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    Ad vantage report ksa Ad vantage report ksa Document Transcript

    • SAMPLE REPORTAsset Performance Review forHealthier ProfitsA JOINT INITIATIVE BETWEEN AL TAMIMI & COMPANY ANDCOLLIERS INTERNATIONAL HOSPITALITY KSA
    • Colliers InternationalThis document is not a prospectus and does not constitute any part of an offer or contract. Allinformation, analysis and recommendations made by Colliers International are made in goodfaith and represent Colliers’ professional judgment on the basis of information obtained fromthe client and elsewhere during the course of the assignment.However, since the achievement of recommendations, forecasts and valuations depends onfactors outside Colliers’ control, no statement made by Colliers may be deemed in anycircumstances to be a representation, undertaking or warranty, and Colliers cannot accept anyliability should such statements prove to be in accurate or based on incorrect premises. Inparticular, and without limiting the generality of the foregoing, any projections, financial andotherwise, in this report are intended only to illustrate particular points of argument and donot constitute forecasts of actual performance.Likewise, indications of potential selling prices are indicative and intended primarily to enableeasier comparison between the different options that are reviewed in this report. Those figuresdo not constitute formal valuations and they have not been prepared in accordance with theRICS ‘Red Book’.Al Tamimi & CompanyThe legal aspects of this Report are based on Al Tamimi & Company’s legal review of certaindocuments presented to Al Tamimi & Company. The scope of Al Tamimi & Company’sengagement in relation to the legal review is set out in our engagement letter andaccompanying terms of engagement, as supplemented by this Report. Please see schedule 3 forfurther details of the scope of work carried out by Al Tamimi & Company, the reliance that maybe placed on the legal content of this Report and Al Tamimi & Company’s liability for thisReport.This Report is addressed only to the addressee. This Report may not be relied upon by anyother person and we have no responsibility or liability whatsoever in respect of, or arising outof, or in connection with, the contents of this Report to any person other than the addressee.The benefit of this Report may not be assigned or transferred and if others choose to rely in anyway on the contents of this Report, they do so at their risk. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 1
    • CONTENTSCONTENTS 2EXECUTIVE SUMMARY 3RECOMMENDATIONS 3LEGAL SUMMARY 3COMMERICAL SUMMARY 3PERFORMANCE GROWTH STRATEGY TIPS 4LEGAL STRATEGY TIPS 4PROPERTY SUMMARY 5OVERVIEW 5LOCATION & SURROUNDINGS ANALYSIS 5PHYSICAL ASSET & FACILITIES –TRAFFIC LIGHT ANALYSIS 7TRADING PERFORMANCE ANALYSIS 8MARKET PERFORMANCE 9COMPARATIVE ANALYSIS 9COMMERCIAL CONCLUSIONS 12THE PROPERTY 12COLLIERS HOTEL WORTH INDEX 12LEGAL OVERVIEW 13POTENTIAL CLAIMS AGAINST THIRD PARTIES 13OVERVIEW OF BANK’S SECURITY PACKAGE 13KEY MANAGEMENT AGREEMENT TERMS 14POTENTIAL BREACHES OF MANAGEMENT AGREEMENT 15POTENTIAL RIGHTS UNDER MANAGEMENT AGREEMENT 16NON-DISTURBANCE AGREEMENT 16CONTRACTOR AND DEVELOPMENT DOCUMENTS 16EMPLOYEES 16CAPITAL STRUCTURE 17DEBT SERVICE COVERAGE (DSC) RATIO FORECAST 17DEBT ON EBITDA 17LOAN TO VALUE RATIO 17GLOSSARY OF TERMS 18SCHEDULE 1-P&L US$ 19SCHEDULE 2 20SCHEDULE 3 24SCHEDULE 4- PRACTICES PROFILE 25 SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 2
    • EXECUTIVE SUMMARY RECOMMENDATIONS Further to our asset review we concluded the following: LEGAL SUMMARY  The Hotel is freehold and operated as a Brand under an HMA between An Hotel Company and Hotel Owner Full Legal Overview and a separate Trade Mark Licence granted by An Hotel Company. The HMA is lacking in a number of protections for Hotel Owner and is very one sided in favour of a Hotel Company.  The Hotel Owner also entered into a Non-Disturbance Agreement with a Hotel Company and the Bank as well as a Facility Agreement with the Bank. As part of the Facility Agreement, Hotel Owner granted a full security package to the Bank over the assets of the Hotel and shares in Hotel Owner.  The Hotel was opened in 1995 as a new build. COMMERICAL SUMMARY  The Hotel is running below its market and competitive set position due principally to poor ARR performance, though there is also evidence that occupancy is also beginning to drop against market benchmarks. Full Commercial Overview  As a result of falling top-line revenue Rooms and Food Gross Profits are very low indeed which suggests that management have not made the necessary cuts in their cost model to accommodate falling revenue resulting in proportionately high Administrative & General, and Wage levels at 16.7% and 36% of total revenue respectively.  