sha563 wellington

8/9/2019 Sha563 Wellington

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HVS International Wellington Hotel, Main Square, Newtown, UK

Economic Stud y and Valuation

Report

Wellington Hotel, Main Square,

Newtown, UK

Prepared by:

HVS International

14 Ha llam Street

Lond on W1W 6JG

Tel: + 44 (20) 7878 7700

Fax: + 44 (20) 7436 3386

Submitted to:

Mr N icholas Bishop

Director

Venture Capital Trust

Norfolk Court

21 Warwick Road

London, EC2A 1ED

31 Jan uary 2001

HVS No: 2000050001/110101/

This sample rep ort was created for

illustration purposes only. None of

the information represents actual

data and any correlation or

similarity with an existing hotel or

location is p urely coincidental.

We hope you enjoy reading this

sample report.


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31 Jan uary 2001

Mr N icholas Bishop

Director

Venture Capital Trust

Norfolk Court

21 Warwick Road

London, EC2A 1ED

Dear Mr Bishop

Re:Wellington Hotel

Main Squ are, New town, UK

In accordance with your request, we herewith submit our Economic

Stud y and Valuation Report p ertaining to the above p roperty. We h ave

inspected th e site and facilities and analysed th e hotel market conditions

in the N ewtown area. Ou r report has been prep ared in accordance with

the Royal Institution of Chartered Surveyors (RICS) Appraisal and

Valuation Manual, March 1997.

Based on the available data, together w ith ou r analysis and experience in

the hotel industry, it is our opinion that the open market value of the

freehold interest in the prop erty described in th is report, as at 1 Janu ary

2001, is:

24,000,000

TWENTY FOUR MILLION POUNDS STERLING

We hereby certify that we have no undisclosed interest in the property,

and our employment and compensation are not contingent upon our

findings and valuation. This opinion of value and the entire report are

subject to the comments made throughout and to all assumptions and

limiting cond itions set forth h erein.

Yours sincerely

HVS INTERNATIONAL

Justin Lanzkron

Consultant & Valuation Analyst

Charles Hu man , ARICS

DirectorCH:JL:fp

HVS No: 2000050001


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HVS International Table of Contents

Table of Contents

1. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Nature of the Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

3. Market Area Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4. Description of the Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

5. Market for Transient Accommodation . . . . . . . . . . . . . . . . . . . 16

6. Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

7. Project ion of Hotel Demand , Occupancy and Average Ra te . . . . . . 27

8. Projection of Income and Expense . . . . . . . . . . . . . . . . . . . . . 39

9. Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

10. Investment Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Addendum

1. Statement of Assum ptions an d Limiting Cond itions

2. Photograp hs of the Wellington H otel


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HVS International Executive Summary 1

1. Executive Summary

Property: Wellington Hotel

Address: Main Square, Newtown,

TG1 9JB, UK

Date of Inspection: 1 September 2000Interest Valued: Freehold

Date of Value: 1 January 2001

Property D escription

Site Area: Approximately 10,200 m

Age: Opened January 1994

Property Type: Four-star

Guestrooms: 250 guestrooms

Number of Storeys: Eleven storeys

Food and Beverage Facilities: Two restau rants and one barMeeting Facilities: Five meeting rooms, 1,025 m total

space

Car Parking: 150 spaces

Table 1-1 Summary of Historical & Forecast Income and Expense Performance

1999 2000 2001 2002 2003 2004

Occupancy 75 % 74 % 71 % 71 % 73 % 74 %

Average Rate () 73 74 76 78 80 82

Rooms Revenue (000s) 4,989 5,000 4,951 5,085 5,356 5,565

Total Revenue (000s) 9,431 9,475 9,336 9,579 10,055 10,429

House Profit (000s) 3,685 3,580 3,310 3,402 3,670 3,857

Net Income (000s) 2,550 2,454 2,222 2,285 2,489 2,627

House Profit as a % of Total Revenue 39.1 % 37.8 % 35.4 % 35.4 % 36.5 % 37.1 %

Net Income as a % of Total Revenue 27.0 % 25.9 % 23.8 % 23.7 % 24.7 % 25.3 %

Forecast


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HVS International Executive Summary 2

Summ ary of Valuation ParametersNumber of Years to Stabilise: Four

Stabilised Year: 2004

Stabilised Inflation Rate: 2.5%

Loan-to-Value Ratio: 65%

Mortgage In terest Rate: 7.5%

Holding Period: 10 years

Amortisation Period: 15 years

Equity Yield Rate: 17.0%

Terminal Capitalisation Rate: 9.0%

Brokerage and Legal Fees: 1.5%

Un leveraged In tern al Rate of Retu rn : 12.3%

Estimates of Value

Income Capitalisation Approach: 24,000,000

Cost Approach: 22,000,000

Sales Comparison Approach: 19,600,000-44,300,000

Op en Market Value

as at 1 January 2001: 24,000,000

Op en Market Value

Per Room (approx.): 96,000


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HVS International Nature of the Assignment 3

22. Nature of the Assignment

The subject of the Economic Stud y and Valuation Report is the freehold

interest in the Wellington Hotel located at Main Square, Newtown, UK

(the Hotel). The Hotel has 250 guestrooms and opened in 1994. In

add ition to th e guestrooms, the H otel contains a 125-seat caf restauran t,an 80-seat speciality restaurant, a 50-seat bar, 1,025 m 2 of meeting and

banquet space, a fitness centre and other facilities typically found in a

four-star, city centre, business Hotel.

The pu rpose of the Economic Stud y and Valuat ion Report is to estimate

the open market value of the freehold interest in the Hotel with vacant

possession of the Hotel.

Open market value is defined as:

An opinion of the best price at which the sale of an interest in the

property would have been completed unconditionally for cashconsideration on the d ate of valuation, assuming:

1. a w illing seller;2. that, prior to the date of valuation, there had been a reasonable

period (having regard to the n ature of the property and the state

of the market) for the proper marketing of the interest, for the

agreement of the p rice and terms and for the comp letion of the

sale;

3. that the state of the market, level of values and othercircumstances were, on any earlier assumed date of exchange ofcontracts, the same as on th e date of valuation;

4. that no account is taken of any additional bid by a prospectivepu rchaser with a special interest; and

5. that both parties to the transaction had acted knowledgeably,pru den tly and w ithou t comp ulsion.1

The property rights valued are the freehold interest in the land and

prem ises, including the furnitu re, fixtures an d equipm ent (FF&E).

1 RICS Appraisal and Valuation Manual, The Royal Institution of Chartered

Surveyors, London SW1P 3AD, March 1997, PS 4.2.

Subject of theEconomic Study andValuation Report

Purpose of t heEconomic Study andValuation Report

Property Rights Valued


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The Hotel has been valued assuming that, as at the date of value, itwould be available free and clear of any specific management or

operating leases. For the purpose of this valuation, we have assumed

that a competent international or national operator will manage the

Hotel.

We estimate the marketing period for the Hotel to be six to twelve

months. The exposure period, referring to the amount of time necessary

for the H otel to have been exposed retrospectively, prior to our value, is

estimated to be less than or equal to 12 mon ths.

The effective date of value is 1 January 2001. All projections are

expressed in inflated pounds sterling, and the value estimate represents

year 2001 pou nd s sterling. The Hotel w as inspected by Justin Lanzkron

on 4 Janu ary 2001, and our analysis was p erformed shortly thereafter.

This Economic Study and Valuation Report has been prepared for

Venture Capital Trust. The information presented in this report should

not be disseminated to the public or third parties without the express

written consent of HVS International.

All information was collected and analysed by the staff of HVS

International. Information such as historical operating statements, site

plans, floor plans and so forth was supplied by Venture Capital Trust.

We have investigated comparable sales in the market area and have

spoken with buyers, sellers, brokers, property developers and public

officials. Unless otherwise noted, we have inspected the competitive

hotels and analysed the hotel sales summarised in this report, and our

value conclusion has been based on th is investigation and analysis.

The methodology used to develop this Economic Study and Valuation

Report h as been based on th e m arket research and valuation techniques

set forth in the textbooks written by H VS International for the American

Institute of Real Estate Appraisers and the Appraisal Institute, entitled

The Valuation of Hotels and Motels,2 Hotels, Motels and Restaurants:

Valuations and Market Studies,3 The Computerized Income Approach to

Hotel/Motel Market Studies and Valuations,4 an d Hotels and Motels: A Guide

to Market Analysis, Investment Analysis, and Valuations.5

2 Stephen Rushmore (1978) The Valuation of Hotels and Motels, American Institute

of Real Estate Appraisers, Chicago.3 Stephen Rushmore (1983) Hotels, Motels and Restaurants: Valuations and Market

Studies, American Institute of Real Estate Appraisers, Chicago.4 Stephen Rushmore (1990) The Computerized Income Approach to Hotel/M otel

Market Studies and Valuations, American Institute of Real Estate Appraisers,Chicago.5 Stephen Rushmore (1992) Hotels and Motels: A Guide to Market Analysis,

Investment Analysis, and Valuations, App raisal Institute, Chicago.

