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Proposal for LEED-Certified Hotel in Quito, Ecuador, Linkedin

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This report proposes the development of a luxury hotel property in Quito, Ecuador. A Smith Travel Research (STR) classified Upper Upscale brand hotel property. There is a market trend analysis …

This report proposes the development of a luxury hotel property in Quito, Ecuador. A Smith Travel Research (STR) classified Upper Upscale brand hotel property. There is a market trend analysis performed. It shows the proposed property would achieve a viable 73.9% occupancy with a projected 101.2$ average daily rate (ADR) in the first year. Occupancy and ADR are both projected to grow with the market trend at 1.65% and 6.4% respectively. A valuation and development feasibility analysis is performed. The estimated development budget for this proposed 220-room hotel would be $ $30,249,982. The value of the hotel, assuming a 11% going-cap rate would be $34,906,000. There would be an 18% internal rate of return (IRR) to the equity component, assuming a mortgage with a loan to value ratio of 55%. A 10% IRR to the mortgage component, and 15% IRR to the value of the property component. There are two proposed neighborhoods included in the report. The Mariscal neighborhood of Quito offers the central location and density of foot traffic to sustain a new LEED Certified property. The conversion of a colonial style building into a green hotel in Quito’s Centro Historico, would take advantage of the natural synergy that preservation has with sustainability. The report concludes with opposing viewpoints and project risks are identified

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  • 1. Fall International Appraisals Hotel Proposal LEED Certified Hotel Quito, Ecuador International Appraisals 13
  • 2. 2 Table of Contents Introduction 1 Executive Summary 2Market Trend Analysis 3Projection of Market Occupancy and Average Rate 4 Forecast of income and expense statement 5 FeasibilityAnalysis 6 Valuation and Investor Returns 7 Proposed Neighborhoods for Green Hotel 8 Opposing Viewpoints and Risks Appendix A: Investor Requirements Survey Appendix B: Feasibility of New Hotel Projects, Steve Rushmore Sr. Appendix C: Construction Budget Source Appendix D: MasterCard Ranking of Cities with Highest Growth Rates in Tourist Spending Appendix E: Most Visited Sites in Quito, Ecuador Appendix F: Green Building Cost Premium
  • 3. 3
  • 4. 4 Introduction Recently Quito, Ecuador received the World Travel Award (WTA) Best Travel Destination for 2013 .The city has also been recognized by the New York Times, National Geographic, and Trip Advisor as a top world tourist destination. The city is developing its tourism infrastructure to further increase the growth of tourist arrivals. This year a new airport in Quito was opened. The Mariscal Sucre International Airport. A bigger airport that will support more flights arriving and departing from Quito. The city of Quito has also initiated the largest urban development project in recent years, the Quito Convention and Events Center Complex, which will be created within 11 hectares of the land where the old airport once operated. Since 2009 Quito has experienced 16% increase in inbound tourism1. In the 2012 MasterCard ranking of cities with the highest growth rates of tourist spending tourist spending, Quito ranked 3rd, behind only Rio de Janeiro and Tokyo2. The increase in tourism has increased hotel occupancy levels past 72%. From the table below we can see that Quito ranks 2nd behind Rio de Janiero in Latin American hotel occupancy rates. Ahead of well know cities like Santiago de Chile, Bogota, Colombia and Buenos Aires, Argentina. 1http://www.hotelesecuador.com.ec/downloads/12%20Eduardo%20Dousdebes% 20Quito.pdf 2 See Appendix D
  • 5. 5 1. Executive Summary This report proposes the development of aluxury hotel property in Quito, Ecuador. A Smith Travel Research (STR) classified Upper Upscale brand hotel property. There is a market trend analysis performed. It shows the proposed property would achieve a viable 73.9% occupancy with a projected 101.2$ average daily rate (ADR) in the first year. Occupancy and ADR are both projected to grow with the market trend at 1.65% and 6.4% respectively. A valuation and development feasibility analysis is performed. The estimated development budget for this proposed 220room hotel would be $ $30,249,982. The value of the hotel, assuming a 11% goingcap rate would be $34,906,000. There would be an 18% internal rate of return (IRR) to the equity component, assuming a mortgage with a loan to value ratio of 55%. A 10% IRR to the mortgage component, and 15% IRR to the value of the property component. There are two proposed neighborhoods included in the report. The Mariscal neighborhood of Quito offers the central location and density of foot traffic to sustain a new LEED Certified property. The conversion of a colonial style building into a green hotel in Quito’s Centro Historico, would take advantage of the natural synergy that preservation has with sustainability. The report concludes with opposing viewpoints and project risks are identified.
  • 6. 6 2. Market Area Analysis Luxury Hotel Market Trends Table 1 Market Data Competitive Set Primary: No. Rooms 2007 138 232 257 255 Sheraton Swisshotel JW Marriott Hilton Colon Average Occ. Primary set Mercure Secondary: Alameda Le Parc Dann Carlton Patio Andaluz Quito Radisson Total No Rooms Secondary Set Average Occ. Rate Total Average Occupancy Rate Occupancy Growth Rate 1.65% 2008 Quito Ecuador Occupancy 2009 2010 2011 2012 77.06% 70.13% 2013 74.58% 73.92% 147 30 212 32 215 112 748 71.18% 67.64% 70.68% 72.16% 75.95% 76.14% 71.50% 6.000% 62.90% -13.67% 66.90% 5.98% 69.40% 3.60% 72.29% 74.1% 6.3% Total Average Daily Rate (ADR) $74.30 $80.90 $86.90 $89.50 $92.90 $101.20 % Change in ADR 8.90% 7.50% 2.90% 3.80% 8.90% Average Yearly Growth Rate 6.40% Source: http://www.captur.travel/web2011/estadisticas_turisticas/documents/BOH77_78_79datosadiciembre2012.pdf Luxury ranked hotels have the highest occupancy rate amongst all lodging facilities in Quito, Ecuador. The table above shows the market trend in occupancy and average daily rate in the luxury category. The competitive set of hotels used in the analysis are full service hotels that are considered luxury facilities by the Ecuadorian Ministry of Tourism or fall into the Smith Travel Research (STR) brand classification as Upper Upscale and Luxury category. The competitive set is divided
  • 7. 7 into primary competitive hotels, the hotels most alike in brand, service, and amenities according to STR Global Chain Scales classification; and secondary competitive hotels; hotels which might capture the same type of customer if the primarily competitive hotels are fully occupied. The primary set includes the Sheraton Hotel, Swisshotel, JW Marriott Hotel, and Hilton Colon Hotel. The secondary competitive hotels include: Mercure Alameda Hotel, Le Parc Hotel, Dann Carlton Hotel, Patio Andaluz Hotel, and the Radisson. From the table we can see that the primary competitive set has the highest occupancy rate of 73.92%; compared to 72.3% occupancy for secondarily competitive hotels. The luxury hotel set as a whole has grown 1.65% a year on average Since 2008, Steady occupancy growth has led to a 6.4% average growth rate in ADR.