The main revenue generating areas of the Hotel are Hotel Worth Index generally in poor condition, particularly the bedrooms, +14,600 + 3,700 +10,300 172,300 and are in need of some capital expenditure to bring the product into line with its competitive set.  Through our analysis we envisage four scenarios which will assist in driving better revenues and net profits and will strengthen the debt service coverage position as Current Hotel Property Value Property Value Property ValueWorth- Scenario 1 Scenario 2 Scenario 3 Scenario 4 follows:  Scenario 1- Current trading SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 3
    • Effect of Strategic Performance Management on Cash  Scenario 2- Increasing Rooms Profitability by 2% will Flow add SAR3.7m to asset worth11,000  Scenario 3- Increasing Rooms Profitability by 2% +10,000 9,000 Increase F&B Profitability to 30% will add 8,000 SAR10.3m to asset worth 7,000 6,000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020  Scenario 4- Increasing Rooms Profitability by 2% + Increase F&B Profitability to 30% + Decrease in EBITDA Scenario 1 EBITDA Scenario 2 EBITDA Scenario 3 EBITDA Scenario 4 Undistributed Payroll by 2% will add SAR14.6m to the asset worth PERFORMANCE GROWTH STRATEGY TIPS  Recommendation 1- Revenue Strategy  Recommendation 2- Cost Strategy  Recommendation 3- Staff Strategy  Recommendation 4- Sales & Marketing Strategy LEGAL STRATEGY TIPS  HMA: Strategy  Licenses: Strategy  Ownership Structure: Strategy from a legal prospective  Litigation : Strategy  Risk mitigation : Strategy SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 4
    • PROPERTY SUMMARYOVERVIEW The Hotel was purpose built in 1995 and is well located off a major thoroughfare in King Fahad Road Riyadh and within minutes of KAFD and Kingdom Centre. The Hotel is currently operated under an HMA with An Hotel Company but would be suitable for alternative branding or repositioning. The Hotel benefits from high visibility in a prominent location and is well sign posted with good complementary amenities within the immediate locale supporting the needs of both business and leisure guests.LOCATION & SURROUNDINGS ANALYSIS Since the hotel opening, the neighbourhood has grown from few residential buildings to micro economy, characterised by a large number of new hotels, and retail outlets. Our Site econometric analysis has produced the following results: 1. Suitability for Re-Development: The current market demand is high for service apartment. The asset in its current status allow for the re-configuration of the bedroom stock, hence the opportunity to convert 20 units into serviced apartments which will add an extra SAR 15,000 or room revenue per annum per room sold. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 5
    • 2. Visibility: Despite the number of residential buildings been built around the asset, visibility still good. However, we strongly recommend reviewing signage and information on the hotel website. 3. Accessibility: Major work around the site has led to traffic been diverted and therefore accessibility to the hotel have been restricted. This could affect business in short to medium term. 4. Proximity to Demand Generators: New companies have occupied the adjacent building and this put the hotel in a stronger position when compared with direct competitors. 5. Market Growth Potential: Macro market growth is limited as the main tourism source markets are still suffering from economic downturn. GCC and Egypt are the markets which we have identified as catalyst for the growth. Micro market growth is limited to the new tenants in adjacent office building and meeting business from existing clients. 6. Barriers to Entry for New Hotel Supply: Barriers are very low and as there are quite few plots available in the surroundings and the threat from new supply still very high.SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 6