Marketing andExposure Period

Perti nent Dates

Use of the EconomicStudy and ValuationReport

Scope of the EconomicStudy and Valuation

Report

Method of Study


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The valuation was calculated as follows:1. The subject site has been evaluated from the viewpoint of its

physical utility for the operation of a hotel, as well as access,

visibility and other relevan t location factors.

2. The Hotel's existing premises have been inspected for theirquality of construction, design, layout efficiency and items of

ph ysical deterioration and functional obsolescence.

3. The surrounding economic environment, on both an area and aneighbourhood level, has been reviewed to identify specific

hotel-related economic and demographic trends that may have

an impact on th e futu re dem and for hotels.

4. Dividing th e market for transient accomm odation into ind ividu alsegments has d efined specific market characteristics for th e typ es

of traveller expected to utilise the area's hotels. The factors

investigated include purpose of visit, average length of stay,

facilities and amenities required, seasonality, daily demand

fluctuations and price sensitivity.

5. An analysis of existing and proposed competition has providedan ind ication of the current accomm odated dem and , along w ith

market p enetration and the d egree of competitiveness.

6. Documen tation for an occup ancy and average rate projection hasbeen derived from an analysis of market-wide demand and

supply combined with a penetration analysis to derive the

Hotels projected occupancy.

7. A projection of income and expense has been made inaccordance with the Uniform System of Accounts for Hotels. This

projection sets forth the anticipated economic benefits of the

Hotel for ten years and provides the basis for the income

capitalisation app roach.

8.

The report considers three approaches to value: incomecapitalisation, cost and sales comparison. Because hotels are

income-producing properties that are normally bought and sold

on the basis of capitalisation of their anticipated stabilised

earning pow er, the greatest w eight h as been given to th e value

indicated by the income capitalisation approach. We find that

most hotel investors employ a similar procedure in formulating

their purchase decisions, and thus the income capitalisation

approach most closely reflects the rationale of typical buyers.


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HVS International Market Area Analysis 6

3. Market Area Analysis

The macro-economic climate in which a hotel operates is an important

consideration in forecasting hotel demand and income potential.

Economic and demographic trends that reflect the amount of visitation

provide a basis from w hich the deman d for hotel accommod ation can beprojected.

The Hotels market area is defined by Newtown city centre and its

suburbs. The purpose of the market area analysis is to review available

economic and demographic data to determine whether the defined

market area will undergo economic growth, stability 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

propensity to reflect variations in hotel demand with the objective of

forecasting the amount of growth or decline in transient visitation by

individu al market segment.

The overall econom ic condition of an area is reflected by th e p ropen sity

of ind ividu als to travel there. Key indicators of futu re hotel deman d are

those trends that reflect the relative health of the economy and the

spending power of individuals. This section of the report presents a

discussion of the primary domestic economic factors that are likely to

have the greatest influence on the UK's hotel demand. The following

table contains a su mm ary of these economic indicators.

Table 3-1 Key Economic Indi cat ors - UK

1996 1997 1998 1999 2000 2001 2002 2003 2004

Real GDP growth (%) 2.3 3.4 2.1 2.1 3.0 2.4 2.2 2.2 2.1

Consumer price inflation (av %) 2.4 2.8 2.6 2.4 2.1 2.4 2.5 2.5 2.5

Budget balance (% of GDP) -4.3 -2.1 -0.3 0.6 1.0 1.3 1.5 1.4 1.5

Current account balance (% of GDP) 0.0 0.4 0.2 -1.5 -1.3 -1.1 -0.7 -0.2 -0.1

Short term interest rate (av %) 6.0 6.5 6.8 5.5 6.1 5.8 6.0 6.2 6.0

Exchange rate :$ (av) 0.64 0.61 0.60 0.62 0.66 0.64 0.61 0.58 0.59

Exchange rate :Euro (av) - - 0.68 0.65 0.64 0.66 0.67 0.68 0.69

Source: Economist Intelligence Unit September 2000

ForecastActual

National EconomicOverview


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The Economist Intelligence Unit (EIU) UK Country Forecast (September2000) has forecast national GDP growth for the UK at 2.9% for 2000, 2.4%

for 2001 and 2.5% for 2002. We have used these national estimates as the

starting point for our evaluation of the potential growth in demand for

hotel accommodation by market segment in the market area, although

we have specifically taken into account the state of, and prospects for,

the imm ediate local area econom y.

The EIU has forecast retail price inflation for the UK at 2.1% in 2000,

2.4% in 2001 and approximately 2.5% thereafter. We have used these

estimates as the starting p oint for our evaluation of the p otential growth

in achievable average room rates by market segment in the market area,and to determine the likely change in operating costs over time,

although we have specifically taken into account local hotel market

conditions.

Our assumptions and projections relating to hotel demand growth and

average room ra te growth are explained in Section 5,Market for Transient

Accommodation, and Section 7, Projection of Hotel Demand, Occupancy and

Average Rate.

The market area activity is affected by the general level of economic

activity in the immediate and surrounding area. We have taken intoconsideration both general national economic indicators (such as GDP

growth ) and specific local activity, includ ing that actual and plann ed.

The Wellington Hotel is located in Newtown city centre at Main Square,

adjacent to Gateway train station.

Newtown is ideally situated next to the intersection of the M4 and the

M5 motorw ays, wh ich ru n w est to east and n orth to south . The M4 links

Newtown City centre to the M4, which gives easy access to all parts of

the country. Journey times from N ewtow n to London and Birmingham

and are app roximately two hours and one h our 25 minu tes, respectively.

Airport passenger counts are important indicators of transient hotel

demand. A sizeable percentage of arriving passengers may need hotel

accommodation depending upon the type and location of a particular

airport. Trends showing changes in passenger counts also reflects local

business activity and the overall economic health of an area. Table 3-2,

below, summarises the volume of passenger traffic for the past nine

years. Total passenger movements include the sum of arrivals,

dep artures and transient movemen ts.

Market Area and LocalEconomy

Newtown Airpor t


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Table 3-2 Airport Passenger Movements for Newtown International Airport 1991-99

Year Total Domestic International

1991 1,142,734 - 344,551 - 798,183 - 30.2 % 69.8 %

1992 1,250,703 9.4 % 312,760 (9.2) % 937,943 17.5 % 25.0 75.0

1993 1,373,165 9.8 264,291 (15.5) 1,108,874 18.2 19.2 80.8

1994 1,615,761 17.7 279,557 5.8 1,336,204 20.5 17.3 82.7

1995 1,884,116 16.6 344,730 23.3 1,539,386 15.2 18.3 81.7

1996 1,823,029 (3.2) 390,916 13.4 1,432,113 (7.0) 21.4 78.6

1997 1,881,322 3.2 359,428 (8.1) 1,521,894 6.3 19.1 80.9

1998 2,139,900 13.7 378,336 5.3 1,761,564 15.7 17.7 82.3

1999 2,288,173 6.9 390,752 3.3 1,897,421 7.7 17.1 82.9

Compound Annual

Growth 9.1 % 1.6 % 11.4 %

%%

Change

%

Change Change

International

% Share

Domestic

% Share

Source: Airports Council International

As illustrated in the above table, Newtown International Airport has

experienced tremend ous growth over the p ast eight years. The n um ber

of passengers hand led at the airport has increased by a little over 9% peryear on average since 1991, with a larger gain recorded in the

international p assenger segment, at over 11%.

Newtown International Airport is located some seven miles south-west

of the city centre an d can be reached from the Hotel in 20 to 30 minu tes

by road. Newtown International Airport is the fastest growing major

regional airport in the UK, providing direct flights to all major UK

destinations, plus several in Europe and some in North America,

including New York, Washington and Boston. A new 42 million

terminal building has just opened, providing greater capacity and

increasing the number of destinations provided, especially for businesscustomers.

The major commercial demand generators are located in or around

Newtown city centre, and in the office and business parks such as

Newtown West business park to the north of the city. Generally,

indu strial activity has been high in th e New town market in recent years.

Key manufacturing industries in the region include aerospace and

defence, paper, printing and publishing, electronics and electrical

engineering. There are over 1,900 manufacturing companies in the

region , emp loying over 150,000 peop le.