  • 8. 8 3. Projection of Market Occupancy and ADR Forecast of Market Occupancy for Upper Upscale Brand Hotels Table 2 Occupancy Projections 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Secondary 74.25% 75.48% Quito Hotel 74.28% 75.50% Sheraton 77.75% 79.03% Swisshotel 70.67% 71.84% JW Marriott74.23% 75.45% Hilton Colon 75.02% 76.26% Proposed 1N/A N/A Proposed 2N/A N/A Proposed 3N/A N/A Proposed 4N/A N/A Proposed 5N/A N/A Proposed 6N/A N/A Proposed 7N/A N/A Proposed 8N/A N/A Proposed 9N/A N/A Long Term N/A Supply Growth N/A 76.72% 76.75% 80.34% 73.03% 76.70% 77.52% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 77.99% 78.01% 81.66% 74.23% 77.96% 78.80% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 79.28% 79.30% 83.01% 75.46% 79.25% 80.10% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 80.58% 80.61% 84.38% 76.70% 80.56% 81.42% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 81.91% 81.94% 85.77% 77.97% 81.89% 82.76% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 83.27% 83.29% 87.19% 79.25% 83.24% 84.13% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 84.64% 84.67% 88.62% 80.56% 84.61% 85.51% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 86.04% 86.06% 90.09% 81.89% 86.01% 86.92% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 10-Year Projected Market Occupancy Market Occ. 4.15% 7 75.37% 76.62% 77.88% 79.17% 80.47% 81.80% 83.15% 84.52% 85.92% To forecast how the addition of an Upper Upscale/Luxury branded full service hotel in Quito would perform. A supply and demand analysis was performed using the HVS build-up approach3. In the analysis, total room supply counts, occupancy, ADR, and market segmentation are used to quantify both supply and demand in the market. Total room nights accommodated in the sector is compared against the Spreadsheet calculations can be found in the accompanying excel workbook in the room night analysis spreadsheet 3
  • 9. 9 total room nights available for the year. The market segments are divided into the commercial traveler, meeting and group travelers, and the leisure travelers. The total room nights for each market segment are allocated to each hotel in the primary competitive set and to the aggregate of the secondary set using a subjective competitive factor. A market area occupancy projection forecast is in table 2 above. It displays the occupancy penetration of the proposed property over a 10-year period. The ADR for the primary competitive set is $101.2 and shows a 6.40% year over year growth rate
  • 10. 10 4. Forecast of Income and Expense A ten-year forecast of income and expense was performed and can be seen in the table below. The projected revenues were calculated from projected occupancy, ADR, of a standard 220-room hotel. Expenses were estimated using the historic percentage expenses have to revenues in hotels. The historic percentages come from Steve Rushmore Sr. CEO of HVS. The first years projected net operating income after the base year of 2012 is $2,847000. The annual compound growth rate (CGR) in NOI is 3.25%.
  • 11. 11 Quito Hotel Base Year 2012 220 73.9% $ 101.20 365 59358 Number of Rooms Occupancy Average Rate Days Open Rooms Occupied Revenues $(000) Base +1 2013 220 75.6% $ 103.22 365 60683 Percent $/Avail Rm $/Occ Rm $(000) Percent $/Avail Rm $/Occ Rm Rooms $ 6,007 71.7% $ 27,305 $ 101.20 $ 6,264 71.9% $ 28,473 $ 103.23 Food $ 1,201 14.3% $ 5,459 $ 20.23 $ 1,246 14.3% $ 5,664 $ 20.53 Beverages $ 84 1.0% $ 382 $ 1.42 $ 87 1.0% $ 395 $ 1.43 Telephone $ 120 1.4% $ 545 $ 2.02 $ 125 1.4% $ 568 $ 2.06 Rentals and Other Income $ 300 3.6% $ 1,364 $ 5.05 $ 310 3.6% $ 1,409 $ 5.11 Other Operated Departments $ 541 6.5% $ 2,459 $ 9.11 $ 558 6.4% $ 2,536 $ 9.20 Misc. Oper. Dept. 1 $ 120 1.4% $ 545 $ 2.02 $ 125 1.4% $ 568 $ 2.06 Misc. Oper. Dept. 2 $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 8,373 100.0% $ 38,059 $ 141.06 $ 8,715 100.0% $ 39,614 $ 143.62 Rooms $ 1,802 30.0% $ 8,191 $ 30.36 $ 1,855 29.6% $ 8,432 $ 30.57 Food & Beverages $ 90 7.0% $ 409 $ 1.52 $ 92 6.9% $ 418 $ 1.52 Telephone $ - 0.0% $ - $ $ - 0.0% $ - $ Rentals and Other Income $ 15 5.0% $ 68 $ $ 15 4.8% $ 68 $ Other Operated Departments $ - 0.0% $ - $ $ - 0.0% $ - $ Misc. Oper. Dept. 1 $ 7 5.8% $ 32 $ $ 8 6.4% $ 36 $ Misc. Oper. Dept. 2 Total Revenue Departmental Expenses #DIV/0! 0.25 0.12 #DIV/0! 0.25 0.13 $ - $ - $ - $ - $ - $ - Total Departmental Expenses $ 1,914 22.9% $ 8,700 $ 32.25 $ 1,970 22.6% $ 8,955 $ 32.46 Departmental Income $ 6,459 77.1% $ 29,359 $ 108.81 $ 6,745 77.4% $ 30,659 $ 111.15 Administrative & General $ 502 6.0% $ 2,282 $ 8.46 $ 516 5.9% $ 2,345 $ 8.50 Human Resources $ - 0.0% $ - $ - $ - 0.0% $ - $ - Information Systems $ - 0.0% $ - $ - $ - 0.0% $ - $ - Security $ - 0.0% $ - $ - $ - 0.0% $ - $ Marketing $ 419 5.0% $ 1,905 $ 7.06 $ 430 4.9% $ 1,955 $ 7.09 Franchise Fees $ 180 2.1% $ 818 $ 3.03 $ 188 2.2% $ 855 $ 3.10 Transportation $ - 0.0% $ - $ $ - 0.0% $ - $ Prop. Oper. & Maintenance $ 251 3.0% $ 1,141 $ 4.23 $ 258 3.0% $ 1,173 $ Energy Costs $ 335 4.0% $ 1,523 $ 5.64 $ 342 3.9% $ 1,555 $ 5.64 Misc. Expense 1 $ 1,088 13.0% $ 4,945 $ 18.33 $ 1,133 13.0% $ 5,150 $ 18.67 Undistributed Operating Expenses Misc. Expense 2 - - 4.25 $ 586 7.0% $ 2,664 $ 9.87 $ 610 7.0% $ 2,773 $ 10.05 Total UDOEs $ 3,361 40.1% $ 15,277 $ 56.62 $ 3,477 39.9% $ 15,805 $ 57.30 Income Before Fixed Charges $ 3,098 37.0% $ 14,082 $ 52.19 $ 3,268 37.5% $ 14,855 $ 53.85 Management Fee $ 251 3.0% $ 1,141 $ 4.23 $ 261 3.0% $ 1,186 $ 4.30 Property Tax $ - 0.0% $ - $ - $ - 0.0% $ - $ - Insurance $ - 0.0% $ - $ - $ - 0.0% $ - $ - Reserve for Replacement $ - 0.0% $ - $ - $ - 0.0% $ - $ Total Fixed Charges $ 251 3.0% $ 1,141 $ 4.23 $ 261 3.0% $ 1,186 $ 4.30 Net Income $ 2,847 34.0% $ 12,941 $ 47.96 $ 3,007 34.5% $ 13,668 $ 49.55 Fixed Charges -
