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Market & Financial Information

 

Market & Financial Information

Market & Financial Feasibilities

 

Whether you are contemplating an acquisition or development of a hospitality facility, it is vital that you commission a detailed market and financial feasibility analysis for the envisaged venture, as this will enable you to make an informed decision on the potential limitations and business parameters and identify and mitigate future risks.

For the purposes of the analyses we would conduct two studies, which are interlinked; a Market Demand Analysis and a FinancialAnalysis. These modules form the basic information required by an INTEGRATED FEASIBILITY ANALYSIS, which is aimed at incorporating a construction feasibility, to determine the overall viability of a project.

 

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Market Demand Analysis
The market demand analysis enables us to project the size and source of the market, researches the current (and future) competitors and their present performances and provides for vital data that will be used for the Financial Analysis, the creation of potential USP’s (Unique Selling Points), development or third party funding and the compilation for a customer profile needed for design briefing purposes.

Our research will further enable us to formulate recommendations relating to the most appropriate size, standard and configuration for the proposed hotel, as well as estimate the likely primary variables for the project under study; these include average occupancy rate, average room rate, patronage and average spends.

 

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Financial Analysis
The above forms the foundation for this second analysis, which are the indicative financial projections for the opportunity under study. The financial analysis initially takes on the form of indicative financial projections for the first ten years of operation and quantifies the accommodation, food, beverage and other revenues which follow upon our assumptions about occupancies, room rates, patronage, average spends, and inflation. 

The indicative projections also forecasts operating profits of major revenue departments, overheads and the gross operating profit (GOP) for the development. 

The financial analysis includes indicative ten-year income statements, balance sheets, taxation schedules, and ten-year cash-flow projections extrapolated from the base of the five-year operating projections.

These ten-year indicative projections take into account assumptions made in conjunction with you regarding capital expenditure. The financial assessment includes conclusions relating to the feasibility of the development.

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Disposal Strategy Development

 

There may come a time when you arrive at the conclusion that you may wish to dispose of your Hotel for one reason or another, such as entering into a Sale & Lease Back, sell the Property to an Institution or Fund, or in a worse case and you have attempted to rescue the business and came to the conclusion that it may be better to cut your losses.

Since the decision to sell a property is likely to be based on financial and/or strategic reasons, we strongly suggest that you seek our assistance as we are not emotionally involved and therefore have the ability to analyse the situation logically and objectively.  It may well be in your interest to also have us assess your business to see if indeed we can still rescue the business, or renegotiate financial terms with your funders, please click on the relevant tabs in this section.

If the final decision is taken to dispose of the asset, it is best to do so according to a strategy that will ensure that you will still realize the maximum value under the circumstances.

Whilst we are not in the business of selling real estate, we are definitely the right people to assist you in the decision making process and development of a disposal strategy.

Operator / Brand Appointment

 

The identification of the appropriate brand and operator can be a daunting task and can invariably become a long term financial commitment for an owner.

In many cases, hotel companies have attempted to adjust their branding to accommodate a variety of different geographical locations, tailoring their product and service deliveries at specific target markets and demographic influences. 

Notwithstanding the fact that there are many hotel brands on the market, choosing the right one for a specific hotel should be based on the best fit for the location, type and size of the hotel, as well as the brand’s distribution network and representation in the hotels predominant feeder-markets. 

Depending on the project finance (in cases of new developments) or funding requirements (in cases of acquisitions) of an owner, coupled with the specific risk profile of the transaction, it is always advisable to try and introduce some form of debt funding from a financial institution or investment partner.  In our experience, any funder would want to be assured that the hotel’s business plan is based on sound principles and has been thoroughly researched (click on MARKET & FINANCIAL FEASIBILITIES), but also that it is properly developed (click on DEVELOPMENT MANAGEMENT) and run by competent and reputable operators (click on MANAGEMENT).

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In view of the aforementioned and based on the assumption that an owner prefers to go the brand and operator options, we are amply qualified in achieving the objectives for both, the financial institutions as well as the owners.

In this report we will provide an overview of the different types of agreements and their impact on the hotel. The structure of the report is as follows:

 

• Current Overview
• Definition of Basis for Fees
• Hotel Franchise Agreement
• Hotel Management Agreement
• Hotel Lease Agreement
• Hotel Consortia Agreement
• Selection Process
• Selection Criteria
• Summary

 

Please click here to view this report in PDF version.

 

Advisory Services

 

Even though you may be a seasoned hotelier or owner of one or more hotels, there may be times when you find yourself too close to the problem and/or you may have lost the necessary objectivity.