Among the major organisations located in Newtown city centre and

north of the city centre are Somerfield, Sony, Axa Sun Life, RAC and

HSBC (a very short distance from the subject Hotel). Hi-tech industry,


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supported by university research facilities, continu es to grow . Many h i-tech businesses have invested in the Newtown area in recent years,

including Orange, Hewlett Packard, and Toshiba. Prospects for the

regions futu re activity are good. New town has become know n as one of

Englands largest financial services centres outside London. The

structure of the w orkforce in New town is detailed in Table 3-3, below.

Table 3-3 Employment by Sector in Newtown - 2000

Sector

Manufacturing Industries 24,900 11.4 % 11.0 %

Construction/Utilities/Agriculture 8,400 3.8 3.5

Distribution/Hotels & Restaurants 42,300 19.4 18.0

Transport & Communications 11,600 5.3 4.0

Banking, Finance & Insurance 70,900 32.5 38.0

Public Administration, Education & Health 51,600 23.6 22.0

Other Services 8,700 4.0 3.0

Total 218,400 100% 100%

Source: Newtown Economic Development Department, June 2000

UK AverageNewtown

Employment

There is only a moderate level of tourist visitation to Newtown city

centre at this time, and the number of overnight stays from leisure

visitors is relatively low. There are only a few major attractions in the

city centre, including Newtown Museum of Archaeology, the Tudor

Hou se Museum , the New town Zoological Garden s and a nu mber of art

galleries. In addition, Sunnyside Theme Park and Rockland Park, two

major tourist attractions situated within easy reach of Newtown,

generate some weekend and general holiday period visitation for the

area.

Located to the north of Newtown near Tower Hill is the Valley

shopping centre, considered to be one of the largest regional shopping

centres in the UK. The Tower Hill retail area also includes a multiplex

cinem a an d the Venue leisure centre.

An attraction th at is expected to generate both commercial and tourism-

related visitation is the major regeneration of the Newtown

Harbourside. The 90 million, 15-acre Newtown Park project will bring

science, nature, and art together in innovative new ways. The scheme

includes Explore Zone, a science world theme park, and Wildscreen

Zone, a virtual reality theme park with an IMAX cinema and botanicalgarden, as well as new residential and commercial office space.


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Newtow n Park is expected to at tract 450,000 visitors in its first year . Theproject open ed at th e beginn ing of July 2000.

Another major development project that is currently under construction

in Newtown, is the city centre regeneration project at Main Square

adjacent to Gateway train station. The development will provide a

mixed-use environment of 23 acres combining office accommodation

with a full range of retail and leisure facilities. HSBC are relocating their

headquarters to Main Square and Tesco will occupy their new regional

headquaters in Newtown in 2001. Other companies moving to Main

Square include BT Plc and Barclays Bank. The Wellington Hotel is

located near this development. Other office and business parkdevelopm ents planned in the N ewtown region are sum marised in Table

3-4 below.

Table 3-4 Proposed Off ice and Business Park Developments in Newtown as atJanuary 2001

Location Description Size m2

North Newtown

Parkway North Office Park 130,000

Newtown Business Park Office Campus 150,000The Quadrant Offices and light assembly 50,000

Westerliegh, Tate Business Park 190,000

East Newtown

Somerdale Offices and industrial use 150,000

South Newtown

South Newtown Business Park Offices and industrial use 80,000

Wills Factory Manufacturing and light industrial/warehousing 260,000

Regeneration Potential

Grove Park Regeneration Area 1,010,000

Source: Newtown Economic Development Department, September 2000

We highlight overleaf the aspects of Newtown which we consider to

have a specific bearing upon historic, current and potential future hotel

demand:

The regenerat ion project at Main Square; The continuing redevelopment of Newtown city centre, for

examp le the H arbourside and N orth Shore developments and the

growth of new businesses which will increase future commercial

hotel demand ;


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The recently opened, 42 million terminal building at NewtownInterna tional Airport w ill furth er enh ance commercial and leisure

visitation in the N ewtown area;

The new New town Park developm ent at th e Harbourside; The poten tial developm ent of an Eco-Park/Zoo in Canon s Marsh,

located in north Newtown some fifteen minutes drive from the

Wellington Hotel, is likely to enhance leisure demand further in

the area. Developm ent of the p ark is anticipated to start in 2002;

The ongoing expansion of existing business and industrial parkslocated in or near Newtown, for example the Newtown West

Business Park located in North Newtown, is likely to create

further commercial hotel deman d.

Our review of various national, regional and local economic data

indicates that N ewtow n benefits from strong levels of comm ercial room

night demand generated from local businesses, supported by modest

numbers of leisure visitors, although Newtown Park and the proposed

Eco Park could have some impact on leisure visitation. Specific local

economic activity appears to be increasing beyond general national

levels due to a combination of factors, these include the ongoing

developm ent of good qu ality offices and business parks, including Main

Square as well as the N ewtown Harbourside redevelopmen t.

Conclusion


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HVS International Description of the Hotel 12

4. Description of the Hotel

A hotels location within a specific neighbourhood can have a direct

impact upon its performance relative to a competitive market. The

following p aragraph s describe th e location of the Hotel in relation to its

immediate surroundings and its market area, as described in Section 3.Following this site and location analysis the propertys physical facilities

are d escribed.

The Hotel is located near the Main Square development adjacent to

Gateway train station. We consider th e Hotel to occupy a p rime location

in New town city centre.

According to Venture Capital Trust, the size of the site of the Wellington

Hotel is approximately 10,200 m. The site is roughly rectangular in

shape and the top ograph y of the site is generally flat.

The Wellington Hotel is adjacent to the Main Square office

development. The Hotel is located on the east side of the development

and is currently bordered by the Floating Harbour on the east and

Gateway railway station on the south. To the north of the Hotel is the

HSBC Building, wh ich is curren tly almost complete. In th e centre of the

Main Square development are the headquarters of Tesco and located on

the west side of the Main Square development are the new offices of

Barclays Bank, both these buildings are currently almost built.

The Hotel benefits from excellent access to and from Castle Way and

Castle Gate. The roundabout immediately west of the site links it

throu gh Piccadilly Street to th e beginning of the M34, and further to the

M8 and the M35. Heading to the south gives access to the A5, the A40 to

Newtown Airport and south to the M35 and the A37. Gateway railway

station is situated adjacent to the site, approximately two minutes walk

south of the Hotel. Newtown Intern ational Airport is located som e seven

miles to the south-west via the A40, some 15 to 20 minutes drive from

the site.

The visibility of the Hotel is likely to be very good from all app roaches to

the site, includ ing Castle Way, Castle Gate and Regent Street.

Ease of access to primary generators of demand is vital for the successful

operation of a hotel. One of the primary factors when choosing a hotel

over competitive facilities is its location relative to local demand

LOCATION

Size and Topography ofthe Site

Access

Visibility

Proximit y to DemandGenerators


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generators, whether these are commercial businesses or touristattractions. The H otel enjoys a good location in relation to th e following

dem and generators:

New town city centre; M34 motorway; The Main Square d evelopm ent; Gateway railway station; Comp anies located in N ewtow n city centre; New town Park.

The Wellington Hotel enjoys an excellent location. It is centrally located

within Newtown city centre and easily reached by several modes of

transport. The Hotel also benefits from its proximity to all the major

demand generators in Newtown.

The quality of a property's physical facilities has a direct influence on its

marketability and attainable occupancy and average rate. The design

and functionality of the structure can also affect operating efficiency and

overall profitability. The following paragraphs describe the Hotel and

mixed-use rental spaces physical premises and facilities in an effort to

determine how they contribute to its total value. A number of

ph otograph s of the H otel are provided in Add end um 2.

Based on ou r inspection an d information p rovided by the m anagemen t

of the Wellington Hotel, Table 4-1 summarises the facilities available at

the Wellington Hotel.

Conclusion

HOTEL FACILITIES

Summary of theFacilities


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Table 4-1 Faci l it ies Summary

Address: Main Square Opening Date: January 1994

Newtown

Tenure: Freehold

Refurbishment History: 1997 - 80 Bedrooms, lobby, meeting rooms, IT and exterior

1998 - 70 Bedrooms, lobby, meeting rooms, kitchen, exterior

1999 - 100 Bedrooms, bar/restaurant, and exterior

Guestrooms Approximate Area/m Number

Single 25 85

Double 28 90

Executive 35 60

Suite 40 15

Total 250

Meeting Rooms Approximate Area/m

Maximum

Capacity/Persons

Theatre Style

Ballroom 500 400

Pre-Function Room 185 n/a

Board Room 40 20

Meeting Room 1 150 120

Meeting Room 2 150 120

Total 1,025 660

Food and Beverage Facilities Approximate Area/m Approximate Number of Seats

Caf Restaurant - Bon Marche 200 125

Speciality Restaurant - Oh! Cajun 120 80

Bar/Lounge 70 50

Total 390 255

Car Parking: Approximately 150 parking spaces

Leisure facilities: Fitness centre with sauna, solarium and whirlpool spa.