  • 12. 12 Base +2 2014 220 77.2% $ 105.29 365 62008 $(000) Base +3 2015 220 78.9% $ 107.39 365 63333 Percent $/Avail Rm $/Occ Rm $(000) Base +4 2016 220 78.9% $ 109.54 365 63333 Percent $/Avail Rm $/Occ Rm $(000) Percent $ 6,529 72.0% $ 29,677 $ 105.29 $ 6,802 72.2% $ 30,918 $ 107.40 $ 6,938 72.1% $ 1,292 14.3% $ 5,873 $ 20.84 $ 1,339 14.2% $ 6,086 $ 21.14 $ 1,366 14.2% $ 90 1.0% $ 409 $ 1.45 $ 93 1.0% $ 423 $ 1.47 $ 95 1.0% $ 130 1.4% $ 591 $ 2.10 $ 135 1.4% $ 614 $ 2.13 $ 138 1.4% $ 319 3.5% $ 1,450 $ 5.14 $ 329 3.5% $ 1,495 $ 5.19 $ 336 3.5% $ 575 6.3% $ 2,614 $ 9.27 $ 593 6.3% $ 2,695 $ 9.36 $ 605 6.3% $ 131 1.4% $ 595 $ 2.11 $ 136 1.4% $ 618 $ 2.15 $ 139 1.4% $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ 9,066 100.0% $ 41,209 $ 146.21 $ 9,427 100.0% $ 42,850 $ 148.85 $ 9,617 100.0% $ 1,908 29.2% $ 8,673 $ 30.77 $ 1,964 28.9% $ 8,927 $ 31.01 $ 2,003 28.9% $ 95 6.9% $ 432 $ 1.53 $ 98 6.8% $ 445 $ 1.55 $ 100 6.8% $ - 0.0% $ - $ $ - 0.0% $ - $ $ - 0.0% $ 16 5.0% $ 73 $ $ 16 4.9% $ 73 $ $ 17 5.1% $ - 0.0% $ - $ $ - 0.0% $ - $ $ - 0.0% $ 8 6.1% $ 36 $ $ 8 5.9% $ 36 $ $ 8 $ - $ - $ - $ - $ - $ - $ - $ 2,027 22.4% $ 9,214 $ 32.69 $ 2,086 22.1% $ 9,482 $ 32.94 $ 2,128 22.1% $ 7,039 77.6% $ 31,995 $ 113.52 $ 7,341 77.9% $ 33,368 $ 115.91 $ 7,489 77.9% $ 529 5.8% $ 2,405 $ 8.53 $ 543 5.8% $ 2,468 $ 8.57 $ 554 5.8% $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ 441 4.9% $ 2,005 $ 7.11 $ 452 4.8% $ 2,055 $ 7.14 $ 461 4.8% $ 196 2.2% $ 891 $ 3.16 $ 204 2.2% $ 927 $ 3.22 $ 208 2.2% $ - 0.0% $ - $ $ - 0.0% $ - $ $ - 0.0% $ 265 2.9% $ 1,205 $ 4.27 $ 271 2.9% $ 1,232 $ 4.28 $ 277 2.9% $ 350 3.9% $ 1,591 $ 5.64 $ 358 3.8% $ 1,627 $ 5.65 $ 365 3.8% $ 1,179 13.0% $ 5,359 $ 19.01 $ 1,226 13.0% $ 5,573 $ 19.36 $ 1,250 13.0% #DIV/0! 0.26 0.13 - #DIV/0! 0.25 0.13 - 5.8% #DIV/0! $ 635 7.0% $ 2,886 $ 10.24 $ 660 7.0% $ 3,000 $ 10.42 $ 673 7.0% $ 3,595 39.7% $ 16,341 $ 57.98 $ 3,714 39.4% $ 16,882 $ 58.64 $ 3,788 39.4% $ 3,444 38.0% $ 15,655 $ 55.54 $ 3,627 38.5% $ 16,486 $ 57.27 $ 3,701 38.5% $ 272 3.0% $ 1,236 $ 4.39 $ 283 3.0% $ 1,286 $ 4.47 $ 289 3.0% $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ 272 3.0% $ 1,236 $ 4.39 $ 283 3.0% $ 1,286 $ 4.47 $ 289 3.0% $ 3,172 35.0% $ 14,418 $ 51.15 $ 3,344 35.5% $ 15,200 $ 52.80 $ 3,412 35.5%
  • 13. 13 Base +5 2017 220 78.9% $ 111.73 365 63333 $(000) Base +6 2018 220 78.9% $ 113.97 365 63333 $/Avail Rm $/Occ Rm $ 31,536 $ 109.55 $ 7,076 Percent 72.1% $ 32,164 $ 111.73 $ 7,218 72.2% $ 32,809 $ 113.97 $ 6,209 $ 21.57 $ 1,393 14.2% $ 6,332 $ 21.99 $ 1,421 14.2% $ 6,459 $ 22.44 $ 432 $ 1.50 $ 97 1.0% $ 441 $ 1.53 $ 99 1.0% $ 450 $ 1.56 $ 627 $ 2.18 $ 141 1.4% $ 641 $ 2.23 $ 143 1.4% $ 650 $ 2.26 $ 1,527 $ 5.31 $ 343 3.5% $ 1,559 $ 5.42 $ 350 3.5% $ 1,591 $ 5.53 $ 2,750 $ 9.55 $ 617 6.3% $ 2,805 $ 9.74 $ 629 6.3% $ 2,859 $ 9.93 $ 632 $ 2.19 $ 142 1.4% $ 645 $ 2.24 $ 144 1.4% $ 655 $ 2.27 $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 43,714 $ 151.85 $ 9,809 100.0% $ 44,586 $ 154.88 $ 10,004 100.0% $ 45,473 $ 157.96 $ 9,105 $ 31.63 $ 2,043 28.9% $ 9,286 $ 32.26 $ 2,084 28.9% $ 9,473 $ 32.91 $ 455 $ 1.58 $ 102 6.8% $ 464 $ 1.61 $ 104 6.8% $ 473 $ 1.64 $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 77 $ 0.27 $ 17 5.0% $ 77 $ 0.27 $ 17 4.9% $ 77 $ 0.27 $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 36 $ 0.13 $ 9 6.3% $ 41 $ 0.14 $ 9 6.3% $ 41 $ 0.14 $ - $ - $ - $ - $ - $ - $ - $ - $ 9,673 $ 33.60 $ 2,171 22.1% $ 9,868 $ 34.28 $ 2,214 22.1% $ 10,064 $ 34.96 $ 34,041 $ 118.25 $ 7,638 77.9% $ 34,718 $ 120.60 $ 7,790 77.9% $ 35,409 $ 123.00 $ 2,518 $ 8.75 $ 565 5.8% $ 2,568 $ 8.92 $ 576 5.8% $ 2,618 $ 9.09 $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 2,095 $ 7.28 $ 471 4.8% $ 2,141 $ 7.44 $ 480 4.8% $ 2,182 $ 7.58 $ 945 $ 3.28 $ 212 2.2% $ 964 $ 3.35 $ 217 2.2% $ 986 $ 3.43 $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 1,259 $ 4.37 $ 282 2.9% $ 1,282 $ 4.45 $ 288 2.9% $ 1,309 $ 4.55 $ 1,659 $ 5.76 $ 372 3.8% $ 1,691 $ 5.87 $ 380 3.8% $ 1,727 $ 6.00 $ 5,682 $ 19.74 $ 1,275 13.0% $ 5,795 $ 20.13 $ 1,301 13.0% $ 5,914 $ 20.54 $ 3,059 $ 10.63 $ 687 7.0% $ 3,123 $ 10.85 $ 700 7.0% $ 3,182 $ 11.05 $ 17,218 $ 59.81 $ 3,864 39.4% $ 17,564 $ 61.01 $ 3,942 39.4% $ 17,918 $ 62.24 $ 16,823 $ 58.44 $ 3,774 38.5% $ 17,155 $ 59.59 $ 3,848 38.5% $ 17,491 $ 60.76 $ 1,314 $ 4.56 $ 294 3.0% $ 1,336 $ 4.64 $ 300 3.0% $ 1,364 $ 4.74 $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 1,314 $ 4.56 $ 294 3.0% $ 1,336 $ 4.64 $ 300 3.0% $ 1,364 $ 4.74 $ 15,509 $ 53.87 $ 3,480 35.5% $ 15,818 $ 54.95 $ 3,548 35.5% $ 16,127 $ 56.02 #DIV/0! $/Avail Rm $/Occ Rm $(000) Percent #DIV/0! $/Avail Rm $/Occ Rm
