1. GHL 6352
Randy McCaslin – President
McCaslin Hotel Consulting LLC
Hospitality Market Analysis
Financial Projections Using Comps
& Public/Private Development
2. ASSIGNMENTS
Problem Set # 1 – Due Today (9/11)
Problem Set #2 – Due in 2 Weeks (9/25)
Case Study – Due in 3 Weeks (10/2)
Financial Statement Assignment – Due in 3 Weeks (10/2)
Problem Set #3 – Assigned 9/25 / Due 10/2
Midterm – 10/16 (After Las Vegas Fieldtrip)
TURN IN EARLY TO PROVIDE TIME TO BE GRADED BEFORE MIDTERM
3. TODAY’S OBJECTIVES
Understand the use of comparables for financial projections for a proposed hotel
Learn how to calculate revenues & expenses using comparables for a proposed hotel
Learn how to calculate ADR using inflation factors
Learn shortcut to estimate rooms revenue total revenue and NOI for a proposed hotel
Utilize IRR model to determine the need for public incentives to make a hotel project feasible
4. COMPARABLE ANALYSIS
What is a comparable that is used for financial projections for a proposed hotel development?
A comparable is a hotel that is similar to the proposed hotel in type brand number of rooms amount of meeting space occupancy and/or rate.
What is the purpose of using a comparable for financial projections?
The purpose is to make the financial projections as accurate as possible. It is assumed that the more similar the set of comparable hotels are to the proposed hotel the more similar will be their financial statements.
5. TYPES OF COMPARABLE ANALYSIS
Actual Individual Hotel Financial Statements
More difficult to obtain (begin to gather)
Group of Selected Hotels by Type of Hotel
Can purchase a Benchmark report from CBRE Hotels or STR or Hotstats
Survey of Large Number of Hotels Sorted by Type Size ADR and Geographic Location
Can purchase US Trends Report from CBRE Hotels
6. FINANCIAL PROJECTIONS
Uniform System of Accounts for the Lodging Industry – Enables Comparable Analysis
Benchmark on Concept of the Hotel
Comparable Hotel Analysis – Type of Hotel Brand Number of Rooms Rate Amount of Meeting Space Location
7. INDIVIDUAL FINANCIAL STATEMENTS
CLIENT’S VISION
8. GROUP FINANCIAL COMPS – SELECT-SERVICE
9. GROUP FINANCIAL COMPS – BOUTIQUE HOTELS
10. GROUP FINANCIAL COMPS – FULL-SERVICE
11. GROUP FINANCIAL COMPS – LUXURY
12. PKF/CBRE HOTELS US TRENDS REPORT
Summary of Database – 7000 Hotels
Provides Benchmarks – Less Precise
Amount Per Available Room
Amount Per Occupied Room
Expense Ratios
Sorted by Type of Hotel and then by ADR Number of Rooms Geographic Area
13. COMPARISON – GROUP VS TRENDS REPORT
14. REVENUE & EXPENSE FORMULAS
Rooms Revenue = Occupancy % x Available Rooms x 365 x Average Daily Rate (ADR)
Occupied Rooms (Per Day) = Occupancy % x Available Rooms
Other Revenues = Amount Per Occupied Rooms (Per Day) x Number of Occupied Rooms x 365
Departmental Expenses = Expenses Ratio x Departmental Revenue
Undistributed Operating Expenses = % of Total Revenues x Total Revenues
Basic Management Fee = % Fee (3%) x Total Revenues
Property Taxes & Insurance = Amount Per Available Room (Per Yr) x Number of Available Rooms
FF&E Reserve = % Reserve (2% 3% 4%) x Total Revenues
15. AVERAGE DAILY RATE (ADR)
Average Daily Rate (ADR) is the average of all of the various rates charged by the hotel including:
- Rack Rates (website)
- OTAs (Expedia Priceline Travelocity etc.)