The Hotel open ed at the beginn ing of 1994 and since that time h as been

well maintained. We have been provided with information on historiccapital expenditure at the Hotel. From our inspection of the Hotel, it

app ears that th e Hotel is in very good w orking ord er and no immed iate

material capital expen ditu re requiremen t has been iden tified.

Condition of t he

Building and Facilities


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In general, the Hotels premises appear to be very well-suited for hotel

use. The building is straightforward in design and configuration,

permitting efficiency of operation and convenient guest and staff flow.

The exterior design of the building is both modern and inviting and the

interior finishes are of a high quality. The guestrooms are excellent in

terms of size and decoration and the Hotels ancillary facilities are

app ropriate for the operation of a four-star comm ercial, city centre hotel

in the UK, outside Lond on.

Conclusion HotelFacilities


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HVS International Market for Transient Accommodation 16

5. Market for Transient Accommodation

The analysis of demand by the use of individual market segments is

important because each market segment often exhibits unique

characteristics relating to factors such as growth potential, seasonality of

demand, average length of stay, double occupancy, facilityrequirements, price sensitivity and so forth. By quantifying the overall

room night demand by market segment and defining the individual

characteristics of each segment, the future potential for each market

segmen t can be projected.

Demand for transient accommodation in the defined market area is

generated primarily by the following five market segmen ts.

Segm en t 1 Com mercial

Segmen t 2 Meet ing & Conference

Segmen t 3 Ind ividual Le isu reSegm en t 4 Grou p Leisu re

Segmen t 5 Airline

Based on our fieldwork, area analysis and knowledge of the local hotel

market, we estimate that, in 2000, the distribution of accommodated

hotel room night demand for those hotels that we consider to be

competitive with the Hotel is as shown in Table 5-1. Further details of

these hotels are given in Section 6, Competition.

Table 5-1 Accommodated Room Night Demand - Competitive Market 2000

Market Segment

Commercial 229,455 55 %

Meeting & Conference 57,552 14

Individual Leisure 77,990 19

Group Leisure 25,783 6

Airline 24,239 6

Total 415,018 100 %

Percentage of

Total

Accommodated

Demand

This aggregate market mix, with business demand accounting forapproximately 75% and leisure demand accounting for approximately

25% of total area-wide d eman d, reflects the area as primarily a business

Accommodated RoomNight Demand


20/68


destination. As a result, historically, hotel occupancies in the area havebeen stronger during weekdays and commercial periods and weaker

du ring w eekends and holiday p eriods.

Commercial demand is strongest on Monday to Thursday nights,

declining significantly on Fridays and Saturdays and increasing

somewhat on Sund ays. This deman d in the N ewtown area is relatively

constant throughout the year, with some drop-off noticeable in the

period from November to February and August when travellers,

especially business and conference visitors, take holidays to other

destinations.

Future demand in this segment is tied primarily to the business and

economic health of Newtown and of the UK in general. As the local

economy shows improved stability and growth, business travel should

increase accordingly. With the continued development of Newtown city

centre and business parks in and around Newtown, such as the

Newtown West Business Park, we anticipate a continued growth in the

commercial sector which is likely to show increased activity in the next

two to three years.

In light of the potential for further developments in and around

Newtown and the Hotels immediate neighbourhood, we consider thatdemand for this segment is likely to grow at a rate slightly above

national GDP for the next few years. We have selected growth rates of

2.5% in 2001 and 3% in 2002 and 2003. From 2003 onward we have

assumed a stabilised growth rate of 2.5%.

The Meeting & Conference segment in th e market area m ostly comprises

demand from local companies. They typically require meeting venues

which are conveniently located and which offer suitable space and

facilities. For the purpose of analysing hotel demand, we have

considered conference demand to be only those hotel guests attending

meetings and conferences in the hotel at which they are staying. Thoseattending city events in non-residential venues are considered to be

part of commercial demand.

Peak conference demand typically occurs in the spring and autumn,

summer represents the slowest period and winter demand can be

variable. The average length of stay for typ ical conference groups ran ges

from two to four nights. Most commercial groups require

accomm odation du ring th e weekday p eriod of Monday to Thursday, but

associations and social groups w ill sometimes u tilise th e w eekend s.

Future demand potential in the Meeting & Conference segment is

closely related to the growth trend expected for the Commercial

segment. Because most meetings have either a direct or an indirect

business purpose, the economic considerations that have an impact on

Commercial Segment

Meeting & ConferenceSegment


21/68


business travel also affect Meeting & Conference demand. For thepurpose of our analysis, we have chosen to apply the same growth rates

for Conference & Meeting dem and as for Commercial deman d.

Individual Leisure demand comprises both those people travelling in

groups and those travelling individually for tourism and leisure

purposes. These sectors comprise the majority of weekend demand in

the market area, but are also responsible for some weekday demand

du ring the sum mer and other holiday periods.

As stated p reviously, there are a limited nu mber of tourist attractions in

the immediate area of Newtown. Generally, these attractions generate a

high level of day visitation but the demand for overnight hotel

accommodation is limited. However, it is important to note that the

recently opened Newtown Park development on the Harbourside,

should start to attract additional leisure demand to Newtown and this

should contribute to an increase in demand for hotel accommodation at

weekends.

For the purpose of this analysis, we have chosen to apply a growth rate

of 2.5% in 2001 and 4% in 2002. From 2003 onwards we have assumed a

stabilised grow th rate of 2.5%.

The Group Leisure segment generally comprises visitors who have

purchased package holidays that include the cost of travel, hotel

accommodation and some provision for meals, or what is termed an

inclusive tour. Tour op erator rates are generally contracted an nu ally at

rather low levels, but are used to help fill lower occupancy periods.

Because of the low rate of this segmen t, this deman d will be replaced by

higher yielding d emand as market occupancy increases, wh en d emand

timing permits.

Group Leisure demand in the Newtown area is derived from several

sources including coach tou rs travelling to th e continen t or elsewh ere in

Britain an d shopp ers. For the pu rpose of our analysis, we have chosen to

apply the same growth rates for the Group Leisure demand as for the

Individu al leisure dem and .

This segment mostly comprises airline crew contracts, which generally

achieve significant discounts compared to commercial segments. We

app lied a grow th rate of 2.5% from 2001 onw ards.

The pu rpose of segmen ting hotel demand is to define each major type of

demand, identify customer characteristics and estimate future growth

trends. Starting with an analysis of the local area, five segments were

defined as being representative of the Hotel's market. Various types of

economic and dem ographic data w ere then evaluated to determine th eir

propensity to reflect future changes in hotel demand. Based on this

Individual LeisureSegment

Group Leisure Segment

Airli ne Segment

Conclusion


22/68


procedure we have made the following forecast of market segmentgrowth rates. These growth rates will be utilised in subsequent sections

of this stud y to forecast changes in hotel deman d.

Table 5-2 Forecast Annual Growth Rates by Market SegmentCompetitive Market 2001-05

Annual Compounded Growth Rate

Market Segment

Commercial 2.5 % 3.0 % 3.0 % 2.5 % 2.5 %

Meeting & Conference 2.5 3.0 3.0 2.5 2.5

Individual Leisure 2.5 4.0 2.5 2.5 2.5Group Leisure 2.5 4.0 2.5 2.5 2.5

Airline 2.5 2.5 2.5 2.5 2.5

Base Demand Growth 2.5 % 3.2 % 2.8 % 2.5 % 2.5 %

2001 2002 2003 2004 2005


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HVS International Competition 20

6. Compet it ion

An integral component of a market areas supply and demand

relationship that has a direct impact on the performance is the current

and anticipated supply of competitive hotel facilities. To evaluate an

area's competitive environmen t, the following steps should be taken:

Identify the area's hotel facilities and determ ine w hich are directlyand indirectly comp etitive with th e Hotel;

Determine whether additional hotel rooms (net of attrition) willenter th e market in the foreseeable futu re;

Quantify the number of existing and proposed hotel roomsavailable in the m arket;

Review the rate structure, occupancy levels, market orientation,facilities and amenities of each competitor.

Based on an evaluation of the occupancy, rate structure, market

orientation, chain affiliation, location, facilities, amenities, reputation

and quality of the area's hotels, as well as the comm ents of managem ent

represen tatives, we h ave iden tified two p roperties that are considered to

be primarily comp etitive with the Wellington Hotel. Including the H otel,

these p rimary comp etitors total 781 rooms. Twelve add itional h otels are

jud ged to be on ly secondarily comp etitive.

Although the facilities, rate structures or market orientations of these

hotels prevent their inclusion among the primarily competitive supply,

they do compete with the Hotel to some extent. The room count of eachsecond ary competitor has been w eighted to reflect the degree to which it

competes with the Wellington Hotel. The aggregate weighted room

count of the secondary competitors is 740.

