HOTEL MARKET AND FEASIBILITY ANALYSIS ROCK VALLEY, …€¦ · Market/Feasibility Studies; Site...

Hotel R & D, LLC Hotel Research & Development

Market/Feasibility Studies; Site Location; Development Ventures

944 Evans Street Oshkosh, Wisconsin 54901 (414)-379-2105 Email: [email protected]

HOTEL MARKET AND FEASIBILITY ANALYSIS

ROCK VALLEY, IOWA

APRIL, 2016

Hotel R & D, Inc Hotel Research & Development

Market/Feasibility Studies; Site Location; Development Ventures

944 Evans Street Oshkosh, Wisconsin 54901 Telephone: (414)-379-2105 Email: [email protected]

April 9, 2016

David Miller Development Director Rock Valley Economic Development Corp. 1507 Main Street PO Box 100 Rock Valley, Iowa 51247 In accordance a request by the Rock Valley Economic Development Corporation, I have completed a hotel market analysis for the Rock Valley, Iowa market in relation to the development of a new hotel. As in all studies of this type, the estimated results are based upon competent and efficient management and presume no significant changes in the competitive position of the lodging industry in the immediate area from that set forth in this report. The conclusions reached are based upon my present knowledge of the competitive area as of the completion of my fieldwork and research in March, 2016. The terms of our engagement are such that I have no obligation to revise this report or the estimated operating results to reflect events or conditions, which occur subsequent to the date of completion. However, I am available to discuss the necessity for revisions in view of changes in the economic or market factors affecting the proposed development. Since the estimated results are based upon estimates and assumptions, which are subject to uncertainty and variation, I do not include the possible impact of government restrictions or environmental regulations on the project except those set forth in this report. This study has been specifically designed to address the development of a new hotel to be located in Rock Valley, Iowa. I would like to thank you for the opportunity to provide assistance in this project. I would be pleased to hear from you if I can be of any further assistance in the interpretation and application of these findings and conclusions. Sincerely,

Michael P. Lindner Michael P. Lindner Hotel R&D, llc

Hotel R&D, LLC

ROCK VALLEY, IOWA

HOTEL MARKET STUDY

TABLE OF CONTENTS

Section

Introduction

EXECUTIVE SUMMARY

Projections of Performance

Assumptions & Recommendations

Franchise Brands

MARKET DESCRIPTION

Subject Market

Population

Retail Sales Trends

LODGING ENVIRONMENT

Potential Demand

Employment by Industry

Market Analysis Conclusions

LODGING SUPPLY

LODGING DEMAND

Local/Regional Performance

Projected Growth by Market Segment

Penetration of Occupancy by Market Segment

Projected Performance of Subject Hotel

FINANCIAL PRO FORMA

SAMPLE DEVELOPMENT BUDGET

GLOSSARY OF TERMS

FRANCHISE BRAND SCALES

Rock Valley, Iowa Summary - Draft Midscale Hotel

Executive Summary The purpose of this study is to determine the financial and marketable feasibility of developing a new hotel in the Rock Valley Iowa market area. City representatives are seeking a development team to consider this venture. Although the site selection process has not been finalized, this report reviews several potential sites. The market research and conclusions in this report apply generally to the community; however, it is the assumed the selection of an appropriate site would feature approximately 87,120 square feet (2.00-acres) and would offer excellent access and visibility from within the community. It is also assumed the selected site will be proximate to several key lodging demand generators in the area, which are discussed throughout this report. It is understood the City is supporting the development of a Midscale to Upper Midscale property with regional or national branding. For the purpose of this analysis, we assume the development of a standard Midscale lodging facility with regional or national branding. Examples brands include AmericInn, Best Western, GrandStay, Quality Inn, Sleep Inn and Wingate Inns., No branding decision has been finalized as of the date of this report. For the purpose of this analysis, we assume the property will open in 2017 and will feature 55 rooms, a breakfast dining area, small meeting space (600 – 1,000 square feet), an indoor pool, an indoor whirlpool, an exercise room, a business center or lobby workstation, and a guest laundry room. The hotel will also feature all necessary back-of-the-house space. The site selection will be part of a process that will involve communication between one or more private sector developers, Hotel R&D, LLC and the City of Rock Valley. It is also assumed that the proposed hotel will be managed by a professional management company that is experienced in the operations of Midscale hotels in this region or similar regions. The management team had not been selected as of the date of this study; therefore, details pertaining to management terms had yet to be determined. We have assumed a market-appropriate total management fee of 3.0% of total revenues in our study. Local employers and regional headquarter operations in the area, such as Tyson, Beef Products Inc., Dean Foods and Cargill are the major sources of commercial demand in this area. Seasonal leisure travel and travelers visiting friends and relatives residing in the area represent additional sources of demand for this market. US Highway travelers are a source of lodging demand for several of the hotels in this region that are proximate to highway interchanges. This market reached its lowest occupancy during the last recession in 2009 at 51%. After several years of economic rebound, this market experienced its highest occupancy in 2015 at 68% - 75% with several brands reporting 80% - 90% occupancy levels. However, a surge in occupancy levels this past year (2015) was caused by the avian flu outbreak that devastated the poultry industry throughout Iowa. Similar to other natural disasters, the lodging industry saw record visitations as emergency, remediation and related crews were in the region for up to 8 months and beyond.

Rock Valley, Iowa Summary - Draft Midscale Hotel

While occupancy levels are expected to subside to “pre-2015” levels, average rates are expected to maintain current levels. Projections of performance for the subject hotel are based on the performance of hotels in the surrounding markets of: Sioux Center Orange City Sheldon LeMars In addition, this report reviews the performance of hotels in the Sioux City market as the largest northeast Iowa hotel hub. The overall performance of Sioux Falls, South Dakota hotels is also identified during the Demand Analysis section of this report. However, despite its closer proximity to the subject market, this study found Sioux Falls had lesser impact as an alternative market influence on Rock Valley than Sioux City. Projected Performance of Proposed 55-room Hotel

Annual Average Daily Rate growth and 2 percentage point occupancy increases after Year 3 (stabilization) are approximately 50% of the current annual growth rates. This conservative approach considers the extreme growth that occurred in 2015 as a peak level.

Occupancy ADR

Year 1 58% 86.00$

Year 2 62% 90.00$

Year 3 64% 91.00$

Year 4 66% 94.00$

Year 5 68% 96.00$

Rock Valley, Iowa Market Description Section 2 - 1

The economic strength of the market area and neighborhood surrounding a potential site is an important consideration in forecasting lodging demand and future revenue potential. Economic and demographic trends that reflect the amount of visitations provide a basis from which lodging demand is projected. The purpose of the market area analysis is to review available economic and demographic data to determine whether the local market will experience economic growth, stabilize, or decline. In addition to predicting the direction of the economy, the rate of change must be quantified. These trends are then correlated based on their level to reflect variations in lodging demand, with the objective of forecasting the amount of growth or decline in visitation by individual market segment, e.g. commercial, meeting and group, and leisure. Market Definition

The market area for a lodging facility is the geographical region where the sources of demand and the competitive supply are located. The subject site is located in the city of Rock Valley, the county of Sioux and the state of Iowa.

Rock Valley and Sioux County

Rock Valley, Iowa is located in the northwest corner of Iowa approximately 54 miles north of Sioux City, Iowa and 42 miles south of Sioux Falls, SD. The city is positioned along US Highway 18, a well-established east-west route across the State and across the Country. Interstate 29 is accessible 32 miles west and Interstate 90 is accessible 54 miles north.


Key Transportation Routes to Rock Valley


Economic and Demographic Overview The primary source of economic and demographic statistics offered in this analysis is gathered from the US Census Bureau, US Bureau of Economic Accounts and Iowa Workforce Development. Population Rock Valley has a population of 3,577 (2013 estimate) and is located within Sioux County and its population of 34,547. Rock Valley experienced 6.4% population growth since the 2010 Census. The city experienced a significant 24% increase in population from 2000 to 2010. Sioux County, by comparison saw a 2.5% increase in population from 2010 to 2015 and a 6.1% increase from 2000 to 2010 according to the US Census Bureau. The compounded annual growth experienced in Rock Valley exceeded that of Sioux County, the State of Iowa and the United States.