    • PHYSICAL ASSET & FACILITIES –TRAFFIC LIGHT ANALYSIS The table below summarises the Hotels facilities and amenitiesKPI Facility Number Condition FF&E are poor, Bathrooms Bedrooms 200 Requires Tired immediate Reception N/A Fair attention Lounge 100 Fair Will require attention if ignored Bar 75 Good Restaurant 120 Good Is operationally sound Meeting Room 1 500 Good Meeting Room 2 300 Fair Meeting Room 3 100 Fair Boardroom 18 Excellent Changing rooms tired. M&E Leisure & Spa N/A good Back of House 8 Generally poor Generally good. – signage Exterior N/A poor Grounds N/A Generally good The Hotel is generally in poor condition having received little capital expenditure over recent years. The reception, lounge and bedrooms are in need of a soft refurbishment to maintain the Hotels competitive position within its market place and against its competitive set. This could seriously threat the room revenue achievable and therefore a negative impact on net profit and worsening of debt service coverage. The food and beverage facilities are however well maintained and are popular amongst both Hotel guests and the public. The Hotel bar in particular has a cachet within the immediate locale and trades strongly on weekday evenings. The meeting and conference facilities are largely operable, though the smaller meeting rooms could use some SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 7
    • improvements to the soft furnishings and wall coverings which are tired. The leisure areas are in fair condition though the changing rooms would appear to have a damp issue and the shower areas are in need of some improvements. The back of house areas are generally in very poor condition with the kitchens and staff facilities in particular requiring immediate attention and investment. The exterior of the building is generally good though a freshen up of the façade and better maintenance of the trees and shrubs would improve appearances immediately. In addition, the lighting of the Hotel as well as night and general signage requires attention. TRADING PERFORMANCE ANALYSIS The Hotel is trading reasonably well with a good mix of Corporate and Leisure business. Average room rate and occupancy are broadly in line with the Hotels competitive set (see Appendix 1) though ARR has shown some decline in recent months. FINANCIAL ANALYSIS, 2010-11 (FULL P&L IN SCHEDULE 1) HISTORIC & CURRENT The Hotel has historically traded well though the recent credit crunch has had a detrimental effect on the Hotels trading performance.Full Profit & Loss Accounts Current & Historic Hotel Performance 2011* 2010 2009 Year % % % (SAR) (SAR) (SAR) TRevPAR SAR48,974 SAR53,885 SAR56,578 GOPPAR SAR13,249 27% SAR18,095 34% SAR23,676 42% EBITDA SAR6,173 13% SAR10,194 19% SAR14,741 26% PR Key Performance Indicators ARR SAR SAR116.00 SAR122.50 SAR126.00 Occ 69% 72% 74% RevPAR SAR80.27 SAR88.32 SAR92.74 * 6 month actual and 6 month forecast accounts SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 8
    • MARKET PERFORMANCE The Hotels competitive set as an average performed relatively well over the previous three years, though with the recent economic downturn, the Meetings, Incentives, Conferences and Events (MICE) segment has been hit which has had an adverse effect on all the Hotels in the sector. Current & Historic Market Performance 2011* 2010 2009 Year % % % (SAR) (AED) (AED) TRevPAR SAR52,326 SAR57,623 SAR59,652 GOPPAR SAR21,001 40% SAR23,596 41% SAR25,556 43% EBITDA PR SAR16,232 31% SAR17,554 30% SAR19,658 33% Key Performance Indicators ARR SAR128 SAR132 SAR136 Occ 72% 72% 76% RevPAR SAR92.16 SAR95.04 SAR103.36 * 6 month actual and 6 month forecast accounts We have aggregated the market data to show performance on a ‘per room’ basis to ensure fair comparisons are being made.COMPARATIVE ANALYSIS As illustrated below, the Hotel has performed badly against its competitive set, particularly in terms of ARR which has fed through the Profit and Loss accounts to show very poor conversion to EBITDA. Comparative Analysis 2011* 2010 2009 Year % % % (SAR) (SAR) (SAR) TRevPAR -6.41% -6.49% -5.15% GOPPAR -36.91% 35% -23.31% 38% -7.36% 42% EBITDA PR -61.97% 19% -41.93% 24% -25.01% 28% Key Performance Indicators ARR -9.38% -7.20% -7.35% Occ -3.89% 0.14% -3.16% RevPAR -12.90% -7.07% -10.28% * 6 month actual and 6 month forecast accounts SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 9
    • Our detailed P&L analysis, as summarised above, indicates that the Hotels performance has suffered particularly in the past two years with top line figures down both in real and comparative terms. Rooms Department ROOMS DEPARTMENT-MARGINS Rooms Revenue Rooms Profit 20762 • Rooms Revenue @ 35.7% of 2011’s Forecast 15913 • Rooms Profit @ 36.3% of 2011’s Forecast 7410 13352 5773 10140 • Rooms Margin should be constant and increasing with good cost management approaches May Year to Date Rest of Year Full Year 2011 • Hotel rooms should have a room’s profit margin in Rooms Margin excess of 80%, but currently the hotel is achieving79% below this threshold. To achieve annual target the78% hotel needs to achieve profits at 75.9% 77.9%77% 76.6% Rooms Margin76% Rooms Margin Trend ROOMS DEPARTMENT COSTS- BENCHMARK 75.9%75%74% 35% May Year to Date Rest of Year Full Year 2011 30% 25% 20% 29% 23% 20% 15% 10% 5% 0% Hotel 1 Hotel 2 Hotel Analyzed Rooms Expenses • Hotel 1 has the Ideal Cost / Profitability Mix. • Hotel 2 is a Normal hotel operating at a higher cost base due to guest turnover • The subject hotel has an Opportunity cost of 3% points reduction on the Rooms Costs to reach the optimum scenario. FOOD & BEVERAGE DEPARTMENT-MARGINS F&B Department F&B Rev F&B Profit • F&B Revenue @ 26.8% of 2011’s Forecast • F&B Profit @ 16.7% of 2011’s Forecast 3882 2841 • F&B Margin is at 5.7%, Cost of Sale is at 25%, 1041 Payroll is at 60% and other costs at 9%. 