The following Tables (6-1, 6-2 and 6-3) summarise the important

operating characteristics of the primary and the secondary competitors

for 1998 to 2000. This information was compiled from personal

interviews, inspections, hotel directories and our in-house library of

operating d ata.

Table 6-1 sets out each competitive hotels market segmentation,

occupancy, average room rate and rooms revenue per available room

(RevPAR). RevPAR is calculated by multiplying a hotels occupancy by

The Competi ti veMarket


24/68


its average rate. This calculation serves to gauge how well a hotel ismaximising its rooms revenu e.

Table 6-2 details each property's penetration factor. Penetration is the

ratio between a specific hotel's operating results and the corresponding

data for the market. If the penetration factor is greater than 100%, the

property is performing better than the market as a whole; conversely, if

the penetration is less than 100%, the hotel is performing at a level

below the market-wide average.

Table 6-3 sets out the key physical characteristics of each of the main

competitive hotels and includes information about each hotels

published rates and brand affiliation. The location of each primary and

secondary competitive hotel is shown in the Competition Map which

follows Table 6-3. The Competition Map also shows the location of the

Hotel relative to its defined primary and secondary competitors as well

as the location of those proposed hotels we consider to be relevant (see

below).

In our an alysis we h ave included four d evelopmen ts wh ich we consider

will also become comp etitive w ith th e Wellington Hotel.

A 128-room Marriott Hotel is du e to open at the beginning of2002 on Manor Road in Newtown city centre. We consider

this hotel to be 100% competitive w ith th e Wellington Hotel;

A 220-room Travel Inn is due to open at the beginning of2001 at Exchange House in Newtown city centre. We have

considered this hotel to be 25% competitive with the

Wellington Hotel as it will be positioned significantly below

it. We have therefore added 55 competitive rooms into the

market from Febru ary 2001;

A 123-room Travelodge is due to open at the beginning of2001 on John Street in Newtown city centre. We have also

considered this hotel to be 25% competitive w ith Wellington

Hotel for the same reason. We have added 31 competitive

rooms into th e market from Janu ary 2001;

A 110-room Premier Lodge Hotel is due to open in January2001 on Queen Street in Newtown city centre. We have also

considered this hotel to be 25% competitive with the

Wellington Hotel for the same reason. We have added 28

competitive rooms into the market from Janu ary 2001.

There are currently unconfirmed proposals for two other hotel

developments in Newtown. However, we have not taken these intoconsideration in our analysis as there was sufficient doubt still

surround ing these projects at the time of our study. These include:

Proposed Competi ti on


25/68


A 100-room Express by Holiday Inn at Grange Hill, nearNewtown Grange Hill train station. The hotel has been

linked with Stannifer Hotels, an existing Express franchisee;

A 150-room Quality Hotel, near Junction 17 of the M8 atTower Hill (A4018).

It is our opinion that, even if these hotels are developed, they will be

targeted at lower rate paying business and leisure travellers, and due to

their distance from the Wellington Hotel they are unlikely to be

significantly competitive with the Hotel.


26/68

VS International Competition 23

Table 6-1 Operating Profiles of the Primary and Secondary Competitors 1998-00 ()

Estimated 2000 Market Segmentation Estimated 1998 Estimated 1999 Estimated 2000

Primary Competitors

No of

Rooms Occ

Average

Rate RevPAR Occ

Average

Rate RevPAR Occ

Average

Rate RevPAR

Wellington Hotel 250 55 % 15 % 20 % 5 % 5 % 100 % 250 76 % 72 55 75 % 73 55 74 % 74 55

Holiday Inn 242 60 10 20 5 5 100 242 73 70 51 74 72 53 73 73 53Hilton 289 60 10 20 5 5 100 289 75 57 43 79 62 49 75 62 47

Sub-Totals/Averages 781 58 % 12 % 20 % 5 % 5 % 100 % 781 75 % 66 49 76 % 68 52 74 % 69 51

Secondary Competitors

Corus Hotel 187 55 % 15 % 15 % 7 % 8 % 75 % 140 82 % 45 37 85 % 46 39 81 % 51 41

Berkeley Hotel 40 55 8 30 0 7 75 30 71 54 38 69 55 38 70 56 39

Forte Posthouse 182 55 15 20 5 5 75 137 69 59 41 70 60 42 70 53 37

Jarvis International 201 50 20 10 10 10 75 151 82 50 41 79 50 40 76 53 40

City Hotel 40 60 5 20 10 5 50 2 0 0 0 0 0 0 80 57 46

Swallow 128 55 15 20 5 5 50 64 71 57 40 66 60 40 72 72 52

Moat House 142 40 25 25 5 5 50 71 72 55 40 79 56 44 76 58 44

Novotel 200 55 15 20 5 5 25 50 76 50 38 68 53 36 77 56 43

Express by Holiday Inn 68 50 10 25 10 5 25 17 72 44 32 70 46 32 77 58 45

The Piccadilly Hotel 167 55 15 15 10 5 25 27 0 0 0 0 0 0 75 35 26

Thistle Hotel 94 55 0 15 25 5 25 24 0 0 0 0 0 0 87 39 34

The Grand Hotel 112 45 20 20 10 5 25 28 71 35 25 71 46 33 71 45 32

Sub-Totals/Averages 1,561 52 % 16 % 18 % 7 % 7 % 50 % 740 76 % 51 39 75 % 53 40 75 % 54 40

Totals/Averages 2,342 55 % 14 % 19 % 6 % 6 % 65 % 1,521 75 % 59 44 76 % 61 46 75 % 62 46

Commercial

Meeti

ng&

Confe

rence

Individ

ual

Leis

ure

Group

Leis

ure

Airli

ne

Total

Comp

Level

2000

Weighted

Annual Rm

Count


27/68


Table 6-2 Operating Performance Analysis Primary and Secondary Competitors 1998-00 ()

Estimated 1998 Estimated 1999 Estimated 2000

Property

Number of

Rooms

Wellington Hotel 250 100 % 250 17 % 101 % 122 % 124 % 17 % 99 % 120 % 118 % 16 % 99 % 120 % 119 %

Holiday Inn 242 100 242 16 97 119 115 16 98 118 115 16 98 119 116

Hilton 289 100 289 20 100 97 97 20 104 102 106 19 100 101 101

Corus Hotel 187 75 140 0 109 76 83 0 112 75 84 9 108 83 90

Berkeley Hotel 40 75 30 53 94 92 87 53 91 90 82 2 94 91 85

Forte Posthouse 182 75 137 0 92 100 92 0 92 98 91 9 94 86 81

Jarvis International 201 75 151 47 109 85 93 47 104 82 85 10 102 86 88

City Hotel 40 50 2 0 0 0 0 0 0 0 0 0 107 93 99

Swallow 128 50 64 100 94 97 91 100 87 98 86 4 96 117 113

Moat House 142 50 71 0 96 93 89 0 104 92 96 5 102 94 96

Novotel 200 25 50 0 101 85 86 0 90 87 78 3 103 91 94

Express by Holiday Inn 68 25 17 0 96 75 72 1 92 75 70 1 103 94 97

The Piccadilly Hotel 167 25 27 10 0 0 0 0 0 0 0 2 100 57 57

Thistle Hotel 94 25 24 10 0 0 0 0 0 0 0 2 116 63 74

The Grand Hotel 112 25 28 10 94 59 56 2 94 75 71 2 95 73 69

Primary Competitors 781 100 % 781 53 % 99 % 112 % 111 % 53 % 100 % 112 % 113 % 51 % 99 % 112 % 111 %

Secondary Competitors 1561 47 % 740 47 % 101 % 87 % 87 % 47 % 99 % 86 % 86 % 49 % 101 % 87 % 88 %

Sub-Totals/Averages 2,342 65 % 1,521 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %

Total

Competitive

Level

2000 Weighted

Annual Room

Count

Fair

Share

Occ

Penetration

Average Rate

Penetration

RevPAR

Penetration Fair Share

Occ

Penetration

Average Rate

Penetration

RevPAR

Penetration

Average Rate

Penetration

RevPAR

Penetration Fair Share

Occ

Penetration


28/68


Table 6-3 Facilities of the Primary and Secondary Competitors ()

Property

Number of

Rooms

Year

Opened Brand/Chain Affiliation

Market

Positioning

Single

Weekend

Double

Weekend

Number of

Restaurants

Number

of Bars

Conference

Rooms

Meeting Space

(m)

Meeting Space

per room (m)

Maximum

Capacity

Theatre Style

Leisure

Facilities

Wellington Hotel 250 1991 Independent Four Star 127 70 2 1 11 1,025 1.7 200 No

Holiday Inn 242 1974 Hilton International Four Star 104 74 2 1 22 745 2.6 600 Yes