Population - Subject Market

Market 2000 2005 % chg 2010 % chg 2015 %chg Compounded

2000-2015

Rock Va l l ey 2,875 3,042 5.8% 3,362 10.5% 3,577 6.4% 2.2%

Si oux County 31,561 31,905 1.1% 33,716 5.7% 34,547 2.5% 0.9%

Iowa (000) 2.929 2.964 1.2% 3.05 2.9% 3.107 1.9% 0.6%

U.S. (000) 282.2 295.5 4.7% 309.3 4.7% 318.9 3.1% 1.2% Source: US Census Bureau

The population within a 50-mile radius of Rock Valley is estimated at 405,944 in 2015. The population within a 100-mile radius is 951,294. Peer Cities Population Peer cities are typically communities that share similar economic and demographic traits as the subject city. Peer cities are evaluated to compare specific conditions of the economic environment to the subject market such as retail sales, service and employment, etc. In this study, the selected “Peer” cities are located within a 30 mile radius of Rock Valley and have a relatively larger population than the subject city. However, these communities offer the closest competitive lodging to Rock Valley and thus, can reflect the potential similarities in demographics and economic make-up. The chart on the following page illustrates the selected Peer Cities to Rock Valley:


Population - Peer Cities


2000-2015

Sioux Center 6076 6486 6.7% 7056 8.8% 7308 3.6% 1.9%

Orange City 5632 5777 2.6% 6066 5.0% 6182 1.9% 0.9%

Sheldon 5018 4907 -2.2% 5194 5.8% 5093 -1.9% 0.1%

LeMars 9241 9195 -0.5% 9815 6.7% 9820 0.1% 0.6% Source: US Census Bureau

Although smaller than the selected Peer cities, Rock Valley has outpaced annual and compounded population growth by considerable levels. Based on the reviews in this study, this trend is expected to continue as new, much needed housing is added to the Rock Valley area to fulfill the demand created by the strong employment levels.

Per Capita Personal Income


2000-2015

Sioux County 25,025$ 30,768$ 22.9% 34,679$ 12.7% 47,192$ 36.1% 6.5%

Plymouth County 27,756$ 35,549$ 28.1% 43,878$ 23.4% 55,913$ 27.4% 7.3%

O'Brien County 26,478$ 32,970$ 24.5% 43,370$ 31.5% 53,812$ 24.1% 7.3%

Lyon County 24,765$ 30,740$ 24.1% 39,458$ 28.4% 59,955$ 51.9% 9.2%

Iowa 27,561$ 32,869$ 19.3% 38,687$ 17.7% 44,937$ 16.2% 5.0%

Source: US Bureau of Economic Analysis; US Department of Commerce Local Economy Retail Sales Trends (000)

Market 2005 2010 % chg 2015 % chg

Rock Valley 32,979 41,024 24.4% 57,765 40.8%

Sioux Center 90,442 114,206 26.3% 147,532 29.2%

Orange City 73,174 64,419 -12.0% 76,255 18.4%

Sheldon 60,122 61,033 1.5% 73,374 20.2%

LeMars 126,494 126,653 0.1% 149,479 18.0%

Sioux County 255,215 291,914 14.4% 367,146 25.8%

Iowa 29,776,993 31,943,592 7.3% 37,526,318 17.5% Source: Iowa Department of Revenue


Sioux County Employment

Sector 2010 % of total 2014 % of Total % chg

Total 24801 100% 26106 100% 5.3%

Farm 2124 9% 1930 7% -9.1%

Forestry, fishing and related 413 2% 482 2% 16.7%

Mining, quarry and oil 72 0% 101 0% 40.3%

Utilities 50 0% 53 0% 6.0%

Construction 1482 6% 1670 6% 12.7%

Manufacturing 5302 21% 5371 21% 1.3%

Wholesale 1310 5% 1266 5% -3.4%

Retail 2139 9% 2159 8% 0.9%

Transportation-warehousing 636 3% 731 3% 14.9%

Information 179 1% 211 1% 17.9%

Finance and Insurance 964 4% 1086 4% 12.7%

Real Estate 414 2% 548 2% 32.4%

Professional, technical 646 3% 721 3% 11.6%

Management 132 1% 118 0% -10.6%

Administrative and waste 475 2% 585 2% 23.2%

Educational Services 1533 6% 1625 6% 6.0%

Healthcare and social service 2148 9% 2457 9% 14.4%

Arts, Entertainment, Recreate 224 1% 206 1% -8.0%

Accommodations/Food service 1188 5% 1228 5% 3.4%

Other (excl public admin) 1129 5% 1244 5% 10.2%

Government 2241 9% 2314 9% 3.3%

Federal 107 0% 100 0% -6.5%

Military 136 1% 128 0% -5.9%

State & Local 1998 8% 2086 8% 4.4% Source: Iowa Department of Workforce

While the economic structure of Sioux County is largely agriculture-based Rock Valley has a high number of machine shops and fabrication companies that may not always be hotel demand generating firms. However, many of the small to medium size companies service the agricultural community on a world-wide platform. Rock Valley’s self-sufficient economy and overall quality of life can be overshadowed by larger regional hubs of Sioux City and Sioux Falls, South Dakota as well as several closer communities within a 30-mile radius.


Regional Lodging Trends Perhaps the best indicator of the strength of the local lodging market is the revenue trends calculated from local hotel tax collections. Select Regional Hotel Revenue

Market 2005 2010 % chg 2014 % chg 2015 % chg

Sioux Center 817,800$ 1,866,200$ 128.2% 2,762,440$ 48.0% 2,699,500$ 44.7%

Orange City 329,314$ 445,871$ 35.4% 466,457$ 4.6% 1,265,529$ 183.8%

Sheldon 764,100$ 1,438,020$ 88.2% 1,570,071$ 9.2% 1,771,471$ 23.2%

LeMars 1,987,380$ 2,159,660$ 8.7% 1,985,214$ -8.1% 2,942,940$ 36.3%

Sioux City 10,830,943$ 16,364,229$ 51.1% 23,848,400$ 45.7% 27,381,271$ 67.3%

TOTAL 14,729,537$ 22,273,980$ 51.2% 30,632,583$ 37.5% 36,060,711$ 61.9%

Notes

Sioux Center added 61 rooms in 2007 and increased room tax from 1% to 5% in 2009

Orange City added 61 rooms in 2007 and 60 rooms in 2014

Sheldon added 61 rooms in 2008 and increased room tax from 5% to 7% in 2009

Sioux City added 123 rooms in 2008;161 rooms in 2009; 141 rooms in 2014

and 91 rooms in 2015 Source: Iowa Department of Revenue

The growth of lodging revenue in the markets surrounding Rock Valley has been significant during the past ten years. Much of the increase can be attributed to new development of Midscale and Upper Midscale (higher rates) properties, demand for lodging has increased proportionately. Growth trends from 2010 – 2014 better represent current trends as 2015 revenues were greatly impacted by the avian flu epidemic throughout Iowa. Despite its devastation to the poultry industry, most lodging operations experienced full occupancy levels during the approximately 8 month duration. Remediation crews and related visitors filled local hotels every day during the crisis. Still, the double digit growth reflects overall strong demand for lodging since 2005. As the supply of competitive hotels and the overall demand for lodging increased, room rates grew at equal levels while occupancies maintained 2010 levels and slightly higher. Revenue Per Available Room (RevPar) RevPAR, or revenue per available room, is a performance metric in the hotel industry that is calculated by dividing a hotel's total guestroom revenue by the room count and the number of days in the period being measured.

RevPAR is arguably the most important of all ratios used in the hotel industry. Because

the measure incorporates both room rates and occupancy, it provides a convenient

snapshot of a how well a company is filling its rooms, as well as how much it is able to

charge.


It should be noted that RevPAR, by definition, is calculated on a per-room basis.

Therefore, one company can have a higher RevPAR than another, but still have lower

total revenues if the second firm manages more rooms.

