sha563 wellington
TRANSCRIPT
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HVS International Wellington Hotel, Main Square, Newtown, UK
Economic Stud y and Valuation
Report
Wellington Hotel, Main Square,
Newtown, UK
Prepared by:
HVS International
14 Ha llam Street
Lond on W1W 6JG
Tel: + 44 (20) 7878 7700
Fax: + 44 (20) 7436 3386
Submitted to:
Mr N icholas Bishop
Director
Venture Capital Trust
Norfolk Court
21 Warwick Road
London, EC2A 1ED
31 Jan uary 2001
HVS No: 2000050001/110101/
This sample rep ort was created for
illustration purposes only. None of
the information represents actual
data and any correlation or
similarity with an existing hotel or
location is p urely coincidental.
We hope you enjoy reading this
sample report.
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31 Jan uary 2001
Mr N icholas Bishop
Director
Venture Capital Trust
Norfolk Court
21 Warwick Road
London, EC2A 1ED
Dear Mr Bishop
Re:Wellington Hotel
Main Squ are, New town, UK
In accordance with your request, we herewith submit our Economic
Stud y and Valuation Report p ertaining to the above p roperty. We h ave
inspected th e site and facilities and analysed th e hotel market conditions
in the N ewtown area. Ou r report has been prep ared in accordance with
the Royal Institution of Chartered Surveyors (RICS) Appraisal and
Valuation Manual, March 1997.
Based on the available data, together w ith ou r analysis and experience in
the hotel industry, it is our opinion that the open market value of the
freehold interest in the prop erty described in th is report, as at 1 Janu ary
2001, is:
24,000,000
TWENTY FOUR MILLION POUNDS STERLING
We hereby certify that we have no undisclosed interest in the property,
and our employment and compensation are not contingent upon our
findings and valuation. This opinion of value and the entire report are
subject to the comments made throughout and to all assumptions and
limiting cond itions set forth h erein.
Yours sincerely
HVS INTERNATIONAL
Justin Lanzkron
Consultant & Valuation Analyst
Charles Hu man , ARICS
DirectorCH:JL:fp
HVS No: 2000050001
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HVS International Table of Contents
Table of Contents
1. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Nature of the Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Market Area Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Description of the Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. Market for Transient Accommodation . . . . . . . . . . . . . . . . . . . 16
6. Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7. Project ion of Hotel Demand , Occupancy and Average Ra te . . . . . . 27
8. Projection of Income and Expense . . . . . . . . . . . . . . . . . . . . . 39
9. Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10. Investment Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Addendum
1. Statement of Assum ptions an d Limiting Cond itions
2. Photograp hs of the Wellington H otel
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HVS International Executive Summary 1
1. Executive Summary
Property: Wellington Hotel
Address: Main Square, Newtown,
TG1 9JB, UK
Date of Inspection: 1 September 2000Interest Valued: Freehold
Date of Value: 1 January 2001
Property D escription
Site Area: Approximately 10,200 m
Age: Opened January 1994
Property Type: Four-star
Guestrooms: 250 guestrooms
Number of Storeys: Eleven storeys
Food and Beverage Facilities: Two restau rants and one barMeeting Facilities: Five meeting rooms, 1,025 m total
space
Car Parking: 150 spaces
Table 1-1 Summary of Historical & Forecast Income and Expense Performance
1999 2000 2001 2002 2003 2004
Occupancy 75 % 74 % 71 % 71 % 73 % 74 %
Average Rate () 73 74 76 78 80 82
Rooms Revenue (000s) 4,989 5,000 4,951 5,085 5,356 5,565
Total Revenue (000s) 9,431 9,475 9,336 9,579 10,055 10,429
House Profit (000s) 3,685 3,580 3,310 3,402 3,670 3,857
Net Income (000s) 2,550 2,454 2,222 2,285 2,489 2,627
House Profit as a % of Total Revenue 39.1 % 37.8 % 35.4 % 35.4 % 36.5 % 37.1 %
Net Income as a % of Total Revenue 27.0 % 25.9 % 23.8 % 23.7 % 24.7 % 25.3 %
Forecast
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HVS International Executive Summary 2
Summ ary of Valuation ParametersNumber of Years to Stabilise: Four
Stabilised Year: 2004
Stabilised Inflation Rate: 2.5%
Loan-to-Value Ratio: 65%
Mortgage In terest Rate: 7.5%
Holding Period: 10 years
Amortisation Period: 15 years
Equity Yield Rate: 17.0%
Terminal Capitalisation Rate: 9.0%
Brokerage and Legal Fees: 1.5%
Un leveraged In tern al Rate of Retu rn : 12.3%
Estimates of Value
Income Capitalisation Approach: 24,000,000
Cost Approach: 22,000,000
Sales Comparison Approach: 19,600,000-44,300,000
Op en Market Value
as at 1 January 2001: 24,000,000
Op en Market Value
Per Room (approx.): 96,000
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HVS International Nature of the Assignment 3
22. Nature of the Assignment
The subject of the Economic Stud y and Valuation Report is the freehold
interest in the Wellington Hotel located at Main Square, Newtown, UK
(the Hotel). The Hotel has 250 guestrooms and opened in 1994. In
add ition to th e guestrooms, the H otel contains a 125-seat caf restauran t,an 80-seat speciality restaurant, a 50-seat bar, 1,025 m 2 of meeting and
banquet space, a fitness centre and other facilities typically found in a
four-star, city centre, business Hotel.
The pu rpose of the Economic Stud y and Valuat ion Report is to estimate
the open market value of the freehold interest in the Hotel with vacant
possession of the Hotel.
Open market value is defined as:
An opinion of the best price at which the sale of an interest in the
property would have been completed unconditionally for cashconsideration on the d ate of valuation, assuming:
1. a w illing seller;2. that, prior to the date of valuation, there had been a reasonable
period (having regard to the n ature of the property and the state
of the market) for the proper marketing of the interest, for the
agreement of the p rice and terms and for the comp letion of the
sale;
3. that the state of the market, level of values and othercircumstances were, on any earlier assumed date of exchange ofcontracts, the same as on th e date of valuation;
4. that no account is taken of any additional bid by a prospectivepu rchaser with a special interest; and
5. that both parties to the transaction had acted knowledgeably,pru den tly and w ithou t comp ulsion.1
The property rights valued are the freehold interest in the land and
prem ises, including the furnitu re, fixtures an d equipm ent (FF&E).
1 RICS Appraisal and Valuation Manual, The Royal Institution of Chartered
Surveyors, London SW1P 3AD, March 1997, PS 4.2.
Subject of theEconomic Study andValuation Report
Purpose of t heEconomic Study andValuation Report
Property Rights Valued
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HVS International Nature of the Assignment 4
The Hotel has been valued assuming that, as at the date of value, itwould be available free and clear of any specific management or
operating leases. For the purpose of this valuation, we have assumed
that a competent international or national operator will manage the
Hotel.
We estimate the marketing period for the Hotel to be six to twelve
months. The exposure period, referring to the amount of time necessary
for the H otel to have been exposed retrospectively, prior to our value, is
estimated to be less than or equal to 12 mon ths.
The effective date of value is 1 January 2001. All projections are
expressed in inflated pounds sterling, and the value estimate represents
year 2001 pou nd s sterling. The Hotel w as inspected by Justin Lanzkron
on 4 Janu ary 2001, and our analysis was p erformed shortly thereafter.
This Economic Study and Valuation Report has been prepared for
Venture Capital Trust. The information presented in this report should
not be disseminated to the public or third parties without the express
written consent of HVS International.
All information was collected and analysed by the staff of HVS
International. Information such as historical operating statements, site
plans, floor plans and so forth was supplied by Venture Capital Trust.
We have investigated comparable sales in the market area and have
spoken with buyers, sellers, brokers, property developers and public
officials. Unless otherwise noted, we have inspected the competitive
hotels and analysed the hotel sales summarised in this report, and our
value conclusion has been based on th is investigation and analysis.
The methodology used to develop this Economic Study and Valuation
Report h as been based on th e m arket research and valuation techniques
set forth in the textbooks written by H VS International for the American
Institute of Real Estate Appraisers and the Appraisal Institute, entitled
The Valuation of Hotels and Motels,2 Hotels, Motels and Restaurants:
Valuations and Market Studies,3 The Computerized Income Approach to
Hotel/Motel Market Studies and Valuations,4 an d Hotels and Motels: A Guide
to Market Analysis, Investment Analysis, and Valuations.5
2 Stephen Rushmore (1978) The Valuation of Hotels and Motels, American Institute
of Real Estate Appraisers, Chicago.3 Stephen Rushmore (1983) Hotels, Motels and Restaurants: Valuations and Market
Studies, American Institute of Real Estate Appraisers, Chicago.4 Stephen Rushmore (1990) The Computerized Income Approach to Hotel/M otel
Market Studies and Valuations, American Institute of Real Estate Appraisers,Chicago.5 Stephen Rushmore (1992) Hotels and Motels: A Guide to Market Analysis,
Investment Analysis, and Valuations, App raisal Institute, Chicago.
Marketing andExposure Period
Perti nent Dates
Use of the EconomicStudy and ValuationReport
Scope of the EconomicStudy and Valuation
Report
Method of Study
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HVS International Nature of the Assignment 5
The valuation was calculated as follows:1. The subject site has been evaluated from the viewpoint of its
physical utility for the operation of a hotel, as well as access,
visibility and other relevan t location factors.