  • 14. 14 Base +7 2019 220 78.9% $ 116.25 365 63333 $(000) Base +8 2020 220 78.9% $ 118.57 365 63333 Percent $/Avail Rm $/Occ Rm $(000) Base +9 2021 220 78.9% $ 120.94 365 63333 Percent $/Avail Rm $/Occ Rm $(000) Percent $/Avail Rm $ 7,362 72.1% $ 33,464 $ 116.24 $ 7,510 72.1% $ 34,136 $ 118.58 $ 7,660 72.1% $ 34,818 $ 1,449 14.2% $ 6,586 $ 22.88 $ 1,478 14.2% $ 6,718 $ 23.34 $ 1,508 14.2% $ 6,855 $ 101 1.0% $ 459 $ 1.59 $ 103 1.0% $ 468 $ 1.63 $ 105 1.0% $ 477 $ 146 1.4% $ 664 $ 2.31 $ 149 1.4% $ 677 $ 2.35 $ 152 1.4% $ 691 $ 357 3.5% $ 1,623 $ 5.64 $ 364 3.5% $ 1,655 $ 5.75 $ 371 3.5% $ 1,686 $ 642 6.3% $ 2,918 $ 10.14 $ 655 6.3% $ 2,977 $ 10.34 $ 668 6.3% $ 3,036 $ 147 1.4% $ 668 $ 2.32 $ 150 1.4% $ 682 $ 2.37 $ 153 1.4% $ 695 $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ 10,204 100.0% $ 46,382 $ 161.12 $ 10,409 100.0% $ 47,314 $ 164.35 $ 10,617 100.0% $ 48,259 $ 2,126 28.9% $ 9,664 $ 33.57 $ 2,168 28.9% $ 9,855 $ 34.23 $ 2,211 28.9% $ 10,050 $ 106 6.8% $ 482 $ 1.67 $ 108 6.8% $ 491 $ 1.71 $ 110 6.8% $ 500 $ - 0.0% $ - $ $ - 0.0% $ - $ $ - 0.0% $ - $ 18 5.0% $ 82 $ $ 18 4.9% $ 82 $ $ 18 4.9% $ 82 $ - 0.0% $ - $ $ - 0.0% $ - $ $ - 0.0% $ - $ 9 6.1% $ 41 $ $ 9 6.0% $ 41 $ $ 9 5.9% $ 41 #DIV/0! 0.28 0.14 0.28 0.14 $ - $ - $ - $ - $ - $ - $ - $ - $ 2,259 22.1% $ 10,268 $ 35.67 $ 2,303 22.1% $ 10,468 $ 36.36 $ 2,348 22.1% $ 10,673 $ 7,945 77.9% $ 36,114 $ 125.45 $ 8,106 77.9% $ 36,845 $ 127.99 $ 8,269 77.9% $ 37,586 $ 588 5.8% $ 2,673 $ 9.28 $ 599 5.8% $ 2,723 $ 9.46 $ 611 5.8% $ 2,777 $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ 490 4.8% $ 2,227 $ 7.74 $ 500 4.8% $ 2,273 $ 7.89 $ 510 4.8% $ 2,318 $ 221 2.2% $ 1,005 $ 3.49 $ 225 2.2% $ 1,023 $ 3.55 $ 230 2.2% $ 1,045 $ - 0.0% $ - $ $ - 0.0% $ - $ $ - 0.0% $ - $ 294 2.9% $ 1,336 $ 4.64 $ 300 2.9% $ 1,364 $ 4.74 $ 306 2.9% $ 1,391 - #DIV/0! - - #DIV/0! $ 387 3.8% $ 1,759 $ 6.11 $ 395 3.8% $ 1,795 $ 6.24 $ 403 3.8% $ 1,832 $ 1,327 13.0% $ 6,032 $ 20.95 $ 1,353 13.0% $ 6,150 $ 21.36 $ 1,380 13.0% $ 6,273 $ 714 7.0% $ 3,245 $ 11.27 $ 729 7.0% $ 3,314 $ 11.51 $ 743 7.0% $ 3,377 $ 4,021 39.4% $ 18,277 $ 63.49 $ 4,101 39.4% $ 18,641 $ 64.75 $ 4,183 39.4% $ 19,014 $ 3,924 38.5% $ 17,836 $ 61.96 $ 4,005 38.5% $ 18,205 $ 63.24 $ 4,086 38.5% $ 18,573 $ 306 3.0% $ 1,391 $ 4.83 $ 312 3.0% $ 1,418 $ 4.93 $ 319 3.0% $ 1,450 $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ 306 3.0% $ 1,391 $ 4.83 $ 312 3.0% $ 1,418 $ 4.93 $ 319 3.0% $ 1,450 $ 3,618 35.5% $ 16,445 $ 57.13 $ 3,693 35.5% $ 16,786 $ 58.31 $ 3,767 35.5% $ 17,123
  • 15. 15 Base +10 2022 220 78.9% $ 123.36 365 63333 $/Occ Rm $(000) Base +11 2023 220 78.9% $ 125.83 365 63333 Percent $/Avail Rm $/Occ Rm $(000) Percent $/Avail Rm $/Occ Rm $ 120.95 $ 7,813 72.2% $ 35,514 $ 123.36 $ 7,969 72.2% $ 36,223 $ 125.83 $ 23.81 $ 1,538 14.2% $ 6,991 $ 24.28 $ 1,569 14.2% $ 7,132 $ 24.77 $ 1.66 $ 107 1.0% $ 486 $ 1.69 $ 109 1.0% $ 495 $ 1.72 $ 2.40 $ 155 1.4% $ 705 $ 2.45 $ 158 1.4% $ 718 $ 2.49 $ 5.86 $ 378 3.5% $ 1,718 $ 5.97 $ 386 3.5% $ 1,755 $ 6.09 $ 10.55 $ 681 6.3% $ 3,095 $ 10.75 $ 695 6.3% $ 3,159 $ 10.97 $ 2.42 $ 156 1.4% $ 709 $ 2.46 $ 159 1.4% $ 723 $ 2.51 $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 167.64 $ 10,828 100.0% $ 49,218 $ 170.97 $ 11,045 100.0% $ 50,205 $ 174.40 $ 34.91 $ 2,256 28.9% $ 10,255 $ 35.62 $ 2,301 28.9% $ 10,459 $ 36.33 $ 1.74 $ 112 6.8% $ 509 $ 1.77 $ 114 6.8% $ 518 $ 1.80 $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 0.28 $ 19 5.0% $ 86 $ 0.30 $ 19 4.9% $ 86 $ 0.30 $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 0.14 $ 9 5.8% $ 41 $ 0.14 $ 10 6.3% $ 45 $ 0.16 $ - $ - $ - $ - $ - $ - $ - $ 37.07 $ 2,396 22.1% $ 10,891 $ 37.83 $ 2,444 22.1% $ 11,109 $ 38.59 $ 130.56 $ 8,432 77.9% $ 38,327 $ 133.14 $ 8,601 77.9% $ 39,095 $ 135.81 $ 9.65 $ 624 5.8% $ 2,836 $ 9.85 $ 636 5.8% $ 2,891 $ 10.04 $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 8.05 $ 520 4.8% $ 2,364 $ 8.21 $ 530 4.8% $ 2,409 $ 8.37 $ 3.63 $ 234 2.2% $ 1,064 $ 3.69 $ 239 2.2% $ 1,086 $ 3.77 $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 4.83 $ 312 2.9% $ 1,418 $ 4.93 $ 318 2.9% $ 1,445 $ 5.02 $ 6.36 $ 411 3.8% $ 1,868 $ 6.49 $ 419 3.8% $ 1,905 $ 6.62 $ 21.79 $ 1,408 13.0% $ 6,400 $ 22.23 $ 1,436 13.0% $ 6,527 $ 22.67 $ 11.73 $ 758 7.0% $ 3,445 $ 11.97 $ 773 7.0% $ 3,514 $ 12.21 $ 66.05 $ 4,267 39.4% $ 19,395 $ 67.37 $ 4,351 39.4% $ 19,777 $ 68.70 $ 64.52 $ 4,165 38.5% $ 18,932 $ 65.76 $ 4,250 38.5% $ 19,318 $ 67.11 $ 5.04 $ 325 3.0% $ 1,477 $ 5.13 $ 331 3.0% $ 1,505 $ 5.23 $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ - $ - 0.0% $ - $ - $ - 0.0% $ - $ - $ 5.04 $ 325 3.0% $ 1,477 $ 5.13 $ 331 3.0% $ 1,505 $ 5.23 $ 59.48 $ 3,840 35.5% $ 17,455 $ 60.63 $ 3,919 35.5% $ 17,814 $ 61.88 #DIV/0! #DIV/0!
