CFA IRC Team E

19
Student Research Challenge CFA Virginia Investment Research Challenge January 28, 2016 CFA Instute Research Challenge hosted by : Local Challenge CFA Society of Virginia Team E

Transcript of CFA IRC Team E

Page 1: CFA IRC Team E

Student Research Challenge

CFA Virginia Investment Research Challenge

January 28, 2016

CFA Institute Research Challenge

hosted by :

Local Challenge CFA Society of Virginia

Team E

Page 2: CFA IRC Team E

NYSE: APLE

January 28, 2016

Sector: Hotel/Lodging REITs

Apple Hospitality REIT, Inc

Strong Buy Hold Strong Sell Sell

Recommendation: Buy Target Price: $20.06

Closing Price $18.29

Shares Out $174.4 Million

Market Cap $3.189 Billion

52 Week Range $13.82 - $20.97

Dividend $1.20

Dividend Yield 6.56%

Highlights

Long term strategy of minimizing risk by maintaining low leverage.

Apple maintains the lowest Debt/EBITDA level of it’s peers. The compa-

ny expects to fund it’s next four acquisitions through the use of it’s credit

facility. The four hotels are under construction, and are expected to come

online within the next 6 to 21 months.

We initiate coverage on Apple Hospitality with a Buy recommendation

based on our quantitative analysis suggesting a price $20.52. We be-

lieve Apple Hospitality is in a better position than any other publicly

listed upscale lodging REIT. Our highlights below outline these

thoughts.

With 179 hotels in 32 states Apple reduces volatility in it’s portfolio

with geographic diversification. Apple uses a disciplined strategy of in-

vesting in markets where diverse demand generators drive consistent per-

formance. Apple’s portfolio of properties has a low concentration in US

gateway cities. The appreciation of the US dollar has put pressure on hotel

operators to have the ability to raise rates in gateway cities where demand

is driven in part by foreign tourism.

Demand is expected to continue to outpace supply. Occupancy rates

are expected by PKF to have eight consecutive years of growth through

2017. Over 95% of Apple’s portfolio consists of upscale to upper midscale

select service hotels. Within this segment supply of new rooms is expected

to exceed 85,000 in the coming year.

Estimates Year 2014A 2015E 2016E 2017E

1.18 1.37 1.42 1.50

AFFO/

Share

.70 1.54 1.64 1.72

Key Statistics

FFO/Share

1Q15A 2Q15A 3Q15A 4Q15E

2014A 2015E 2016E 2017E

ADR

Occupancy

% change

% change

RevPar

% change

$126.6 $131.3 $133.6 $133.0 4.71% 4.99% 5.51% 5.07%

74.0% 81.9% 80.6% 71.7% 2.64% 1.24% 0.88% 0.88%

$93.7 $107.5 $107.6 $95.0

7.55% 6.24% 6.44% 5.59%

ADR

RevPar

$122.0 $131.2 $137.8 $144.7

76.0% 77.1% 77.2% 77.4% Occupancy

$92 $101.1 $106.4 $112.0

2014A 2015E 2016E 2017E

Downside Scenario

Current Price

Price Target

Upside Scenario

$18.29 $17.00 $20.52 22.00

4.5% 10.8% 16.8%

Significant balance sheet capacity. Apple has a remaining 478 million

left within it’s share repurchase program that ends in July 2016. In the past

six months Apple has purchased shares between $17.50 and $18.40. Given

the current price of the stock, and the capacity within the companies bal-

ance sheet we expect Apple to remain active in repurchasing it’s own

shares.

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Team E Student Research This report is published for educational purposes only by students competing in

the CFA Virginia Investment Research Challenge, part of CFA Institute Global

Investment Research Challenge.

Q/Q

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Investment Summary

Our buy recommendation on the stock reflects our expecta-

tions that the company is well positioned to benefit from a

number of external, and internal driving factors.

Focused product knowledge: Apple’s focus within the

lodging industry is on select service upscale hotels. Select

service or room focus products have lower volatility as

they produce both higher, and more stable margins.

Competitive advantage: Compared with competitors

Apple is both geographically diversified through the num-

ber of hotels, and the number of rooms within it’s portfo-

lio.

Quality products: Apple has aligned with the Marr iot

and Hilton brands exclusively. The Hilton and Marriot

family brands have a large focus on upscale select service,

and bring more business than any other brands in the seg-

ment. Through strong loyalty programs, and broad con-

sumer recognition that generate returning customers.

