Introductory Guide - PowerPoint Presentation

Slide1

Introductory Guide

Asset ManagementSlide2

Brand vs. Owner vs. Manager

Brand

Marriott, Hilton, Starwood, IHG, Hyatt, Carlson, Wyndham, Choice, Accor, etc..

Brands hold the power of name recognition but often don’t manage the hotels under their name. They are able to sell their name to owners who pay the brands a fee to essentially use the brand name.

OwnerPublic and Private REITS, independent owners, HERSHA, LaSalle, White Lodging, etc.The owner carries the risk associated with the hotels success. They are responsible for funding CapEx needs but are rewarded when a hotel performs well.

ManagerWhite Lodging, Interstate, Sage, Winegardner & Hammons, etc..Management companies run the hotels for the owners. Owners will pay a base fee and often times and incentive fee to the management companies for their operational services.

* Brands can participate in all three aspects but it is not typical Slide3

Asset Management – Duties/Goals

Asset Managers primary job

– achieve ownership goals which include; maximizing property value, monitoring performance, and protecting economic value and physical condition.

Different levels of Asset Management:

Assist in various phases of hotel investment life cycleDetailed review of all opportunities to maximize cash flowManagement Company RFP solicitationSet and monitor property budgets and forecasts Develop operational tools to increase managements productivity Contract negotiationsAssist throughout the entire takeover process 4 Primary phases of Asset Management:

Determine ownership objectivesAbsorbing asset after acquisition or developmentUnlocking value and monitoring operating performanceDivesting the assetSlide4

Takeover Outline

Due Diligence material –

underwriting model, deal performance expectations

Property Level Reports – Balance Sheets, P&L, Budgets, STR reportsKey Agreements – Management, Franchise

Licenses and ContractsThird Party Reports – Appraisal, Engineering, Property Condition reportsSlide5

Contracts

Management Agreement

Abstract Outline

Contract details

Management fees & reimbursable expenseReporting requirementsPerformance terminationOther material provisionsCompeting facilities clauseOwner approval of GMComp set

Franchise AgreementAbstract OutlineContract DetailsTermsDatesRestriction if applicableLicense Fees and Reimbursable ExpensesReporting RequirementsTermination ProvisionsOther Material ProvisionsRecord KeepingResponsibilities of franchisee

Condominium Agreement

Abstract Outline

How are costs allocated

Voting rights of members

When

the

board

meets

Definition of common areas

Can management company be hired for common areas

How is board or association elected and terms of

members

Anything else that seems of high importanceSlide6

Common Terms

FFO

= Funds From Operations

CapEx = Capital ExpenditureRFP = Request For Proposal

PCA = Property Condition AssessmentWorking Capital = Cash on handIMF = Incentive Management FeeOLAP = online analytical processingFlow through = the percent of excess revenue that results in extra profit or the percent of saved money when revenue fails to meet expectations.DSCR = Debt service coverage ratio – amount of cash available to meet principle debt payments + annual interest

Pro Forma = gives a fair idea of the cash outlay for a shipment or anticipated occurrence. Pro Forma financial statements give an idea of how the actual statements will look if underlying assumptions hold true.Cap Rate = imputed value between what the asset sold for and NOI stream (reflection of risk)Equity Yield = ratio of earnings in relation to the amount of equity investedCapital Stack = sources of capital and costs of capitalAppraisers = Usually 3rd party companies that are involved when a sale of asset is being negotiated.CI = consolidated InventoryUnderwrite = trying to come up with an estimated value of a property years down the road using benchmarks, previous management company info, and other resources.Easement = right given to 3rd party for land use and it cant be revokedGroup Pace = now vs. last year amount of group bookingsLRA = Last Room AvailabilityAmortization = paying off of debt in regular installments over a period of time.Allowance = reduction in rev. due to service problemAdjustments = subtracted from total revenue for things like a posting error.

Residual

IMF

= money given to the management company if the hotel is sold. A percentage of the revenue from the sale after owner’s priority.

Key Money

= money used to add incentive to deals. Ex: we agree to help fund the project if they agree to give us the project

.Slide7

Important Industry Equation’s

Occ. %

= rooms occupied/rooms available

RevPAR = Revenue / rooms available or ADR x Occ. %Profit Margin

= NI(profit)/revenueGross Profit = Revenue – cost of salesEquity Yield = earning on equity / amount of equityCap Rate = NOI/ total value (value = sales price, ask price, or appraisal value)

Estimated value = NOI/cap rate***Flow Through = change in GOP/ Change in Rev.Sales positive = Act. – Budg. Reflects a positive numberSales negative = Act. – Budg. Reflects a negative numberFlow on Positive = change in GOP/Change in salesFlow on Negative = 1-(change in GOP/Change in sales)IMF = % of available cash flowCash Flow = operating profit – owners priorityOwners Priority = __% (owners ttl. capital invest. + add. capital invest.)DSCR = NOI/total debt serviceCOS % = COS/total department revenueResidual IMF = sale proceeds * (20%) (after owners residual priority of 10% cumulative unleveraged IRR).Total room sales = #days in month x # of rooms occupied x # of room avail. x RevPAR for month__(GOP, profit, revenue, etc.)__ Achievement = Actual _( )_/ Budgeted _( )_Market Cap – common shares x value of shares

Discount Factor

– P(t) = 1/(1+r)^t

LTV (loan to value)

= loan amount divided by property value or

cost