359 299 60 May Year to Date Rest of Year Full Year 2011 An opportunity lies in improving Payroll through multitasking and skills training. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 10
    • FOOD & BEVERAGE DEPARTMENT-COST BENCHMARK12% F&B Margin 100%11% 80% 91%10% 10.5% 9% 9.2% 8% 7% 60% 52% 59% 6% F&B Margin 5.7% 5% 4% F&B Margin Trend 40% 3% 2% 1% 20% 0% May Year to Date Rest of Year Full Year 2011 0% Hotel 1 Hotel 2 Hotel Analyzed Food & Beverage Expenses • Hotel 1 has a high F&B Profitability Margin of 48%. • Hotel 2 is operating at a good F&B Profitability Margin of 41% • The subject hotel is forecasted to trade at a poor cost / profitability mix, and has a Departmental Profitability Margin of just 9%. Other Department OTHER DEPARTMENT-MARGINS Other Revenue Other Profit • Other Revenue @ 20.9% of 2011’s Forecast 3329 2634 • Other Profit @ 21.5% of 2011’s Forecast 2238 1757 696 481 • Other Margin is at 69.1%, with a yearend target of May Year to Date Rest of Year Full Year 2011 67.2% The Analysis concluded that it is below the line costs where Other Margin 70% there have been some mismanagement with conversion to 69% EBITDA dropping significantly. 69.1% 68% Other Margin This in itself implies that insufficient measures were taken by 67% 67.2% Others Margin Trend the Hotels management to reduce their fixed costs in the 66.7% 66% preceding years. Immediate remedies can be taken in this 65% May Year to Date Rest of Year Full Year 2011 area to reduce costs, some of which can be affected by the operator themselves (procurement, staffing, management fees) whilst other, property based costs, should be dealt with by the Owners. Whilst the mismanagement of the cost model is important, top line figures could have been maintained in line with the market and it is our opinion that the Hotel has performed below competitors in this area due to insufficient expenditure on FF&E, hence less marketable. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 11
    • COMMERCIAL CONCLUSIONS THE PROPERTY The Hotel is generally in fair condition though we feel it has been underinvested in over the past few years and would benefit greatly from a soft refurbishment. Additional works should be carried out on the exterior of the building to improve the façade, landscaping signage and lighting around the building. If reinvestment takes place the Hotel should claw back its position within the market and re-establish its market penetration to bring profits back up to historic levels. This will enable the owner to have a healthier business and better service coverage of its interests in the property and business at the best possible exit value COLLIERS HOTEL WORTH INDEX EFFECT OF STRATEGIC PERFORMANCE ON NET PROFIT AND ASSET VALUE Hotel Worth Index Scenario 1- Current trading +14,600 + 3,700 +10,300 172,300 Scenario 2- Increasing Rooms Profitability by 2% will add SAR3.7m to asset worth Scenario 3- Increasing Rooms Profitability by 2% + Increase F&B Profitability to 30% will add SAR10.3m to asset worth Current Hotel Property Value Property Value Property ValueWorth- Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 4- Increasing Rooms Profitability by 2% + Increase F&B Profitability to 30% + Decrease in Undistributed Payroll by 2% will add SAR14.6m to the asset worth Effect of Strategic Performance Management on Cash Flow 11,000 10,000 9,000 8,000 7,000 6,000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 EBITDA Scenario 1 EBITDA Scenario 2 EBITDA Scenario 3 EBITDA Scenario 4 SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 12
