)

You are near the bottom (fourth tier). This means:

Upside: When NOI is strong, you get most of it (after reserves and small fees)
Downside: When NOI is weak, distributions shrink or disappear

Reserves protect long-term viability (but reduce short-term distributions).

Fees are transparent and competitive (1-2% total, vs. 2-4% traditional).

Next: The two control layers — how hotel operations are governed and monitored.