Brand expertise: Upper management sits on the boards

of seven advisory councils including the Marriott Owner’s

council, The Residence Inn Association Board, and the

Courtyard Franchise Council. Serving on these boards al-

lows Apple’s management team to have a say in develop-

ing brand standards.

Strong fundamentals: Apple’s balance sheet can sup-

port additional debt. They have sought to always maintain

very low leverage. Their debt is structured to maximize

return by utilizing short term debt. The company also pays

a monthly dividend of a $1.20 that has a current yield of

6.56%. Apple is unique in that only a handful of REITs

choose to pay a monthly dividend. Our research found in

the Business Description section shows that monthly divi-

dend payers reduce volatility in returns.

Institutional Recognition: The Vanguard Group estab-

lished a 10.8% position as of December 10, 2015.

Blackrock a previous buyer of “Apple REIT Six” in 2012

for 1.2 Billion, and has established a 5.8% stake in Apple

Hospitality as of January 28, 2016.

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Valuation

Using four methodologies we have derived a range of reasonable

price expectations for Apple Hospitality in the intermediate term.

We expect the price of Apple’s stock to trade within a range of

$18 to $21 dollars with the expectation that the stock will reach

our target of $20.08 within the year.

Methodologies

Discounted Cash Flow Analysis: Using a two separate

discounted cash flow analysis we estimated price based on

five years of forecasted cash flows discounted at different

costs of capital. The two differences being the use of differ-

ing market proxies for the estimation of risk premium. Tradi-

tional equity risk premium estimation will use an annualized

return of the SP 500 as a market proxy. Given that Apple

Hospitality is a REIT we thought it would be more appropri-

ate to use the annualized returns of the NARIET All Equity

index over the same 30 year period for comparison. Given

out inputs we derived an intrinsic value of the stock to be

$23.71 using the SP 500 and $19.17 using the NARIET in-

dex.

Secondly in estimating the market risk premium we chose to

use the 10 year US Treasury at 2.05%. Given the volatile

nature of this asset who’s range has varied from 1.90% to

2.30% in the past month we decided to use a sensitivity anal-

ysis to approximate a range of prices for both the US Treas-

ury and our two market proxies.

In estimating the beta of Apple Hospitality we found that the

company did not have returns long enough to estimate it’s

beta appropriately. We used a list of comparable companies

based on size, and portfolio mix to determine Apple’s beta.

By un-levering the comparable companies betas we then re-

levered the average of those betas by Apple’s debt to equity

ratio. It is not surprising that Apple’s beta is lower than most

of it’s competitors as it has a comparatively low debt struc-

ture to that of it’s peers.

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23.71 11.00% 11.25% 11.50% 11.75% 12.00% 12.25% 12.50%

1.95% 23.98 23.06 22.20 21.38 20.61 19.89 19.20

1.98% 23.97 23.05 22.19 21.37 20.60 19.88 19.19

2.00% 23.96 23.04 22.18 21.36 20.60 19.87 19.18

2.03% 23.95 23.03 22.17 21.35 20.59 19.86 19.18

2.05% 23.94 23.02 22.16 21.35 20.58 19.85 19.17

2.08% 23.93 23.01 22.15 21.34 20.57 19.85 19.16

2.10% 23.92 23.00 22.14 21.33 20.56 19.84 19.15

2.13% 23.91 22.99 22.13 21.32 20.55 19.83 19.14

2.15% 23.89 22.98 22.12 21.31 20.54 19.82 19.14

2.18% 23.88 22.97 22.11 21.30 20.53 19.81 19.13

Sensitivity of US Treasury and Market Proxy

Figure 1

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Methodologies continued

NAV Calculation: REITs are commonly valued us-

ing a Net Asset Valuation. This is due to the nature of

a REITs balance sheet having a large portion real es-

tate assets which are he greatest driver of value for

there investors. We backed into the market value of

equity by using an implied Capitalization Rate sourced

from Bloomberg. Calculating the firms 12 month for-

ward Net Operating Income (NOI), by first subtracting

total hotel expenses from total revenues we found raw

EBITDA and then subtracted out our calculation of

reoccurring capital expenditures. Dividing the NOI by

the implied Capitalization Rate of 7.26% and adding

back debt minus cash and cash equivalents as well as

restricted cash we found an implied market value of

equity. Dividing this number by the current share

count gave us an intrinsic value of the stock at $18.69.

