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.