The chart on the following page contains a list of the lodging operations in each of the selected surrounding communities to Rock Valley plus Sioux City, the largest hotel hub in Northwestern Iowa (excluding Sioux Falls, South Dakota). In addition, the RevPar of each city is listed. The average Revenue per Available Room (2,272 rooms) of the region is $44.96. Sioux Center exceeds this average by 141% and has the least number of rooms (117). Sioux Center is also the closest of the selected competitive markets (14.6 miles). The other markets fall considerably below the regional average.

Rock Valley, Iowa Hotel Market Study Supply Analysis 1

LODGING SUPPLY The 22-room Knights Inn is currently the only modern lodging operation in the City of Rock Valley. The property opened in 1994 as a Super 8 and provides a variety of room styles, basic amenities and is well located along US Highway 18 just east of the downtown business district. A member of the economy brand Knights Inn (parent Wyndham Hotels), the Rock Valley property appears to achieve above-average performance compared to average data of the fledgling brand based on its rate structure. The Knights Inn franchise tends to be the bottom rung of the Wyndham Hotel system. While the parent company is currently forcing Super 8 properties to upgrade furniture, fixtures and décor,

those properties unwilling or unable to complete these upgrades often change to the Knights Inn brand, other non-Wyndham brands or become independent.

Knights Inn Rock Valley 22 rooms Built 1994 Renovated 2014

o Estimated 64% occupancy o Estimated $63 Average Daily Rate o Projected 50% Commercial Demand

20% Leisure Demand 30% Transient/Other The Knights Inn is owned by Hariom Enterprises, a regional hotel management and ownership company with similar brands throughout Iowa.


ALTERNATIVE LODGING SUPPLY When rooms are unavailable or do not match the customer’s needs, alternative lodging is sought. The alternative markets are referred to as “secondary” markets. In the case of Rock Valley, this study identified 4 alternative or secondary markets for lodging supply. These markets are:

Secondary Lodging Markets to Rock Valley, Iowa Market Distance from Rock Valey Room Count

1) Sioux Center 15 miles south 117

2) Sheldon 24 miles 163 3) Orange City 26 miles south 132 4) LeMars 35 miles south 254 5) Sioux City 54 miles west 1,606

Room counts may exclude smaller non-competitive motels and inns

Sioux Falls, South Dakota is another alternative lodging market to Rock Valley. However, despite its closer proximity to the subject market (43 miles), it was considered less of an alternative market of companies interviewed for this study.


Secondary Lodging Market Description

Sioux Center

Sioux Center is a community of 7,300 people that has experienced a recent surge in population which has attracted additional economic development. Sioux Center offers a Holiday Inn Express, built in 2007. The Holiday Inn franchise is one of the top performing brands and is capable of capturing market share outside of its immediate region. Sioux Center also offers a greater number of nationally recognized support services such as restaurants and retail businesses. Sioux Center Lodging Supply

The average age of a hotel room in Sioux Center is 17 years with the Holiday Inn Express opening in 2007. Based on the tax collection calculations, the occupancy level of Sioux Center

hotels is 73% at an average daily rate of $86.59.

Sheldon The City of Sheldon is a community of approximately 5,100 residents located 24 miles east of Rock Valley. Sheldon has 4 lodging operations offering a total of 163 rooms. This includes the Holiday Inn Express which opened in late 2008.

Sheldon, Iowa Hotels and Motels

Market Property Rooms Opened

Sioux Center Econolodge 56 1991

Holday Inn Express 61 2007 May

TOTAL 2 117 1999

RevPar 2005 2010 2015

40.00$ 43.70$ 63.21$

Growth 9.3% 44.6%

Holiday Inn Exp 61 2008

Iron Horse Inn 33 1985

Sheldon Motel 29 1961

Super 8 40 1997

TOTAL 4 163 1988

RevPar 2005 2010 2015

20.52$ 24.17$ 29.78$

17.8% 23.2%


Sheldon Hotel Performance Similar to Sioux Center and the other communities within 30 miles of Rock Valley, Sheldon area hotels and motels experienced strong revenue growth from 2012 to 2013 and 2014. Sheldon properties saw the RevPar (Revenue per available room) increase from $29.56 in 2013 to $41.69 in 2015. While much of the increase was attributed to the avian flu epidemic in 2015, this surge in regional occupancy levels was limited to 4-5 months in the northwestern part of the state compared to other areas that saw near year-round impact. Overall, Sheldon is less likely to draw visitors away from Rock Valley. However, a hotel in Rock Valley will most likely capture “over-flow” demand generated in Sheldon. A new property

in Rock Valley will also most likely intercept overflow demand from other larger markets north of Sheldon towards Sioux Falls. Based on the analysis of room tax collections, Sheldon area hotels are achieving an estimated 70% occupancy level assuming a $70-$75 average daily rate (similar to low average single rate).

Orange City Orange City is a community of 6,200 residents located 26 miles south of Rock Valley. Several recent additions to the city are the Prairie Winds Event Center and adjacent Hampton Inn giving the community a strong competitive edge in attracting group functions and performing artist events. The supply of hotels below includes the Dutch Colony Inn which has since been closed. However, its room supply was included in the room tax collection data contained in this report.

Orange City appears to be a strong competitor in attracting visitors from Rock Valley and other communities. Availability of high-quality support services including the new Hampton Inn are the key reasons. However, at a distance of 26 miles from the subject market, a new hotel in Rock Valley will most likely re-capture the local demand generated in the community. Hampton Inn occupancy levels have reportedly reached 76% during its first year of operations at a $95 - $101 average daily rate.

Orange City Dutch Colony Inn 38 1985

Hampton Inn 60 2014

Super 8 34 1999

TOTAL 3 132 1999

RevPar 2005 2010 2015

12.53$ 16.97$ 26.27$

35.4% 54.8%


Sioux City Sioux City is a primary hub community of northwest Iowa with over 83,000 residents and is 54 miles south of Rock Valley. Overall, Sioux City is not a strong competitive factor with Rock Valley although visitors to Rock Valley will utilize lodging and other services in the larger city. These visitors are drawn to Sioux City by the support services including lodging, dining and transportation.

Conclusions Perhaps the most noticeable factor in determining the strength of Rock Valley for new lodging is the lack of existing hotels and motels. Currently, the only competitive property in the city is the 22-room Knights Inn. The property will be 22 years old in 2016. The next available lodging is 11 miles south in Sioux Center.

The Knights Inn appears to be a suitable economy class property that receives good to very good customer ratings on TripAdvisor and other lodging rating websites. Attempts to make reservations during various times of the year were often listed as sold out (weekend and weekday). Typically slow periods (weekdays in December) offered rates of $63 - $85 which is approximately $25 - $30 above the Knights Inn franchise average.

Another factor that may or may not be directly correlated with hotel demand is the number of rooms-to-residents ratio. As an example, the City of Sheldon offers 1 hotel room to every 31 residents. Rock Valley offers 1 hotel room to every 163 residents. Similar-size communities offer the following:

While the rooms to residents ratio is not a common calculation in determining the strength of local hotel demand, similar to a retail analysis involving “leakage” of retail sales in an area, this study correlates similarities between the two. Assuming there is a correlation between potential hotel demand and the two ratios, Rock Valley is significantly below average in the number of rooms available.

Market Rooms Population Ratio

Rock Valley 22 3,577 1:163

Sioux Center 117 7,308 1:63

Sheldon 163 5,093 1:31

Orange City 6,182 132 1:47

Sioux City 83,000 1,606 1:52

LeMars 9,820 254 1:39

Ratio of Rooms to Residents


Lodging Classifications Using the definitions of property classifications set forth by Smith Travel Research, the leading research and monitoring firm in the hotel industry, the primary and secondary market areas to Rock Valley offer Economy, Midscale or Upper Midscale hotels. While STR definitions are mostly based on average rates of the respective chains, this study modified the definition of class of several properties due to quality and or significantly different localized rate structures compared to the respective franchises. An example of the localized definition versus STR is the Knights Inn in Rock Valley. Knights Inn is classified as an Economy brand by STR and in nearly every market they exist. However,

the Rock Valley property achieves projected average daily rates that are $20 - $25 above their chain average. Technically, the Knights Inn could be classified as a Midscale hotel in the Rock Valley market. However, in this instance, this study maintains its Economy classification. The chart below illustrates the class of lodging rooms in the region.