Cap Rates: Hotel capitalization rates have bot-

tomed out in recent years due to US interest rate policy

(Figure 1). There is concern with the recent uptick

in rates that cap rates could follow which would lower

the value of a companies NOI. However, an analysis

of hotel cap rates, and 10 year US Treasury Bills da-

ting to the 1990’s revealed that given an uptick of 150

basis points in T-Bills only generated about a 50 basis

point rise in cap rates. (Commercial Real Estate Show)

In (Figure 2) we looked at Debt to Cap Rate to deter-

mine the effect of leverage on Apple’s share price. We

can see that leverage has a significant impact on Ap-

ple’s share price.

Value of the stock: Each method is at best an ap-

proximation of true valued based on it’s inputs. We

weighted each valuation method equally and deter-

mined a fair price for the stock would be $20.52

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Industry Cap Rates Over Five Years

$18.69 7.10% 7.15% 7.20% 7.25% 7.30% 7.35% 7.40% 7.45%

1,034,045 19.26 19.08 18.91 18.73 18.56 18.40 18.23 18.07

1,059,045 19.12 18.94 18.76 18.59 18.42 18.25 18.09 17.93

1,084,045 18.83 18.65 18.48 18.30 18.13 17.97 17.80 17.64

1,109,045 18.40 18.22 18.05 17.87 17.70 17.54 17.37 17.21

1,134,045 17.82 17.65 17.47 17.30 17.13 16.96 16.80 16.64

1,159,045 17.11 16.93 16.76 16.58 16.41 16.25 16.08 15.92

1,184,045 16.25 16.07 15.90 15.72 15.55 15.39 15.22 15.06

1,209,045 15.24 15.07 14.89 14.72 14.55 14.38 14.22 14.05

1,234,045 14.10 13.92 13.75 13.57 13.40 13.24 13.07 12.91

Figure 3

Figure 2

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Monte Carlo Analysis

Implemented 10 yr. Treasury, RevPar, ADR, and Oc-

cupancy to determine the true intrinsic value of the

growth stock. We input 10,000 iterations to come up

with a target price of $17.61 with a 95% confidence

level for a BUY position.

We used Periodic Daily Rate : LN(Todays $$/ Yesterday $$)

for all the closing prices since APLE IPO. We then found the

variance, average, and Volatility to use for Geometric

Brownian Motion. We used the values to get return of the

stock or “Drift” along with a random set ratios to get the di-

rection of the growth. Based on our analysis we conclude

that 95% of the 10,000 iterations would put us in a future

stock price b/t $17.31 and above trading price. We can also

see the mean of the Monte Carlo Analysis moving in a posi-

tive direction, using all closing prices since IPO.

We are 95% sure if price of the stock falls to

$16.42 is still in a position to BUY. Our estimated

fair value of $20.52 still puts Apple REIT underval-

ued. Appreciation towards this price target com-

bined with APLE’s current dividend yield would

result in a yield of ~13.2% or more.

We are 95% the next 30 trading days APLE will

have a HIGH $27.78 and LOW $15.29 shown in

theoretical future stock price.

Todays $$= Yesterday $$(e)^r

Where r is the periodic expected return since IPO in

May 18,2015. The var is the volatility.

BU

Y

Today

Figure 4

Figure 6

Figure 5

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2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E

Total Revenue 6.13% 107.19% 320.76% 5.25% 5.25% 5.25% 5.25% 5.25%

Hotel Operating Income 8.03% -60.93% 427.64% 4.66% 4.83% 6.08% 4.73% 4.71%

Net Income 52.66% -94.07% 545.36% -7.63% 7.05% 9.12% 6.47% 6.78%

FFO 6.64% -4.62% 372.07% 4.46% 6.18% 7.27% 5.89% 6.06%

MFFO 8.19% 82.66% 367.99% 2.32% 6.00% 7.07% 5.75% 5.92%

Financial Analysis

Growth Assumptions

Figure 7

Revenue Growth: Revenue growth is tied to the Average Daily Rate (ADR),

and the Occupancy of a hotel. We estimated 2015 by taking the quarter over quarter

growth in ADR, and Occupancy, and applied t to 4Q2015. 2015 is a volatile year for

Apple as they absorbed a number of properties in 2014 through acquisition. Almost

doubling there hotel count this produced triple digit year over year growth in all cat-

egories. Recording a non cash expense of almost 117 million dollars in the transac-

tion with Apple REIT Seven and Apple REIT Eight, 2014 would look unpromising

if not for the Modified Funds From Operations which adds back this expense.