- Group Rates
- Corporate Negotiated Rates
- Leisure Visitor Rates
- Complimentary Guests
ADR = Total Rooms Revenue / Total Number of Occupied Rooms
16. ADR AND INFLATION FOR ROOMS REVENUE
Average Daily Rate (ADR) is stated in current dollars.
Base inflation rate is 3% but can vary depending on economy.
ADR is inflated from current year to opening year based on inflationary trend.
ADR is inflated annually throughout the projections period.
Example:
ADR = $150 in 2023 Dollars
Inflation = 1% in 2024 2% in 2025 and 3% in 2026 and thereafter
Hotel will open in 2026
ADR = $159 in 2026 ($150 x 1.01 x 1.02 x 1.03…)
ALWAYS ROUND ADR TO WHOLE DOLLAR AMOUNT
17. ROOMS REVENUE – Does NOT Use Comps
Rooms Revenue = Occupancy % x Available Rooms x 365 x ADR (Always use 365 days)
Rooms Revenue = 70% x 200 x 365 x $159
Rooms Revenue = $8124900 = $8125000
ALWAYS ROUND TO THOUSANDS
Total = ROUND(formula -3)
REMEMBER TO RAMP UP OCCUPANCY FOR THE 1ST THREE YEARS (e.g. 60% 65% 70%)
18. FACTORS USED FROM COMPS FOR FIN PROJ
Amount Per Occupied Room (Per Day)
Departmental Expense Ratios
Percent of Total Revenues
Amount Per Available Room (Annual)
Factors are applied to Proposed Hotel
19. OTHER REVENUES–F&B Other Oper Rentals Spa..
ALWAYS USE AMOUNT PER OCCUPIED ROOMS (PER DAY)
Other Revenues = Amount Per Occupied Rooms (Per Day) x Number of Occupied Rooms (Per Day) x 365
Number of Occupied Rooms (Per Day) = Occupancy % x Available Rooms
Amount per Occupied Rooms is used because revenues vary based on the number of guests in the hotel.
20. DEPARTMENTAL EXPENSES-Rooms F&B Other Spa…
ALWAYS USE DEPARTMENTAL EXPENSE RATIO
Departmental Expenses = Departmental Expense Ratio x Departmental Revenue
e.g. Rooms Departmental Expense Ratio x Total Rooms Revenue
Using Departmental Expense ratios enables management to measure how well each revenue generating department is being managed.
21. UNDISTRIBUTED OPERATING EXPENSES–A&GMktgPOM..
ALWAYS USE PERCENT OF TOTAL REVENUES
Undistributed Operating Expenses = % of Total Revenues x Total Revenues
e.g. Admin & General Expense Ratio (% of Total Revenues) x Total Revenues
Percent of Total Revenues is used because these expenses are related to the operation of the whole hotel not to any one department.
22. FIXED EXPENSES – Property Taxes Insurance…
ALWAYS USE AMOUNT PER AVAILABLE ROOM (Per Year)
Property Taxes & Insurance = Amount Per Available Room (Per Year) x Number of Available Rooms
Amount Per Available Room is used because these expenses are controlled by outside sources (e.g. appraisal district insurance agency etc.) and are determined by the size of the hotel.
