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 dont 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. Owner Public 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. Manager White 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
Slide 3
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 cycle Detailed review of all
opportunities to maximize cash flow Management Company RFP
solicitation Set and monitor property budgets and forecasts Develop
operational tools to increase managements productivity Contract
negotiations Assist throughout the entire takeover process 4
Primary phases of Asset Management: Determine ownership objectives
Absorbing asset after acquisition or development Unlocking value
and monitoring operating performance Divesting the asset
Slide 4
Takeover Outline Due Diligence material underwriting model,
deal performance expectations Property Level Reports Balance
Sheets, P&L, Budgets, STR reports Key Agreements Management,
Franchise Licenses and Contracts Third Party Reports Appraisal,
Engineering, Property Condition reports
Slide 5
Contracts Management Agreement Abstract Outline 1. Contract
details 2. Management fees & reimbursable expense 3. Reporting
requirements 4. Performance termination 5. Other material
provisions Competing facilities clause Owner approval of GM Comp
set Franchise Agreement Abstract Outline 1. Contract Details Terms
Dates Restriction if applicable 2. License Fees and Reimbursable
Expenses 3. Reporting Requirements 4. Termination Provisions 5.
Other Material Provisions Record Keeping Responsibilities of
franchisee Condominium Agreement Abstract Outline 1. How are costs
allocated 2. Voting rights of members 3. When the board meets 4.
Definition of common areas 5. Can management company be hired for
common areas 6. How is board or association elected and terms of
members 7. Anything else that seems of high importance
Slide 6
Common Terms FFO = Funds From Operations CapEx = Capital
Expenditure RFP = Request For Proposal PCA = Property Condition
Assessment Working Capital = Cash on hand IMF = Incentive
Management Fee OLAP = online analytical processing Flow 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 invested Capital Stack = sources of capital
and costs of capital Appraisers = Usually 3 rd party companies that
are involved when a sale of asset is being negotiated. CI =
consolidated Inventory Underwrite = 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 3 rd party for land use and it cant be revoked Group
Pace = now vs. last year amount of group bookings LRA = Last Room
Availability Amortization = paying off of debt in regular
installments over a period of time. Allowance = reduction in rev.
due to service problem Adjustments = 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 owners 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.
Slide 7
Important Industry Equations Occ. % = rooms occupied/rooms
available RevPAR = Revenue / rooms available or ADR x Occ. % Profit
Margin = NI(profit)/revenue Gross Profit = Revenue cost of sales
Equity Yield = earning on equity / amount of equity Cap 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
number Sales negative = Act. Budg. Reflects a negative number Flow
on Positive = change in GOP/Change in sales Flow on Negative =
1-(change in GOP/Change in sales) IMF = % of available cash flow
Cash Flow = operating profit owners priority Owners Priority = __%
(owners ttl. capital invest. + add. capital invest.) DSCR =
NOI/total debt service COS % = COS/total department revenue
Residual 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