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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