Hilton 289 1991 Bass Hotels and Resorts Four Star 140 88 2 2 21 824 3.4 300 Yes

Corus Hotel 187 1994 Corus Hotels Three Star 95 69 1 2 25 770 4.1 320 No

Berkeley Hotel 40 1990 Independent Three Star 78 80 1 1 0 0 0 0 NoForte Posthouse 182 1874 Forte Hotels Granada Group Three Star 110 45 1 2 12 1,205 6.6 600 No

Jarvis International 201 1980 Jarvis hotels Four Star 110 43 1 1 10 760 3.8 350 Yes

City Hotel 40 2000 Independent Budget 150 150 1 1 3 50 1.3 72 No

Swallow 128 1991 Whitbread Four Star 134 78 1 1 21 602 4.7 200 Yes

Moat House 142 1987 Queens Moat House Four Star 139 68 1 2 13 915 6.4 200 Yes

Novotel 200 1985 Accor Three Star 99 94 1 1 25 769 3.8 250 Yes

Express by Holiday Inn 68 1995 Bass Hotels and Resorts Budget 119 90 1 1 6 600 8.8 150 Yes

The Piccadilly Hotel 167 2000 Independent Four Star 52 45 1 1 2 40 0.2 45 No

Thistle Hotel 94 2000 Thistle Hotels Four Star 55 45 0 1 0 0 0 0 No

The Grand Hotel 112 1950 Independent Three Star 95 39 1 1 2 75 0.7 45 No

Published Rate ()


29/68

COMPETITION MAP

Key

Wellington Hotel

Primary Competitors

u Holiday Inn

v Hilton

Secondary Competitors

1) Corus Hotel2) Berkeley Hotel3) Forte Posthouse4) Jarvis International5) City Hotel6) Swallow

7) Moat House8) Novotel9) Express by Holiday Inn10) The Piccadilly Hotel11) Thistle Hotel12) The Grand Hotel

Proposed Competitors

u Marriott Hotelv Travel Inn

w Travelodge

x Premier Lodge Hotel


30/68

HVS International Projection of Hotel Demand, Occupancy and Average Rate 27

7. Projection of Hotel Demand, Occupancy and

Average Rate

From our fieldwork and in-house library of market data, we have

estimated the year-end 2000 occupancy rates of the Hotel's competitorsand thereby the total number of occupied rooms in the competitive

market.

A weighted average of the market mix of each competitive property has

then been calculated to determine the overall market segmentation of

the hotels within the subject Hotel's market. The Year 2000 area-wide

estimate of room night d eman d, by market segmen t, forms the h istorical

base dem and . The result of these calculations for the H otel's competitive

market a rea is show n in the following table.

Table 7-1 Accommodated Room Night Demand Competitive Market 2000

Market Segment

Commercial 229,455 55 %

Meeting & Conference 57,552 14

Individual Leisure 77,990 19

Group Leisure 25,783 6

Airline 24,239 6

Total 415,018 100 %

Accommodated

Demand

Percentage of

Total

The above table illustrates the accomm odated room n ight d emand in the

Hotel's competitive market. Because this estimate is based on hotel

occupancies, it considers only those hotel rooms utilised by guests.

Latent d emand accoun ts for guests who could not be accomm odated by

the existing competitive supply for a variety of reasons. Latent demand

can be divided into Unaccommodated Demandan d Induced Demand.

In Section 5, Market for Transient Accommodation we set out our

assumptions regarding the prospects for demand growth, by market

segment, for the competitive market. These demand growth rates (as

sum marised in Table 5-2 in Section 5,Market for Transient Accommodation)are applied in our analysis to the base level of accommodated demand,

wh ich has been estimated in Table 7-1 above.

CALCULATION OF

HISTORICALLYACCOMMODATEDDEMAND

Base Demand Growt h


31/68


Thus market-wide base dem and is forecast to grow as illustrated in Table7-2 below:

Table 7-2 Projection of Market-wide Base Demand 2000-04

Base Year

2000 2001 2002 2003 2004

Commercial 229,455 235,191 242,247 249,514 255,752

Meeting & Conference 57,552 58,991 60,760 62,583 64,148

Individual Leisure 77,990 79,940 83,137 85,216 87,346

Group Leisure 25,783 26,427 27,484 28,171 28,876

Airline 24,239 24,845 25,466 26,103 26,755

Total 415,018 425,393 439,095 451,587 462,877

Demand Growth - 2.5% 3.2% 2.8% 2.5%

Unaccommodated demand refers to individuals who are unable to

secure accommodation in the market because all the competitive hotels

are full. These visitors must defer their trips, settle for less desirable

accommodation, or stay in hotels located outside the market area.

Because this demand did not yield occupied room nights within thecompetitive set, it is not included in the historical accommodated room

night deman d estimate.

Unaccommodated demand is often a form of excess demand resulting

from the cyclical nature of the hotel business. For example, in

commercial markets where demand is not equally spaced throughout

the week, hotels often exhibit peaks and troughs in their daily

occupancies. In general, commercial hotels enjoy strong occupancies

from Monday to Thursday, when business travel is most frequent, and

lower occupancies on Friday and Saturday. When hotels operating

under these market conditions realise occupancies greater than 70% to75%, or when weekly dem and pattern s fill area hotels to capacity on on e

or more nights per week, it can generally be assumed that excess

weekday demand exists and a certain amount of patronage must be

turned away. If additional hotels are expected to enter the market, it is

reasonable to assume that this unaccommodated demand will be

accommodated and, thus, an estimate of the amount of

unaccommodated d emand should be made. Unaccommodated demand

is generally estimated as a percentage of accommod ated d eman d.

Because th e comp etitive hote ls achieve an overall occup ancy of 75%, it is

likely that th ere w ill be days when all the primary hotels will be full andunaccommodated demand will exist. Based on our fieldwork and

market analysis, we estimate that in 2000, unaccommodated demand in

the competitive market was likely to amount to approximately 1.6% of

UnaccommodatedDemand


32/68


accommodated demand. Overall this equates to approximately 7,200room nights per year for the 1,521 room competitive market, or

app roximately 80 rooms turn ed aw ay on 90 days of the year.

This level of unaccommodated demand has been allowed to increase in

our projections year by year in line with the base demand growth rates

explained above. Table 7-3 below shows our projection of

unaccommodated demand for the defined competitive market from

2000 forw ard .

Table 7-3 Projection of Market-wide Unaccommodated Demand 2000-04

Base Year

2000 2001 2002 2003 2004

Commercial 4,589 3,528 4,845 4,990 5,115

Meeting & Conference 1,151 885 1,215 1,252 1,283

Individual Leisure 780 600 831 852 873

Group Leisure 258 198 275 282 289

Airline 242 186 255 261 268

Total 7,020 5,397 7,421 7,637 7,828

Demand Growth - -23.1% 37.5% 2.9% 2.5%

It should be noted that because of the seasonality of demand described

earlier, a proportion of this unaccommodated demand could remain

unaccommodated during the projection years. In our analysis, we have

termed this Residual Unaccommodated Demand. In practice the amount of

unaccommodated demand which becomes accommodated (i.e. that

wh ich is no longer residu al) is depen den t u pon market-wide occup ancy

and seasonality, and th e introduction of new supp ly.

Induced demand represents the additional room nights that will be

attracted to a market area as a result of the introduction of a new

demand generator. Situations where induced demand can be createdinclude the opening of a new manufacturing plant, the expansion of a

convention centre or the addition of a new hotel bringing a different

chain affiliation or uniqu e facilities.

The opening of new hotels is expected to induce some additional room

nights in the competitive market. In our projections we have included

induced demand equal to around 8,500 room nights per year, allocated

between the commercial, meetings and conference, and leisure

segments. This equates to 9% of occupancy for the new competitive

rooms we have brou ght into th e market betw een 2001 and 2002.

Table 7-4, overleaf, shows the total amount of induced demand that we

have estimated will be available in the comp etitive market between 2001

and 2004. The d eman d ind uced by n ew h otels is considered to continue,

Induced Demand


33/68


and is included in demand computations for future years. Induceddemand does not grow in line with the rates of base demand growth

explained earlier.

Table 7-4 Projection of Market-wide Induced Demand 2001-04

2001 2002 2003 2004

Commercial 2,696 5,184 5,184 5,184

Meeting & Conference 630 1,212 1,212 1,212

Individual Leisure 824 1,584 1,584 1,584

Group Leisure 318 612 612 612Airline 250 480 480 480

Total 4,717 9,072 9,072 9,072

Total potential demand is the sum of base demand, unaccommodated

dem and and ind uced d emand for the competitive market. As previously

discussed, base demand and unaccommodated demand are assumed to

grow in line with the growth rates explained in Section 5. Table 7-5

shows the total potential demand for the competitive market as

projected for th e period 2001 to 2004.