As the chart illustrates, the subject region offers slightly more Upper Midscale properties than Economy an offer no Upscale and limited Midscale hotels. The strength of the Economy sector can be correlated with older properties down-scaling from higher-end sectors to economy brands. Strength of the Upper Midscale can be correlated with today’s demand for higher quality accommodations and the popularity of certain brands (Hampton and Holiday Inn Express).

Market Economy Midscale Upper Midscale Upscale Independent

Sioux Center 48% x 52% x x

Sheldon 25% x 37% x 38%

Orange City 36% x 64% x x

Sioux City 34% 24% 24% x 11%

LeMars 48% x 25% x 28%


Market Property Rooms Opened

Sioux Center Econolodge 56 1991

Holday Inn Express 61 2007 May

TOTAL 2 117 1999

RevPar 2005 2010 2015

40 43.7 63.21

9.3% 44.6%

Orange City Dutch Colony Inn 38 1985

Hampton Inn 60 2014

Super 8 34 1999

TOTAL 3 132 1999

RevPar 2005 2010 2015

12.53 16.97 26.27

35.4% 54.8%

Sheldon Holiday Inn Exp 61 2008

Iron Horse Inn 33 1985

Sheldon Motel 29 1961

Super 8 40 1997

TOTAL 4 163 1988

RevPar 2005 2010 2015

20.52$ 24.17$ 29.78$

17.8% 23.2%

LeMars Amber Inn 70 1966

Baymont Inn 62 1998

Econolodge 59 1990

Holiday Inn Exp 63 2007

TOTAL 4 254 1990

RevPar 2005 2010 2015

28.51$ 23.29$ 31.74$

-18.3% 36.3%

Sioux City Howard Johnson 188 1976

Ramada 114 1967

Hard Rock 54 2014 august

Holilday Inn 114 1974

Stoney Creek 61 2009 June

Hilton Garden Inn 123 2008 July

Rodeway Inn 153 1961

Budget Host 30 1950

Palmer House 59 1957

Super 8 57 1978

Holiday Inn Exp 85 2007 June

Days Inn 55 1995

AmericInn 57 1997

New Victorian 66 1997

Comfort Inn 69 1990

Quality Inn 57 1994

Hampton Inn 0 2015 December

Travelodge 71 1970

Candlewood Suites 87 2014 May

Fairfield Inn 62 1991

Super 8 North 44 1976

TOTAL 21 1606 1988

RevPar 2005 2010 2015

24.81 30.6 46.71

23.3% 52.6%

REGION 2005 2010 2015

24.48 30.33 44.96

23.9% 48.2%

Rock Valley, Iowa Hotel Market Study Demand Analysis 4-1

DEMAND FOR LODGING The demand for lodging in Rock Valley is generated by a variety of sources ranging from consistent year-round business travelers to seasonal tourist attractions and events. The lone Rock Valley property also benefits from the commercial and leisure demand generated in surrounding markets with little or no competitive lodging supply. A new property will also benefit from a moderate summer and fall seasonal surge in recreation-oriented visitations experienced throughout the nortrhwestern Iowa market area. Rock Valley is central to a diverse economic region offered by four surrounding counties that have relatively strong demand and limited supply. Sioux County in particular has experienced substantial growth in both commercial activity and leisure oriented events that have sent potential overnight guests to areas 40-50 miles away. While the growth of room demand in the primary and secondary markets surrounding Rock Valley has been positive, a recent surge in area occupancies was caused by a not-so-positive event. The recent outbreak of avian flu in Iowa was a near economic disaster for this sector of the food industry. However, regional hotels saw record-breaking occupancy (and revenues) levels that peaked during the second quarter of 2015. Remediation crews from around the country convened on the region to assist in the cleaning and maintenance of the many poultry farms and production plants related to this incident. Still, the growth of lodging revenue reported during the first half of 2015 reflects a longer-term increase in room demand according to the Sioux City Convention & Visitors Bureau. According to the Bureau, rapid growth of the industrial sector resulted in “teams” of construction and development related crews staying in the market during this expansion and construction activity. The following section reviews and evaluates the sources of room demand that will most likely be targeted by a new hotel in the subject market area.

Commercial Demand

Typically, the number of large-employing businesses located in a community can provide an indication of the amount of commercial demand available to a hotel. Rock Valley and the surrounding secondary markets have a substantial number of employers including some that have few employers but can generate a high volume of commercial visitors. Based on the information gathered in this study, it is determined that commercial demand (business travelers) will generate about 65 - 75% of the annual demand for lodging at the proposed hotel in Rock Valley. The key commercial demand generators in and around Rock Valley are:


Rock Valley Total Component Solutions–the largest manufacturing company in Rock Valley with approximately 200 employees. The company is designs and manufactures precision machines for a variety of industries with a worldwide customer base. Hegg Memorial Hospital employs approximately 300 people. The hospital has a primarily local service provider but attracts a high number of equipment and service vendors and suppliers, training session leaders and healthcare professionals from other areas. Occasional group functions include social events, visiting medical students and training personnel. Family and friends of patience are mostly directed to the Knights Inn but are provided a list of hotels in surrounding markets. Rock Valley Community School District–The entire district employs an estimated 100 teachers and support staff. Local schools generate a considerable amount of demand for lodging that includes commercial, leisure and groups. Commercial demand incudes product and service reps, sub-contractors, State audit teams and related association staff. Leisure includes friends and families of students involved in athletics, arts and academic events. Group includes visiting teams for athletic and academic tournaments and other events. Hope Haven employs approximately 185 people. Part of an international social services organization, Hope Haven attracts visiting family, personnel from other locations, suppliers, medical audits and a variety of other visitors throughout the year. Kooima Company is a laser-based fabrication company with 130 employees and a strong history in the Rock Valley region. Like many of the smaller fab companies in the area, Kooima serves and international market with agricultural equipment and US markets with precision cutting services. Visitations include buyers/customers, vendors and suppliers and company personnel. Other midsize businesses in the Rock Valley region that generate commercial demand include: A&I Products Rock Industries Sioux Dairy Equipment Valley Bakery Valley Machining Meadowvale Dairy These are the major employers or companies known to have outside influences such as regional branches, national or international markets, etc.


Leisure Demand

Room demand generated by tourist attractions and events create a modest surge in hotel occupancy and rate levels in Rock Valley and the surrounding region. The majority of this activity occurs during summer and fall months but extends into weekends and holidays throughout the year. Much of the demand generating activities in and around Rock Valley are associated with outdoor recreation. Aside from an active park district, Rock Valley is within close proximity to hunting grounds, hiking trails and waterways. Rivers Bend and the Lake Pahoja Recreation Area is a key leisure demand generator for the entire region. In addition to the events and attractions targeting local residents and visitors, Rock Valley and the surrounding region offers an abundance of golf courses, museums, small town shopping districts and other recreational activities.

Transient Demand

Transient room demand is commonly defined as “walk-in” customers that have no prior reservations and no identified reason for staying. Transient demand can consist of travelers driving from one destination to another or visiting the area for social or corporate purposes. While difficult to define and monitor, transient demand is a vital source of business for hotels located along major highway routes but a lesser source for those located in communities along secondary highway routes. Highway traffic counts are perhaps the closest barometer of potential transient demand. While there are no formulas to calculate the impact of traffic volume on transient demand, understanding the weekly, monthly and seasonal trends can better illustrate likely volume of visitations during these periods. The rapid increase and accessibility of on-line and mobile hotel reservation sources has also impacted the measurability of transient demand. Current trends indicate a growing popularity of mobile sites that allow travelers to review rates and ratings of hotels within short proximity of arriving. The perception of last minute rate discounts and the desire to “see the property” before committing to a reservation is a common and growing practice of today’s traveler. Therefore, Transient Demand is more speculative and is treated as a tertiary demand market, even with a highway location. However, if a projection of transient demand is to be considered, then growth (or decline) of highway traffic volume could be calculated. For this example, the following projection of transient demand growth is calculated: US Highway 18 is a primary East-West route across Iowa and runs through Rock Valley as a main street corridor. Traffic volume along the route has remained consistent throughout the past 8 years of traffic volume data with a range of 3,490 vehicles recorded west of the downtown business district to 2,260 east. Highway 75 is the primary route


between northern and southern destinations to and from Rock Valley with volumes of 2,640 north of US Highway 18 and 3,890 south.