    • LEGAL OVERVIEWPOTENTIAL CLAIMS AGAINST THIRD PARTIES Our initial review of the documents indicate that the Bank is unlikely to have a claim against either the original valuer or the solicitors who advised on the grant of the loan facility at the start of the Banks loan. However, this should be reviewed in more detail if the Banks loss crystallises (subject to any limitation issues). In the event that a more detailed review indicates that the Bank does have a claim against a third party in relation to its loss, Al Tamimi & Company would like to discuss with the Bank options for funding such claims.OVERVIEW OF BANK’S SECURITY PACKAGE The Bank’s security package includes a number of shareholder (i.e. borrower group) guarantees, a fixed charge over the Property and an assignment of the borrowers interest in: (a) the Hotel agreements including the non- disturbance and management agreements; and (b) the income, retentions, sale proceeds and any insurance proceeds relating to the Hotel. A pledge by the borrower provides the Bank with security over the shares of [Holding Company]. The recommended restructuring option in this case is to threaten to exercise the lenders rights under the facility agreements (although not any rights of appropriation in the pledge), including the rights under guarantees granted in its favour, so as to illicit sufficient funds from Hotel Owners group of companies for Hotel Owner to bring the facility back from default without the necessity of enforcement of security. If, as seems likely, this threat results in a satisfactory compromise it will be appropriate to amend and restate the loan to extend its term (and potentially, at the same time, relax certain financial covenants) in return for:  a charged cash deposit;  an equity injection into the borrower from its shareholders/guarantors;  additional security from other members of the borrowing group; SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 13
    •  Hotel Owner using the monies available within the FF&E reserve account to carry out the proposed refurbishment works (i.e. against the background of the above improved security package), such that, if the restructured facility does not result in Hotel Owner being able to meet its commitments, the Hotel can, in any event, be sold in a much improved position. KEY MANAGEMENT AGREEMENT TERMS The full version of this analysis can be found in Schedule 2 but we below have highlighted the pertinent points from our analysis. If retaining the HMA, the onerous terms which the Bank should consider renegotiating with the Operator are asSchedule of HMA follows: Terms PERFORMANCE TESTS We have concerns about the existing performance test. That test provides that if in any two consecutive fiscal years the GOP is less than:  85% of the budgeted GOP in any fiscal year from the 4th fiscal year up to and including the 10th fiscal year of the term; and  90% of the budgeted GOP in any fiscal year from the 11th fiscal year onwards and including the end of term; then the Owner shall have the right to terminate the HMA by notice, to be effective between 90 to 180 days afterwards. A more effective test would be to compare the performance of the Hotel against revenue (as fees (apart from the Incentive Fee) are paid by reference to this) or the REVPAR of the comparable hotels, at not less than 90% rate. FEES The Base Fee and Incentive Fee are both high compared to the current market norm. In particular, the Incentive Fee of 12% of GOP is very high and a figure of 8% - 10% of GOP or AGOP would be far more reasonable. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 14
    • OWNERS PRIORITY The HMA does not provide for any Owners priority return or for any deferral of the Operators Incentive Fee. It would be preferable for the Owner if the Operators Incentive Fee was subordinated to an agreed amount of debt service on the Hotel. EXCLUSIVITY The HMA does not provide for any exclusivity or area of protection for the benefit of the Owner. The Operator is therefore free to operate other brand hotels within the vicinity of the Hotel.POTENTIAL BREACHES OF MANAGEMENTAGREEMENT [Identify any likely breaches of Hotel Management Agreement and implications] It is often the case that purported breaches of the HMA are not clear-cut. Depending on the position of the Operator, there is likely to be a risk in seeking to terminate the HMA which may lead to a costly and time consuming legal dispute. Once the relevant documentation have been reviewed and considered, Al Tamimi & Company will be in a position to advise in more detail as to the strength of the Banks position under the HMA and whether it is likely to be cost and time effective to seek to terminate the HMA in the context of the overall commercial position. Alternatively, often allegations of mismanagement rely on allegations of numerous failings. Therefore, Hotel Owner should look to see whether there is a mechanism within the HMA that enables it to terminate on the basis of such an aggregation. Hotel Owner should also be aware that if it decides to terminate the HMA, it may face the threat of An Hotel Company counterclaiming for damages, possibly equal to the entire remaining term of the HMA. If the Hotel Owner can demonstrate that An Hotel Company has not delivered upon the obligations that were agreed between the parties, the Hotel Owner may be able to bring a claim against An Hotel Company for compensation based on claims of mismanagement. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 15
