Hospitality Real Estate and Investment

Instructions

	Costa del Sol Hotel in Marbella
The Manager of Costa del Sol Hotel in Marbella has asked you to prepare a budgeting forecast for the years 2023 – 2026.
You have acquired the following forecasted information:
General Info	The occupancy rate is expected to increase 3% per year
	The average rate is expected to increase 2€ in 2023, 3€ in 2024, 5€ in 2025 and 5€ in 2026
Revenue Info on Ratios	Food revenue is expected to increase 1% per year
	Beverage revenue is expected to remain constant in 2023, decrease 1% in 2024 and another 1% during 2025, then it will remain constant until 2026
	Wifi Films and other revenue will remain constant in 2023, decrease 0.6% in 2024, then it will remain constant until 2026
	SPA revenue will increase 1% per year
Departmental Expenses Info on Ratios	Rooms department expenses will increase 1.5% per year
	F and B department expenses will increase 0.5% per year
	Wifi Films and other revenue department expenses will increase 0.2% per year
	Spa department expenses will increase 0.2% per year
Undistributed Operating Expenses Info on Ratios	General and admistrative expenses will decrease 0.3% per year
	Sales and marketing will increase 0.4% per year
	Property, operations and maitenance will decrease 0.1% per year
	Energy will increase 3% in 2023 and another 3% in 2024, then it will decrease 1% per year in the last 2 years
Required:
Completed the 2023 – 2026 figures using the above information.
		Occupancy : +2%
		Average Rate: +15€
		Food revenue +3%
		Beverage Revenue +2%
		Spa +1,5%
		Golf Revenue +1,5%
		Rooms Dep Expense:+1,5%
		F&B Dep Expense:+1%
		Spa Dep Expense -2%
		Golf Dep Ex -1%
		Admin & General: -0,3%
		Sales & Marketing: +0,5%
		P.O & Maintenance: -0,1%
		NO CHANGE
		FIND PEB FOR THE TWO YEARS
		FIND LoS for the two years to be able to make a GOP of 1,2M€

2022-2026 Projections

		Costa del Sol Hotel in Marbella
				1			2			3			4			5
		Year		2022			2023			2024			2025			2026
		Number of Rooms		205
		Room Nights Available		74,825
		Room Nights Sold		53,874
		Days Open		365			365			366			365			365
		Occupancy		72%
		Average Rate		110
		RevPAR		79
		REVENUE			Ratios	Weight	% Change	Ratios	Weight	% Change	Ratios	Weight	% Change	Ratios	Weight	% Change	Ratios	Weight
		Rooms		5,926,140
		Food		1,066,705
		Beverage		711,137
		WiFi Films & Other Revenue		213,341
		SPA Revenue		711,137
		Total Revenue		8,628,460
		DEPARTMENTAL EXPENSES
		Rooms		1,784,141
		Food and Beverage		1,493,387
		WiFi Films & Other revenue		66,520
		SPA		45,578
		Total Expenses		3,389,627
		DEPARTMENTAL INCOME		5,238,832
		UNDISTRIBUTED OPERATING EXPENSES
		General and Administrative		525,627
		Sales & Marketing		166,820
		Property, Operations & Maintenance		391,718
		Energy		355,568
		Total Expenses		1,439,732
		GROSS OPERATING PROFIT		3,799,100
		Management Fee
		GOP After Management Fee

Management Contract Valuation

		Costa del Sol Hotel in Marbella
				1			2			3			4			5
		Year		2022			2023			2024			2025			2026
		Number of Rooms		205
		Room Nights Available		74,825
		Room Nights Sold		53,874
		Days Open		365			365			366			365			365
		Occupancy		72%
		Average Rate		110
		RevPAR		79
		REVENUE			Ratios	Weight	% Change	Ratios	Weight	% Change	Ratios	Weight	% Change	Ratios	Weight	% Change	Ratios	Weight
		Rooms		5,926,140
		Food		1,066,705
		Beverage		711,137
		WiFi Films & Other Revenue		213,341
		SPA Revenue		711,137
		Total Revenue		8,628,460
		DEPARTMENTAL EXPENSES
		Rooms		1,784,141
		Food and Beverage		1,493,387
		WiFi Films & Other revenue		66,520
		SPA		45,578
		Total Expenses		3,389,627
		DEPARTMENTAL INCOME		5,238,832
		UNDISTRIBUTED OPERATING EXPENSES
		General and Administrative		525,627
		Sales & Marketing		166,820
		Property, Operations & Maintenance		391,718
		Energy		355,568
		Total Expenses		1,439,732
		GROSS OPERATING PROFIT		3,799,100
		Management Fee
		GOP After Management Fee
		FIXED EXPENSES
		Property Taxes
		Building and Business Interruption Insurance
		Rent
		Incentive Fee
		Other Fixed Expenses
		Reserve for Replacement
		Total Expenses
		NOI for the Operator
		NOI for the Owner of the Building
		Advantages
	1
	2
	3