2. The Hotel's existing premises have been inspected for theirquality of construction, design, layout efficiency and items of
ph ysical deterioration and functional obsolescence.
3. The surrounding economic environment, on both an area and aneighbourhood level, has been reviewed to identify specific
hotel-related economic and demographic trends that may have
an impact on th e futu re dem and for hotels.
4. Dividing th e market for transient accomm odation into ind ividu alsegments has d efined specific market characteristics for th e typ es
of traveller expected to utilise the area's hotels. The factors
investigated include purpose of visit, average length of stay,
facilities and amenities required, seasonality, daily demand
fluctuations and price sensitivity.
5. An analysis of existing and proposed competition has providedan ind ication of the current accomm odated dem and , along w ith
market p enetration and the d egree of competitiveness.
6. Documen tation for an occup ancy and average rate projection hasbeen derived from an analysis of market-wide demand and
supply combined with a penetration analysis to derive the
Hotels projected occupancy.
7. A projection of income and expense has been made inaccordance with the Uniform System of Accounts for Hotels. This
projection sets forth the anticipated economic benefits of the
Hotel for ten years and provides the basis for the income
capitalisation app roach.
8.
The report considers three approaches to value: incomecapitalisation, cost and sales comparison. Because hotels are
income-producing properties that are normally bought and sold
on the basis of capitalisation of their anticipated stabilised
earning pow er, the greatest w eight h as been given to th e value
indicated by the income capitalisation approach. We find that
most hotel investors employ a similar procedure in formulating
their purchase decisions, and thus the income capitalisation
approach most closely reflects the rationale of typical buyers.
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HVS International Market Area Analysis 6
3. Market Area Analysis
The macro-economic climate in which a hotel operates is an important
consideration in forecasting hotel demand and income potential.
Economic and demographic trends that reflect the amount of visitation
provide a basis from w hich the deman d for hotel accommod ation can beprojected.
The Hotels market area is defined by Newtown city centre and its
suburbs. The purpose of the market area analysis is to review available
economic and demographic data to determine whether the defined
market area will undergo economic growth, stability or decline. In
addition to predicting the direction of the economy, the rate of change
must be quantified. These trends are then correlated based on their
propensity to reflect variations in hotel demand with the objective of
forecasting the amount of growth or decline in transient visitation by
individu al market segment.
The overall econom ic condition of an area is reflected by th e p ropen sity
of ind ividu als to travel there. Key indicators of futu re hotel deman d are
those trends that reflect the relative health of the economy and the
spending power of individuals. This section of the report presents a
discussion of the primary domestic economic factors that are likely to
have the greatest influence on the UK's hotel demand. The following
table contains a su mm ary of these economic indicators.
Table 3-1 Key Economic Indi cat ors - UK
1996 1997 1998 1999 2000 2001 2002 2003 2004
Real GDP growth (%) 2.3 3.4 2.1 2.1 3.0 2.4 2.2 2.2 2.1
Consumer price inflation (av %) 2.4 2.8 2.6 2.4 2.1 2.4 2.5 2.5 2.5
Budget balance (% of GDP) -4.3 -2.1 -0.3 0.6 1.0 1.3 1.5 1.4 1.5
Current account balance (% of GDP) 0.0 0.4 0.2 -1.5 -1.3 -1.1 -0.7 -0.2 -0.1
Short term interest rate (av %) 6.0 6.5 6.8 5.5 6.1 5.8 6.0 6.2 6.0
Exchange rate :$ (av) 0.64 0.61 0.60 0.62 0.66 0.64 0.61 0.58 0.59
Exchange rate :Euro (av) - - 0.68 0.65 0.64 0.66 0.67 0.68 0.69
Source: Economist Intelligence Unit September 2000
ForecastActual
National EconomicOverview
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HVS International Market Area Analysis 7
The Economist Intelligence Unit (EIU) UK Country Forecast (September2000) has forecast national GDP growth for the UK at 2.9% for 2000, 2.4%
for 2001 and 2.5% for 2002. We have used these national estimates as the
starting point for our evaluation of the potential growth in demand for
hotel accommodation by market segment in the market area, although
we have specifically taken into account the state of, and prospects for,
the imm ediate local area econom y.
The EIU has forecast retail price inflation for the UK at 2.1% in 2000,
2.4% in 2001 and approximately 2.5% thereafter. We have used these
estimates as the starting p oint for our evaluation of the p otential growth
in achievable average room rates by market segment in the market area,and to determine the likely change in operating costs over time,
although we have specifically taken into account local hotel market
conditions.
Our assumptions and projections relating to hotel demand growth and
average room ra te growth are explained in Section 5,Market for Transient
Accommodation, and Section 7, Projection of Hotel Demand, Occupancy and
Average Rate.
The market area activity is affected by the general level of economic
activity in the immediate and surrounding area. We have taken intoconsideration both general national economic indicators (such as GDP
growth ) and specific local activity, includ ing that actual and plann ed.
The Wellington Hotel is located in Newtown city centre at Main Square,
adjacent to Gateway train station.
Newtown is ideally situated next to the intersection of the M4 and the
M5 motorw ays, wh ich ru n w est to east and n orth to south . The M4 links
Newtown City centre to the M4, which gives easy access to all parts of
the country. Journey times from N ewtow n to London and Birmingham
and are app roximately two hours and one h our 25 minu tes, respectively.
Airport passenger counts are important indicators of transient hotel
demand. A sizeable percentage of arriving passengers may need hotel
accommodation depending upon the type and location of a particular
airport. Trends showing changes in passenger counts also reflects local
business activity and the overall economic health of an area. Table 3-2,
below, summarises the volume of passenger traffic for the past nine
years. Total passenger movements include the sum of arrivals,
dep artures and transient movemen ts.
Market Area and LocalEconomy
Newtown Airpor t
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HVS International Market Area Analysis 8
Table 3-2 Airport Passenger Movements for Newtown International Airport 1991-99
Year Total Domestic International
1991 1,142,734 - 344,551 - 798,183 - 30.2 % 69.8 %
1992 1,250,703 9.4 % 312,760 (9.2) % 937,943 17.5 % 25.0 75.0
1993 1,373,165 9.8 264,291 (15.5) 1,108,874 18.2 19.2 80.8
1994 1,615,761 17.7 279,557 5.8 1,336,204 20.5 17.3 82.7
1995 1,884,116 16.6 344,730 23.3 1,539,386 15.2 18.3 81.7
1996 1,823,029 (3.2) 390,916 13.4 1,432,113 (7.0) 21.4 78.6
1997 1,881,322 3.2 359,428 (8.1) 1,521,894 6.3 19.1 80.9
1998 2,139,900 13.7 378,336 5.3 1,761,564 15.7 17.7 82.3
1999 2,288,173 6.9 390,752 3.3 1,897,421 7.7 17.1 82.9
Compound Annual
Growth 9.1 % 1.6 % 11.4 %
%%
Change
%
Change Change
International
% Share
Domestic
% Share
Source: Airports Council International
As illustrated in the above table, Newtown International Airport has
experienced tremend ous growth over the p ast eight years. The n um ber
of passengers hand led at the airport has increased by a little over 9% peryear on average since 1991, with a larger gain recorded in the
international p assenger segment, at over 11%.
Newtown International Airport is located some seven miles south-west
of the city centre an d can be reached from the Hotel in 20 to 30 minu tes
by road. Newtown International Airport is the fastest growing major
regional airport in the UK, providing direct flights to all major UK
destinations, plus several in Europe and some in North America,
including New York, Washington and Boston. A new 42 million
terminal building has just opened, providing greater capacity and
increasing the number of destinations provided, especially for businesscustomers.
The major commercial demand generators are located in or around
Newtown city centre, and in the office and business parks such as
Newtown West business park to the north of the city. Generally,
indu strial activity has been high in th e New town market in recent years.
Key manufacturing industries in the region include aerospace and
defence, paper, printing and publishing, electronics and electrical
engineering. There are over 1,900 manufacturing companies in the
region , emp loying over 150,000 peop le.
Among the major organisations located in Newtown city centre and
north of the city centre are Somerfield, Sony, Axa Sun Life, RAC and
HSBC (a very short distance from the subject Hotel). Hi-tech industry,
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HVS International Market Area Analysis 9
supported by university research facilities, continu es to grow . Many h i-tech businesses have invested in the Newtown area in recent years,
including Orange, Hewlett Packard, and Toshiba. Prospects for the
regions futu re activity are good. New town has become know n as one of
Englands largest financial services centres outside London. The
structure of the w orkforce in New town is detailed in Table 3-3, below.
Table 3-3 Employment by Sector in Newtown - 2000
Sector
Manufacturing Industries 24,900 11.4 % 11.0 %
Construction/Utilities/Agriculture 8,400 3.8 3.5
Distribution/Hotels & Restaurants 42,300 19.4 18.0
Transport & Communications 11,600 5.3 4.0
Banking, Finance & Insurance 70,900 32.5 38.0
Public Administration, Education & Health 51,600 23.6 22.0
Other Services 8,700 4.0 3.0
Total 218,400 100% 100%
Source: Newtown Economic Development Department, June 2000
UK AverageNewtown
Employment
There is only a moderate level of tourist visitation to Newtown city
centre at this time, and the number of overnight stays from leisure
visitors is relatively low. There are only a few major attractions in the
city centre, including Newtown Museum of Archaeology, the Tudor
Hou se Museum , the New town Zoological Garden s and a nu mber of art
galleries. In addition, Sunnyside Theme Park and Rockland Park, two
major tourist attractions situated within easy reach of Newtown,
generate some weekend and general holiday period visitation for the
area.