We see the industry growing year over year at roughly 5-6% based on estimates

from PWC. Occupancy will continue to drive RevPar, but as Apple matures the pos-

sibility for continued year over year double digit growth diminishes. 4Q15 brought

headwinds as 20 properties were under renovation. Which by our estimates cost

20,000,000 to complete.

2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E

EBITDA 47.2% 35.0% 35.6% 35.1% 35.0% 34.9% 34.8% 34.7%

Depreciation as a % of Capex 3.3% 3.0% 3.2% 3.5% 3.8% 4.0% 4.4% 4.7%

Operating margin 21.33% 4.02% 19.88% 19.77% 19.69% 19.85% 19.75% 19.65%

Net margin 29.70% 0.79% 17.15% 15.61% 15.87% 16.46% 16.65% 16.89% Figure 8

Margin Expansion: The company has acquired seven proper ties this year , and

has plans to acquire four more over the next 6 to 21 months. Factoring in this debt

we can see that after 2016E Apple’s net margin expands. This not to say that the

company will not acquire new assets it is only uncertain how they may purchase

these assets with cash, or debt. Operating margins will experience compression as

transaction costs are forecasted until 2017E, and will see further compression as

depreciation as a percentage of investment in real estate grows larger.

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Business Overview

History: Apple Hospitality is a Virginia based self advised

Real Estate Investment Trust (REIT) that operates primarily

in the US lodging sector. The company was formed in No-

vember of 2007 and began operations in July 2008 with the

acquisition of their first hotel.

Apple has selected to exclusively partner with the Marriott,

and Hilton brand hotels due to their strong customer loyalty

programs, and offerings of hotels that match their upscale

select service portfolio.

As of March 1, 2014 Apple REIT Nine completed the mer-

gers with Apple REIT Seven and Apple REIT Eight through

an offering of 11.9 million common shares which the compa-

ny recorded a noncash expense totaling 177.1 million in the

first quarter of 2014.

As a result of the merger an additional 99 hotels were added

to Apple REIT Nine’s portfolio totaling 188 hotels in 33

states with an aggregate of 23,490 rooms. Upon completion

of the merger Apple REIT Nine officially changed it’s name

to Apple Hospitality.

Today: Apple Hospitality owns 179 hotels in 32 states

with an aggregate of 22,962 rooms. Focusing on select ser-

vice upscale to upper scale lodging Apple has a disciplined

strategy of investing in markets with proximity to guest

amenities, and diverse demand generators that drive strong

performance. Apple seeks to reduce volatility in their portfo-

lio by selecting to avoid concentration in any one geographic

market or in markets that are dependent on specific demand

generators.

Apple has sold 19 properties, and bought seven new proper-

ties. What they sold were low revenue producing assets in

tertiary markets that were older, and in need of capital im-

provements. What they bought tended to be larger assets with

higher revenues, and growth prospects.

Apples portfolio has an average effective age of four years.

Over 80% of the properties Apple owns are under six years

of age. This is consistent with their stated strategy of rein-

vesting in strategic assets to maintain a competitive ad-

vantage in existing markets.

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Upper

Upscale

Upscale Upper

6.3% 5.9%

6.6% 6.1%

7.2%

5.3%

2015 2016

RevPar Growth, US Chain Scales

Supply Demand Occupancy ADR RevPar Total RevPar

Operating Expenses

1.7% 2.3%

0.6%

5.5% 6.1% 5.9%

3.6%

0%

2%

4%

6%

8%

10%

12%

Figure 10 Source: PKF Hospitality

Figure 9, Source: PWC

The lodging industry is highly competitive, and is driven by fac-

tors in the general economy as well as those specific to each lo-

cality.

Currency headwinds: The strengthening US dollar is ex-

pected to apply pressure to RevPar growth as a certain gateway

markets that serve international travelers experience difficulty in

raising average daily rates (ADR). Average daily rates have seen

nominal growth as gasoline prices act to put downward pressure

on inflation.

Occupancy gains momentum: Occupancy has been the dr iv-

ing factor for RevPar growth in 2015 as favorable supply condi-

tions continue to exist. US lodging occupancy reached 65.7%

which is a level the industry has not seen since 1981. Increases in

average daily rates (ADR), are struggling to materialize, and

have reduced RevPar growth to just 6.5% in 2015. Lower gaso-

line price’s are positively affecting occupancy rates as PKF ex-

pects to see eight continuous years of occupancy growth through

2017.