Lease Contract Valuation

		Costa del Sol Hotel in Marbella
				1			2			3			4			5
		Year		2022			2023			2024			2025			2026
		Number of Rooms		205
		Room Nights Available		74,825
		Room Nights Sold		53,874
		Days Open		365			365			366			365			365
		Occupancy		72%
		Average Rate		110
		RevPAR		79
		REVENUE			Ratios	Weight	% Change	Ratios	Weight	% Change	Ratios	Weight	% Change	Ratios	Weight	% Change	Ratios	Weight
		Rooms		5,926,140
		Food		1,066,705
		Beverage		711,137
		WiFi Films & Other Revenue		213,341
		SPA Revenue		711,137
		Total Revenue		8,628,460
		DEPARTMENTAL EXPENSES
		Rooms		1,784,141
		Food and Beverage		1,493,387
		WiFi Films & Other revenue		66,520
		SPA		45,578
		Total Expenses		3,389,627
		DEPARTMENTAL INCOME		5,238,832
		UNDISTRIBUTED OPERATING EXPENSES
		General and Administrative		525,627
		Sales & Marketing		166,820
		Property, Operations & Maintenance		391,718
		Energy		355,568
		Total Expenses		1,439,732
		GROSS OPERATING PROFIT		3,799,100
		Management Fee
		GOP After Management Fee
		FIXED EXPENSES
		Property Taxes
		Building and Business Interruption Insurance
		Rent
		Incentive Fee
		Other Fixed Expenses
		Reserve for Replacement
		Total Expenses
		EBITDA
		NOI for the Owner of the Building
		Advantages
	1
	2
	3

Present Value

2023.1

Program: EMIHM Course name and
No.:

S M 9214 Hospitality Real
Estate and Investment

Assessment title: Final Assessment (35%) Type: Practical

Faculty: Dr. Ahmed Bakri Deadline: Sep. 03, 2023, 23:59

Dear Students,

Please solve the following problem by creating your own Excel file and kindly
upload the excel file on Moodle when done.

Please rename the file with your name.

Good Luck!

Problem

Les Roches Hospitality Group is a private hotel management company that operates several

hotels in popular tourist destinations. As part of their continuous efforts to enhance their

services and streamline their operations, Les Roches is considering a strategic investment in

a new hotel property. The proposed hotel will be located in a prime location, close to major

attractions and transportation hubs, making it an ideal choice for both leisure and business

travelers.

Les Roches envisions this new hotel as a flagship property that will not only provide

exceptional guest experiences but also improve their overall operational efficiency. To

achieve this, they are evaluating the construction of a new 30,000 square meter hotel building,

equipped with modern amenities and facilities to cater to the diverse needs of their guests.

Les Roches has approached you, a financial analyst, to help them assess the financial

feasibility of this hotel investment and provide them with a comprehensive financial analysis.

They are particularly interested in understanding the potential returns on investment, the

payback period, and the overall profitability of the project.

Your task is to analyze the given data, calculate the required financial metrics, and present

your findings and recommendations to Les Roches Hospitality Group, enabling them to make

an informed decision about the hotel investment.

Les Roches Hospitality Group is considering the construction of a new hotel to expand its

portfolio. The proposed hotel will have a total floor area of 30,000 square meters (sqm) and

will feature rooms, as well as food and beverage (F&B) outlets. The central location of the

projected hotel will attract guests, and it will be open throughout the year, operating every

day (365 days). This provides an opportunity to generate revenue from both room bookings

and F&B services. Les Roches Hospitality Group has conducted market research and

identified a strong demand for accommodation and dining in the area.

To proceed with the investment decision, Les Roches Hospitality Group requires a financial

analysis of the project. The following data has been provided:

Initial Investment

• Construction of the hotel building (30,000 sqm): EUR 17,500,000

• Purchase of furniture, fixtures, and equipment (FFE): EUR 5,000,000

Revenues
• Room Revenues:

o Year 1: The hotel is projected to have an occupancy rate of 40% with

100 rooms occupied by leisure travelers and 50 rooms occupied by

corporate clients. Les Roches expects a 3% annual increase in

occupancy rate for leisure travelers and a 2% annual increase for

corporate clients.

o Room Rates: The average room rate for leisure travelers is estimated to

be EUR 100 per night, with a 2% annual increase. For corporate clients,

the average room rate is expected to be EUR 150 per night, with a 2%

annual increase.

• F&B Revenues:

o Year 1: EUR 500,000

o Annual Increase: 3%

Operating Expenses (per year)
• Room Expenses:

• Cleaning and Maintenance: EUR 50,000

• Utilities: EUR 30,000

• Amenities: EUR 20,000

• Other Operating Expenses: EUR 10,000

• Annual Increase: 3% (Applied to all expenses)

• F&B Expenses:

• Cost of Goods Sold (COGS):

o Restaurant: 30% of F&B revenue

o Bar: 25% of F&B revenue

• Labor Costs:

o Restaurant: EUR 150,000

o Bar: EUR 100,000

o Annual Increase: 3% (Applied to all expenses)

• Other F&B Expenses:

o Restaurant: EUR 50,000

o Bar: EUR 30,000

o Annual Increase: 3% (Applied to all expenses)

Fixed Expenses (per year)
• Salaries and Benefits: EUR 300,000

• Marketing and Advertising: EUR 100,000

• Utilities: EUR 150,000

• Maintenance and Repairs: EUR 50,000

• Annual Increase: 3% (Applied to all expenses)

Interest Expenses (per year)
• EUR 20,000

• Annual Increase: 3.5%

Tax Rate
• Tax Rate: 30%

Exit Value
• Assume that the investor will sell the Hotel after 10 years for EUR

23,000,000

Les Roches Hospitality Group has requested a 10-year analysis of the investment proposal,

including the following financial metrics:

1. Gross Operating Income

2. Net Operating Income

3. Internal Rate of Return (IRR)

You are tasked with performing the financial analysis based on the provided data. Your

analysis will help Les Roches Hospitality Group assess the financial feasibility of the hotel

investment and make an informed decision.

Required:

a) Prepare a 10-year analysis of the investment proposal using the given

information.

b) Calculate the GOP and NOP of this private Hotel.

c) What is the IRR of the project?

d) If the required rate of return is 42%, would you proceed with this investment?

Good Luck