Located to the north of Newtown near Tower Hill is the Valley
shopping centre, considered to be one of the largest regional shopping
centres in the UK. The Tower Hill retail area also includes a multiplex
cinem a an d the Venue leisure centre.
An attraction th at is expected to generate both commercial and tourism-
related visitation is the major regeneration of the Newtown
Harbourside. The 90 million, 15-acre Newtown Park project will bring
science, nature, and art together in innovative new ways. The scheme
includes Explore Zone, a science world theme park, and Wildscreen
Zone, a virtual reality theme park with an IMAX cinema and botanicalgarden, as well as new residential and commercial office space.
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HVS International Market Area Analysis 10
Newtow n Park is expected to at tract 450,000 visitors in its first year . Theproject open ed at th e beginn ing of July 2000.
Another major development project that is currently under construction
in Newtown, is the city centre regeneration project at Main Square
adjacent to Gateway train station. The development will provide a
mixed-use environment of 23 acres combining office accommodation
with a full range of retail and leisure facilities. HSBC are relocating their
headquarters to Main Square and Tesco will occupy their new regional
headquaters in Newtown in 2001. Other companies moving to Main
Square include BT Plc and Barclays Bank. The Wellington Hotel is
located near this development. Other office and business parkdevelopm ents planned in the N ewtown region are sum marised in Table
3-4 below.
Table 3-4 Proposed Off ice and Business Park Developments in Newtown as atJanuary 2001
Location Description Size m2
North Newtown
Parkway North Office Park 130,000
Newtown Business Park Office Campus 150,000The Quadrant Offices and light assembly 50,000
Westerliegh, Tate Business Park 190,000
East Newtown
Somerdale Offices and industrial use 150,000
South Newtown
South Newtown Business Park Offices and industrial use 80,000
Wills Factory Manufacturing and light industrial/warehousing 260,000
Regeneration Potential
Grove Park Regeneration Area 1,010,000
Source: Newtown Economic Development Department, September 2000
We highlight overleaf the aspects of Newtown which we consider to
have a specific bearing upon historic, current and potential future hotel
demand:
The regenerat ion project at Main Square; The continuing redevelopment of Newtown city centre, for
examp le the H arbourside and N orth Shore developments and the
growth of new businesses which will increase future commercial
hotel demand ;
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HVS International Market Area Analysis 11
The recently opened, 42 million terminal building at NewtownInterna tional Airport w ill furth er enh ance commercial and leisure
visitation in the N ewtown area;
The new New town Park developm ent at th e Harbourside; The poten tial developm ent of an Eco-Park/Zoo in Canon s Marsh,
located in north Newtown some fifteen minutes drive from the
Wellington Hotel, is likely to enhance leisure demand further in
the area. Developm ent of the p ark is anticipated to start in 2002;
The ongoing expansion of existing business and industrial parkslocated in or near Newtown, for example the Newtown West
Business Park located in North Newtown, is likely to create
further commercial hotel deman d.
Our review of various national, regional and local economic data
indicates that N ewtow n benefits from strong levels of comm ercial room
night demand generated from local businesses, supported by modest
numbers of leisure visitors, although Newtown Park and the proposed
Eco Park could have some impact on leisure visitation. Specific local
economic activity appears to be increasing beyond general national
levels due to a combination of factors, these include the ongoing
developm ent of good qu ality offices and business parks, including Main
Square as well as the N ewtown Harbourside redevelopmen t.
Conclusion
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HVS International Description of the Hotel 12
4. Description of the Hotel
A hotels location within a specific neighbourhood can have a direct
impact upon its performance relative to a competitive market. The
following p aragraph s describe th e location of the Hotel in relation to its
immediate surroundings and its market area, as described in Section 3.Following this site and location analysis the propertys physical facilities
are d escribed.
The Hotel is located near the Main Square development adjacent to
Gateway train station. We consider th e Hotel to occupy a p rime location
in New town city centre.
According to Venture Capital Trust, the size of the site of the Wellington
Hotel is approximately 10,200 m. The site is roughly rectangular in
shape and the top ograph y of the site is generally flat.
The Wellington Hotel is adjacent to the Main Square office
development. The Hotel is located on the east side of the development
and is currently bordered by the Floating Harbour on the east and
Gateway railway station on the south. To the north of the Hotel is the
HSBC Building, wh ich is curren tly almost complete. In th e centre of the
Main Square development are the headquarters of Tesco and located on
the west side of the Main Square development are the new offices of
Barclays Bank, both these buildings are currently almost built.
The Hotel benefits from excellent access to and from Castle Way and
Castle Gate. The roundabout immediately west of the site links it
throu gh Piccadilly Street to th e beginning of the M34, and further to the
M8 and the M35. Heading to the south gives access to the A5, the A40 to
Newtown Airport and south to the M35 and the A37. Gateway railway
station is situated adjacent to the site, approximately two minutes walk
south of the Hotel. Newtown Intern ational Airport is located som e seven
miles to the south-west via the A40, some 15 to 20 minutes drive from
the site.
The visibility of the Hotel is likely to be very good from all app roaches to
the site, includ ing Castle Way, Castle Gate and Regent Street.
Ease of access to primary generators of demand is vital for the successful
operation of a hotel. One of the primary factors when choosing a hotel
over competitive facilities is its location relative to local demand
LOCATION
Size and Topography ofthe Site
Access
Visibility
Proximit y to DemandGenerators
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HVS International Description of the Hotel 13
generators, whether these are commercial businesses or touristattractions. The H otel enjoys a good location in relation to th e following
dem and generators:
New town city centre; M34 motorway; The Main Square d evelopm ent; Gateway railway station; Comp anies located in N ewtow n city centre; New town Park.
The Wellington Hotel enjoys an excellent location. It is centrally located
within Newtown city centre and easily reached by several modes of
transport. The Hotel also benefits from its proximity to all the major
demand generators in Newtown.
The quality of a property's physical facilities has a direct influence on its
marketability and attainable occupancy and average rate. The design
and functionality of the structure can also affect operating efficiency and
overall profitability. The following paragraphs describe the Hotel and
mixed-use rental spaces physical premises and facilities in an effort to
determine how they contribute to its total value. A number of
ph otograph s of the H otel are provided in Add end um 2.
Based on ou r inspection an d information p rovided by the m anagemen t
of the Wellington Hotel, Table 4-1 summarises the facilities available at
the Wellington Hotel.
Conclusion
HOTEL FACILITIES
Summary of theFacilities
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HVS International Description of the Hotel 14
Table 4-1 Faci l it ies Summary
Address: Main Square Opening Date: January 1994
Newtown
Tenure: Freehold
Refurbishment History: 1997 - 80 Bedrooms, lobby, meeting rooms, IT and exterior
1998 - 70 Bedrooms, lobby, meeting rooms, kitchen, exterior
1999 - 100 Bedrooms, bar/restaurant, and exterior
Guestrooms Approximate Area/m Number
Single 25 85
Double 28 90
Executive 35 60
Suite 40 15
Total 250
Meeting Rooms Approximate Area/m
Maximum
Capacity/Persons
Theatre Style
Ballroom 500 400
Pre-Function Room 185 n/a
Board Room 40 20
Meeting Room 1 150 120
Meeting Room 2 150 120
Total 1,025 660
Food and Beverage Facilities Approximate Area/m Approximate Number of Seats
Caf Restaurant - Bon Marche 200 125
Speciality Restaurant - Oh! Cajun 120 80
Bar/Lounge 70 50
Total 390 255
Car Parking: Approximately 150 parking spaces
Leisure facilities: Fitness centre with sauna, solarium and whirlpool spa.
The Hotel open ed at the beginn ing of 1994 and since that time h as been
well maintained. We have been provided with information on historiccapital expenditure at the Hotel. From our inspection of the Hotel, it
app ears that th e Hotel is in very good w orking ord er and no immed iate
material capital expen ditu re requiremen t has been iden tified.
Condition of t he
Building and Facilities
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HVS International Description of the Hotel 15
In general, the Hotels premises appear to be very well-suited for hotel
use. The building is straightforward in design and configuration,
permitting efficiency of operation and convenient guest and staff flow.
The exterior design of the building is both modern and inviting and the
interior finishes are of a high quality. The guestrooms are excellent in
terms of size and decoration and the Hotels ancillary facilities are
app ropriate for the operation of a four-star comm ercial, city centre hotel
in the UK, outside Lond on.
Conclusion HotelFacilities
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HVS International Market for Transient Accommodation 16
5. Market for Transient Accommodation
The analysis of demand by the use of individual market segments is
important because each market segment often exhibits unique
characteristics relating to factors such as growth potential, seasonality of
demand, average length of stay, double occupancy, facilityrequirements, price sensitivity and so forth. By quantifying the overall
room night demand by market segment and defining the individual
characteristics of each segment, the future potential for each market
segmen t can be projected.
Demand for transient accommodation in the defined market area is
generated primarily by the following five market segmen ts.