Group/Other Demand

Group demand in the Rock Valley market is mostly generated by social events (weddings, reunions, organizations) and bus tours. Another growing source of group demand for overnight accommodations is the youth athletic market. Orange City is a growing hub of youth and amateur athletic events that spread room demand throughout the county and beyond. Group demand is not expected to be a major source of occupancy for a new hotel in the Rock Valley region.

Conclusions The Demand Analysis in this report determines that weekday commercial demand is the leading source of business for the area competitive hotels. While there are seasonal fluctuations, local companies attract strong visitations throughout the year. Leisure demand tends to be generated by more individual social events and general area events and attractions during specific times of the year. While summer months see the highest number of visitors, there is no significant surge in summer occupancies. Despite this contrast from many similar markets in the region, this pattern is considered a positive for local hotels. Strong, year-round weekday occupancy is a luxury for hotels. This allows (or forces) individual properties to create self-induced weekend demand through packages and promotions utilizing property-specific features (i.e. swimming pool) and/or cooperative marketing with area events and attractions. Capturing a strong share of locally generated commercial demand will require a new hotel to promote within the Rock Valley business district as well as neighboring communities. Offering features and amenities that cater to business travelers will be paramount in reaching the competitive level of other corporate hotels. These can include food & beverage service, well-equipped internet and other business services, in-room work space and possibly frequent travelers programs. Likewise, capturing a strong share of leisure demand will involve features and amenities including indoor pool and other recreation, variety of enhanced continental breakfast items, on-site outdoor recreation and “relaxation” amenities and packaging with local attractions.

Hotel Research & Development 944 Evans Street [email protected] (414)-379-2105 Oshkosh, Wisconsin 54901

FINANCIAL PROJECTIONS

MIDSCALE HOTEL ROCK VALLEY, IOWA

The following financial analysis is based on assumptions and data collected for a 55-room AmericInn as described in the Hotel Market Study commissioned by the City of Rock Valley. The information included in this analysis is based on assumptions and estimations and may not represent the actual performance of the subject hotel. Hotel R&D, LLC is available to modify and/or update this analysis. Contents

Note: Financial analysis includes current operating revenues and expenses of the existing hotel as a comparison. Current expenses gathered for this analysis may not match the Uniform System of Accounting for Hotels and thus may not represent actual performance.

1 Summary 2 Five Year Pro forma - Summary 3 Revenue Schedule 4 Departmental Expenses 5 General & Administrative Costs 6 Sales & Marketing Expenses – including franchise fees 7 Repairs & Maintenance Expenses 8 Non-operating Revenues and Expenses (formerly Fixed Expenses) 9 Sample Development Summary 10 Sample Construction Detail 11 GLOSSARY OF TERMS

Rock Valley, Iowa FIVE YEAR PROFORMASUMMARY

Midscale Limited Service

# of Rooms in Hotel 55

RevPar 23.33$ 53.79$ 60.18$ 63.50$ 66.91$ 70.40$

ADR 64.00$ $86.00 $90.00 $92.00 $94.00 $96.00

% increase 0% 5% 2% 2% 2%

Occupancy 33.8% 58.0% 62.0% 64.0% 66.0% 68.0%

Year 1 Year 2 Year 3 Year 4 Year 5

RevenuesRoom $434,262 82.5% $1,001,341 86.4% $1,120,185 86.9% $1,182,016 87.1% $1,245,453 87.3% $1,310,496 87.5%

Meeting Room $81,424 15.5% $139,722 12.1% $149,358 11.6% $154,176 11.4% $158,994 11.1% $163,812 10.9%

Other Miscellaneous Income $10,585 2.0% $18,164 1.6% $19,902 1.5% $21,058 1.6% $22,258 1.6% $23,506 1.6%

Total Revenue $526,272 100.0% $1,159,227 100.0% $1,289,445 100.0% $1,357,250 100.0% $1,426,705 100.0% $1,497,814 100.0%

Departmental Expenses % of Department Revenue

Room - includes brkfst & recept $140,262 32.3% $222,565 22.2% $236,921 21.2% $247,178 20.9% $257,791 20.7% $268,771 20.5%

Telephone $1,764 0.3% $3,027 0.3% $3,317 0.3% $3,510 0.3% $3,710 0.3% $3,918 0.3%

Meeting Room ($23,749) -29.2% $40,752 29.2% $43,563 29.2% $44,968 29.2% $46,373 29.2% $47,779 29.2%

Other Miscellaneous $1,764 16.7% $3,027 16.7% $3,236 16.3% $3,340 15.9% $3,445 15.5% $3,549.26 15.1%

TOTAL DEPARTMENTAL EXPENSES $120,042 22.8% $269,372 23.2% $287,037 22.3% $298,996 22.0% $311,319 21.8% $324,016 21.6%

Gross Operating Income $406,230 77.2% $889,855 76.8% $1,002,408 77.7% $1,058,253 78.0% $1,115,386 78.2% $1,173,798 78.4%

Undistributed Operating Expenses (Deductions) % of gross % of gross % of gross % of gross % of gross % of gross

General & Administrative $72,890 13.9% $84,159 7.3% $87,881 6.8% $90,708 6.7% $93,610 6.6% $96,589 6.4%

Franchise Fees $34,130 6.5% $63,690 5.5% $69,078 5.4% $71,820 5.3% $74,595 5.2% $77,401 5.2%

Sales & Marketing $31,062 5.9% $31,294 2.7% $32,849 2.5% $33,807 2.5% $34,773 2.4% $35,748 2.4%

Utilities $33,791 6.4% $57,985 5.0% $63,533 4.9% $67,222 5.0% $71,056 5.0% $75,039 5.0%

Repairs & Maintenance $20,052 3.8% $20,477 1.8% $20,989 1.6% $21,513 1.6% $22,051 1.5% $22,603 1.5%

Total Deductions From Income $191,925 36.5% $257,604 22.2% $274,330 21.3% $285,071 21.0% $296,085 20.8% $307,381 20.5%

INCOME BEFORE FIXED CHARGES $214,305 40.7% $632,250 54.5% $728,078 56.5% $773,183 57.0% $819,301 57.4% $866,418 57.8%

Real Estate Taxes $12,000 2.3% $36,250 3.1% $36,720 2.8% $37,454 2.8% $38,203 2.7% $38,968 2.6%

Management Fee $21,051 4.0% $46,369 4.0% $51,578 4.0% $54,290 4.0% $57,068 4.0% $59,913 4.0%

Insurance $20,000 0.8% $20,500 0.8% $21,000 0.8% $21,500 0.8% $22,000 0.8% $22,500 0.8%

Reserve for Replacement $0 0.0% $11,592 1.0% $25,789 2.0% $40,717 3.0% $57,068 4.0% $59,913 4.0%

FF&E Lease $0 0.0% $0 0.0% $0 0.0% $0 0.0% $0 0.0% $0 0.0%

CASH FLOW AVAILABLE FOR DEBT SERVICE $161,254 30.6% $517,539 44.6% $592,992 46.0% $619,221 45.6% $644,961 45.2% $685,125 45.7%

Debt Service $167,646 (int. only) $269,048 $269,048 $269,048 $269,048 $269,048

Debt Service Coverage 1.0 1.9 2.2 2.3 2.4 2.5

ROI - Equity - 30% 11.1% 14.5% 15.7% 16.8% 18.6%

Depreciation TBD TBD TBD TBD TBD

THE FIRST YEAR PROJECTION OF OCCUPANCY AND ADR ASSUME 1 FULL YEAR OF OPERATIONS. THE ABOVE PROFORMA STATEMENT OF CASH FLOW FROM OPERATIONS

AND DEBT SERVICE COVERAGE REPRESENTS A COMPILATION OF DATA AND INFORMATION GATHERED FROM HISTORICAL DATA AND INDUSTRY STATISTICS FOR

SIMILAR TYPES OF PROPERTIES. THE PREPARER DOES NOT GUARANTEE THE DATA, AND ASSUMES NO LIABILITY FOR ANY ERRORS IN FACT, OMISSIONS, ANALYSIS

OR JUDGEMENT. THE DATA IS BASED ON THE BEST JUDGEMENTS OF THE PREPARER AND CLIENT. WE MAKE NO GUARANTEES OR ASSURANCES THAT THE PROJECTIONS WILL BE REALIZED AS STATED.