23. PROPOSED HOTEL
Type of Hotel: Full-Service
Potential Brands: Embassy Suites Marriott Sheraton
Number of Rooms: 200
Occupancy: 1st yr-63% 2nd yr-68% 3rd yr-72%
Estimated ADR: $125 (current dollars)
Inflation: 3% per year
24. GROUP FINANCIAL COMPS – FULL-SERVICE
25. FINANCIAL PROJECTIONS USING COMPARABLES
CLIENT’S VISION
26. DETAILED FINANCIAL PROJECTIONS USING COMPS
Required by Lenders Investors Brands Management Companies etc. (10 Years)
Provide the details needed to evaluate the hotel operations (used for hotel budget)
Usually generated using an Excel model that includes an input page for the comps and all of the formulas
Important to understand the inputs and the formulas before using the model (Apollo 13)
27. SHORTCUT TO NOI USING COMPARABLES
Estimate Occupancy & ADR (Inflated) for Proposed Hotel
Calculate Rooms Revenue (Using Formula)
Determine Rooms Revenue & NOI Ratios from Financial Comps (Individual Group or US Trends)
Divide Rooms Revenue by Rooms Revenue Ratio to Calculate Total Revenues
Multiply Total Revenues by NOI Ratio to Calculate NOI Before Reserve
Example: 200 Room Full-Service Hotel
Occupancy %: 66% / ADR = $159 in 2026 (Opening Year)
Full-Service Ratios: Rooms Revenue = 61.4% of Total Revenues & NOI = 30.8% of Total Revenues
Rooms Revenue = 66% x 200 x 365 x $159 = $7661000
Total Revenues = $7661000 / 61.4% = $12477000
NOI Before Reserve = $12477000 x 30.8% = $3843000
Remember to Calculate Reserve & NOI After Reserve
28. CASE STUDY
Apply Shortcut Method to a 10-Year Forecast
Utilize a Leveraged IRR Model to Test Feasibility
Determine the Gap Dollar Amount Needed to Make the Project Feasible
Identify Public Incentives to Fill the Gap
29. PUBLIC / PRIVATE DEVELOPMENT
Provides a Structure to Make an Infeasible Project Feasible
Enables a Public Entity to Bring a Much- Needed Project to a Community with Minimum Investment
Enables Investors to Obtain Required Return on Investment (20% to 30%)
Provides the Gap to Make a Project Feasible
30. FINANCIAL FEASIBILITY GAP ANALYSIS
Cash Flow – 10-Year NOI Forecast – Does this determine Project Feasible?
Project Cost – Land Construction Parking
Equity Available & IRR Requirements
Financing Terms (LTV Interest Rate Term)
Sale of Asset – Cap Rate
Public Incentives Available (Gap)
31. POTENTIAL INCENTIVES
Land Contribution
Development Fee Waivers
Hotel Occupancy Tax Reimbursement
4A and 4B Funds / 380 Agreement
Opportunity Zone / Historic Tax Credits
Property / Sales Tax Abatements
Tax Increment Financing District (TIFF/TIRZ)
Revenue Bonds with HOT Pledge
32. HOTEL OCCUPANCY TAX
Most Common Incentive for Hotels
Total Tax Ranges from 13% to 20% of Rooms Revenue
7% City Portion – Can Return All or a Portion to Hotel For Set Period or Pledged Against Revenue Bonds
6% State Portion – Can Petition State Legislature to Reimburse for 10 years for Tourism-Related Uses
City Can Add Additional % For Specific Use
33. QUESTIONS
DISCUSSION
34. FOOD FOR THOUGHT QUESTION #1
ASSUMPTIONS FOR A BOUTIQUE HOTEL
Number of Rooms = 200
ADR = $160 in 2023 Dollars
Inflation = 1% in 2024 2% in 2025 and 3% in 2026
Hotel will open in 2026
Occupancy = 66% in 2026
Rooms Revenue = 60% of Total Revenue
NOI Before Reserve = 30% of Total Revenue
Reserve for Replacement = 4% of Total Revenue
For 2026 Calculate
ADR (Round to Whole Dollars)
Rooms Revenue (Round to Thousands)
Total Revenue (Round to Thousands)
NOI After Reserve (Round to Thousands)
35. FOOD FOR THOUGHT QUESTION # 2
ASSUMPTIONS
Use Comparable Boutique Group Financials from the Lecture and the Answers to the Food For Thought Question #1.
Calculate (Round to Thousands):
- Food & Beverage Revenues
- Food & Beverage Expenses
- Administrative & General Expense
- Insurance Expense
Hint: First calculate the number of occupied rooms (per day). Then use the appropriate formula from the slides and plug in the required information from the Comparable Boutique Group Financials.