Segm en t 1 Com mercial
Segmen t 2 Meet ing & Conference
Segmen t 3 Ind ividual Le isu reSegm en t 4 Grou p Leisu re
Segmen t 5 Airline
Based on our fieldwork, area analysis and knowledge of the local hotel
market, we estimate that, in 2000, the distribution of accommodated
hotel room night demand for those hotels that we consider to be
competitive with the Hotel is as shown in Table 5-1. Further details of
these hotels are given in Section 6, Competition.
Table 5-1 Accommodated Room Night Demand - Competitive Market 2000
Market Segment
Commercial 229,455 55 %
Meeting & Conference 57,552 14
Individual Leisure 77,990 19
Group Leisure 25,783 6
Airline 24,239 6
Total 415,018 100 %
Percentage of
Total
Accommodated
Demand
This aggregate market mix, with business demand accounting forapproximately 75% and leisure demand accounting for approximately
25% of total area-wide d eman d, reflects the area as primarily a business
Accommodated RoomNight Demand
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HVS International Market for Transient Accommodation 17
destination. As a result, historically, hotel occupancies in the area havebeen stronger during weekdays and commercial periods and weaker
du ring w eekends and holiday p eriods.
Commercial demand is strongest on Monday to Thursday nights,
declining significantly on Fridays and Saturdays and increasing
somewhat on Sund ays. This deman d in the N ewtown area is relatively
constant throughout the year, with some drop-off noticeable in the
period from November to February and August when travellers,
especially business and conference visitors, take holidays to other
destinations.
Future demand in this segment is tied primarily to the business and
economic health of Newtown and of the UK in general. As the local
economy shows improved stability and growth, business travel should
increase accordingly. With the continued development of Newtown city
centre and business parks in and around Newtown, such as the
Newtown West Business Park, we anticipate a continued growth in the
commercial sector which is likely to show increased activity in the next
two to three years.
In light of the potential for further developments in and around
Newtown and the Hotels immediate neighbourhood, we consider thatdemand for this segment is likely to grow at a rate slightly above
national GDP for the next few years. We have selected growth rates of
2.5% in 2001 and 3% in 2002 and 2003. From 2003 onward we have
assumed a stabilised growth rate of 2.5%.
The Meeting & Conference segment in th e market area m ostly comprises
demand from local companies. They typically require meeting venues
which are conveniently located and which offer suitable space and
facilities. For the purpose of analysing hotel demand, we have
considered conference demand to be only those hotel guests attending
meetings and conferences in the hotel at which they are staying. Thoseattending city events in non-residential venues are considered to be
part of commercial demand.
Peak conference demand typically occurs in the spring and autumn,
summer represents the slowest period and winter demand can be
variable. The average length of stay for typ ical conference groups ran ges
from two to four nights. Most commercial groups require
accomm odation du ring th e weekday p eriod of Monday to Thursday, but
associations and social groups w ill sometimes u tilise th e w eekend s.
Future demand potential in the Meeting & Conference segment is
closely related to the growth trend expected for the Commercial
segment. Because most meetings have either a direct or an indirect
business purpose, the economic considerations that have an impact on
Commercial Segment
Meeting & ConferenceSegment
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HVS International Market for Transient Accommodation 18
business travel also affect Meeting & Conference demand. For thepurpose of our analysis, we have chosen to apply the same growth rates
for Conference & Meeting dem and as for Commercial deman d.
Individual Leisure demand comprises both those people travelling in
groups and those travelling individually for tourism and leisure
purposes. These sectors comprise the majority of weekend demand in
the market area, but are also responsible for some weekday demand
du ring the sum mer and other holiday periods.
As stated p reviously, there are a limited nu mber of tourist attractions in
the immediate area of Newtown. Generally, these attractions generate a
high level of day visitation but the demand for overnight hotel
accommodation is limited. However, it is important to note that the
recently opened Newtown Park development on the Harbourside,
should start to attract additional leisure demand to Newtown and this
should contribute to an increase in demand for hotel accommodation at
weekends.
For the purpose of this analysis, we have chosen to apply a growth rate
of 2.5% in 2001 and 4% in 2002. From 2003 onwards we have assumed a
stabilised grow th rate of 2.5%.
The Group Leisure segment generally comprises visitors who have
purchased package holidays that include the cost of travel, hotel
accommodation and some provision for meals, or what is termed an
inclusive tour. Tour op erator rates are generally contracted an nu ally at
rather low levels, but are used to help fill lower occupancy periods.
Because of the low rate of this segmen t, this deman d will be replaced by
higher yielding d emand as market occupancy increases, wh en d emand
timing permits.
Group Leisure demand in the Newtown area is derived from several
sources including coach tou rs travelling to th e continen t or elsewh ere in
Britain an d shopp ers. For the pu rpose of our analysis, we have chosen to
apply the same growth rates for the Group Leisure demand as for the
Individu al leisure dem and .
This segment mostly comprises airline crew contracts, which generally
achieve significant discounts compared to commercial segments. We
app lied a grow th rate of 2.5% from 2001 onw ards.
The pu rpose of segmen ting hotel demand is to define each major type of
demand, identify customer characteristics and estimate future growth
trends. Starting with an analysis of the local area, five segments were
defined as being representative of the Hotel's market. Various types of
economic and dem ographic data w ere then evaluated to determine th eir
propensity to reflect future changes in hotel demand. Based on this
Individual LeisureSegment
Group Leisure Segment
Airli ne Segment
Conclusion
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HVS International Market for Transient Accommodation 19
procedure we have made the following forecast of market segmentgrowth rates. These growth rates will be utilised in subsequent sections
of this stud y to forecast changes in hotel deman d.
Table 5-2 Forecast Annual Growth Rates by Market SegmentCompetitive Market 2001-05
Annual Compounded Growth Rate
Market Segment
Commercial 2.5 % 3.0 % 3.0 % 2.5 % 2.5 %
Meeting & Conference 2.5 3.0 3.0 2.5 2.5
Individual Leisure 2.5 4.0 2.5 2.5 2.5Group Leisure 2.5 4.0 2.5 2.5 2.5
Airline 2.5 2.5 2.5 2.5 2.5
Base Demand Growth 2.5 % 3.2 % 2.8 % 2.5 % 2.5 %
2001 2002 2003 2004 2005
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HVS International Competition 20
6. Compet it ion
An integral component of a market areas supply and demand
relationship that has a direct impact on the performance is the current
and anticipated supply of competitive hotel facilities. To evaluate an
area's competitive environmen t, the following steps should be taken:
Identify the area's hotel facilities and determ ine w hich are directlyand indirectly comp etitive with th e Hotel;
Determine whether additional hotel rooms (net of attrition) willenter th e market in the foreseeable futu re;
Quantify the number of existing and proposed hotel roomsavailable in the m arket;
Review the rate structure, occupancy levels, market orientation,facilities and amenities of each competitor.
Based on an evaluation of the occupancy, rate structure, market
orientation, chain affiliation, location, facilities, amenities, reputation
and quality of the area's hotels, as well as the comm ents of managem ent
represen tatives, we h ave iden tified two p roperties that are considered to
be primarily comp etitive with the Wellington Hotel. Including the H otel,
these p rimary comp etitors total 781 rooms. Twelve add itional h otels are
jud ged to be on ly secondarily comp etitive.
Although the facilities, rate structures or market orientations of these
hotels prevent their inclusion among the primarily competitive supply,
they do compete with the Hotel to some extent. The room count of eachsecond ary competitor has been w eighted to reflect the degree to which it
competes with the Wellington Hotel. The aggregate weighted room
count of the secondary competitors is 740.
The following Tables (6-1, 6-2 and 6-3) summarise the important
operating characteristics of the primary and the secondary competitors
for 1998 to 2000. This information was compiled from personal
interviews, inspections, hotel directories and our in-house library of
operating d ata.
Table 6-1 sets out each competitive hotels market segmentation,
occupancy, average room rate and rooms revenue per available room
(RevPAR). RevPAR is calculated by multiplying a hotels occupancy by
The Competi ti veMarket
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HVS International Competition 21
its average rate. This calculation serves to gauge how well a hotel ismaximising its rooms revenu e.
Table 6-2 details each property's penetration factor. Penetration is the
ratio between a specific hotel's operating results and the corresponding
data for the market. If the penetration factor is greater than 100%, the
property is performing better than the market as a whole; conversely, if
the penetration is less than 100%, the hotel is performing at a level
below the market-wide average.
Table 6-3 sets out the key physical characteristics of each of the main
competitive hotels and includes information about each hotels
published rates and brand affiliation. The location of each primary and
secondary competitive hotel is shown in the Competition Map which
follows Table 6-3. The Competition Map also shows the location of the
Hotel relative to its defined primary and secondary competitors as well
as the location of those proposed hotels we consider to be relevant (see
below).
In our an alysis we h ave included four d evelopmen ts wh ich we consider
will also become comp etitive w ith th e Wellington Hotel.
A 128-room Marriott Hotel is du e to open at the beginning of2002 on Manor Road in Newtown city centre. We consider
this hotel to be 100% competitive w ith th e Wellington Hotel;
A 220-room Travel Inn is due to open at the beginning of2001 at Exchange House in Newtown city centre. We have
considered this hotel to be 25% competitive with the
Wellington Hotel as it will be positioned significantly below
it. We have therefore added 55 competitive rooms into the
market from Febru ary 2001;
A 123-room Travelodge is due to open at the beginning of2001 on John Street in Newtown city centre. We have also
considered this hotel to be 25% competitive w ith Wellington
Hotel for the same reason. We have added 31 competitive
rooms into th e market from Janu ary 2001;
A 110-room Premier Lodge Hotel is due to open in January2001 on Queen Street in Newtown city centre. We have also
considered this hotel to be 25% competitive with the
Wellington Hotel for the same reason. We have added 28
competitive rooms into the market from Janu ary 2001.