Opening

3/7/2016 Hotel R and D, Inc

Rock Valley, Iowa REVENUE SCHEDULE Midscale Hotel

Per Occupied Annual Opening Year 1 Year 2 Year 3 Year 4 Year 5

Rooms Room Increase

Rooms in Hotel 55 49 55 55 55 55 55

ADR $86.00 64.00$ $86.00 $90.00 $92.00 $94.00 $96.00

Rooms Avail. 20,075 20,075 20,075 20,075 20,075 20,075 20,075

Occupancy 58.0% 33.8% 58.0% 62.0% 64.0% 66.0% 68.0%

Occupied Rooms 11,644 6,785 11,644 12,447 12,848 13,250 13,651

Revenue 1,001,341 434,262 1,001,341 1,120,185 1,182,016 1,245,453 1,310,496

Telephone Telephone revenue is virtually non-existent. Internet revenue is now included in this category. However, charging for

internet is not a recommended practice in the lodging industry (at this time). Therefore, this category illustrates

no revenue and equipment and land-line service throughout the property.

Revenue $0.00 2.5% $0 $0 $0 $0 $0 $0

Expense/Lease $0.26 2.5% $1,764 $3,027 $3,317 $3,510 $3,710 $3,918

Profit $0.26 $1,764 $3,027 $3,317 $3,510 $3,710 $3,918

Food & Beverage

Food & Beverage revenue is not calculated in this example. Typical f&b revenue would include commissions on catered events

and vending.

Revenue $11.00 2.5% $74,639 $128,079 $140,334 $148,483 $156,951 $165,750

Expense 20% 2.5% $14,928 $25,616 $28,067 $29,697 $31,390 $33,150

Profit $2.20 $59,711 $102,463 $112,267 $118,786 $125,561 $132,600

Meeting Room Rental

No meeting room revenue is calculated in this example.

Property Capacity Day Rate

0 30 150.00$

0 30 75.00$

0 30 150.00$

Revenue $12.00 2.5% $81,424 $139,722 $149,358 $154,176 $158,994 $163,812

Expense $3.50 2.5% $23,749 $40,752 $43,563 $44,968 $46,373 $47,779

Profit $15.50 $57,675 $98,970 $105,795 $109,208 $112,621 $116,034

Miscellaneous

Miscellaneous income includes fax, copier machine commissions, guest laundry and vending. Rentals and other

income are net of expenses. Vending revenue in an extended stay can be slightly higher with upgraded vending

facilities. These figures are based on industry averages for the Limited Service sector of lodging.

Revenue $1.56 2.5% $10,585 $18,164 $19,902 $21,058 $22,258 $23,506

Expense ($0.26) 2.5% ($1,764) ($3,027) ($3,236) ($3,340) ($3,445) ($3,549)

Profit $1.30 $8,821 $21,191 $23,138 $24,398 $25,703 $27,056

3/7/2016 Hotel R&D, LLC

Rock Valley, Iowa ROOMS PROFIT LOSS Midscale Hotel

DEPARTMENTAL EXPENSES

Departmental or Rooms Expenses include payroll and related costs for front desk and housekeeping and the costs of supplies.

Payroll expenses are based on current area wages plus FICA, SUTA and FUTA taxes.

Annual

Increase Opening Year 1 Year 2 Year 3 Year 4 Year 5

Front Desk Supervisor -$ sales coordinator 2.5% - - - - -

Front Desk Staff 365 Days

and Reservations 16 Hours per Day

5,840

8.50$ Rate per Hour 2.5% 8.50 8.50 8.71 8.93 9.15 9.38

49,640 33,320 49,640 50,881 52,153 53,457 54,793

Front Desk staffing equals one clerk per 8 hour shift for first and second shift assuming Manager assistance when necessary.

Night Auditor and 365 Days

Security/front desk 8 Hours per Day

2,920

9.50$ Rate per Hour 2.5% 9.50 9.74 9.98 10.23 10.49 10.75

27,740 18,620 28,434 29,144 29,873 30,620 31,385

Subtotal-Wages 51,940 78,074 80,025 82,026 84,077 86,179

Taxes & Benefits 12.0% 6,233 9,369 9,603 9,843 10,089 10,341

Total Wages & Benefits 58,173 87,442 89,628 91,869 94,166 96,520

Miscellaneous

Printing/material $0.24 per Occupied Room 2.5% 1,628 2,794 3,062 3,240 3,424 3,616

Office Supplies $125 per Month 2.5% 1,500 1,500 1,538 1,576 1,615 1,656

Van Lease/Operations $0 per month 2.5% - - - - - -

Commissions (T/A only) 1.2% of Room Revenue 5,211 12,016 13,442 14,184 14,945 15,726

Total Expenses 8,340 16,311 18,042 19,000 19,985 20,998

66,512 103,753 107,670 110,869 114,151 117,518

Executive Housekeeper - 2.5% - - - - - -

Laundry& Housemen 365 Days

also van driver - Hours per Day

-

8.00$ Rate per Hour 2.5% 8.00 8.20 8.41 8.62 8.83 9.05

- - - - - - -

Housekeepers 11,644 # of Occupied rooms 6,785 11,644 12,447 12,848 13,250 13,651

15 Rooms cleaned/Housekeeper day 15 15 15 15 15 15

776 # of Housekeeper Days 452 776 830 857 883 910

6 Hours per Day 6 6 6 6 6 6

4,657 2,714 4,657 4,979 5,139 5,300 5,460

8.00$ Rate per Hour 2.5% 8.00 8.20 8.41 8.62 8.83 9.05

37,259 21,713 38,191 41,845 44,275 46,800 49,424

Subtotal-Housekeeping Wages 21,713 38,191 41,845 44,275 46,800 49,424

Taxes & Benefits 12.0% 2,606 4,583 5,021 5,313 5,616 5,931

Total Wages & Benefits 24,319 42,774 46,867 49,588 52,416 55,354


Rock Valley, Iowa ROOMS PROFIT LOSS Midscale Hotel

Miscellaneous

INDUSTRY AVERAGE EXPENSES

Drapery $0.00 per month 2.5% - - - - - -

Carpet Cleaning $5.00 per room 2 2.5% 490 564 578 592 607 622

Linen $0.48 per occupied rooms 2.5% 3,257 5,589 6,124 6,479 6,849 7,233

Satellite/Cable/Internet $900.00 per month 2.5% 10,800 11,070 11,347 11,630 11,921 12,219

Printed Material $0.08 per occupied rooms 2.5% 543 931 1,021 1,080 1,141 1,205

Paper Products $0.11 per occupied rooms 2.5% 746 1,281 1,403 1,485 1,570 1,657

Soap $0.06 per occupied rooms 2.5% 407 699 765 810 856 904

In-room coffee $0.21 per occupied rooms 2.5% 1,425 2,445 2,679 2,835 2,996 3,164

Cleaning Supplies $0.24 per occupied room 2.5% 1,628 2,794 3,062 3,240 3,424 3,616

Laundry Supplies $0.22 per occupied room 2.5% 1,493 2,562 2,807 2,970 3,139 3,315

Maintenance $50.00 per month 2.5% 600 615 630 646 662 679

Miscellaneous $50.00 per month 2.5% 600 615 630 646 662 679

Plants & Gst. Bldg. Exp. $0.00 per month 2.5% - - - - - -

Total Housekeeping 46,308 71,938 77,913 82,001 86,244 90,649

Complimentary Breakfast/Reception Factor

Continental Breakfast 4.00$ 27,141$ 46,574$ 51,031$ 53,994$ 57,073$ 60,273$

Manager's Reception 4.00$ -$ -$ -$ -$ -$ -$

Miscellaneous per month 150$ 2.5% 1,800$ 1,845$ 1,891$ 1,938$ 1,987$ 2,037$

27,441$ 46,874$ 51,338$ 54,309$ 57,396$ 60,604$

TOTAL ROOMS EXPENSE 140,262 222,565 236,921 247,178 257,791 268,771


Rock Valley, Iowa SALES MARKETING EXPENSES Midscale Hotel

Total Sales and Marketing expenses are projected at 3.9% of total revenue compared to 4.3% industry average.