    • POTENTIAL RIGHTS UNDER MANAGEMENTAGREEMENT [Identify Hotel Owner’s/Bank’s Rights under HMA] There are a number of concerns in relation to the mismanagement of the Hotel such as to justify Hotel Owner in exercising its right to inspect financial records. If a review of those records will support an allegation of mismanagement, we believe it is likely that it will be appropriate to seek to renegotiate the terms of the HMA. The first step, however, is to obtain copies of the relevant records by exercising the contractual right of inspection. The audit terms are standard form and allow the Owner to inspect the relevant records on reasonable notice.NON-DISTURBANCE AGREEMENT The Hotel is encumbered by a NDA but it would seem unlikely that the NDA materially impacts upon the above recommended strategy as it seems probable that, in a forced sale scenario, the asset could be sold subject to the existing HMA.CONTRACTOR AND DEVELOPMENTDOCUMENTS Not applicable.EMPLOYEES The employees in the Hotel are all employed by the Hotel Owner, with the exception of the General Manager who is employed by the Hotel Operator. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 16
    • CAPITAL STRUCTURE DEBT SERVICE COVERAGE (DSC) RATIO FORECAST  From the analysis of the hotel historic trading projections we foresee the debt service coverage to be in line with the minimum required by the bank.  A 10% fall in Average Room Rate it is likely to have a 6.1% negative impact on the EBITDA, consequently bring the DSC ratio below the required 1.25X  In order to maintain a robust DSC ratio the hotel is required to achieve a Gross Operating Profit constant at 60%. Any shortfall in GOP will threaten the compliance with the minimum DSC required by the lender DEBT ON EBITDA  The hotel debt finance position stands at 17x times EBITDA which in our view is very risky  Assuming the hotel will implement the strategies recommended in this report we envisage the total debt to reach 13x times EBITDA by 2015 LOAN TO VALUE RATIO  Senior Debt-The current loan amount stands at 50% of value  Mezzanine Debt- The current loan amount stand at 85% of value  Junior Debt – The current loan amount stands at 70% of value. We have noticed an abnormal distribution of debts which we would suggest to consolidate all in one senior debt. The structure of the new debt needs to reflect the forecasted trading projections in order to provide overall debt service coverage supportable by the property. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 17
    • GLOSSARY OF TERMS ARR – Average Room Rate EBITDA – Earnings Before Interest Tax Depreciation & Amortisation FF&E – Fixtures Fittings & Equipment GOPPAR – Gross Operating Profit Per Available Room HMA – Hotel Management Agreement NDA – Non-Disturbance Agreement OM&E – Operating Machinery & Equipment POR – Per Occupied Room PAR – Per Available Room RevPAR – Revenue Per Available Room SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 18
    • SCHEDULE 1-P&L US$ SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 19
    • SCHEDULE 2  Onerous/Scope for renegotiation  Operator Friendly  Market Standard/Reasonable Provision Summary1. Parties (1) [ ● ] (Owner) (2) [ ● ] (Operator)2. Term 25 years from the Opening Date. The Operator can choose to extend the term for a further five years on 12 months prior written notice before the expiry of the initial term.3. Technical Services The Owner shall perform Technical Services which entail consultation with the Owners contractors in respect of operational matters, design matters, IT planning and Brand Standards matters.4. Pre-Opening Activities The Operator shall prepare and carry out a Pre-Opening Programme Activities Programme prior to the Projected Opening Date, including activities such as recruitment, marketing, obtaining licences and permits, arranging for amenities provision, and preparation of the first years operating Budget.5. Technical Services Fee $100,000 SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 20