Supply demand balance: In 2014 demand growth exceeded

supply growth by 2.5% in all of the top 25 MSA’s. This trend is

in continuation as interest rates rising will put pressure on new

construction. PKF Hospitality Research estimates that this trend

will continue as demand again outpaces supply by 50 basis

points in 2016.See figure X

Multiplatform booking: The continued gravitation to online

distribution channels through hotel websites and online travel

agencies has aided both consumers and hotel operators in making

hotel reservations Guest reservations through hotel websites

grew by 7.1% in 2015 while bookings through direct calling

dropped by 8.4%. Online travel agencies are picking up the slack

as they experienced an increase of 15.1% alone in the first quar-

ter of 2015.

The sharing economy: Platforms like Airbnb are changing

how consumers think in terms of traveling. Airbnb has a private

valuation of close to $10 Billion, and has served over 30 million

customer since inception. Airbnb is most popular in dense urban

areas on peak capacity nights when traditional hotels can not

scale to capacity. The effects of the sharing economy are hard to

measure as it is an unregulated industry in many localities. In

Dallas, Texas where Airbnb supply is greatest a study showed

that hotel operators responded by lowering rates. However, the

segment within the hotel industry most affected were lower pric-

es hotels, and those not catering to business travelers.

Industry Outlook

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Competitor Positioning

Low leverage: Apple’s has maintained a strategy to use as

little debt as possible. They began with this strategy in part to

produce a product with a lower risk profile, and returns on par

with municipal bonds. The use of low leverage is rare in real

estate especially in an age of cheap debt, but the consistent re-

turns generated by Apple are proof that leverage is not neces-

sary.

Higher margin products: The major ity of publicly traded

companies are invested in the upper upscale, or luxury seg-

ment. These hotel tends to be full service hotels with multiple

food outlets, ballrooms, and convention centers. These type of

extra amenities come at a higher cost, and lower there margins.

Apple focuses on the upscale segment of this industry which

tends to produce higher and more stable margins.

Outperformance: Apple has consistently outperformed it’s

peers, and the it’s benchmark the Dow Jones All Equity REIT

index (DJR) as can be seen in the chart below (Apple in

Green, DJR in Blue).

8 Figure 12:

Source Yahoo Finance

Figure 11

Source: Capital IQ

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Investment Risks

Historically low interest rates: Interest rates have remained low

for nearly a decade now, and are beginning to rise. As Federal Reserve

policy loosens the risk free rate will rise causing the risk premium in

cap rates to increase. As investors demand a higher return for less risk

the premium associated with REIT will diminish. Apple’s low debt

structure, and propensity to acquire assets net of no long term debt

lead us to believe this risk is minimal, but a very real consideration

when evaluating any investment.

Cyclical nature of real estate: Real estate tends to hit peaks and

then bottom out. The ultimate question for any investor is what cycle

are we in? Real estate valuations just recently reached their pre 2008

recession levels, and the economy has barely prospered enough for

the Federal Reserve to loosen monetary policy. We believe the real

risk comes from external forces on the United States. Contagion in

Europe or hyperinflation in Japan could interrupt the U.S. recovery.

Brand attachment: Apple par tners exclusively with the Marr iot,

and Hilton brands. These franchise relationship’s determine the val-

ue of Apple’s brand. If Marriot or Hilton faces trouble so will Apple

Hospitality. Marriot recently acquired Starwood Hotels. The merger

may dilute the customer loyalty programs Marriot is known for, and

Apple believes is a major driver in value.

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Increase in Real Gross Domestic Purchases increased 1.1% Q4

compared to an increase 2.2% in Q3. The bureau of Economics re-

leased statements last Friday at 8:30 am stating that there is still po-

tential for more growth in the REAL GDP. This benefits our analy-

sis in a positive direction making the value of our stock more valua-

ble and potentially increase due to positive market feedback in in-

creased stock prices. We will continue to see growth with the stock

along continued growth with the APLE REIT.