This Sales and Marketing budget excludes any personnel expenses assuming that the General Manager and

Management company is responsible for sales call activity and correspondance.

This Sales and Marketing budget enhances the advertising budget with aggressive billboard placement and

higher-than average general advertising.

Dues include Chamber of Commerce and/or Convention Bureau membership.

Franchise Fees are based on an average of GrandStay franchises. This excludes any initial

fees, application fees, and other service fees that may be charged by the franchise company.

Travel website commissions are based on actual averages from such including Travelocity, Expedia, Hotel.com, etc.

Annual

Increase Opening Year 1 Year 2 Year 3 Year 4 Year 5

Director of Sales -$ 2.5% - - - - - - Sales Coordinator - 2.5% - - - - - -

Subtotal - Wages - - - - - - Taxes & Benefits 22.0% - - - - - -

- - - - - -

Annual

Increase Year 1 Year 1 Year 2 Year 3 Year 4 Year 5

Expenses

Billboards 650 per month 2.5% 7,800 7,995 8,195 8,400 8,610 8,825

Direct Mail - per month 2.5% - - - - - -

Collateral Material 90 per month 2.5% 1,080 1,107 1,135 1,163 1,192 1,222

Other Advertising 350 per month 2.5% 4,200 4,200 4,305 4,413 4,523 4,636

Dues 400 2.5% 400 410 420 431 442 453

Uniform (Dry Cleaning) - per month 2.5% - - - - - -

Incentive Programs per month 2.5% - - - - - -

Food & Bev. & Non Food - 2.5% - - - - - - Gifts - 2.5% - - - - - -

WebSite Commissions $1.51 per occ room $17,582 $17,582 $18,794 $19,400 $20,007 $20,613

Total Sales & Marketing 31,062 31,294 32,849 33,807 34,773 35,748

FRANCHISE FEES

Brand Fund 0.00% GRR - - - - - -

Franchise Royalty Fee $3.75 per occ room 25,445 43,663 46,674 48,180 49,686 51,191

Reservation Fees 2.00% GRR 8,685 20,027 22,404 23,640 24,909 26,210

34,130 63,690 69,078 71,820 74,595 77,401


Rock Valley, Iowa REPAIRS MAINTENANCE Midscale Hotel

Repairs and Maintenance, also referred to as Property Operations and Maintenance, is another expense that is largely controlled by management

Repairs can be a deferred or accumulating expense and usually depend on the age of the hotel and the practice of preventive maintenance.

Maintenance payroll listed is based on part time, lawncare/snow removal, minor repairs

Miscellaneous fees are industry standards.

Utility expenses are based on similar size properties in the Upper Midwest.

Salaries & Wages Increase/Year Opening Year 1 Year 2 Year 3 Year 4 Year 5

Chief Engineer -$ 2.5% - - - - - -

Maintenance Workers 900 Hours per year

9.00$ Rate per Hour 2.5% 9.00 9.23 9.46 9.69 9.93 10.18

8,100 8,100 8,303 8,510 8,723 8,941 9,164

Subtotal - Salaries & Wages 8,100 8,303 8,510 8,723 8,941 9,164

Taxes & Benefits 12.0% 972 996 1,021 1,047 1,073 1,100

Total Salaries & Wages 9,072 9,299 9,531 9,770 10,014 10,264

Expenses based on Industry Averages

Electrical & Plumbing 50 per month 2.5% 600 615 630 646 662 679

HVAC 25 per month 2.5% 300 308 315 323 331 339

Building (Ext.) - per month 2.5% - - - - - -

Pool/Spa 4,000 2.5% 4,000 4,100 4,203 4,308 4,415 4,526

Lawn 1,000 2.5% 1,000 1,025 1,051 1,077 1,104 1,131

Parking Lot/Snow Removal 1,200 2.5% 1,200 1,230 1,261 1,292 1,325 1,358

Pest Control 5 per month 2.5% 60 62 63 65 66 68

Light Bulbs 5 per month 2.5% 60 62 63 65 66 68

Sub contracting 50 per month 2.5% 600 615 630 646 662 679

Uniforms - 2.5% - - - - - -

Flag 100 2.5% 100 103 105 108 110 113 Trash 255 per month 2.5% 3,060 3,060 3,137 3,215 3,295 3,378

10,980 11,178

Total Repairs & Maintenance 20,052 20,477 20,989 21,513 22,051 22,603

UtilitiesElectric, Gas, Water/Sewer 4.98 per occupied room 2.5% 33,791 57,985 63,533 67,222 71,056 75,039


Rock Valley, Iowa TAXES, INSURANCE AND MANAGEMENT FEES Midscale Hotel

Year 1 Year 2 Year 3 Year 4 Year 5

Property Taxes 1 $36,250 $36,720 $37,454 $38,203 $38,968

Insurance $20,500 $21,000 $73 $22,000 $75

Management Fee $46,369 $51,578 68% $57,068 72%

FF&E Lease $0 $0 $0 $0 $0

Reserve for Replacement $11,592 $25,789 $40,717 $57,068 $59,913


Rock Valley, Iowa PROJECTED CONSTRUCTION BUDGET Midscale Hotel

Construction Costs 55 55 rooms

3-story with pool

Per Room Total $

Land Value $9,091 500,000$

Construction 71,402 3,927,115$

FF&E 9,684 532,600$

Soft Costs 11,427 628,500$

Total construction costs $101,604 5,588,215$

THIS IS FOR INTERNAL PURPOSES ONLY AND IS NOT INTENDED TO REPRESENT AN ACTUAL

CONSTRUCTION BUDGET.

Investment$ %

Debt $3,352,929 60%

Equity

Land 0 0%

Cash 2,235,286 40%

Total Equity $2,235,286 40%

Net Available for Debt Service $517,539 Based on Year 2 (first full year)

Interest $167,646

Principle 101,401

Total Debt Service $269,048

Interest Rate - 20 years 5.0%

Interest Coverage Ratio 3.1 x

(NOI/Interest Payment)

Debt Service Coverage Ratio 1.9 x

(NOI/Total Debt Service)

Cash-on-Cash Yield To Equity 11.1%

(NOI-Interest)/Equity Investment

SAMPLE CONSTRUCTION BUDGET


Glossary Based on the Uniform System of Accounts for the Lodging Industry (Tenth Revised Edition)

Revenues Rooms - Revenues derived from the rental of sleeping rooms at the hotel, net of any rebates and discounts. Food - Revenues derived from the sale of food, including coffee, milk, tea, and soft drinks. Beverage - Revenues derived from the sale of beverages, including beer, wine and liquors. Also includes banquet beverage revenues. Other Food and Beverage - Revenues derived from other sources such as meeting room rentals, cover or service charges, or revenues derived from the sale of goods or services made in connection with banquets, such as equipment rental, music, decorations and souvenirs. Also includes banquet service charges. Telecommunications - Revenues derived from guest-use of telephones in the hotel, including local and long distance calls, service charges, high speed or wireless internet and commissions received from pay phones. NO LONGER LISTED ON THE UNIFORM SYSTEM OF ACCOUNTING Other Operated Departments - Revenues generated from garage and parking, guest laundry, golf and tennis, health club, spa, swimming pool, barber/beauty shop, gift shop, newsstand, etc., when operated by the hotel. Rentals and Other - Income from rentals of space for business purposes, including concessions in any of the departments mentioned under other operated departments. Also includes income generated from sources not included elsewhere, but excludes investment income.

