Les

Roches

2023.1

Program:

EMIHM

Assessment title: Final Assessment (35%)

Dear Students,

Good Luck!

Course name and

No.:

Type:

S M 9214 Hospitality Real

Estate and Investment

Practical

Please solve the following problem by creating your own Excel file and kindly

upload the excel file on Moodle when done.

Please rename the file with your name. Problem

Les Roches Hospitality Group is a private hotel management company that operates several

hotels in popular tourist destinations. As part of their continuous efforts to enhance their

services and streamline their operations, Les Roches is considering a strategic investment in

a new hotel property. The proposed hotel will be located in a prime location, close to major

attractions and transportation hubs, making it an ideal choice for both leisure and business

travelers.

Les Roches envisions this new hotel as a flagship property that will not only provide

exceptional guest experiences but also improve their overall operational efficiency. To

achieve this, they are evaluating the construction of a new 30,000 square meter hotel building,

equipped with modern amenities and facilities to cater to the diverse needs of their guests.

Les Roches has approached you, a financial analyst, to help them assess the financial

feasibility of this hotel investment and provide them with a comprehensive financial analysis.

They are particularly interested in understanding the potential returns on investment, the

payback period, and the overall profitability of the project.

Your task is to analyze the given data, calculate the required financial metrics, and present

your findings and recommendations to Les Roches Hospitality Group, enabling them to make

an informed decision about the hotel investment.

Les Roches Hospitality Group is considering the construction of a new hotel to expand its

portfolio. The proposed hotel will have a total floor area of 30,000 square meters (sqm) and

will feature rooms, as well as food and beverage (F&B) outlets. The central location of the

projected hotel will attract guests, and it will be open throughout the year, operating every

day (365 days). This provides an opportunity to generate revenue from both room bookings

and F&B services. Les Roches Hospitality Group has conducted market research and

identified a strong demand for accommodation and dining in the area.

To proceed with the investment decision, Les Roches Hospitality Group requires a financial

analysis of the project. The following data has been provided:

Initial Investment

Construction of the hotel building (30,000 sqm): EUR 17,500,000

Purchase of furniture, fixtures, and equipment (FFE): EUR 5,000,000 Revenues

●

●

Room Revenues:

O

●

O

Year 1: EUR 500,000

O Annual Increase: 3%

Operating Expenses (per year)

Room Expenses:

F&B Revenues:

O

Cleaning and Maintenance: EUR 50,000

Utilities: EUR 30,000

Amenities: EUR 20,000

Other Operating Expenses: EUR 10,000

Annual Increase: 3% (Applied to all expenses)

F&B Expenses:

Year 1: The hotel is projected to have an occupancy rate of 40% with

100 rooms occupied by leisure travelers and 50 rooms occupied by

corporate clients. Les Roches expects a 3% annual increase in

occupancy rate for leisure travelers and a 2% annual increase for

corporate clients.

O

Room Rates: The average room rate for leisure travelers is estimated to

be EUR 100 per night, with a 2% annual increase. For corporate clients,

the average room rate is expected to be EUR 150 per night, with a 2%

annual increase.

Cost of Goods Sold (COGS):

O

O

O

Labor Costs:

O

Restaurant: 30% of F&B revenue

Bar: 25% of F&B revenue

Restaurant: EUR 150,000

Bar: EUR 100,000

Annual Increase: 3% (Applied to all expenses) ●

Tax Rate

Other F&B Expenses:

Exit Value

O

Fixed Expenses (per year)

●

O

O

Restaurant: EUR 50,000

Bar: EUR 30,000

Annual Increase: 3% (Applied to all expenses)

Interest Expenses (per year)

EUR 20,000

Annual Increase: 3.5%

Salaries and Benefits: EUR 300,000

Marketing and Advertising: EUR 100,000

Utilities: EUR 150,000

Maintenance and Repairs: EUR 50,000

Annual Increase: 3% (Applied to all expenses)

Tax Rate: 30%

Assume that the investor will sell the Hotel after 10 years for EUR

23,000,000 Les Roches Hospitality Group has requested a 10-year analysis of the investment proposal,

including the following financial metrics:

1. Gross Operating Income

2. Net Operating Income

3. Internal Rate of Return (IRR)

You are tasked with performing the financial analysis based on the provided data. Your

analysis will help Les Roches Hospitality Group assess the financial feasibility of the hotel

investment and make an informed decision.

Required:

a) Prepare a 10-year analysis of the investment proposal using the given

information.

b) Calculate the GOP and NOP of this private Hotel.

c) What is the IRR of the project?

d) If the required rate of return is 42%, would you proceed with this investment?

Good Luck