  • 16. 16 5. Valuation and Investor Returns Assumptions: Projected first year NOI: 3,311,000 Going in cap rate: 10% LTV: 55% Terminal cap rate 10% Amortization period: 10 years LTV Model: Quito Hotel Value of the Property Value of the Mortgage Component Value of the Equity Component Cash Flows for IRR Calcs Year Total Property Mortgage Equity Debt Coverage Ratio $ $ $ $ $ $ Proof of Value Year 1 2 3 4 5 6 7 8 9 10 $(000) 27,370 15,054 12,317 3310 3311 (27,370) $ 3,311 (15,054) $ 2,387 (12,317) $ 924 1.39 IRR 14.79% 10.00% 18.00% $ $ $ 3312 3,823 2,387 1,436 1.60 Total Property Present Value Net Income PV Factor @ Discounted Before D.S. 14.8% Cash Flow $ 3,311 0.871171 $ 2,884 $ 3,823 0.758938 $ 2,901 $ 3,311 0.661165 $ 2,189 $ 3,377 0.575987 $ 1,945 $ 3,445 0.501783 $ 1,729 $ 3,514 0.437139 $ 1,536 $ 3,584 0.380823 $ 1,365 $ 3,656 0.331762 $ 1,213 $ 3,729 0.289021 $ 1,078 $ 41,821 0.251787 $ 10,530 Total Property Value $ 27,370 Year 10 Cash Flow Calculations Year 10 net income of plus reversion of Reversion Calculations for Proof 3313 $ 3,311 $ 2,387 $ 924 1.39 Year 1 2 3 4 5 6 7 8 9 10 Year 11 Net Income of $3879 capitalized at 10% equals $ 38,794 Less: Selling Expenses $ 776 Equals: Net sales price $ 38,018 DCR Model: Quito Hotel Value of the Property Value of the Mortgage Component Value of the Equity Component Cash Flows for IRR Calcs Year Total Property Mortgage Equity Debt Coverage Ratio $ $ $ $ $ $ Proof of Value Year 1 2 3 4 5 6 7 8 9 10 $ 3,803 $ 38,018 $(000) 27,330 14,914 12,416 3310 3311 (27,330) $ 3,311 (14,914) $ 2,365 (12,416) $ 946 1.40 $ $ $ 3314 3,377 2,387 990 1.41 $ $ $ 3315 3,445 2,387 1,058 1.44 $ $ $ 3316 3,514 2,387 1,126 1.47 3317 $ 3,584 $ 2,387 $ 1,197 1.50 Mortgage Component Present Value Mortgage PV Factor @ Discounted Payment 9.40% Cash Flow $ 2,387 0.914069 $ 2,182 $ 2,387 0.835522 $ 1,995 $ 2,387 0.763724 $ 1,823 $ 2,387 0.698097 $ 1,666 $ 2,387 0.638108 $ 1,523 $ 2,387 0.583275 $ 1,392 $ 2,387 0.533153 $ 1,273 $ 2,387 0.487339 $ 1,163 $ 2,387 0.445461 $ 1,063 $ 2,387 0.407182 $ 972 Mortgage Component Value15,054 $ Year 10 mort. payment of$ plus the RMB of $ Year 1 2 3 4 5 6 7 8 9 10 2,387 0 $ $ $ 3318 3,656 2,387 1,268 1.53 $ $ $ 3319 3,729 2,387 1,342 1.56 $ $ $ 3320 41,821 2,387 39,434 1.59 Equity Component Present Value Net Income PV Factor @Discounted to Equity 18.0% Cash Flow $ 924 0.847458 $ 783 $ 1,436 0.718184 $ 1,031 $ 924 0.608631 $ 562 $ 990 0.515789 $ 511 $ 1,058 0.437109 $ 462 $ 1,126 0.370432 $ 417 $ 1,197 0.313925 $ 376 $ 1,268 0.266038 $ 337 $ 1,342 0.225456 $ 302 $ 39,434 0.191064 $ 7,534 Equity Component Value $ 12,317 Year 10 net inc. to equity of $ plus the equity residual of $ Net Sales Price (cell F37) $ Less: RMB $ Equals: Equity Residual $ The reversion is the remaining mortgage balance (RMB) of the loan in at the end of year 10. 1,416 38,018 38,018 0 38,018 IRR 14.81% 10.00% 18.00% $ $ $ 3312 3,823 2,365 1,458 1.62 Total Property Present Value Net Income PV Factor @ Discounted Before D.S. 14.81% Cash Flow $ 3,311 0.870970 $ 2,884 $ 3,823 0.758590 $ 2,900 $ 3,311 0.660709 $ 2,188 $ 3,377 0.575458 $ 1,943 $ 3,445 0.501207 $ 1,727 $ 3,514 0.436537 $ 1,534 $ 3,584 0.380210 $ 1,363 $ 3,656 0.331152 $ 1,211 $ 3,729 0.288424 $ 1,075 $ 41,821 0.251209 $ 10,506 Total Property Value $ 27,330 Year 10 Cash Flow Calculations Year 10 net income of plus reversion of $ 3,803 $ 38,018 Reversion Calculations for Proof Year 11 Net Income of $3879 capitalized at 10% equals $ 38,794 Less: Selling Expenses $ 776 Equals: Net sales price $ 38,018 3313 $ 3,311 $ 2,365 $ 946 1.40 Year 1 2 3 4 5 6 7 8 9 10 $ $ $ 3314 3,377 2,365 1,012 1.43 $ $ $ 3315 3,445 2,365 1,080 1.46 $ $ $ 3316 3,514 2,365 1,149 1.49 3317 $ 3,584 $ 2,365 $ 1,219 1.52 Mortgage Component Present Value Mortgage PV Factor @ Discounted Payment 9.40% Cash Flow $ 2,365 0.914069 $ 2,162 $ 2,365 0.835522 $ 1,976 $ 2,365 0.763724 $ 1,806 $ 2,365 0.698097 $ 1,651 $ 2,365 0.638108 $ 1,509 $ 2,365 0.583275 $ 1,379 $ 2,365 0.533153 $ 1,261 $ 2,365 0.487339 $ 1,153 $ 2,365 0.445461 $ 1,054 $ 2,365 0.407182 $ 963 Mortgage Component Value14,914 $ Year 10 mort. payment of$ plus the RMB of $ 2,365 0 The reversion is the remaining mortgage balance (RMB) of the loan in at the end of year 10. Year 1 2 3 4 5 6 7 8 9 10 $ $ $ 3318 3,656 2,365 1,291 1.55 $ $ $ 3319 3,729 2,365 1,364 1.58 $ $ $ 3320 41,821 2,365 39,456 1.61 Equity Component Present Value Net Income PV Factor @Discounted to Equity 18.00% Cash Flow $ 946 0.847458 $ 802 $ 1,458 0.718184 $ 1,047 $ 946 0.608631 $ 576 $ 1,012 0.515789 $ 522 $ 1,080 0.437109 $ 472 $ 1,149 0.370432 $ 425 $ 1,219 0.313925 $ 383 $ 1,291 0.266038 $ 343 $ 1,364 0.225456 $ 307 $ 39,456 0.191064 $ 7,539 Equity Component Value $ 12,416 Year 10 net inc. to equity of $ plus the equity residual of $ 1,438 38,018 Net Sales Price (cell F72) $ Less: RMB $ Equals: Equity Residual $ 38,018 0 38,018