Departmental Expenses Rooms - Rooms departmental expenses include labor costs such as salaries and wages for front desk, housekeeping, reservations, bell staff, and laundry, plus employee benefits. Other operating expenses in the rooms department include linen, cleaning supplies, guest supplies, uniforms, central or franchise reservation fees, equipment leases, and travel agent commissions. Food and Beverage (F&B) - Food and Beverage departmental expenses include the cost of goods sold (food and beverages), labor and related benefits, and other operating expenses. Labor costs include departmental management, cooks and kitchen personnel, service staff, banquet staff, and bartenders. Other operating expenses include china, silverware, linens, restaurant and kitchen supplies, menus and printing, and special promotions. Telecommunications - Telecommunications departmental expenses include costs of calls, cost of internet service and other related expenses, but exclude capital lease payments. Other Operated Departments & Rentals - Other departmental expenses would comprise those expenses (labor and other) which offset the revenue generated by other operated departments such as garage, guest laundry, athletic facilities, and gift shop, as well as rental activity.

Undistributed Operating Expenses Administrative and General (A&G) - Included in this category are the payroll and related expenses for the general manager, human resources and training, security, clerical staff, controller, and accounting staff including night auditors,. Other A&G expenses include office supplies, computer services, accounting and legal fees, cash overages and shortages, bad debt expenses, travel insurance, credit card commissions, transportation (non-guest) and travel and entertainment. Sales & Marketing - Marketing expense includes payroll and related expenses for the sales and marketing staff,direct sales expenses, advertising and promotion, travel expenses for the sales staff, and civic and community projects. Includes national advertising fee or assessment paid to franchise company plus cost of frequent guest stay programs. Utility Costs - Utility expenses typically include electricity, fuel (oil, gas, and coal), purchased steam, and water. Includes central plant and energy management systems. Property Operations and Maintenance - This category includes payroll and related expenses for maintenance personnel, cost of maintenance supplies, cost of repairs and maintenance of the building, furniture and equipment, the grounds, and the removal of waste matter. Franchise Fee - Includes the royalty fees and set marketing costs charged by franchise companies. Management Fees - Fees charged by management organizations for management services or supervision. Excludes incentives and other established charges.

Fixed Charges Property Taxes - Typically include taxes on real estate, business and occupation, personal property, utilities, and other municipal taxes. Insurance - Cost of insuring the hotel building and contents against fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, or other perils such as terrorism. Includes all insurance except workers’ compensation. Land and Building Rent - Includes charges for lease of land and/or building. Equipment Rental - Includes capital leases for rental of data processing equipment, telephone equipment and other major items. Interest - Includes all interest expenses on any obligations such as mortgages, notes payable, bonds, debentures, taxes in arrears, or any other indebtedness on which interest is charged. Depreciation and Amortization - Deductions on the building, leaseholds and leasehold improvements, furnishings and equipment, and assets held under capital leases. Other Fixed Charges - Includes any other expenses that relate to the ownership of the hotel and gains or losses from any sale of assets.

2016 STR CHAIN SCALES

Luxury

Upper Upscale

AKA

Andaz

Conrad

Dorchester Collection

Fairmont

Four Seasons

Grand Hyatt

InterContinental

JW Marriott

Langham

Loews

Luxury Collection

Mandarin Oriental

Montage

Belmond

Park Hyatt

Ritz-Carlton

RockResorts

Rosewood

Sofitel

St Regis

Taj

The Peninsula

Thompson Hotels

Trump Hotel Collection

Viceroy

W Hotel

Waldorf=Astoria

Ace Hotel

Autograph Collection

Club Quarters

Dolce

Embassy Suites

Gaylord

Hard Rock

Hilton

Hyatt

Joie De Vivre

Kimpton

Le Meridien

Marriott

Marriott Conference Center

Millennium

Omni

Pan Pacific Hotel Group

Radisson Blu

Renaissance

Sheraton Hotel

Sonesta Hotel

Starhotels

Swissotel

Warwick Hotels

Westin

Wyndham

aloft Hotel

Ascend Collection

Aston Hotel

Best Western Premier

Cambria Suites

Canad Inn

Club Med

Coast Hotels & Resorts USA

Courtyard

Crowne Plaza

Disney Hotels

DoubleTree

Radisson

Residence Inn

Springhill Suites

3 Palms Hotels & Resorts

Ayres

Best Western Plus

Boarders Inn & Suites

Centerstone Hotels

Clarion

Comfort Inn

Comfort Suites

Country Inn & Suites

Doubletree Club

Drury Inn

Drury Inn & Suites

Drury Plaza Hotel

Drury Suites

Fairfield Inn

Golden Tulip

Hampton Inn

Hampton Inn & Suites

Holiday Inn

Holiday Inn Express

Home2 Suites by Hilton

Isle of Capri

Larkspur Landing

Lexington

OHANA

Park Inn

Silver Cloud

Tryp by Wyndham

TownePlace Suites

Westmark

Wyndam Garden Hotel

Xanterra

A Victory Hotels

AmericInn

Baymont Inn & Suites

Best Western

Candlewood Suites

ClubHouse

Cobblestone

Crossings by GrandStay

Crystal Inn

GrandStay Residential Suites

Hawthorn Suites by Wyndham

InnSuites Hotel

Lakeview Distinctive Hotels

La Quinta Inn & Suites

MainStay Suites

Oak Tree Inn

Quality Inn

Ramada

Red Lion Inn & Suites

Settle Inn

Shilo Inn

Sleep Inn

Vagabond Inn

Vista

Wingate by Wyndham

Affordable Suites of America

America’s Best Inn

Americas Best Value Inn

Budget Host

Budget Suites of America

Budgetel

Country Hearth Inn

Crestwood Suites

Crossland Suites

Days Inn

Econo Lodge

Extended Stay America

E-Z 8

Family Inns of America

Good Nite Inn

GuestHouse Inn

Upscale

element

Four Points

Grand America

Great Wolf Lodge

Hilton Garden Inn

Homewood Suites

Hotel Indigo

Hyatt House

Hyatt Place

Phoenix Inn

Ramada Plaza

Midscale

Economy

Home-Towne Suites

Howard Johnson

InTown Suites

Jameson Inn

Key West Inn

Knights Inn

Masters Inn

Microtel Inn & Suites by Wyndham

Motel 6

National 9

Passport Inn

Pear Tree Inn

Red Carpet Inn

Red Roof Inn

Rodeway Inn

Savannah Suites

Scottish Inn

Select Inn

Studio 6

Suburban Extended Stay

Sun Suites Hotels

Super 8

Travelodge

Value Place

WoodSpring Suites

Staybridge Suites

Upper Upscale cont.

Upper Midscale

Brands/Chains are slotted by Chain Scale based on the previous year’s annual system wide (global) Average Daily Rate. Rate ranges defining each Chain Scale are determined by STR & STR Global. The STR Chain Scale list is a subset of the larger Global Chain Scale list. Brand Chain Scale pairings are consistent with each list. Brands listed are in U.S., Mex ico, Caribbean and Canada. If you have any questions about the Chain Scales, please email [email protected]. Copyright 2016. STR, Inc. Publishing or reproducing this information is strictly prohibited. www.str.com +1 (615) 824 8664. Last updated February 2016.

Sonesta ES Suites

Red Lion Hotels

Delta

Palace Resorts

Affinia

Curio Collection

Hyatt Regency

Shell Vacations Club

Aqua Hotels & Resorts

Chase Suites FairBridge Inn

Outrigger

21c Museum Hotels

Edition

Sixty Hotels

Valencia Group

Hyatt Centric

Magnolia Hotel

Pestana

Pullman

Tribute Portfolio

Upscale cont.

Melia

Novotel

NYLO Hotel

AC Hotels by Marriott

EVEN Hotels

Graduate Hotel

Prince Hotel

Room Mate

Stoney Creek

Vacation Condos by Outrigger

Upper Midscale cont.

Real Inn

Oxford Suites

Lite Hotels

Yotel

Legacy Vacation Club

Larkspur Landing

HOTEL MARKET AND FEASIBILITY ANALYSIS ROCK VALLEY, …€¦ · Market/Feasibility Studies; Site...

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