There are currently unconfirmed proposals for two other hotel
developments in Newtown. However, we have not taken these intoconsideration in our analysis as there was sufficient doubt still
surround ing these projects at the time of our study. These include:
Proposed Competi ti on
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HVS International Competition 22
A 100-room Express by Holiday Inn at Grange Hill, nearNewtown Grange Hill train station. The hotel has been
linked with Stannifer Hotels, an existing Express franchisee;
A 150-room Quality Hotel, near Junction 17 of the M8 atTower Hill (A4018).
It is our opinion that, even if these hotels are developed, they will be
targeted at lower rate paying business and leisure travellers, and due to
their distance from the Wellington Hotel they are unlikely to be
significantly competitive with the Hotel.
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VS International Competition 23
Table 6-1 Operating Profiles of the Primary and Secondary Competitors 1998-00 ()
Estimated 2000 Market Segmentation Estimated 1998 Estimated 1999 Estimated 2000
Primary Competitors
No of
Rooms Occ
Average
Rate RevPAR Occ
Average
Rate RevPAR Occ
Average
Rate RevPAR
Wellington Hotel 250 55 % 15 % 20 % 5 % 5 % 100 % 250 76 % 72 55 75 % 73 55 74 % 74 55
Holiday Inn 242 60 10 20 5 5 100 242 73 70 51 74 72 53 73 73 53Hilton 289 60 10 20 5 5 100 289 75 57 43 79 62 49 75 62 47
Sub-Totals/Averages 781 58 % 12 % 20 % 5 % 5 % 100 % 781 75 % 66 49 76 % 68 52 74 % 69 51
Secondary Competitors
Corus Hotel 187 55 % 15 % 15 % 7 % 8 % 75 % 140 82 % 45 37 85 % 46 39 81 % 51 41
Berkeley Hotel 40 55 8 30 0 7 75 30 71 54 38 69 55 38 70 56 39
Forte Posthouse 182 55 15 20 5 5 75 137 69 59 41 70 60 42 70 53 37
Jarvis International 201 50 20 10 10 10 75 151 82 50 41 79 50 40 76 53 40
City Hotel 40 60 5 20 10 5 50 2 0 0 0 0 0 0 80 57 46
Swallow 128 55 15 20 5 5 50 64 71 57 40 66 60 40 72 72 52
Moat House 142 40 25 25 5 5 50 71 72 55 40 79 56 44 76 58 44
Novotel 200 55 15 20 5 5 25 50 76 50 38 68 53 36 77 56 43
Express by Holiday Inn 68 50 10 25 10 5 25 17 72 44 32 70 46 32 77 58 45
The Piccadilly Hotel 167 55 15 15 10 5 25 27 0 0 0 0 0 0 75 35 26
Thistle Hotel 94 55 0 15 25 5 25 24 0 0 0 0 0 0 87 39 34
The Grand Hotel 112 45 20 20 10 5 25 28 71 35 25 71 46 33 71 45 32
Sub-Totals/Averages 1,561 52 % 16 % 18 % 7 % 7 % 50 % 740 76 % 51 39 75 % 53 40 75 % 54 40
Totals/Averages 2,342 55 % 14 % 19 % 6 % 6 % 65 % 1,521 75 % 59 44 76 % 61 46 75 % 62 46
Commercial
Meeti
ng&
Confe
rence
Individ
ual
Leis
ure
Group
Leis
ure
Airli
ne
Total
Comp
Level
2000
Weighted
Annual Rm
Count
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VS International Competition 24
Table 6-2 Operating Performance Analysis Primary and Secondary Competitors 1998-00 ()
Estimated 1998 Estimated 1999 Estimated 2000
Property
Number of
Rooms
Wellington Hotel 250 100 % 250 17 % 101 % 122 % 124 % 17 % 99 % 120 % 118 % 16 % 99 % 120 % 119 %
Holiday Inn 242 100 242 16 97 119 115 16 98 118 115 16 98 119 116
Hilton 289 100 289 20 100 97 97 20 104 102 106 19 100 101 101
Corus Hotel 187 75 140 0 109 76 83 0 112 75 84 9 108 83 90
Berkeley Hotel 40 75 30 53 94 92 87 53 91 90 82 2 94 91 85
Forte Posthouse 182 75 137 0 92 100 92 0 92 98 91 9 94 86 81
Jarvis International 201 75 151 47 109 85 93 47 104 82 85 10 102 86 88
City Hotel 40 50 2 0 0 0 0 0 0 0 0 0 107 93 99
Swallow 128 50 64 100 94 97 91 100 87 98 86 4 96 117 113
Moat House 142 50 71 0 96 93 89 0 104 92 96 5 102 94 96
Novotel 200 25 50 0 101 85 86 0 90 87 78 3 103 91 94
Express by Holiday Inn 68 25 17 0 96 75 72 1 92 75 70 1 103 94 97
The Piccadilly Hotel 167 25 27 10 0 0 0 0 0 0 0 2 100 57 57
Thistle Hotel 94 25 24 10 0 0 0 0 0 0 0 2 116 63 74
The Grand Hotel 112 25 28 10 94 59 56 2 94 75 71 2 95 73 69
Primary Competitors 781 100 % 781 53 % 99 % 112 % 111 % 53 % 100 % 112 % 113 % 51 % 99 % 112 % 111 %
Secondary Competitors 1561 47 % 740 47 % 101 % 87 % 87 % 47 % 99 % 86 % 86 % 49 % 101 % 87 % 88 %
Sub-Totals/Averages 2,342 65 % 1,521 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
Total
Competitive
Level
2000 Weighted
Annual Room
Count
Fair
Share
Occ
Penetration
Average Rate
Penetration
RevPAR
Penetration Fair Share
Occ
Penetration
Average Rate
Penetration
RevPAR
Penetration
Average Rate
Penetration
RevPAR
Penetration Fair Share
Occ
Penetration
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VS International Competition 25
Table 6-3 Facilities of the Primary and Secondary Competitors ()
Property
Number of
Rooms
Year
Opened Brand/Chain Affiliation
Market
Positioning
Single
Weekend
Double
Weekend
Number of
Restaurants
Number
of Bars
Conference
Rooms
Meeting Space
(m)
Meeting Space
per room (m)
Maximum
Capacity
Theatre Style
Leisure
Facilities
Wellington Hotel 250 1991 Independent Four Star 127 70 2 1 11 1,025 1.7 200 No
Holiday Inn 242 1974 Hilton International Four Star 104 74 2 1 22 745 2.6 600 Yes
Hilton 289 1991 Bass Hotels and Resorts Four Star 140 88 2 2 21 824 3.4 300 Yes
Corus Hotel 187 1994 Corus Hotels Three Star 95 69 1 2 25 770 4.1 320 No
Berkeley Hotel 40 1990 Independent Three Star 78 80 1 1 0 0 0 0 NoForte Posthouse 182 1874 Forte Hotels Granada Group Three Star 110 45 1 2 12 1,205 6.6 600 No
Jarvis International 201 1980 Jarvis hotels Four Star 110 43 1 1 10 760 3.8 350 Yes
City Hotel 40 2000 Independent Budget 150 150 1 1 3 50 1.3 72 No
Swallow 128 1991 Whitbread Four Star 134 78 1 1 21 602 4.7 200 Yes
Moat House 142 1987 Queens Moat House Four Star 139 68 1 2 13 915 6.4 200 Yes
Novotel 200 1985 Accor Three Star 99 94 1 1 25 769 3.8 250 Yes
Express by Holiday Inn 68 1995 Bass Hotels and Resorts Budget 119 90 1 1 6 600 8.8 150 Yes
The Piccadilly Hotel 167 2000 Independent Four Star 52 45 1 1 2 40 0.2 45 No
Thistle Hotel 94 2000 Thistle Hotels Four Star 55 45 0 1 0 0 0 0 No
The Grand Hotel 112 1950 Independent Three Star 95 39 1 1 2 75 0.7 45 No
Published Rate ()
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COMPETITION MAP
Key
Wellington Hotel
Primary Competitors
u Holiday Inn
v Hilton
Secondary Competitors
1) Corus Hotel2) Berkeley Hotel3) Forte Posthouse4) Jarvis International5) City Hotel6) Swallow
7) Moat House8) Novotel9) Express by Holiday Inn10) The Piccadilly Hotel11) Thistle Hotel12) The Grand Hotel
Proposed Competitors
u Marriott Hotelv Travel Inn
w Travelodge
x Premier Lodge Hotel
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HVS International Projection of Hotel Demand, Occupancy and Average Rate 27
7. Projection of Hotel Demand, Occupancy and
Average Rate
From our fieldwork and in-house library of market data, we have
estimated the year-end 2000 occupancy rates of the Hotel's competitorsand thereby the total number of occupied rooms in the competitive
market.
A weighted average of the market mix of each competitive property has
then been calculated to determine the overall market segmentation of
the hotels within the subject Hotel's market. The Year 2000 area-wide
estimate of room night d eman d, by market segmen t, forms the h istorical
base dem and . The result of these calculations for the H otel's competitive
market a rea is show n in the following table.