Figure 13:

Source US Economics Bureau

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Figure 1: Sensitivity of US Treasury and Market Proxy

Source: Operating model– SP500

Figure 2:Cap Rates

Source: http://marketrealist.com/analysis/income-analysis/reits/equity-reits/charts/?featured_post=680436&featured_chart=685327

23.71 11.00% 11.25% 11.50% 11.75% 12.00% 12.25% 12.50%

1.95% 23.98 23.06 22.20 21.38 20.61 19.89 19.20

1.98% 23.97 23.05 22.19 21.37 20.60 19.88 19.19

2.00% 23.96 23.04 22.18 21.36 20.60 19.87 19.18

2.03% 23.95 23.03 22.17 21.35 20.59 19.86 19.18

2.05% 23.94 23.02 22.16 21.35 20.58 19.85 19.17

2.08% 23.93 23.01 22.15 21.34 20.57 19.85 19.16

2.10% 23.92 23.00 22.14 21.33 20.56 19.84 19.15

2.13% 23.91 22.99 22.13 21.32 20.55 19.83 19.14

2.15% 23.89 22.98 22.12 21.31 20.54 19.82 19.14

2.18% 23.88 22.97 22.11 21.30 20.53 19.81 19.13

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Figure 3:

Source: Operating Model-NAV

$18.69 7.10% 7.15% 7.20% 7.25% 7.30% 7.35% 7.40% 7.45%

1,034,045 19.26 19.08 18.91 18.73 18.56 18.40 18.23 18.07

1,059,045 19.12 18.94 18.76 18.59 18.42 18.25 18.09 17.93

1,084,045 18.83 18.65 18.48 18.30 18.13 17.97 17.80 17.64

1,109,045 18.40 18.22 18.05 17.87 17.70 17.54 17.37 17.21

1,134,045 17.82 17.65 17.47 17.30 17.13 16.96 16.80 16.64

1,159,045 17.11 16.93 16.76 16.58 16.41 16.25 16.08 15.92

1,184,045 16.25 16.07 15.90 15.72 15.55 15.39 15.22 15.06

1,209,045 15.24 15.07 14.89 14.72 14.55 14.38 14.22 14.05

1,234,045 14.10 13.92 13.75 13.57 13.40 13.24 13.07 12.91

Figure 4:

Source: @Risk Monte Carlo Simulation

5

Today

Figure 4

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BU

Y

Figure 5 & 6:

Source: @Risk Monte Carlo Simulation

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Figure 4:

Source : Operating Model-Income statement

2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E

Total Revenue 6.13% 107.19% 320.76% 5.25% 5.25% 5.25% 5.25% 5.25%

Hotel Operating Income 8.03% -60.93% 427.64% 4.66% 4.83% 6.08% 4.73% 4.71%

Net Income 52.66% -94.07% 545.36% -7.63% 7.05% 9.12% 6.47% 6.78%

FFO 6.64% -4.62% 372.07% 4.46% 6.18% 7.27% 5.89% 6.06%

MFFO 8.19% 82.66% 367.99% 2.32% 6.00% 7.07% 5.75% 5.92%

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Figure 6: RevPar Growth, US Chain Scales

Source: PWC https://www.pwc.com/us/en/asset-management/hospitality-leisure/publications/assets/pwc-hospitality-directions-us-

Upper

Upscale

Upscale Upper

6.3% 5.9%

6.6% 6.1%

7.2%

5.3%

2015 2016

RevPar Growth, US Chain Scales

Figure 6, Source: PWC

Figure 5:

Source: Operating Model-Income Statement

2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E

EBITDA 47.2% 35.0% 35.6% 35.1% 35.0% 34.9% 34.8% 34.7%

Depreciation as a % of Capex 3.3% 3.0% 3.2% 3.5% 3.8% 4.0% 4.4% 4.7%

Operating margin 21.33% 4.02% 19.88% 19.77% 19.69% 19.85% 19.75% 19.65%

Net margin 29.70% 0.79% 17.15% 15.61% 15.87% 16.46% 16.65% 16.89%

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Figure 7

Source: http://www.hospitalitynet.org/news/4073153.html

Figure 8

Source: Capital IQ

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Figure 9

Source: Yahoo Finance

Page 19: CFA IRC Team E

Student Research Challenge

CFA Virginia Investment Research Challenge

January 28, 2016

CFA Institute Research Challenge

Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report [holds/does not hold] a financial interest in the securities of this company. The au-

thor(s), or a member of their household, of this report [knows/does not know] of the existence of any conflicts of interest that might bias the

content or publication of this report. [The conflict of interest is…] Receipt of compensation:

Compensation of the author(s) of this report is not based on investment banking revenue.

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not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice,

nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individ-

ual affiliated with [Society Name], CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.