a) Complete the 2022 - 2026 figures, in sheet one, on the shared Excel file using the above information.

 

 

Program:

 

EMIHM

Course name and No.:

S M 9214 Hospitality Real Estate and Investment

Assessment title:

Assessment Two (20%)

Type:

Practical

Faculty:

 

Deadline:

Sep. 03, 2023, 23:59

Dear Students, 

Please solve the following problems on the shared Excel file “Assessment Two_Management and Lease Contract Valuations’’ and kindly upload the excel file on Moodle when done. 

 

Please rename the file with your name.

 Good Luck

 

Marriott, a renowned global hotel chain, has expressed keen interest in operating the prestigious Costa del Sol Hotel in Marbella. As part of their commitment, a fresh management contract has been inked, entrusting Marriott with the responsibility of efficiently managing the property. This entails providing expert guidance, meticulous supervision, and utilizing established methods and procedures to ensure the hotel`s success.

In return for their exceptional management services, Marriott will be compensated with management fees, as outlined in the contract. The structure of these fees is thoughtfully designed to motivate the operator to optimize the financial performance of the hotel, thus aligning their interests with the hotel`s success.

Under the typical arrangement, Marriott`s fees will be divided in a manner that reflects their dedication to maximizing the hotel`s profitability while upholding the highest standards of hospitality. Typically, Marriott’s fees will be split as follows:

1.     Management Fee: 3.5%

2.     Incentive Fee: 7%

3.     Marketing Fee: 2%

4.     Loyalty Programs Fees: 1.5%

Required:

a)     Complete the 2022 - 2026 figures, in sheet one, on the shared Excel file using the above information.

b)    List the 3 main advantages of signing a management contract

Assume now that Costa del Sol is operated by Marriott under a rental/lease contract. Under the newly formed rental/lease contract, Marriott has taken the reins of operating Costa del Sol Hotel in Marbella with carefully structured conditions:

1.     Fixed Rent: Commencing in 2022, a steady fixed rent of €320,000 has been agreed upon between Marriott and the property owners. This fixed rent guarantees a minimum income for the property owners, providing them with stability and assurance.

2.     Country`s Consumer Price Index (CPI) and Expected Increase: Presently, the country`s CPI stands at 2%, a measure of the inflation rate affecting the overall economy. As part of the contract, and based on the economy’s expectations, there is a plan in place to increase the CPI by 0.5% each year until 2025. This adjustment is in anticipation of potential inflationary pressures. 

Required:

 a)     Complete the 2022 - 2026 figures, in sheet two, on the shared Excel file using the above information.

b)    List the 3 main advantages of signing a rental contract. 

You are considering investing in a luxury hotel with an asking price of $800 million. The investors expect a 12% return on their investment. Assuming an initial investment (CF0) of

$50 million, the hotel is expected to generate improved cash flows over the next 5 years as follows:

1.     The first 2 years: 10%

2.     After year 2: 7%

3.     The management team is confident that they can sustainably grow the cash flows at a rate of 6% beyond Year 5.

NOTE: To be solved in sheet three, on the shared Excel file using the above information.

Required:

a)     Should you invest $800 million in the luxury hotel? If yes, why?

b)    What is the IRR of the project? What does the IRR show?

c)     If the required rate of return is 15% based on the CAPM model, would you still invest in this project?

100% Plagiarism Free & Custom Written, Tailored to your instructions