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






Course name and No.:

S M 9214 Hospitality Real Estate and Investment

Assessment title:

Assessment Two (20%)






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%


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. 


 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.


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?


Management Contract Figures Completion (2022-2026)

For completing the figures in the Excel sheet, you will need to calculate the various fees based on the hotel`s financial performance. Below is a general guide:

  1. Management Fee: 3.5% of gross revenue
  2. Incentive Fee: 7% of the hotel`s adjusted gross operating profit (GOP)
  3. Marketing Fee: 2% of gross revenue
  4. Loyalty Programs Fees: 1.5% of gross revenue

For each year from 2022 to 2026, apply the percentages to the respective financial figures provided or estimated for the hotel.

Rental/Lease Contract Figures Completion (2022-2026)

  1. Fixed Rent: €320,000 in 2022
  2. CPI Adjustment:
    • 2023: 2.5% CPI
    • 2024: 3.0% CPI
    • 2025: 3.5% CPI
    • 2026: 4.0% CPI

Calculate the annual rent for each year by applying the CPI adjustment to the previous year`s rent.

Advantages of Signing a Management Contract

  1. Operational Expertise: Leveraging Marriott’s vast experience and established procedures ensures efficient hotel management and high service standards.
  2. Brand Recognition: Associating with a globally recognized brand like Marriott can attract more guests and enhance the hotel`s reputation.
  3. Performance Incentives: The structured fee system aligns Marriott’s incentives with the hotel’s financial success, encouraging optimal performance.

Advantages of Signing a Rental Contract

  1. Stable Income for Property Owners: The fixed rent provides a predictable and stable income stream, reducing financial risk for the property owners.
  2. Simplified Financial Management: A rental agreement simplifies financial management by providing consistent rental payments, unaffected by the hotel`s operational performance.
  3. Inflation Adjustment: The inclusion of CPI adjustments ensures the rent keeps pace with inflation, maintaining the real value of the rental income over time.

Investment Analysis for the Luxury Hotel

Cash Flow Calculation and Decision Making

  1. Initial Investment (CF0): $50 million
  2. Improved Cash Flows:
    • First 2 years: 10% of $50 million
    • After year 2: 7% annual growth
    • Growth beyond Year 5: 6% annually

Net Present Value (NPV) Calculation:

  • Calculate the annual cash flows based on the given percentages.
  • Discount the future cash flows to present value using the required rate of return (12%).
  • Sum the discounted cash flows and subtract the initial investment to get NPV.

Internal Rate of Return (IRR) Calculation

  • Use the cash flow data to calculate IRR, which is the discount rate that makes the NPV of all cash flows (both incoming and outgoing) equal to zero.
  • IRR indicates the efficiency of the investment.

If IRR > Required Rate of Return (12%), the investment is considered good.

Evaluation at 15% Required Rate of Return

  • Recalculate the NPV using a 15% discount rate.
  • If the NPV is positive, the investment is still viable at this higher required return.
  • Compare the IRR to the 15% threshold to make an informed decision.


  • Investment Decision: If the NPV at 12% is positive and the IRR exceeds 12%, it’s a good investment. If the NPV remains positive even at a 15% discount rate, it further justifies the investment.
  • IRR Interpretation: The IRR provides insight into the expected annual return on investment. If it’s higher than the required rate of return, the project is financially sound.

Make sure to perform these calculations in the provided Excel sheet, ensuring accuracy and thorough analysis.


  • Principles of Corporate Finance by Brealey, Myers, and Allen
  • Real-world examples from Marriott`s financial reports and similar case studies
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