2014-11 HMI Inc. Addendum Comprehensive Market Study( �, HMI 11nc,
Management
Research
Marketing
Gregory R. Hanis, ISHC
President
Phanis@hospitati!ymarketers.com
262-490.5063
Member of
ISHC
INTERNATIONAL SOCIETY OF
.HOSPITALITY CONSULTANTS
Professionally Serving the United
States & Canada for Over 32
Years with Offices in
Milwaukee, Wisconsin and
Fort Myers, Florida
5415 S. Majors Drive
New Berlin, WI 53146
10014 Majestic Avenue
Fort Myers, FL 33913
800-657-0835
Fax: 239.245-8161
hmi@hospitalitvmarketers com
www.hospitatitymarketers.com
Hotel Service Network
Prepared Exclusively For:
Gateway Development Corporation
Prepared By:
Hospitality Marketers International, Inc.
Gregory R. Hanis, ISHC
President
Lindsey E. Kaptur
Midwest Regional Director
PRELIMINARY OPERATIONAL PROFORMA
The following Preliminary Operating Proforma depicts the Projected Performance of
the proposed 60 room, limited -service, mid -priced property in Blair, Nebraska. It is
based on the Occupancy and Average Daily Room Rates established in the
Comprehensive Hotel Market Study, October, 2014. A preliminary scenario was
developed for the 60 -room, limited -service, mid -priced hotel recommended.
The expense amounts and the GOP in the chart below were calculated by applying
the performance results from the mid -priced segment as reported in the Smith Travel
Research Host Report - 2014 on the US Lodging Market for the operational year
2013. This data was thought to represent actual hotels in normal years of operations.
In a full Operational Proforma and Investment Analysis, the results in the chart would
be expanded with greater detail and would forecast the cash-flow after debt service.
BENCHMARK DEVELOPMENT COSTS
The following Benchmark Development Cost chart depicts the support level for this
possible hotel in Blair, Nebraska based upon the operational projections for
Occupancy and Average Daily Room Rates contained in this report. A scenario was
developed for the 60 -room, limited -service, mid -priced hotel.
Based on preliminary Occupancy and Average Daily Room Rate projections,
Benchmark Development Costs were calculated. These provide a preliminary
indication of viability for developing this hotel. More comprehensive feasibility
research should be performed to obtain anticipated operational expenses and fixed
cost structuring such as debt service, property taxes, insurance, and depreciation.
This would in turn formulate a more thorough analysis of the financial viability of this
hotel project. Land cost is another factor that will have significant impact on
Benchmark Development Costs.
Benchmark Development Costs include all costs associated with the hotel's
development up to its stabilized year of operation: land costs; land preparation costs;
development costs; construction/renovation costs; furniture, fixtures and equipment
(FF&E); pre -opening operational and marketing expenses; and cash flow shortages
to a stabilized year of operation. Any other associated development costs would also
be part of this calculation. A developmental Occupancy factor of 60.0% was used for
this 60 -room, limited -service, mid -priced hotel.
For this proposed hotel, a factor of $1.40 of Average Daily Room Rate per thousand
dollars of development cost was utilized. This factor is in the mid-range for a limited -
service hotel. The range is typically between $1.35- $1.45 for limited -service, mid -
priced hotels. In this market, development in the mid-range or $1.40 was thought to
be conservative at this time and could be moderated with a specific hotel
development. This would be due to land costs, development costs and operational
costs (i.e. Real Estate Taxes, Utilities costs, Wage Scales, etc.). Deviations from the
developmental Occupancy and Average Daily Room Rate Factors were calculated
based upon Occupancy and Average Daily Room Rate Projections established in this
report.
These preliminary Benchmark Development Costs are based on a 35% equity
investment. Adjusting this equity and the desired rate of return factors will adjust the
preliminary Benchmark Development Costs accordingly.
With that in mind, the following preliminary Benchmark Development Costs were
calculated.
3
Mid -Priced, Limited -Service Hotel
BENCHMARK DEVELOPMENT
COSTS
ALLOWABLE
ALLOWABLE
COST
TOTAL
PER ROOM*
PROJECT COST*
60
Rooms
r $82,015
$4,920,875
"These projections will be affected by changes in Projected Occupancy
or Projected ADR.
Source: HMI
Ideally, as the developer calculates development costs for this property, the total cost
should not surpass these preliminary break-even Benchmark Development Costs.
Exceeding these Benchmark Development Costs may indicate that the property is not
financially feasible to pursue. However, projected development costs below these
Benchmark Development Costs may indicate that additional research should be
performed by the developer to determine the overall economic feasibility of
developing this hotel.
The Benchmark Development Cost calculations and the return calculations listed
above are only a few of many benchmarks the developer should utilize in determining
the feasibility of this project. This calculation does not take into account any present
value calculations. These would be calculated in an actual Operational Proforma or
in an Analysis of Cash Flow and Return on Investment. The actual Return on
Investment should include returns on both the projected sales value and the Cash
Flow analysis.
FUTURE VALUATION
The following is a preliminary estimate of future valuation for the proposed hotel in
Blair, Nebraska. This would have to be verified in a more comprehensive Operational
Proforma & Investment Analysis. Also, it would be verified in a formal appraisal of the
hotel property. Future valuation of the hotel will depend upon any variations in hotel
operational performance. This future valuation is provided only as a preliminary
guideline for this hotel project.