Table 7-1 Accommodated Room Night Demand Competitive Market 2000
Market Segment
Commercial 229,455 55 %
Meeting & Conference 57,552 14
Individual Leisure 77,990 19
Group Leisure 25,783 6
Airline 24,239 6
Total 415,018 100 %
Accommodated
Demand
Percentage of
Total
The above table illustrates the accomm odated room n ight d emand in the
Hotel's competitive market. Because this estimate is based on hotel
occupancies, it considers only those hotel rooms utilised by guests.
Latent d emand accoun ts for guests who could not be accomm odated by
the existing competitive supply for a variety of reasons. Latent demand
can be divided into Unaccommodated Demandan d Induced Demand.
In Section 5, Market for Transient Accommodation we set out our
assumptions regarding the prospects for demand growth, by market
segment, for the competitive market. These demand growth rates (as
sum marised in Table 5-2 in Section 5,Market for Transient Accommodation)are applied in our analysis to the base level of accommodated demand,
wh ich has been estimated in Table 7-1 above.
CALCULATION OF
HISTORICALLYACCOMMODATEDDEMAND
Base Demand Growt h
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HVS International Projection of Hotel Demand, Occupancy and Average Rate 28
Thus market-wide base dem and is forecast to grow as illustrated in Table7-2 below:
Table 7-2 Projection of Market-wide Base Demand 2000-04
Base Year
2000 2001 2002 2003 2004
Commercial 229,455 235,191 242,247 249,514 255,752
Meeting & Conference 57,552 58,991 60,760 62,583 64,148
Individual Leisure 77,990 79,940 83,137 85,216 87,346
Group Leisure 25,783 26,427 27,484 28,171 28,876
Airline 24,239 24,845 25,466 26,103 26,755
Total 415,018 425,393 439,095 451,587 462,877
Demand Growth - 2.5% 3.2% 2.8% 2.5%
Unaccommodated demand refers to individuals who are unable to
secure accommodation in the market because all the competitive hotels
are full. These visitors must defer their trips, settle for less desirable
accommodation, or stay in hotels located outside the market area.
Because this demand did not yield occupied room nights within thecompetitive set, it is not included in the historical accommodated room
night deman d estimate.
Unaccommodated demand is often a form of excess demand resulting
from the cyclical nature of the hotel business. For example, in
commercial markets where demand is not equally spaced throughout
the week, hotels often exhibit peaks and troughs in their daily
occupancies. In general, commercial hotels enjoy strong occupancies
from Monday to Thursday, when business travel is most frequent, and
lower occupancies on Friday and Saturday. When hotels operating
under these market conditions realise occupancies greater than 70% to75%, or when weekly dem and pattern s fill area hotels to capacity on on e
or more nights per week, it can generally be assumed that excess
weekday demand exists and a certain amount of patronage must be
turned away. If additional hotels are expected to enter the market, it is
reasonable to assume that this unaccommodated demand will be
accommodated and, thus, an estimate of the amount of
unaccommodated d emand should be made. Unaccommodated demand
is generally estimated as a percentage of accommod ated d eman d.
Because th e comp etitive hote ls achieve an overall occup ancy of 75%, it is
likely that th ere w ill be days when all the primary hotels will be full andunaccommodated demand will exist. Based on our fieldwork and
market analysis, we estimate that in 2000, unaccommodated demand in
the competitive market was likely to amount to approximately 1.6% of
UnaccommodatedDemand
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HVS International Projection of Hotel Demand, Occupancy and Average Rate 29
accommodated demand. Overall this equates to approximately 7,200room nights per year for the 1,521 room competitive market, or
app roximately 80 rooms turn ed aw ay on 90 days of the year.
This level of unaccommodated demand has been allowed to increase in
our projections year by year in line with the base demand growth rates
explained above. Table 7-3 below shows our projection of
unaccommodated demand for the defined competitive market from
2000 forw ard .
Table 7-3 Projection of Market-wide Unaccommodated Demand 2000-04
Base Year
2000 2001 2002 2003 2004
Commercial 4,589 3,528 4,845 4,990 5,115
Meeting & Conference 1,151 885 1,215 1,252 1,283
Individual Leisure 780 600 831 852 873
Group Leisure 258 198 275 282 289
Airline 242 186 255 261 268
Total 7,020 5,397 7,421 7,637 7,828
Demand Growth - -23.1% 37.5% 2.9% 2.5%
It should be noted that because of the seasonality of demand described
earlier, a proportion of this unaccommodated demand could remain
unaccommodated during the projection years. In our analysis, we have
termed this Residual Unaccommodated Demand. In practice the amount of
unaccommodated demand which becomes accommodated (i.e. that
wh ich is no longer residu al) is depen den t u pon market-wide occup ancy
and seasonality, and th e introduction of new supp ly.
Induced demand represents the additional room nights that will be
attracted to a market area as a result of the introduction of a new
demand generator. Situations where induced demand can be createdinclude the opening of a new manufacturing plant, the expansion of a
convention centre or the addition of a new hotel bringing a different
chain affiliation or uniqu e facilities.
The opening of new hotels is expected to induce some additional room
nights in the competitive market. In our projections we have included
induced demand equal to around 8,500 room nights per year, allocated
between the commercial, meetings and conference, and leisure
segments. This equates to 9% of occupancy for the new competitive
rooms we have brou ght into th e market betw een 2001 and 2002.
Table 7-4, overleaf, shows the total amount of induced demand that we
have estimated will be available in the comp etitive market between 2001
and 2004. The d eman d ind uced by n ew h otels is considered to continue,
Induced Demand
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HVS International Projection of Hotel Demand, Occupancy and Average Rate 30
and is included in demand computations for future years. Induceddemand does not grow in line with the rates of base demand growth
explained earlier.
Table 7-4 Projection of Market-wide Induced Demand 2001-04
2001 2002 2003 2004
Commercial 2,696 5,184 5,184 5,184
Meeting & Conference 630 1,212 1,212 1,212
Individual Leisure 824 1,584 1,584 1,584
Group Leisure 318 612 612 612Airline 250 480 480 480
Total 4,717 9,072 9,072 9,072
Total potential demand is the sum of base demand, unaccommodated
dem and and ind uced d emand for the competitive market. As previously
discussed, base demand and unaccommodated demand are assumed to
grow in line with the growth rates explained in Section 5. Table 7-5
shows the total potential demand for the competitive market as
projected for th e period 2001 to 2004.
Table 7-5 Projecti on of Market- wide Potential Demand 2001-04
2001 2002 2003 2004
Commercial 241,415 252,276 259,688 266,051
Meeting & Conference 60,506 63,188 65,047 66,643
Individual Leisure 81,363 85,553 87,652 89,803
Group Leisure 26,944 28,371 29,065 29,776
Airline 25,281 26,201 26,844 27,503
Total 435,508 455,588 468,296 479,776
Demand Growth - 4.6% 2.8% 2.5%
As already discussed, some of the potential demand will continue to be
unaccommodated during certain years as a result of market-wide and
individual hotel seasonality, and supply constraints. A certain am oun t of
residual unaccommodated demand will result. Table 7-6 overleaf
summ arises the residual dem and comp uted in the course of our analysis
and projections. The residu al demand presen ted for 2000, the base year,
is equal to the base amou nt of unaccomm odated dem and in Table 7-3.
Total Potenti alDemand
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HVS International Projection of Hotel Demand, Occupancy and Average Rate 31
Table 7-6 Estimate of Market-wide Residual Unaccommodated Demand 2000- 04
Base Year
2000 2001 2002 2003 2004
Commercial 4,589 0 0 0 0
Meeting & Conference 1,151 0 0 0 0
Individual Leisure 780 0 0 0 0
Group Leisure 258 0 0 0 0
Airline 242 0 0 0 0
Total 7,020 0 0 0 0
Total usable room night d eman d is the combined total of accomm odated
room night demand and usable latent demand (i.e. that latent demand
that can be absorbed is based on the number of additional hotel rooms
expected to enter the market). Table 7-7 summarises our projections of
total usable demand, or occupied room nights, for the competitive
market from 2000 to 2004. The amount of residual demand is also
shown , as is the growth per an nu m of occup ied room nights.
By applying the total projected occup ied room n ights to our estimates oftotal rooms supply for the competitive market, market-wide occupancy
is estimated for each year. We have used the 2000 accommodated and
un accomm odated room night d emand as a base and projected levels of
dem and into the future using the growth rates selected for each market
segment. The table setting forth out forecast of annual hotel demand is
presented below.