Table 7-5 Projecti on of Market- wide Potential Demand 2001-04

2001 2002 2003 2004

Commercial 241,415 252,276 259,688 266,051

Meeting & Conference 60,506 63,188 65,047 66,643

Individual Leisure 81,363 85,553 87,652 89,803

Group Leisure 26,944 28,371 29,065 29,776

Airline 25,281 26,201 26,844 27,503

Total 435,508 455,588 468,296 479,776

Demand Growth - 4.6% 2.8% 2.5%

As already discussed, some of the potential demand will continue to be

unaccommodated during certain years as a result of market-wide and

individual hotel seasonality, and supply constraints. A certain am oun t of

residual unaccommodated demand will result. Table 7-6 overleaf

summ arises the residual dem and comp uted in the course of our analysis

and projections. The residu al demand presen ted for 2000, the base year,

is equal to the base amou nt of unaccomm odated dem and in Table 7-3.

Total Potenti alDemand


34/68


Table 7-6 Estimate of Market-wide Residual Unaccommodated Demand 2000- 04

Base Year

2000 2001 2002 2003 2004

Commercial 4,589 0 0 0 0

Meeting & Conference 1,151 0 0 0 0


Group Leisure 258 0 0 0 0

Airline 242 0 0 0 0

Total 7,020 0 0 0 0

Total usable room night d eman d is the combined total of accomm odated

room night demand and usable latent demand (i.e. that latent demand

that can be absorbed is based on the number of additional hotel rooms

expected to enter the market). Table 7-7 summarises our projections of

total usable demand, or occupied room nights, for the competitive

market from 2000 to 2004. The amount of residual demand is also

shown , as is the growth per an nu m of occup ied room nights.

By applying the total projected occup ied room n ights to our estimates oftotal rooms supply for the competitive market, market-wide occupancy

is estimated for each year. We have used the 2000 accommodated and

un accomm odated room night d emand as a base and projected levels of

dem and into the future using the growth rates selected for each market

segment. The table setting forth out forecast of annual hotel demand is

presented below.

Total Usable RoomNight Demand


35/68


Table 7-7 Total Usable Room Night Demand Competi t ive Market 2000-04

229,455 241,415 252,276 259,688 266,051

4,589 0 0 0 0

5.2 % 4.5 % 2.9 % 2.5 %

57,552 60,506 63,188 65,047 66,643

1,151 0 0 0 0

5.1 % 4.4 % 2.9 % 2.5 %

77,990 81,363 85,553 87,652 89,803

780 0 0 0 0

4.3 % 5.1 % 2.5 % 2.5 %

25,783 26,944 28,371 29,065 29,776

258 0 0 0 0

4.5 % 5.3 % 2.4 % 2.4 %

24,239 25,281 26,201 26,844 27,503

242 0 0 0 0

4.3 % 3.6 % 2.5 % 2.5 %

415,018 435,508 455,588 468,296 479,776

7,020 0 0 0 0

4.9 % 4.6 % 2.8 % 2.5 %

Available Room Nights per Year 555,220 597,832 648,258 648,386 648,386

Available Room Night Growth 9.8 % 8.3 % 0.0 % 0.0 %

Market-wide Occupancy 75 % 73 % 70 % 72 % 74 %

Totals

Occupied Room Nights

Residual Demand

Accommodated Demand Growth

Airline


Residual Demand


Group Leisure


Residual Demand


Individual LeisureOccupied Room Nights

Residual Demand


Meeting & Conference


Residual Demand


Commercial


Residual Demand


2000 2001 2002 2003 2004

We consider that the stabilised market-wide occupancy for this market

in Newtown is approximately 74%, and, based on the projected market

fluctuations in demand and supply, we anticipate that the market will

reach this level of occupancy in 2004. This stabilised occupancy is

intended to reflect the anticipated results of the market excluding from

consideration any abnormal relationship between supply and demand

and non-recurring conditions that may result in unusually high or low

occupancies. Although the market-wide occupancy may rise above this

stabilised level, we consider it equally possible for new competition and

temporary economic downturns to force occupancy below this selected

point of stability.

The Hotel's forecast m arket share an d occup ancy level have been based

on its anticipated competitive position within the market, as quantified

by its pen etration factor.

Penetrati on FactorAnalysis


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The forecast market share of the H otel is based u pon a pen etration factoranalysis. The pen etration factor is the ratio between a prop erty's market

share an d its fair share. If a prop erty w ith a fair share of 5% is capturing

5% of the market in a given year, then its occupancy will equal the

market-wide occupancy, and its penetration factor will equal 100%

(5%/5% = 100%). If the same p rop erty achieves a market share in excess

of its fair share, then its occup ancy w ill be greater than the market-wide

occupancy, and its penetration factor will be greater than 100%.

Penetration factors can be calculated for each market segment of a

property, and for the p roperty as a whole.

Table 7-8 below shows the specific penetration factors that we haveassum ed for the H otel from th e date of value un til it reaches a stabilised

level of performance relative to its competitive market. Penetration

factors have been estimated for each market segment for each calendar

year and reflect our view of how the subject hotel is likely to perform

relative to its fair share, or the aggregate of its competitive market.

Because of the new supply entering the competitive market over the

next couple of years, particularly the Marriott Hotel which is due to

open at the beginning of 2002, thus affecting the penetration of the

Wellington Hotel, we have therefore increased the Wellington Hotels

pen etration in the commercial and individual leisure segments.

Table 7-8 Market Penetrati on Input by Segment Wellington Hotel2000-04

Market Segment

Commercial 98.5 % 109.0 % 115.0 % 115.0 % 115.0 %


Individual Leisure 105.4 100.0 103.0 105.0 105.0

Group Leisure 79.7 90.0 90.0 90.0 90.0

Airline 84.8 85.0 85.0 85.0 85.0

Actual historic penetration

2000 2004200320022001

Base Year

Because the supply and demand balance for the competitive market is

dynamic, particularly in relation to proposed new hotel supply entering

the competitive market, there is a circular relationship between the

penetration factors of each hotel in the market. The performance of

individual new hotels has a direct effect upon the aggregate

performance of the market, and consequently upon the calculated

penetration factor for each hotel in each market segment. The same is

true when the performance of existing hotels changes, either positively

(following a refurbishment, for examp le) or negatively (wh en an un der-

maintained or poorly marketed h otel loses market share).


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A hotels penetration factor is calculated as its achieved market share ofdemand divided by its fair share of demand. Thus, if one hotels

penetration performance increases, thereby increasing its achieved

market share, this leaves less demand available in the market for the

other hotels to captu re and the p enetration p erformance of one or m ore

of those other hotels consequently declines (other things remaining

equal). This type of market share adjustment takes place every time

there is a change in supply, or a change in the relative penetration

performan ce of one or more hotels in th e comp etitive market.

Our projections of penetration, demand capture and occupancy

performance for the subject Hotel take into account these types ofadjustment to market share within the defined competitive market.

Consequently, the actual penetration factors applicable to the subject

Hotel for each market segment in each projection year (the output

penetration factors) vary somewhat from the input penetration factors

set ou t in Table 7-8 above.

Table 7-9 below shows the output penetration factors applicable to the

subject Hotel, after the effect of market sh are ad justmen t has been taken

into accoun t.

Table 7-9 Market Penetrati on Output by Segment Wellingt on Hotel 2000-04

Market Segment

Commercial 98.5 % 107.8 % 113.0 % 112.3 % 111.9 %



Group Leisure 79.7 88.2 88.3 88.3 88.3

Airline 84.8 85.2 85.5 84.9 84.6

Overall Penetration 99.0 % 99.4 % 102.8 % 102.5 % 102.2 %

Base Year

20022000 2001 2003 2004

It is these output penetration factors which drive our estimates of

demand capture and occupancy for the subject Hotel, as can be seen in

Table 7-10 overleaf. This sets out the result of these market share

adjusted (output) penetration factors by segment upon the subject

Hotels futu re dem and captu re and occup ancy performance, the an nu al

market-wide occupancy and the resultant market mix, or total captured

demand analysed by market segment. These projections are in calendar

years from 2001 un til 2004, by which time w e consider th at the Hotel will

have reached a stabilised level of performance in terms of market

pen etration an d occup ancy.