  • 17. 17 Value conclusion: 1) A 10 year PV Factor of 14.79%(Projected IRR of property) was used to discount projected net income before debt service. The 11th year projected NOI was capitalized at 11% terminal cap rate to arrive at The Value of the Property: $27,370,000 2) A 10 year PV Factor of 10%(projected IRR of the mortgage component) was applied to discount the yearly mortgage payments to arrive at the Value of the Mortgage Component: $15,054,000 3) A PV factor of 18%(Projected IRR to the equity investor was applied to the net income portion flowing to equity over 10 year period to arrive at the: Value of the Equity Component: $12,317,000
  • 18. 18 Feasibility Analysis ! "#"$ %&' "( )* -./ .$ +", .)0 12%3 "4)"5* 6758") 12%3 9%-)"4)* : , ( 5* 4<7.-.)%( * ; 9%-)!"#$ % 3+' 4 @ *"+1A-2*% "% ) *"+,-,+' 4-2*% "% 9%( -)274).%( * 4%-)C(,*"+D # F. G"#11#+' -C+1H(' I C+1H(' I -% (2#% #1J K*"#, / +% * (' F#$ (2. G(#1"* C+J #$ #' "-L -) #11+2#% !' M ,+"(*' / *' "(' I #' 2A-M ## ) *"+,-/ *' % 2"(*' -/ *% "1. "% O#' #1+,-P' 4*Q$ #' " G, H"->1"2' .)->+""* * 3+' 4-M ## S. (,4(' I -C#1$ (" T(1#-U#0"-C#1$ (" F+' ("+"(*' -C#1$ (" P' I (' ##1U#% ' -T## (I / *' % 2"*' -M "1. ## R#I (% "1+"(*' PV2+J +"(*' R#% ,,+4*-4#-C,+' *% K*1(W "+,-C1*0#1"A *' !' % 1+' 2# . X2*$ #"(4+-A-% G-#% . "+2(*' -P,#29 ) #,#0Y*' #-,(' # ) J -/ +G,# O+% G%), $ G%), $12%3 4%-)* "4)* 1"2* 2%%' 12%&%-"5* ' %7( )* M ; %L* %%' 1"2* * ")"2 N<BO &' ("% ) *"+,-. ' "% $5 ---- 5589 67 : $5 ---- 5589 67 : ---- 5589 67 : / *% -0#1-. ' (" "% <------------------ 5; 9 : ; ; <-------------------- 9 B: 6: <------------------ ; >9 : ; : ) *"+,-2*% "% <----- : 5=7 57 >?>9 : : <--------- 7 : : 9 : =6: : : D*** ?@ A@ CC ** => ?> AB $5 $5 $5 $5 $5 $5 $5 N N ---- ; E; 9 57 : ---- B=: 9 =7 : ---- 5>; 9 =7 : -- 88?9 =57 : -------- 569 ; : -------- : 55B9 ---- ==; 9 =7 : ------------ 9 : = ------------ 9 : = <------------------ : 9 : =; : <------------------ 9 : 6?: : <------------------ 9 : B?: : <------------------ ?: 9 : ; : <------------------ 9 : ??: : <------------------ 9 : 5>: : <-------------------- 9 : E: : <---- 7 =: 6=67 =5B9 ?: <---- 7 =: 6=67 =5B9 ?: R**$ %-------- 9 =>: : <------------ : : : 9 : =B7 : <--------- 6; : 9 : B6=7 : <--------- ?: : 9 : BE67 : <--------- 8: : 9 : ?8>7 : <----- 6: 67 9 : >7 8?: : <--------- ; ?: 9 : 6B57 : <----------- 57 9 : ; 85: : <--------- : 7 9 : =: BB: : <--------- ; ?; 9 ?=?7 56 <--------- ; ?; 9 ?=?7 56 D*??> * EFF> * FE=B F@ D*** @ CCCB ** =C> => CC $5 $5 $5 $5 $5 $5 22 22 $5 I, I, I, I, I, I, I, =>: = 55: ---- 5589 67 : -- 7 EB9 =; : : -- 7 EB9 =; : : -- 7 EB9 =; : : -- 7 EB9 =; : : =9 N : =9 N : -- 7 EB9 =; : : =9 N : =9 N : =9 N : =9 N : =9 N : =9 N : =9 N : =9 N : <---------------------- : : 59 <---------------------- : : 59 <---------------------- 9 : ?: <---------------------- 9 : B: <---------------------- 9 : =: <---- 7 =: 6=67 =5B9 ?: <---- 7 =: 6=67 =5B9 ?: <---------------------- 9 : 8: <------------ 7 : : 9 : 5: : : <------------ 7 : : 9 : =: : : <------------ : : : 9 : =?7 : <------------ : : : 9 : 657 : <---------- 7 : : 9 : =?: : : <------------ : : : 9 : 8?7 : <------------ 7 : : 9 : ?: : : <------------ 7 : : 9 : 5: : : <------------- 7 ; B?B9 : : <----------- =>>9 : 657 : <------------- : B89 : >7 : <------------- 7 ; B6>9 : : <------------- ; : E9 : =7 : <----------- 7 =: 6=69 : : <----------- 7 =: 6=69 : : <----------- 5; ; 9 : ==7 : <----------- 7 : : 9 : 5: : : <----------- 7 : : 9 : =: : : <----------- : : : 9 : =?7 : <----------- : : : 9 : 657 : <--------- 7 : : 9 : =?: : : <----------- : : : 9 : 8?7 : <----------- 7 : : 9 : ?: : : <----------- 7 : : 9 : 5: : : D****F@ I =AB **** A> CC <--- 8BE7 5B7 E>?9 B? ******?EJ > ****** FKKB * K D*EC> * =FK> * KA=B == ?@ EA
  • 19. 19 12%L"--.%( , $+""* X12Y("#2" 22 X12Y("#2"-% 0#1J (% . (*' 22 F. 1J #A(' I $5 [ +% "#-$ +' +I #$ #' "-4#% ' 22 (I P,#2"1(2(+' 22 F#2. 1("A 22 "A0*I 1+0YA 22 T,**1-% 4A ". 22 3#I +,-2*. ' % #, $ *' "Y,A K ` X/ 22 a("2Y#' -4#% ' #1% (I 22 !' "#1(*1-4#% ' (I 22 T##-!' "(+,-Y*,4(' I 1**$ T1+' 2Y(% ## #-M I, / *' % 2"(*' -M "1. ##% 4(1#2"*% T(% 2+,-X. "Y*1("A 2" C1*D #2"-$ +' +' I #$ #' " 2" ) *"+, : "8, $9%-)* T(4. 2(+-M ## .'4 @ ]X @ ]X b (' (% "#1(*-4#-) . 1(% * $ @ *"+1A-M ##% c "Y#1-,#I +,-M ##% G%), $ P )Q"2* "4)* 12%3 4%-)C1*D #2"-X4J #1"(% I (' CJ b +1H#"(' I C` C1*D #2"-$ +' +I #1-M ##% C` G%), $ 69 : N : :9 N ?: 59 ?N :9 =?N :9 =?N :9 N =: :9 68N : 9 ?N : 5B9 : N : :9 =?N =9 : N : =9 : N : ?: : 9 : N : =9 : N : B9 N : =9 6N ;9N : <--- 7 =: 6=67 =5B9 ?: <--- 7 =: 6=67 =5B9 ?: <----------=; 7 EB9 : : : <--- 7 =: 6=67 =5B9 ?: <--- 7 =: 6=67 =5B9 ?: <--- 7 =: 6=67 =5B9 ?: <--- 7 =: 6=67 =5B9 ?: <--- 7 =: 6=67 =5B9 ?: <---------------- : 9 : ?: : <--- 7 =: 6=67 =5B9 ?: <----------=?7 : : 9 : : : <----------=?7 : : 9 : : : <------------- 8?: 9 : =7 : <----------?: 7 : : 9 : : : <--- 7 =: 6=67 =5B9 ?: <--- B>?7 =B7 B>59 : : <--- B>?7 =B7 B>59 : : <------- E7 6: 66B9 : : <--------- ?; ; 9 : ?=7 : <--------- 7 B: 56?9 : : <--------- B8: 9 : =?7 : <--------- B8: 9 : =?7 : <--------- 7 =: 6=69 : : <--------- =?E9 : 6>7 : <----------- =?89 : ?7 : <--------- : : : 9 : =57 : <--------- B8: 9 : =?7 : <--------- : : : 9 : =?7 : <--------- : : : 9 : =?7 : <--------- ?: : 9 : >87 : <--------- 7 : : 9 : ?: : : <------- ?5?9 : B=57 : <------- : ; E9 : =>=7 : <------- E7 >; =5E9 : : D** ?FE> B * => EKJ CC <------- 7 9 : =B: 5?: : ------------------ : =9 ------------------ : =9 ------------------ : =9 <----------B: 7 : : 9 : : : <-------- 7 : : 9 : =5: : : <----------; : 7 : : 9 : : : <--------- 7 : : 9 : B: : : <------- 7 : : 9 : =5: : : <--------- : 7 : : 9 : ; : : D***EI C> CB *** =@ CC 59 ?N <--- : : : 7 : : 9 : 5B7 : : ; 9 N <--- : : : 7 : : 9 : : 5B7 : : =?9 ?N <--- : : : 7 : : 9 : 5B7 : : <------- : : 7 : : 9 : ; : : <---=7 7 : : 9 : BB: : : <---67 86=7 9 : B5: : D** > J ?> * J F=CB @ CC