    • Provision Summary6. Base Fee 3% of Total Revenue each Year.7. Incentive Fee 12% of Gross Operating Profit each Year.8. Marketing, Central Sales Sales and Marketing Fee: [ ]% of Total Revenue. and Licensing Fees TM Licensing Fee: [ ]% of Total Revenue.9. Owner’s Priority/Deferral There is no Owner’s priority return or deferral of incentive of Incentive Fee fee.10. FF&E Reserve A Reserve Fund shall be held in a segregated account and each year the following percentages of Total Revenue will be transferred to this account: First Year: 1% Second Year: 2% Third Year: 3% Fourth Year, and thereafter: 4% The Reserve Fund shall be used to make replacements and renewals of and additions to FF&E only.11. Alterations/Brand The Operator can make alterations to the Hotel which are Standards customarily made in the operation of first-class Hotels or are required to maintain the Hotel in accordance with the brand standards (such standards are set by the Operator). The cost of this shall be borne by the Owner.12. Performance Test If in any two consecutive fiscal years GOP is less than: (a) 85% of the budgeted GOP in any fiscal year from the th th 4 fiscal year up to and including the 10 fiscal year of the term; and (b) 90% of the budgeted GOP in any fiscal year from the th 11 fiscal year onwards, then Owner may terminate this Agreement. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 21
    • Provision Summary The Operator can cure the breach by paying an amount equal to shortfall in respect of either one of the two relevant fiscal years. There is no limit to the number of times that the Operator can cure.13. Employees Persons hired to work at the Hotel shall be employees of the Owner and not of the Operator, except that the General Manager and other executive personnel may be employed by the Operator.14. Early termination by the The Owner can terminate if the Operator: Owner (i) fails to observe a material term of the Agreement and such default continues for 60 days after receiving notice specifying the breach requiring it to be remedied; (ii) becomes insolvent or ceases to carry on its business.15. Early termination by the The Operator can terminate if Hotel Owner: Operator (i) fails to observe a material term of the Agreement and such default continues for 60 days after receiving notice specifying the breach requiring it to be remedied or 10 days after such notice in the case the default relates to failure to pay any monies and/or fees due under the Agreement; (ii) does not commence construction by [ ] or open Hotel by [ ]; (iii) becomes insolvent or ceases to carry on business.16. Right of First Offer The Operator has a right of first offer if the Owner wishes to sell the Hotel.17. Exclusivity No restrictions19. Assignment The Operator can assign any of its rights to any person, without consent of the Owner, provided the assignee SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 22
    • Provision Summary enjoys the benefits of the Brand organisation in the same degree as the Operator. The Owner may not, without the consent of the Operator, such consent not to be unreasonably withheld, assign any of its obligations under this Agreement or dispose of the Hotel. The Owner may not assign/dispose of the Hotel to: (a) any entity considered by the Operator to be a competitor; or (b) any entity of ill repute; The Owner may not create any security over Hotel where the aggregate indebtedness exceeds 75% LTV.20. Disputes The Agreement is governed by English law. Disputes under the Agreement are dealt with as follows: [expert determination/mediation/arbitration/ court of law] SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 23
    • SCHEDULE 3 The scope of Al Tamimi & Company’s engagement expressly excludes any responsibility to investigate, advise, comment or report on, or otherwise have any responsibility for, the affairs of the Bank in relation to taxation, accounting, financial matters, fiscal compliance with environmental law and regulation, valuation of any asset or liability of the Hotel, any actuarial matters, the adequacy or enforceability of any insurance arrangement, or to review, comment, advise or report on any documents other than those we have identified in Schedule 4. The Bank is responsible for determining whether the scope of work which we have been asked to carry out is sufficient for the purposes of this Report. Al Tamimi & Company has not undertaken any independent verification of any of the documents or information supplied to us and makes no representation or warranty and gives no undertakings to the accuracy, reasonableness or completeness of the information contained in any document or information supplied to us for the purpose of completing this Report. No liability is accepted by Al Tamimi & Company to the extent that any information supplied by or on behalf of the Bank is, or proves to be in due course, untrue, incomplete or inaccurate in any respect. This Report should not be regarded as a comprehensive or formal legal opinion or legal audit. The legal sections of this Report have been prepared solely to identify what, on the basis of the review of the documents provided, we consider in our professional judgment to be the major legal issues relating to the Hotel, for further investigation and advice. This Report is limited to matters of UAE law as are in force and applied by the UAE courts at the date of the Report and should be construed accordingly. Al Tamimi & Company has made no investigation of and expressed no statement or opinion with respect to the laws of any other jurisdiction. The submission of this Report and any further explanations are subject to our engagement letter to the Bank dated [ ] and the conditions and limitations contained in that letter and in our standard terms and conditions of engagement. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 24
    • SCHEDULE 4- PRACTICES PROFILE AL TAMIMI & COMPANYWith a focus on the Middle East, we have a strong understanding of the businessenvironment that our clients operate in. This, combined with our full range serviceoffering, ensures that our clients receive sound and strategic legal advice.With lawyers in 10 offices across 6 countries in the Middle East who are dedicated toworking together interactively, we can respond knowledgeably and efficiently on any legalaspect across the region.Our unified approach illustrates our ability to work together with our clients, address theirissues and identify commercial solutions by building close relationships with them. Werecognise the importance of being easily accessible, commercially aware and at theleading forefront of market developments.We employ a diverse group of talented individuals from varied backgrounds and withdiffering perspectives. They are each familiar with international and local businesscustoms and are capable of addressing issues in a collaborative manner. By having theability to look at matters from every angle, we can apply our expertise confidently anddecisively – providing integrated solutions to legal and commercial issues throughout theMiddle East. OUR HOSPITALITY PRACTICEWe provide a comprehensive range of legal services across the MENA region, covering allareas relevant to the hospitality and leisure industry.The Hospitality practice comprises a team of experienced lawyers who work across theentire range of legal disciplines within the firm. Together they form a specialist industrypractice created specifically to cater to all parties involved with the hotel and leisurebusiness. Our team has in-depth knowledge of the hospitality and leisure industry gainedfrom advising on all manner of hospitality and leisure related issues. The team also drawson the invaluable experience of its members who have previously held in-house counselroles within the hotel industry.We advise on all matters applicable to a hotel/leisure project, whether your interest is asan owner, investor, developer, operator or financier. Our expertise ranges fromsite/property acquisition, corporate structuring and long-term strategy planning, jointventure arrangements, project and operational licensing, project finance, equity and debtfinancing, hotel development and construction, hotel operator appointment (includingnegotiation of hotel management agreements), day to day operational matters,employment related advice, property refurbishment/renovation, dispute resolution,intellectual property protection and disposal options. SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 25
    • COLLIERS INTERNATIONALColliers is a global, leading real estate services organisation defined by its spirit ofenterprise. Through a culture of service excellence and a shared sense of initiative, Colliershas integrated the resources of real estate specialists worldwide to accelerate the successof its clients.COLLIERS HOSPITALITYColliers International has a dedicated hospitality team specialized in Hotels, Resorts,Marina, Golf and Spa with offices in Dubai, Abu Dhabi, Riyadh, Jeddah and Cairo workingwith major developers and investors across all stages of planning and delivery for majorreal estate projects.Within the GCC Colliers International have achieved the following:--Strategic Advisory and Hospitality Capital Valuation for more than 20,000 keys with a totalasset value in excess of AED 12 Billion-Hotel Operator Search, Selection and Contract Negotiation in excess of 2,500 keys withclient savings in excess of AED 11 million-In excess of 4,200 keys proposed within Highest & Best Use, Market & FinancialFeasibility Studies for Hotels & Serviced Apartments-Highest & Best Use, Market & Financial Feasibility Studies for Hotels & ServicedApartments with a total estimated net asset value in excess of AED 6 BillionWHAT WE DO SAMPLE REPORT (POSSIBLE VARIATION IN FINAL REPORT) 26