Alternatively, you have developed your own strategy and wish to test the merits of your ideas with an independent advisor; …you are at the right place!

With many years of international and local hotel and corporate management experience, we are amply qualified to assist you with objective and frank guidance and advice.

Please click on any of the items listed on your left for further information on our hotel advisory services, or simply CONTACT US and let us know what you require or where you may need assistance.

Distress Management

 

In most cases and regardless of position and location, hotels are indirectly linked to the mainstream of the global economy and as such, susceptible to its up’s and down’s.  When a Hotel runs into (financial) difficulties (and based on the large variety of different components making up the business), it is not unusual for a number of things to go wrong at the same time.  Due to the often complicated nature of the hotel and catering businesses, you will require a team with an appropriate skills base to analyse, stabilise and institute a turnaround strategy in the shortest possible time frame.

 

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Turn Around Management
As a team that has a vast amount of experience operating various hotels across all hotel sectors, locally and internationally, we have managed through a multitude of difficult economic business cycles and successfully managed many turn around missions.

The 3 R’s are:

• Re-engineering
  • The Business Model
• Re-positioning
  • The Sales & Marketing Strategy, Branding, Grading
• Right-sizing
  • Product, Staffing Structures, 

Owner's Representation

 

In a case where the hotel ownership and operational responsibilities are separated, there is strong possibility that each parties’ objectives are not always aligned, causing the relationship to become strained.

One of the more negative aspects of having a large group as your operator is that their General Managers tend to change every two to three years.  The result of this is commonly that the outgoing GM’s interest may be more focussed on his performance bonus, as opposed to maintaining the standards and the product / building.

As your “eyes and ears”, we offer an objective external perspective of the hotel’s and the operators’ performance, acting as the link between you and them. Our primary objective is to assist hotel owners to realize their vision and investment goals.

 

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Here are some examples of the most common issues we come across, where operators’ objectives are not 100% aligned with those of the owners’/ investors’: 

 

• Excessive floats, surplus cash and too high a par stock levels and inventories.
• Mismanagement of CAPEX and Major R&M projects.
• Sacrificing on-going maintenance programs to prop up failing financial performance.
• Brand building at the owner's expense.
• Too high an age-analysis of the debtors’ book.
• Excessive litigation and resultant legal costs.
• Poor controlling of procurement and cost of sales.
• Mismanagement of the marketing budget.

Situational Analysis

 

The hotel business environment is constantly evolving and so are its markets, trends and customer needs. A situation analysis involves examining the environment in which a hotel business operates, identifies key factors that may influence the business, how it is managed, marketed and how well its product and service delivery is aligned with the various demographics it caters for.

In order to provide an accurate picture of the specific subject matter under review, a comprehensive business assessment must be conducted, which is broken down into the following components:

 

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Financial assessment
As the saying goes; “the devil lies in the detail”.  Most problems will invariably show up in the numbers.  Here the focus is primarily on the cost controlling and cash flow management side, but also the general administration of the hotel.

Market assessment
Here we are testing if the hotel is performing optimally, in respect of market share and its revenue generation, based on its location, brand selection, size of operation and market segmentation, in relation to the rates strategies employed by the operators.

Operational assessment
This is really the part where the “rubber meets the road”.  If the hotel’s service and product delivery and standards cannot meet the expectations of the target audience it caters for, then no business strategy will ever work.  Guided by the financial data, we also assess the efficiency of the internal controls and operating procedures.

Product assessment
Closely linked to the operational assessment, owners want to know that the property, building, plant and machinery are maintained to ensure that hotel guests can enjoy a clean and a well functioning hotel experience and that their assets are kept at a high standard.

Flowing from the above assessments, you will be presented with our findings and recommendations in relations to: 

 

• Revenue Generation
• Cash flow Management
• Internal Control Efficiencies and Risks
• Property Management / Maintenance
• Standards and Guest Experiences
• Employee Satisfaction

Business Due Diligence

 

As an owner, lender or investor, you want to understand all aspects of the business and the property you are contemplating to acquire / become involved in, as quickly as possible. Most importantly, you want the information to be accurate and reliable, if you are to make informed decisions.

In this regard, you want to:

 

• Have all the information required to complete a due diligence.
• Arising from a due diligence:

- Fully understand all the risks involved
- Set the foundations for a successful negotiation

In addition to the above information, which deals primarily with the legal and financial aspects of a possible transaction, we also recommend that a SITUATIONAL ANALYSIS be conducted, to give you the full picture of the potential deal.