Total Usable RoomNight Demand
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Table 7-7 Total Usable Room Night Demand Competi t ive Market 2000-04
229,455 241,415 252,276 259,688 266,051
4,589 0 0 0 0
5.2 % 4.5 % 2.9 % 2.5 %
57,552 60,506 63,188 65,047 66,643
1,151 0 0 0 0
5.1 % 4.4 % 2.9 % 2.5 %
77,990 81,363 85,553 87,652 89,803
780 0 0 0 0
4.3 % 5.1 % 2.5 % 2.5 %
25,783 26,944 28,371 29,065 29,776
258 0 0 0 0
4.5 % 5.3 % 2.4 % 2.4 %
24,239 25,281 26,201 26,844 27,503
242 0 0 0 0
4.3 % 3.6 % 2.5 % 2.5 %
415,018 435,508 455,588 468,296 479,776
7,020 0 0 0 0
4.9 % 4.6 % 2.8 % 2.5 %
Available Room Nights per Year 555,220 597,832 648,258 648,386 648,386
Available Room Night Growth 9.8 % 8.3 % 0.0 % 0.0 %
Market-wide Occupancy 75 % 73 % 70 % 72 % 74 %
Totals
Occupied Room Nights
Residual Demand
Accommodated Demand Growth
Airline
Occupied Room Nights
Residual Demand
Accommodated Demand Growth
Group Leisure
Occupied Room Nights
Residual Demand
Accommodated Demand Growth
Individual LeisureOccupied Room Nights
Residual Demand
Accommodated Demand Growth
Meeting & Conference
Occupied Room Nights
Residual Demand
Accommodated Demand Growth
Commercial
Occupied Room Nights
Residual Demand
Accommodated Demand Growth
2000 2001 2002 2003 2004
We consider that the stabilised market-wide occupancy for this market
in Newtown is approximately 74%, and, based on the projected market
fluctuations in demand and supply, we anticipate that the market will
reach this level of occupancy in 2004. This stabilised occupancy is
intended to reflect the anticipated results of the market excluding from
consideration any abnormal relationship between supply and demand
and non-recurring conditions that may result in unusually high or low
occupancies. Although the market-wide occupancy may rise above this
stabilised level, we consider it equally possible for new competition and
temporary economic downturns to force occupancy below this selected
point of stability.
The Hotel's forecast m arket share an d occup ancy level have been based
on its anticipated competitive position within the market, as quantified
by its pen etration factor.
Penetrati on FactorAnalysis
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HVS International Projection of Hotel Demand, Occupancy and Average Rate 33
The forecast market share of the H otel is based u pon a pen etration factoranalysis. The pen etration factor is the ratio between a prop erty's market
share an d its fair share. If a prop erty w ith a fair share of 5% is capturing
5% of the market in a given year, then its occupancy will equal the
market-wide occupancy, and its penetration factor will equal 100%
(5%/5% = 100%). If the same p rop erty achieves a market share in excess
of its fair share, then its occup ancy w ill be greater than the market-wide
occupancy, and its penetration factor will be greater than 100%.
Penetration factors can be calculated for each market segment of a
property, and for the p roperty as a whole.
Table 7-8 below shows the specific penetration factors that we haveassum ed for the H otel from th e date of value un til it reaches a stabilised
level of performance relative to its competitive market. Penetration
factors have been estimated for each market segment for each calendar
year and reflect our view of how the subject hotel is likely to perform
relative to its fair share, or the aggregate of its competitive market.
Because of the new supply entering the competitive market over the
next couple of years, particularly the Marriott Hotel which is due to
open at the beginning of 2002, thus affecting the penetration of the
Wellington Hotel, we have therefore increased the Wellington Hotels
pen etration in the commercial and individual leisure segments.
Table 7-8 Market Penetrati on Input by Segment Wellington Hotel2000-04
Market Segment
Commercial 98.5 % 109.0 % 115.0 % 115.0 % 115.0 %
Meeting & Conference 107.1 70.0 70.0 70.0 70.0
Individual Leisure 105.4 100.0 103.0 105.0 105.0
Group Leisure 79.7 90.0 90.0 90.0 90.0
Airline 84.8 85.0 85.0 85.0 85.0
Actual historic penetration
2000 2004200320022001
Base Year
Because the supply and demand balance for the competitive market is
dynamic, particularly in relation to proposed new hotel supply entering
the competitive market, there is a circular relationship between the
penetration factors of each hotel in the market. The performance of
individual new hotels has a direct effect upon the aggregate
performance of the market, and consequently upon the calculated
penetration factor for each hotel in each market segment. The same is
true when the performance of existing hotels changes, either positively
(following a refurbishment, for examp le) or negatively (wh en an un der-
maintained or poorly marketed h otel loses market share).
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HVS International Projection of Hotel Demand, Occupancy and Average Rate 34
A hotels penetration factor is calculated as its achieved market share ofdemand divided by its fair share of demand. Thus, if one hotels
penetration performance increases, thereby increasing its achieved
market share, this leaves less demand available in the market for the
other hotels to captu re and the p enetration p erformance of one or m ore
of those other hotels consequently declines (other things remaining
equal). This type of market share adjustment takes place every time
there is a change in supply, or a change in the relative penetration
performan ce of one or more hotels in th e comp etitive market.
Our projections of penetration, demand capture and occupancy
performance for the subject Hotel take into account these types ofadjustment to market share within the defined competitive market.
Consequently, the actual penetration factors applicable to the subject
Hotel for each market segment in each projection year (the output
penetration factors) vary somewhat from the input penetration factors
set ou t in Table 7-8 above.
Table 7-9 below shows the output penetration factors applicable to the
subject Hotel, after the effect of market sh are ad justmen t has been taken
into accoun t.
Table 7-9 Market Penetrati on Output by Segment Wellingt on Hotel 2000-04
Market Segment
Commercial 98.5 % 107.8 % 113.0 % 112.3 % 111.9 %
Meeting & Conference 107.1 74.0 73.7 73.2 72.9
Individual Leisure 105.4 101.6 104.6 105.6 105.2
Group Leisure 79.7 88.2 88.3 88.3 88.3
Airline 84.8 85.2 85.5 84.9 84.6
Overall Penetration 99.0 % 99.4 % 102.8 % 102.5 % 102.2 %
Base Year
20022000 2001 2003 2004
It is these output penetration factors which drive our estimates of
demand capture and occupancy for the subject Hotel, as can be seen in
Table 7-10 overleaf. This sets out the result of these market share
adjusted (output) penetration factors by segment upon the subject
Hotels futu re dem and captu re and occup ancy performance, the an nu al
market-wide occupancy and the resultant market mix, or total captured
demand analysed by market segment. These projections are in calendar
years from 2001 un til 2004, by which time w e consider th at the Hotel will
have reached a stabilised level of performance in terms of market
pen etration an d occup ancy.
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Table 7-10 Projected Penetration, Demand Capture and Occupancy Wellington Hotel 2000-04
Market Segment
Commercial
Demand 229,455 241,415 252,276 259,688 266,051
Market Share 16.2 % 16.1 % 15.6 % 15.5 % 15.5 %
Capture 37,139 38,940 39,399 40,293 41,138
Penetration 98.5 % 107.8 % 113.0 % 112.3 % 111.9 %
Meeting & Conference
Demand 57,552 60,506 63,188 65,047 66,643
Market Share 17.6 % 11.1 % 10.2 % 10.1 % 10.1 %Capture 10,129 6,703 6,438 6,581 6,718
Penetration 107.1 % 74.0 % 73.7 % 73.2 % 72.9 %
Individual Leisure
Demand 77,990 81,363 85,553 87,652 89,803
Market Share 17.3 % 15.2 % 14.5 % 14.6 % 14.5 %
Capture 13,505 12,373 12,363 12,790 13,057
Penetration 105.4 % 101.6 % 104.6 % 105.6 % 105.2 %
Group Leisure
Demand 25,783 26,944 28,371 29,065 29,776
Market Share 13.1 % 13.2 % 12.2 % 12.2 % 12.2 %
Capture 3,376 3,555 3,460 3,545 3,632
Penetration 79.7 % 88.2 % 88.3 % 88.3 % 88.3 %
Airline
Demand 24,239 25,281 26,201 26,844 27,503
Market Share 13.9 % 12.7 % 11.8 % 11.7 % 11.7 %
Capture 3,376 3,223 3,095 3,150 3,216
Penetration 84.8 % 85.2 % 85.5 % 84.9 % 84.6 %
Total Room Nights Captured 67,525 64,795 64,755 66,359 67,761
Available Room Nights 91,250 91,250 91,250 91,250 91,250
Occupancy 74 % 71 % 71 % 73 % 74 %
Total Penetration 99 % 99 % 103 % 103 % 102 %
Base Year
2001 2002 2003 20042000
Table 7-11, below, sets out the resultant market mix, or total captured
dem and analysed by market segment.
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Table 7-11 Projected Market Mix Wellington Hotel 2000-04
Commercial 55 % 60 % 61 % 61 % 61 %
Meeting & Conference 15 10 10 10 10
Individual Leisure 20 19 19 19 19
Group Leisure 5 5 5 5 5
Airline 5 5 5 5 5
Total 100 % 100 % 100 % 100 % 100 %
Base Year
20042000 2001 2002 2003
We expect the Hotel to reach a stabilised level of penetration (occupan cyperformance relative to its competitive market) in 2004. By this time we
expect the Hotel to achieve an overall penetration of 102%. The
stabilised occupancy is intended to reflect the anticipated results of the
property over its remaining economic life given any and all changes in
the life cycle of the Hotel.
The average rate forecast for the Hotel has been based upon the
consideration of projected market mix changes and rate increase
projections related to each d emand segmen t.
In forecasting average rate growth, we have anticipated a baseunderlying inflation rate of 2.5%. As stated in Section 3, Market Area
Analysis, we have relied upon inflation estimates supplied by the
Economist Intelligence Unit (EIU). We have applied various market and
hotel-specific growth factors to the average rate of the respective
dem and segmen ts. The following table illustrates the estimated increases
in average rate for each m arket segmen t.
Hotel room rate inflation is not necessarily the same as the general
economic rate of inflation experienced in the local community. It is
impacted more by market conditions such as the relationship between
supply and demand. When hotel room rate inflation is projected intothe future, the movement in average rate up to the point where the
hotel achieves its stabilised occupancy is generally attributed to
property- and market-specific factors. After a hotel achieves occupancy
stabilisation, most forecasts assume that room rates will continue to
increase at the anticipated general economic rate of inflation expected
for the local market area.
