PKF Hotel Market Demand and Financial Analysis - DIA Business ...

The Westin Denver International AirportStatement of Estimated Annual Operating ResultsA. INTRODUCTIONIn the previous sections of this report, we have described the demographic andeconomic trends occurring in the Denver area. We have also provided a descriptionof the proposed hotel improvements and have determined the projected operatingoccupancy and average daily rate for the proposed 519-room Westin to be locatedat the south terminal of the Denver International Airport in Denver, Colorado. In thefollowing section, we provide an analysis of the projected financial operating resultsfor the proposed Subject over the first ten years of operation.The earnings stream most commonly used is the projected net operating income(“NOI”) from operations after the deduction of management fees, real estate taxes,insurance, and ground rent (if applicable), but before the deduction of interest,depreciation, amortization, and taxes on income which vary from owner to owner.Also deducted from the profit from operations is a reserve for capital improvementsto the property. As will be discussed in further detail, the projected NOI for theproposed Subject includes the deduction of a subordinate management fee andsubordinate reserve for capital expenditures; however excludes a deduction forproperty taxes (as the owner is a government agency).The income expectancy used as a basis for our cash flow forecast is the anticipatedincome for a typical, or stabilized, year of operation, stated in current value dollars.The performance of the property in the stabilized year reflects the normal level oroperation of the hotel at its expected long-term stabilized occupancy (in the case ofthe Subject, 74 percent), unaffected by temporary non-recurring expenses such asextraordinary start-up marketing, administrative, or operation costs, which can occurin the initial years of a new hotel. Our cash flow projections for the first ten years ofoperation of the proposed Subject are based on this stabilized year estimate,adjusted to reflect such factors as changes in room rates, occupancy, inflation andthe fixed and variable components of each revenue and expense item.The financial format used in our analysis of the hotel is the Uniform System ofAccounts for Hotels, developed by the American Hotel & Motel Association and ingeneral uses throughout the hospitality industry. In conformity with this system ofaccount classifications, only direct operating expenses are charged to operatingdepartments of the hotel. The general overhead items which are applicable tooperations as a whole are classified as deductions from income and includeadministrative and general expenses, franchise fees, marketing expenses, propertyoperations and maintenance expenses, utility costs, and a reserve for replacement.V-1