Resume PROJECT II
This project is a request for investment.
The
investment is intended to purchase Grand Hotel "Sunny Beach"
which is located on Bulgarian Seacoast, in the central area of Sunny
Beach Resort, 20 meters from the beach and the sea.
This is a new-built, elegant, 1st line, 5-star hotel. The gross building
area 11 890-sq. m. is in 12 floors building. The hotel offers accommodation
in 4 VIP and 12 standard apartments, 180 rooms + 46 family, 69 double
and 3 single rooms - 430 beds altogether. This hotel is one of the best
on the whole seacoast.
In the battle for these 45 days of Europeans' summer vacancy it has
all necessary high level facilities to win. Booking is guaranteed in
advance for many years ahead.
The purchase price is US$ 7 500 000.
Attached file:
3 scenarios of the financing are shown in the project.
1 scenario shows an 8% bank loan. The whole investment is $7
762 500.The-bought hotel will be mortgaged. Bank charge is 1% - $75
000. A Processing Fee of 1.5% - $122 500 is foreseen for the investment
agency. The investment is completely repaid in 10 years with a positive
effect of 30%.
2 scenario shows a combination of Joint Venture Capital (JVC)
and a Bank Loan. The whole investment is $7 727 500. The part of the
loan in the investment will be 55% - $4 250 126 and the JVC amount is
45% - $3 477 376. The Bank charge is 1% - $42 501. The Processing Fee
is $122 500. The Loan will be fully repaid in the first 5 years. Next
the "Sinking Fund" will accumulate at the end of the 10th
year an amount of $5 095 421. That covers the double of the JVC or JVC
can be fully repaid with a profit of 50%.
3 scenario shows a variant the investment accumulated by debentures.
The whole investment is $7 942 500.The hotel will cover the securities.
The security interest can be fixed on over 8% - $607 653 The Pay back
is done by a sinking fund for 10 years. The Investment Agency picks
up the processing fee 1.5% - $122 500 and the commitment fee 1-% - $75
000.
This Project and the market
Tourist tradition
German tourists traditionally occupy the season and tour operators
have just reported the following growth in bookings:
Neckermann - 50%
TUI - 35%
ITS - 15%.
Alternatives in high season are The English and the Russians (30%).
The Swedish or the French books mostly preseason.
The increase is feasible partly by selling preseason rooms and by the
increased capacity from addition of rooms and mostly by the expansion
of organized tourism at the expense of individual tourism. We hope the
season is not oversold.
Correspondingly, the Ministry revised their forecast to 50% growth vs.
last year resulting in $1.5 billion in revenue.
Prices
There are a wide variety of prices charged for the same type of property
as managers differ in their ability and some hotels have long-term contracts
with tour operators.
The lowest quality two star hotel with Spartan furnishings and no leisure
time facilities charges $18 net to organized tourists during the season.
The price at the reception desk is at least 10% higher. The price includes
buffet breakfast for the early risers. Lunch and dinner are offered
additionally for $10. Very few tourists choose the full package as food
on the street is of good quality and the total price will not be much
higher. A meal in a separate restaurant is around $8 and 500-ml. domestic
beer costs from 70 cents to a $1 depending on the quality.
Prices in the preseason are 20-25% lower. Kids between 2 and 12 receive
discounts and are allowed to sleep on an additional portable bed, which
extends the number of beds and creates additional revenue from the room.
Personnel may be found at the following rates:
Cleaning, waiters, bartenders - $80 per month
Maintenance - $150 per month
Administrative - $120 per month
Local manager with experience - $200 per month
Good cook - $300 - $450
Good orchestra - $50 per night plus accommodation for a long term contract
The average three star hotel with a swimming pool, fitness room and
kids area charges $20 to $30 per bed depending on the size and view
of the room for double room and $60 to $80 for an apartment in the high
season. Preseason is offered at 35% lower and meal subscription is $10.
Again, the season is fully presold and hotels may offer up to 10 rooms
depending upon availability and it is not possible to find a 50-room
contract at this point. Prices at the reception may be significantly
higher, if the season develops as it promises.
