Hotel Investment Decision

Carlos Burgos • Talisa Salvador • Justin Oeltjen

Criteria for Hotel Investment Decision

• Positive Cash Flow from operations

• Appreciation in property value

• Invest at or below replacement cost

• Cap Rate above 8%

• 10 year investment

Evaluations for Hotel Investment

Decision

• Market Analysis

• Asset Analysis

• Financial Analysis

• Costs and Benefits Analysis

• Conclusion

The Angler’s• Located on Washington Avenue (& 6th Street) in South Beach

• Close access to beach and Ocean Drive (Demand Generator)

• Built in 1930s with 2 Buildings, and refurbished in 2005

• 48 Units - All Suites (P&L says 45)

• 133 Total Units – Planned for new resort including adjacent project

• Parking with up to 62 spaces + Second Pool + 5,000 Sq. Ft. Rental Space

• Upper Upscale with Luxury Flag (IHG) + Keeping the Resort Name

• Full Service Restaurant & Bar (Serving 133 Units)

• Equity Partnership: Contribution $13,000,000

• Outstanding Debt $14.5 Million + $10 Million USD from New Loan

• $45 Million USD projected Value of combined properties

Asset Analysis

The Angler’s• Miami Beach very popular (Demand Generator)

• Occupancy in SoBe

• (2009 - 65.89% ➤ 2014 – 76.36%)

• ADR in SoBe

• (2009 - $181.13 ➤ 2014 - $254.90)

• RevPAR in SoBe

• (2009 - $119.35 ➤ 2014 - $194.65)

• PKF Forecast for Miami RevPAR Growth from 2014 to 2018

• Demand is increasing faster than supply

• STR:

• 21 Hotels in the Pipeline (Including Refurbished Properties)

• Many Properties being converted or rebuilt “previously abandoned”

• Extreme Competition in the Upscale to Luxury (STR Scale Segments)

• Competitive Set: Almost all Independent + Crown Plaza (IHG too)

• Market includes very large number of independent properties

• Expansion needed to achieve economies of scale (Competition)

Market Analysis

The Angler’s• As of April 2012, Hotel had the following Year-to-Date Data:

• Property:

Occ. 73.6% - ADR $245.03 - RevPAR $180.43

• Market:

Occ. 75.4% - ADR $219.92 - RevPAR $165.87

• Compared to Competitive Set, hotel is ahead (with 45 Units only)

• Considered an Upper Upscale Property (STR Scale Segment)

• Contract over 20,473 Sq. Ft. Parcel for $5,100,000 USD

• Loan for $14,500,000 needs to be refinanced

• Bank: Which bank and conditions (rate & term)?

• Actual Cap Rate ($700,000 / $14,500,000) = 4.8% (Undefined)

• Project needs cash injection ($13 Million Cash) Non-Financeable

• New loan plus refinancing existing one (Bank? Board Members?)

Financial Analysis

The Angler’sFavorable

• South Beach Hotel Supply is growing, but space is limited

• Renovation Candidate: Value added opportunity

• Hotel is expected to increase RevPAR, although with new project

• Net Operating Margin at 18% vs. 25.9% Host (2012 Forecast)

Unfavorable

• Complex to calculate a Capitalization Rate (Price includes New Project)

• Pipeline

• Projected opening of Phase 2

• F&B performance

Further Investigation

• Terms of the loans

• Management Agreements

• Replacement cost

Verdict

• Property is a risky investment for our client

Cost vs Benefits

Comfort Suites - Atlanta Airport • Atlanta Airport keeps growing (World Busiest Airport)

• Newest property in the Competitive Set (New Building)

• Demand is increasing faster than Supply

• Occupancy in ATL (2009 - 61.02% ➤ 2014 - 71.59%)

• ADR in ATL (2009 - $76.34 ➤ 2014 - $82.89)

• RevPAR in ATL (2009 - $46.58 ➤ 2014 - $59.34)

• PKF Forecast for ATL ➤ RevPAR Growth from 2014 to 2018

• Only 2 hotels in the Pipeline (1 in same category) for ATL Airport

• Holiday Inn Express & Renaissance

• Competitive Set includes properties in different STR Scale Segments

• Hyatt Place (Upscale), La Quinta Inn & Quality Inn (Midscale)

• Fairfield Inn, Country Inn & Comfort Inn (Upper Midscale)

Market Analysis

Comfort Suites - Atlanta Airport • Located in the South East part of Atlanta Airport (ATL)

• Close access to the International Terminal (Demand Generator)

• Built in 2009 on 1.78 Acres and 5 floors & refurbished in 2013

• 81 Units - All Suites with Interior Corridor

• 82 in the floor plan & 79 on STR with 2 rooms removed

• Upper Midscale Flag (Choice Hotels)

• Full Service Restaurant & Bar and 78 parking spots (Park & Fly)

• In-door swimming pool + Gym + Meeting Space (1424 Sq. Ft.)

• Price: $6,800,000 (With SBA Loan of $5,600,000)

• $83,950 per Unit with $1,200,000 Down Payment

Asset Analysis

Comfort Suites - Atlanta Airport • As of December 2013, Hotel had the following Year-to-Date Data:

• Property:

Occ. 66.4% - ADR $67.62 - RevPAR $44.94

• Comp Set:

Occ. 67.1% - ADR $63.93 - RevPAR $42.88

• Midscale Chains:

Occ. 63.4% - ADR $68.36 - RevPAR $43.32

• Compared to Tract Scale and Competitive Set, hotel is ahead

• Potential to increase NOI and its Positive Cash Flow

• SBA Loan for $5,600,000 and 1% fee

• Type: 7(a) or 504?

• Bank: Which bank and conditions (rate & term)

• Can loan be cancelled with only 1% fee as penalty?

• Capitalization Rate

• ($588,142 / $6,800,000) = 8.6% (Acceptable)

Financial Analysis

Comfort Suites - Atlanta Airport Favorable

• Stabilized Candidate

• Atlanta Airport Hotel Supply is not growing

• Hotel is expected to increase RevPAR for the coming years

• Cap Rate of 8.6% with positive cash flow (with our debt terms)

Unfavorable

• Property has less than 100 rooms

• Includes Full Service Bar & Restaurant with Upper Midscale Flag (?)

Further Investigation:

• Terms of the SBA Loan with 1% fee (Rate? Term?)

• Can franchise agreement be terminated? Restaurant numbers?

• Total Revenues, Need to compare Net Operating Margin (P&L)

Verdict:

• Property seems like good investment in an attractive market

• More information needed, should be considered a buying candidate

Cost vs Benefits

Conclusion