  •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construction budget was derived from the most recently developed Upper Upscale brand hotel in Guayaquil, Ecuador, the Wyndham Guayaquil Hotel. It is a 180-room hotel and the cost per room was $137,499. A similar type of hotel with 220 rooms would cost approximately $30,249,000. To test feasibility a NPV calculation was performed. The development cost and a 10year forecast of income and expense including the 11h year reversion value was calculated. An 10% terminal cap rate was used to capitalize the 11th year NOI to arrive at the reversion value. The NPV is positive. The project is feasible at an 11% discount rate. Green Building Premium: There is ongoing debate whether building to LEED Certified standards cost more than conventional construction. This report will assume the costliest scenario that sustainable construction adds between 2% to 8% to development costs4. 4http://www.cconstruccion.net/portal/index.php/revista/articulos/118-articulo- sostenibilidad (Spain Green Building Council®) http://www.diariodelhotelero.com.ar/noticias/detalle/sustentabilidad-y-hoteleriacertificaciones-leed/Arq. Nicole Michel, LEED® AP, MiembroArgentinaGBC
  • 21. 21 LEED Certification would increase the development budget to a range between $30,854,981.86 to $32,669,980. This would reduce the NPV calculation slightly from $60,425,715 to a range between $59,880,667 to $58,245,533.
  • 22. 22 7. Proposed Neighborhoods Green Hotel Total Hotel arrivals by Neighborhood 2007 2008 253.076 301.108 Mariscal 216.523 213.415 Norte 122.429 La Carolina 97.939 63.499 La Floresta 69.297 38.643 43.610 Centro 37.744 47.419 Centro histórico 32.604 34.476 Santa Clara 46.496 47.583 Sur 792.322 873.539 Total 2009 295.069 204.704 107.756 57.716 44.807 41.747 2010 285.046 201.263 109.339 76.075 49.509 31.595 2011 266.145 206.058 114.977 67.506 56.810 31.811 2012 289.390 208.474 141.243 74.938 51.464 30.573 31.882 32.571 26.084 29.908 38.637 822.318 30.151 815.549 31.606 800.997 29.103 855.093 ACCORDING TO TH HOTEL OCCUPANCY BULLETEIN PUBLISHED BY QUITO DISTRITO METROPOLITANO. THE NEIGHBORHHOOD WITH THE HIGHEST YEARLY ARRIVALS TO HOTELS IS LA MARISCAL. This area is considered the entertainment center of Quito. It is centrally located and close El Centro Historico, the place visited most by tourist.5Mariscal has the location and foot traffic to support a newly constructed LEED Certified hotel. El Centro Historico de Quito has fewer hotels so receives fewer arrivals. But it is the place most visited by tourist.Quito, along with Kraków, were the first World Cultural Heritage Sites declared by UNESCO in 1978. There is a vibrant nightlife and the Ecuadorian government is looking to convert many colonial era buildings to hotels. The conversion of a colonial style building in El Centro Historico de Quito to a green hotel would take advantage of the natural synergy that preservation has with 5 Appendix E
  • 23. 23 sustainability. It would cost less than new development, be more environmentally sound, and create a unique hotel property for authentic experiences that most travelers look for now. The property would be similar to the recently developed JW Marriott in Cusco, Peru’s Historic Center pictured below:
  • 24. 24 Opposing viewpoints Political risk: Ecuadorian President Rafael Correa is a self-proclaimed socialist and perceived as hostile toward international investment. Legal risk: Related to political risk, there is perceived corruption and low credibility of Supreme Court judges. The executive branch of government exerts undue influence and control over the judiciary. Lack of Transparency: Ecuador is adeveloping nation. It lacks the history and data used to quantify risks and audit information publicly. Business Climate: The World Bank Doing Business Report in 2012 ranked Ecuador 130 out of 183 countries. The report cited burdensome regulatory procedures and high corporate taxes. Although investors are wary of anti-capitalist rhetoric from President Rafael Correa, the president has become more practical on issues of foreign investment. The Ecuadorian government is actively seeking foreign investment for strategic sectors like tourism and mining. While Ecuador does not have a competitive business climate, a group of leading international brands including IHG, Hilton, and Marriott has successfully penetrated the market. In addition, Clay Dickinson of JLL Hotels and Hospitality Group indicated that the poor perception that markets like Ecuador and Bolivia have amongst international investors could serve as an advantage; competitive barrier to entry for firms willing to invest in these markets. Lastly, reduced international capital flows have keep costs and prices down. Compared to Bogota, Lima, and Rio de Janeiro, hotel rates, food, and entertainment are less expensive in Ecuador.