Grand Hotel Sunny Beach has already a price level form $30- 100 as
the average year price is $35 per bed. No unbooked beds next years for
the low and mostly for the high season. It's approved as one of more
requested hotels on the Sunny Beach Resort.
Expected Revenues
(*See table 1)
Based on last years prices expenses were 25%-30% of Gross Room Revenue.
Given the 20%-30% increases in these years' prices and the 5% increase
in salaries the new Net income from a bed is calculated at 20% of gross
revenue.
In-house restaurants and bars operate at 60% of gross revenue. It remains
to be seen what fraction of tourists will choose to subscribe for in-house
meals as street vendors adjust prices to demand very quickly and they
cater to the many visitors who come for short vacations. This may lead
to street prices that will make meal subscriptions very attractive
Given the above prices the revenue per year of a bed in this new built
hotel for the season is calculated at $2 987.
The Net Income
(*See table 2)
Income
Based on last year values expected income is increased with 1.5-3%
expected inflation. These values are averaged per bed. Brut income from
one bed is 35$; from: meals - 3$; drinks - 1$; lounges - 1.5$; beach
charge - 0.5$. All amounts to 41 $. Salaries, expenses, taxes and insurance
amount to 6.31$. Capital recondition refill takes 2.5$. The Net Income
becomes 32.19$.
The Cashflow
Financing
The investment is intended to purchase the GH Sunny Beach - 7 762 500$
and we present 3 scenario of financing the project:
1 scenario
(*See table 3)
This scenario shows an 8% bank loan. Bank charge is 1% - $75 000. A
Processing Fee of 1.5% - 112 500$ is foreseen for the investment agency.
All outgoing is completed with an 1% charge for "Unexpected expenses"
due to unfavorable moving of the foreign exchange rate - 75 000$. The
hotel is mortgaged.
Succeeding Cashflow
In this table the principal outgo - bank payments are opposed to the
net income. The rest accumulates in "Net Cashflow Fund". We
are using a 10% cap rate as we desire to be able to payback the investment
in 10 years. The investment is completely repaid with a positive effect
of 12%.
According to our desire to complete more investment variants we tried
to find a successful reading of a combination of Joint Venture Capital
as Bonds or Cash Funds and an 8% Bank Loan.
The percentage of the Joint Venture Capital is fixed on the succeeding
values because of the BG low or the BG banks requirements or both.
1. (Fin.) - 35% is a Bg bank requirement for a cash deposit,
bonds or collateral note as supplementing guarantee. (Law) -That is
an enough percentage to block any changes in the share capital of the
Investee Company.
2. 45% of JVC is a compromise between 35% and 51% searching the
optimal interrelation between J.V. Capital and Bank Loan. (*See table
4)
3. 51% gives the categorical priority in the management.
4. 67% is the opposite of 35%.
5. 74% contributes all management or capital rights.
The second combination seems optimal and we choose it for the 2 Scenario.
2 Scenario
(*See table 5)
In this scenario the part of the loan in the investment will be $4
250 126 and the JVC amount to $3 477 376. Bank charge is 1% - $42 501.
The Processing Fee is $112 500. The Bank Loan will be fully repaid in
the first 3 years. Next the "Sinking" or "Net Cashflow
Fund" will accumulate at the end of the 10th year an amount of
$5 095 421. That covers the JVC or JVC can be fully repaid with a profit
of 16.5%.
3 Scenario
(See table 6)
In this variant the investment is accumulated by debentures. The hotel
will cover the securities. The security interest can be fixed on over
8% - $607 653. Pay back is done by a sinking fund for 10 years. Investment
agency picks up the processing fee 1.5% - $122 500 and the commitment
fee 1-% - $75 000. Other front expenditures are $70 000 for head-office
in Sofia, $35 000 for legal and financial consultations and 2% - $150
000 for unexpected outlay.
Conclusion
The investment is not small. The time limit in all scenarios is not
short.
But the hotel is nice and well visited. The repayment of the investment
is guaranteed. The 1 scenario is maybe more simple and easier. The 2
scenario is not for disregarding but complicated. The 3 scenario seems
secure. However all are realizable. The Investor will choose The Workable.