60 -Room Hotel
On a Terminal Capitalization Rate basis, the average value was calculated at
$8,700,572 and ranged from $6,224,255 to $12,448,510. Industry ranges were
between 6.5% and 13.0%, with an average of 9.3%.
On a Revenue Multiplier basis, the average value was calculated at $4,945,924 and
ranged from $3,297,283 to $8,243,207. Industry ranges were between 2.0 and 5.0,
with an average of 3.0.
4
The replacement cost of constructing the property was calculated at $5,377,173.
The estimated third year value of the proposed hotel would be $6,341,223 or
$105,687 per room. This is based on an average of the above three valuation factors
and not on a weighted method to any one of the above valuation models. This
increase, $1,420,348, in valuation above the Benchmark Development Cost of
$4,920,875 is 28.90% over the three years used in this report's projections, or 9.6%
per year. With an estimated 35% equity (percentage estimated for this hotel project
of this style and size), or $1,722,306 on the Benchmark Development Cost, the return
based on the increase in value over the Benchmark Development Cost is 82.47% or
27.49% per year.
SPECIAL NOTE
-- The previously calculated and discussed return rates are based on an investment
of 35% of the Benchmark Development Cost and the total increase in value based on
the sales price. It does not take into account any Cash Flow returns from operations.
HMI could assist in developing a Cash Flow analysis from an Operational Proforma
developed for this hotel project. This would generate a more detailed Cash Flow
Analysis and potential Return on Investment Analysis for the hotel.
-- Also, HMI could assist in determining the change in the rate of returns if changes
were made to the amount of the investment (i.e. an Equity Investment rate/amount
other than 35%). HMI could also assist in determining, any changes to the
Benchmark Development Cost, either higher or lower, based on a specific desired
Rate of Return other than the 27.49% annual rate previously discussed.
-- These return calculations do not take into account any present value calculations.
These would be accounted for in an actual Operational Proforma or an Analysis of
Cash Flow and Return on Investment.
-- The actual Return on Investment calculation should include returns on both the
projected sales value and Cash Flow analysis for the property.;
5
HMI lnc.
DISCLAIMER
The decisions presented herein were based upon the information available and
received at the time this report was compiled. Hospitality Marketers International, Inc.,
(HMI) has taken every possible precaution to evaluate this information for its
completeness, accuracy and reliability. To the best of its knowledge, HMI feels the
information and decisions presented herein are sound and reliable.
At the present time of this report, the United States and world economies are in the
Management midst of a recovery from a major recessionary period that ran from 2008 - 2010.
This recovery appears to be continuing according to current news reports with most
Research economic indicators indicating growth since 2011.
Marketing
HMI is not responsible for effects that occur from future political, economic or social
events that ultimately alter these projections. These events should be monitored
accordingly and potentially the results of this report may require updating to respond
to future events.
Gregory R. Hanis, ISHc Also, it should be understood that normal economic and marketplace conditions
President
change constantly. HMI assumes no responsibility for information that becomes
ghanis@hospitatitymarketers.com outdated once this report is written; nor is it responsible for keeping this information
262-490-5063 current after November, 2014.
Member of
It should be understood that the results presented in this report are the professional
IS H C opinion of HMI and are based upon the information available at this time. These
5415 S. Majors Drive
New Berlin, Wl 53146
10014 Majestic Avenue
Fort Myers, FL 33913
800-657-0835
Fax: 239-245-8161
hmi@hospitatitymarketers.com
www. hospitatitymarketers.com
Hotel Service Network
Lastly, HMI assumes that those who receive this report act in accordance with its
recommendations. Any deviation from these recommendations is solely the
responsibility of those receiving this report.
Further questions concerning this report should be directed to HMI.
Sincerely,
HOSPITALITY MARKETERS INTERNATIONAL, INC.
574e" R, qa"c
Gregory R. Hanis, ISHC
President
z6td'5' I�R�Zj AWL
Lindsey E. Kaptur
Midwest Regional Director
opinions infer proper and professional management of the business operation. The
INTERNATIONAL SOCIETY OF
NOSPITAI.ITY CONSULTANTS
opinions also infer that market conditions do not change the information received
upon which those opinions have been based. HMI assumes no responsibility for
Professionally Serving the United changes in the marketplace.
States It Canada for Over 32
Years with Offices in
Furthermore, it is presumed that those reading this report completely understand its
Milwaukee, Wisconsin and
contents and recommendations. If the reader is unclear of the understanding of the
Fort Myers, Florida
contents, clarification should be received from its writer, HMI.
5415 S. Majors Drive
New Berlin, Wl 53146
10014 Majestic Avenue
Fort Myers, FL 33913
800-657-0835
Fax: 239-245-8161
hmi@hospitatitymarketers.com
www. hospitatitymarketers.com
Hotel Service Network
Lastly, HMI assumes that those who receive this report act in accordance with its
recommendations. Any deviation from these recommendations is solely the
responsibility of those receiving this report.
Further questions concerning this report should be directed to HMI.
Sincerely,
HOSPITALITY MARKETERS INTERNATIONAL, INC.
574e" R, qa"c
Gregory R. Hanis, ISHC
President
z6td'5' I�R�Zj AWL
Lindsey E. Kaptur
Midwest Regional Director