  • 25. 25 Appendix A: Recent stated investor requirements: A) Cap rates/Yields around 10.2%; unleveraged IRR 20% to 17%; all dependent on risk. B) Buy 20-25% below replacement costs in urban settings C) If land is too expensive for development, mixed use development will be needed Sources: Meridia Capital
  • 26. 26 Appendix B: Feasibility of New Hotel Projects By Steve Rushmore, HVS When designing a hotel, the architect and development team need to create a project that is ultimately economically feasible. Unless the hotel’s owner is ego driven rather than economically motivated, most investors are looking for a return on their invested capital. Since feasibility means different things to different people, and as a hotel consultant having prepared thousands of feasibility studies, I have been asked to provide my perspective on this topic. The process I like to use for determining whether a proposed hotel is economically feasible is to compare the total project cost (including land) with the hotel’s estimated economic value on the date it opens. A feasible project is one where the economic value is greater than the cost. Accurately estimating the total project cost is a relatively simple process for the architect and development team. However, determining the economic value is much more complicated. The first step in the valuation process is to perform a market study where the local hotel demand is quantified and allocated among the existing and proposed supply of lodging facilities. The allocation of room night demand is based on the relative competitiveness of all the hotels in the market. The end result is a projection of demand captured by the proposed subject hotel, which is then converted into an estimate of annual occupancy. A similar procedure is used to project the average room rate. The second step is to project the hotel’s operating revenue and expenses based on the previously estimated occupancy and room rate. This results in an estimate of annual net operating income. Most consultants use a five- to 10-year projection period, so this process needs to be repeated for each year. 
 The last step is to convert the projected NOI into an estimate of value using a weighted cost of capital discounted cash flow procedure. The end result is an estimate of economic value that can be compared to the total project cost. Some consultants will substitute a net present value calculation or determine the internal rate of return (IRR) for the last step. However, I prefer using the economic value approach because you end up comparing “apples with apples” — i.e. cost with value. As you can see, this process of determining economic value requires local market knowledge, hotel financial expertise and experience with valuation methodology. Luckily for architects and hotel developers, there are two simple rules of thumbs that will provide a rough approximation as to whether a project is economically feasible.
  • 27. 27 The first thumb rule tests the cost of the land to determine whether it exceeds a supportable economic land value. The following formula calculates economic land value: Occupancy x ADR x Rooms x 365 x .04 / .08 = Economic Land Value. As example, a proposed hotel is being considered on a parcel of land that can be acquired for $3,800,000. Zoning permits the development of 200 rooms. Based on local market conditions, the proposed hotel should achieve a stabilized occupancy of 70% and an average room rate of $150. Using these inputs the Economic Land Value would be calculated as follows: .70 Occupancy x $150 ADR x 200 Rooms x 365 x .04 / .08 = $3,832,500. The calculation shows the Economic Land Value is above the cost of the land so the developer is not overpaying for the land. If the land cost was $4,000,000 or above, the developer needs to re-evaluate the project because the hotel does not support it’s underlying economics. Perhaps additional rooms could be added, which would increase the room count or a higher quality of hotel developed would increase the average room rate. This Economic Land Value formula works well in most markets. For prime center city locations the .04 factors can be moved up to .08. The second rule of thumb is the Average Rate Multiplier formula. This is a very simple way to approximate a hotel’s total economic value. The formula is as follows: ADR x Rooms x 1,000 = Economic Value Using the numbers from the example above produces the following Economic Value: $150 x 200 x 1,000 = $30,000,000 If the hotel’s total development cost is over $30,000,000, there could be a feasibility problem. In most cases where the development cost is significantly higher than the economic value it is because the local market’s average room rate is too low to support the contemplated improvements. In these situations the proposed plans and specifications need to be scaled back in order to produce a lower total project cost, which might then create a feasible project. One additional point of reference looks at the percentage relationship between the hotel’s land cost and the economic value. In this example, the value of the land is approximately 13% of the overall economic value ($3,832,500/30,000,000 = 13%). This relationship should be no more than 15% to 20%. In other parts of the world where labor cost is low, this percentage relationship can be higher.
  • 28. 28 Using these hotel feasibility rules of thumb combined with a professionally prepared study will insure the architect and developer are not creating a project that has no economic viability. As with any rule of thumb, there are numerous exceptions that need to be factored into the evaluation. Before abandoning a project because the rules don’t produce the desired results, it is a good time to call in a professional consultant to prepare a more in depth analysis to either verify or dispute the conclusions produced by the rules of thumb. Stephen Rushmore is president and founder of HVS, a global hospitality consulting organization with offices around the world. Steve has provided consultation services for more than 12,000 hotels throughout the world during his 35-year career and specializes in complex issues involving hotel feasibility, valuations and financing. He can be reached at srushmore@hvs.com or 516 2488828 ext. 204. www.hvs.com Proposed Guayaquil Hotel: Economic land value: Occupancy *ADR* Rooms*365*.04/. 08=Economic Land Value .7*104*365*(.04/. 08) Appendix C: Construction Budget Budget Source: Budget Estimate figures are drawn from Fideicomiso Hotel Cuidad del Rio: Wynham Hotel, The most recent comparable upper upscale hotel constructed in Guayaquil, Ecuador http://www.bolsadequito.info/uploads/inicio/prospectos/titularizaciones /110518163304-2dc4f9d0baf245539992c8ecd8c3099e_sic1.pdf
  • 29. 29 Appendix D: MasterCard ranking of cities with highest growth rates in tourist spending
  • 30. 30 Appendix E: Most visited sites in Quito Fuente: Ministerio de Turismo Quito
  • 31. 31 Appendix F: Green Building Cost Premium http://www.cconstruccion.net/portal/index.php/revista/articulos/118-articulosostenibilidad Por Aurelio RamírezZarzosa, Presidente del Consejo de la Construcción Verde España® (Spain Green Building Council®) http://www.diariodelhotelero.com.ar/noticias/detalle/sustentabilidad-y-hoteleriacertificaciones-leed/ Arq. Nicole Michel, LEED® AP, MiembroArgentinaGBCarq.nmichel@gmail.com Ing. Carlos Grinberg, PresidenteArgentinaGBC GF / EstudioGrinbergIngenierosConsultorescarlos@estudio-grinberg.com.ar
  • 32. 32 International Appraisals is a global real estate, hospitality and sustainable development consultancy specializing in hotels in Latin America. We empower our clients with objective analysis, leading edge expertise, thorough due diligence, and trusted advisement. International Appraisals is especially dedicated to modernizing and developing the hotel sector in South America. We provide complete project proposals, LEED project management and consulting, hotel valuation and investmentanalysis , and luxury spa training and consulting. President/Founder Ivan Garay graduated with honors from Baruch College’s MBA program in real estate. He holds a certification in hotel appraisal from HVS and is a LEED AP BD&C. In addition, Ivan Garay has over 16 years of hotel operational experience, both in food and beverage as well as spa and fitness. He has worked at many five-star properties in New York including the Four Seasons Hotel, The Carlyle, A Rosewood Hotel, and the Plaza Hotel. Ivan is a native of New York City and keeps close ties with his family in Guayaquil, Ecuador. He is bilingual, he reads and writes in both Spanish and English.