Conclusion OverallOccupancy
FORECAST OFAVERAGE RATE
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HVS International Projection of Hotel Demand, Occupancy and Average Rate 37
Table 7-12 Projected Average Rate Growth by Market SegmentWellington Hotel 2001-04 ()
Base Year
Market Segment 2000
Commercial 85.00 2.5 % 2.5 % 2.5 % 2.5 %
Meeting & Conference 75.00 2.5 2.5 2.5 2.5
Individual Leisure 55.00 2.5 2.5 2.5 2.5
Group Leisure 45.00 2.5 2.5 2.5 2.5
Airline 55.00 2.5 2.5 2.5 2.5
Total 74.00 2.7 % 2.6 % 2.6 % 2.5 %
Projected Growth Rate
20022001 2003 2004
Although we have applied growth rates of 2.5% in 2002 to each
segment s rate th e overall chan ge in 2002 was 2.8%, th is is because of the
slight change in the Hotels market mix towards the higher paying
comm ercial segment. The sam e is tru e in 2003.
The following table show s how the p rojected changes in average rate by
segment, in conjunction with forecasts of demand by segment, affect
overall average rate for th e p eriod 2001-2004.
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HVS International Projection of Hotel Demand, Occupancy and Average Rate 38
Table 7-13 Average Rate Forecast by Market Segment - Wellington Hotel ()
Commercial
Average Rate Growth 2.5 % 2.5 % 2.5 % 2.5 %
Captured Room Nights 37,139 38,940 39,399 40,293 41,138
Rooms Revenue 3,156,794 3,392,672 3,518,472 3,688,271 3,859,772
Average Rate 85.00 87.13 89.30 91.54 93.82
Meeting & Conference
Average Rate Growth 2.5 % 2.5 % 2.5 % 2.5 %
Captured Room Nights 10,129 6,703 6,438 6,581 6,718
Rooms Revenue 759,656 515,259 507,270 531,548 556,146
Average Rate 75.00 76.88 78.80 80.77 82.79
Individual Leisure
Average Rate Growth 2.5 % 2.5 % 2.5 % 2.5 %
Captured Room Nights 13,505 12,373 12,363 12,790 13,057
Rooms Revenue 742,775 697,542 714,367 757,513 792,691
Average Rate 55.00 56.38 57.78 59.23 60.71
Group Leisure
Average Rate Growth 2.5 % 2.5 % 2.5 % 2.5 %
Captured Room Nights 3,376 3,555 3,460 3,545 3,632
Rooms Revenue 151,931 163,996 163,591 171,790 180,394
Average Rate 45.00 46.13 47.28 48.46 49.67
Airline
Average Rate Growth 2.5 % 2.5 % 2.5 % 2.5 %
Captured Room Nights 3,376 3,223 3,095 3,150 3,216
Rooms Revenue 185,694 181,697 178,864 186,593 195,264
Average Rate 55.00 56.38 57.78 59.23 60.71
Total
Average Rate Growth 2.7 % 2.6 % 2.6 % 2.5 %
Captured Room Nights 67,525 64,795 64,755 66,359 67,761
Rooms Revenue 4,996,850 4,924,387 5,050,895 5,308,754 5,556,436
Average Rate 74.00 76.00 78.00 80.00 82.00
Base Year
20042000 2001 2002 2003
Based on the p receding analysis, the H otel's occupan cy and average rate
have been estimated as follows:
Table 7-14 Forecast Occupancy and Average Rate - Wellington Hotel ()
Year
2000 74 % 74 55 74
2001 71 76 54 74
2002 71 78 55 752003 73 80 58 75
2004 74 82 61 75
Average Rate in
2000 PricesOccupancy
Average
Rate RevPAR
CONCLUSION OCCUPANCY ANDAVERAGE RATE
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HVS International Projection of Income and Expense 39
8. Project ion of Income and Expense
Based on our preceding projection of occupancy and average rate, and
our knowledge of both the Hotels and comparable hotels financial
operating p rofiles, we have developed a ten-year forecast of income and
expense commencing on 1 January 2001. We have selected an annualinflation rate of 2.5%.
The forecast of income and expense is expressed in inflated pounds
sterling for each projection year. The stabilised year is intended to reflect
the anticipated operating results of the Hotel over its remaining
economic life, given any or all applicable stages of build-up, plateau and
decline in th e life cycle of the Hotel. Thu s, income and expense estimates
from the stabilised year forward exclude from consideration any
abnormal relationship between sup ply and dem and , as well as any non-
recurring cond itions that m ay result in un usual revenu es or expenses.
For the purposes of determining the Hotel's open market value, it is
assumed that the Hotel is sold as at the date of value; the projection of
income and expense therefore reflects the achievements of a typical
anticipated n ew own er.
Because the Hotel is an existing hotel with an established operating
performan ce, its historical income and expense experience can serve as a
basis for p rojections. The following income an d expense statemen ts were
provided by management and are unaudited. Where applicable, we
have reorgan ised th e statemen ts in accordance with th e Uniform System
of Accounts for Hotels.
These historic statements of income and expense show an efficiently
operated lodging facility. The revenues reflect a leadership position in
the market and the operating expense ratios generally indicate strong
control and competent management. Our review of the subjects
financial operating history did not reveal any abnormalities that could
impact the future operating performance of this property.
Review of Operat ingHistory
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HVS International Projection of Income and Expense 40
Table 8-1 Historical Operat ing Performance - Well ington Hotel ( 000s)
2000 1999
Number of Rooms: 250 250
Occupied Rooms: 67,525 68,438
Days Open: 365 Amount per Amount per 365 Amount per Amount per
Occupancy: 74.0% Percentage Available Occupied 75.0% Percentage Available Occupied
Average Rate: 74.00 of Revenue Room Room 73.00 of Revenue Room Room
REVENUE
Rooms 5,000 52.8 % 20,000 74.05 4,989 52.9 % 19,956 72.90
Food & Beverage 3,900 41.2 15,600 57.76 3,880 41.1 15,520 56.69
Telephone 175 1.8 700 2.59 172 1.8 688 2.51
Other Income 400 4.2 1,600 5.92 390 4.1 1,560 5.70
Total 9,475 100.0 37,900 140.32 9,431 100.0 37,724 137.80
DEPARTMENTAL EXPENSES
Rooms 1,230 24.6 4,920 18.22 1,200 24.1 4,800 17.53Food & Beverage 2,714 69.6 10,858 40.20 2,648 68.3 10,593 38.69
Telephone 112 63.9 447 1.66 109 63.4 436 1.59
Other Expenses 200 50.0 800 2.96 190 48.7 760 2.78
Total 4,256 44.9 17,025 63.03 4,147 44.0 16,589 60.60
DEPARTMENTAL INCOME 5,219 55.1 20,875 77.29 5,284 56.0 21,135 77.20
OPERATING EXPENSES
Administrative & General 777 8.2 3,108 11.51 758 8.0 3,032 11.08
Marketing 265 2.8 1,061 3.93 259 2.7 1,035 3.78
Property Operations & Maintenance 360 3.8 1,440 5.33 351 3.7 1,405 5.13
Energy 237 2.5 948 3.51 231 2.5 924 3.38
Total 1,639 17.3 6,557 24.28 1,599 17.0 6,397 23.37
HOUSE PROFIT 3,580 37.8 14,318 53.01 3,685 39.0 14,738 53.84
Management Fee 284 3.0 1,137 4.21 290 3.1 1,160 4.24
INCOME BEFORE FIXED CHARGES 3,295 34.8 13,181 48.80 3,395 36.0 13,578 49.60
FIXED EXPENSES
Property Taxes 199 2.1 796 2.95 194 2.1 776 2.84
Insurance 28 0.3 114 0.42 28 0.3 111 0.41
Incentive Fee 330 3.5 1,318 4.88 339 3.6 1,358 4.96
Reserve for Replacement 284 3.0 1,137 4.21 283 3.0 1,132 4.13
Total 841 8.9 3,365 12.46 844 9.0 3,377 12.34
NET INCOME 2,454 25.9 % 9,816 36.34 2,550 27.0 % 10,201 37.26
Based on the market for hotel accommodation in the Newtown area, as
well as the Hotel's anticipated future market position, we have
developed a forecast of income and expense. The forecast starts on 1
January 2001 and represents our opinion of how a competent
man agement comp any wou ld operate the Hotel.
In forecasting revenues and expenses for a hotel, we use a fixed and
variable component model. This model is based on the premise that
hotel revenues and expenses have one component that is fixed and
another that varies directly with occupancy or facility usage. A
projection can be made by taking a known level of revenue or expense
and calculating the fixed and variable components. The fixed
component is adjusted only for inflation, while the variable component
is also adjusted for the percentage change between the projected
occupancy and facility usage that produced the known level of revenue
or expen se.
Forecast of Incomeand Expense
Rooms Revenue
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HVS International Projection of Income and Expense 41
Rooms revenue is determined by two variables, occupancy and averagerate, as discussed in Section 7, Projection of Hotel Demand, Occupancy and
Average Rate.
The Uniform System of Accounts for Hotels defines food revenue as
revenue derived from the sale of food, including coffee, milk, tea and
soft drinks. Food