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Table 7-10 Projected Penetration, Demand Capture and Occupancy Wellington Hotel 2000-04

Market Segment

Commercial

Demand 229,455 241,415 252,276 259,688 266,051

Market Share 16.2 % 16.1 % 15.6 % 15.5 % 15.5 %

Capture 37,139 38,940 39,399 40,293 41,138

Penetration 98.5 % 107.8 % 113.0 % 112.3 % 111.9 %


Demand 57,552 60,506 63,188 65,047 66,643

Market Share 17.6 % 11.1 % 10.2 % 10.1 % 10.1 %Capture 10,129 6,703 6,438 6,581 6,718

Penetration 107.1 % 74.0 % 73.7 % 73.2 % 72.9 %

Individual Leisure

Demand 77,990 81,363 85,553 87,652 89,803

Market Share 17.3 % 15.2 % 14.5 % 14.6 % 14.5 %

Capture 13,505 12,373 12,363 12,790 13,057

Penetration 105.4 % 101.6 % 104.6 % 105.6 % 105.2 %

Group Leisure

Demand 25,783 26,944 28,371 29,065 29,776

Market Share 13.1 % 13.2 % 12.2 % 12.2 % 12.2 %

Capture 3,376 3,555 3,460 3,545 3,632

Penetration 79.7 % 88.2 % 88.3 % 88.3 % 88.3 %

Airline

Demand 24,239 25,281 26,201 26,844 27,503

Market Share 13.9 % 12.7 % 11.8 % 11.7 % 11.7 %

Capture 3,376 3,223 3,095 3,150 3,216

Penetration 84.8 % 85.2 % 85.5 % 84.9 % 84.6 %

Total Room Nights Captured 67,525 64,795 64,755 66,359 67,761

Available Room Nights 91,250 91,250 91,250 91,250 91,250

Occupancy 74 % 71 % 71 % 73 % 74 %

Total Penetration 99 % 99 % 103 % 103 % 102 %

Base Year

2001 2002 2003 20042000

Table 7-11, below, sets out the resultant market mix, or total captured

dem and analysed by market segment.


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Table 7-11 Projected Market Mix Wellington Hotel 2000-04

Commercial 55 % 60 % 61 % 61 % 61 %

Meeting & Conference 15 10 10 10 10


Group Leisure 5 5 5 5 5

Airline 5 5 5 5 5

Total 100 % 100 % 100 % 100 % 100 %

Base Year

20042000 2001 2002 2003

We expect the Hotel to reach a stabilised level of penetration (occupan cyperformance relative to its competitive market) in 2004. By this time we

expect the Hotel to achieve an overall penetration of 102%. The

stabilised occupancy is intended to reflect the anticipated results of the

property over its remaining economic life given any and all changes in

the life cycle of the Hotel.

The average rate forecast for the Hotel has been based upon the

consideration of projected market mix changes and rate increase

projections related to each d emand segmen t.

In forecasting average rate growth, we have anticipated a baseunderlying inflation rate of 2.5%. As stated in Section 3, Market Area

Analysis, we have relied upon inflation estimates supplied by the

Economist Intelligence Unit (EIU). We have applied various market and

hotel-specific growth factors to the average rate of the respective

dem and segmen ts. The following table illustrates the estimated increases

in average rate for each m arket segmen t.

Hotel room rate inflation is not necessarily the same as the general

economic rate of inflation experienced in the local community. It is

impacted more by market conditions such as the relationship between

supply and demand. When hotel room rate inflation is projected intothe future, the movement in average rate up to the point where the

hotel achieves its stabilised occupancy is generally attributed to

property- and market-specific factors. After a hotel achieves occupancy

stabilisation, most forecasts assume that room rates will continue to

increase at the anticipated general economic rate of inflation expected

for the local market area.

Conclusion OverallOccupancy

FORECAST OFAVERAGE RATE


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Table 7-12 Projected Average Rate Growth by Market SegmentWellington Hotel 2001-04 ()

Base Year

Market Segment 2000

Commercial 85.00 2.5 % 2.5 % 2.5 % 2.5 %



Group Leisure 45.00 2.5 2.5 2.5 2.5

Airline 55.00 2.5 2.5 2.5 2.5

Total 74.00 2.7 % 2.6 % 2.6 % 2.5 %

Projected Growth Rate

20022001 2003 2004

Although we have applied growth rates of 2.5% in 2002 to each

segment s rate th e overall chan ge in 2002 was 2.8%, th is is because of the

slight change in the Hotels market mix towards the higher paying

comm ercial segment. The sam e is tru e in 2003.

The following table show s how the p rojected changes in average rate by

segment, in conjunction with forecasts of demand by segment, affect

overall average rate for th e p eriod 2001-2004.


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Table 7-13 Average Rate Forecast by Market Segment - Wellington Hotel ()

Commercial

Average Rate Growth 2.5 % 2.5 % 2.5 % 2.5 %

Captured Room Nights 37,139 38,940 39,399 40,293 41,138

Rooms Revenue 3,156,794 3,392,672 3,518,472 3,688,271 3,859,772

Average Rate 85.00 87.13 89.30 91.54 93.82




Rooms Revenue 759,656 515,259 507,270 531,548 556,146

Average Rate 75.00 76.88 78.80 80.77 82.79

Individual Leisure



Rooms Revenue 742,775 697,542 714,367 757,513 792,691

Average Rate 55.00 56.38 57.78 59.23 60.71

Group Leisure



Rooms Revenue 151,931 163,996 163,591 171,790 180,394

Average Rate 45.00 46.13 47.28 48.46 49.67

Airline



Rooms Revenue 185,694 181,697 178,864 186,593 195,264

Average Rate 55.00 56.38 57.78 59.23 60.71

Total



Rooms Revenue 4,996,850 4,924,387 5,050,895 5,308,754 5,556,436

Average Rate 74.00 76.00 78.00 80.00 82.00

Base Year

20042000 2001 2002 2003

Based on the p receding analysis, the H otel's occupan cy and average rate

have been estimated as follows:

Table 7-14 Forecast Occupancy and Average Rate - Wellington Hotel ()

Year

2000 74 % 74 55 74

2001 71 76 54 74

2002 71 78 55 752003 73 80 58 75

2004 74 82 61 75

Average Rate in

2000 PricesOccupancy

Average

Rate RevPAR

CONCLUSION OCCUPANCY ANDAVERAGE RATE


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HVS International Projection of Income and Expense 39

8. Project ion of Income and Expense

Based on our preceding projection of occupancy and average rate, and

our knowledge of both the Hotels and comparable hotels financial

operating p rofiles, we have developed a ten-year forecast of income and

expense commencing on 1 January 2001. We have selected an annualinflation rate of 2.5%.

The forecast of income and expense is expressed in inflated pounds

sterling for each projection year. The stabilised year is intended to reflect

the anticipated operating results of the Hotel over its remaining

economic life, given any or all applicable stages of build-up, plateau and

decline in th e life cycle of the Hotel. Thu s, income and expense estimates

from the stabilised year forward exclude from consideration any

abnormal relationship between sup ply and dem and , as well as any non-

recurring cond itions that m ay result in un usual revenu es or expenses.

For the purposes of determining the Hotel's open market value, it is

assumed that the Hotel is sold as at the date of value; the projection of

income and expense therefore reflects the achievements of a typical

anticipated n ew own er.

Because the Hotel is an existing hotel with an established operating

performan ce, its historical income and expense experience can serve as a

basis for p rojections. The following income an d expense statemen ts were

provided by management and are unaudited. Where applicable, we

have reorgan ised th e statemen ts in accordance with th e Uniform System

of Accounts for Hotels.

These historic statements of income and expense show an efficiently

operated lodging facility. The revenues reflect a leadership position in

the market and the operating expense ratios generally indicate strong

control and competent management. Our review of the subjects

financial operating history did not reveal any abnormalities that could

impact the future operating performance of this property.

Review of Operat ingHistory


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Table 8-1 Historical Operat ing Performance - Well ington Hotel ( 000s)

2000 1999

Number of Rooms: 250 250

Occupied Rooms: 67,525 68,438

Days Open: 365 Amount per Amount per 365 Amount per Amount per

Occupancy: 74.0% Percentage Available Occupied 75.0% Percentage Available Occupied

Average Rate: 74.00 of Revenue Room Room 73.00 of Revenue Room Room

REVENUE

Rooms 5,000 52.8 % 20,000 74.05 4,989 52.9 % 19,956 72.90

Food & Beverage 3,900 41.2 15,600 57.76 3,880 41.1 15,520 56.69

Telephone 175 1.8 700 2.59 172 1.8 688 2.51

Other Income 400 4.2 1,600 5.92 390 4.1 1,560 5.70

Total 9,475 100.0 37,900 140.32 9,431 100.0 37,724 137.80

DEPARTMENTAL EXPENSES

Rooms 1,230 24.6 4,920 18.22 1,200 24.1 4,800 17.53Food & Beverage 2,714 69.6 10,858 40.20 2,648 68.3 10,593 38.69

Telephone 112 63.9 447 1.66 109 63.4 436 1.59

Other Expenses 200 50.0 800 2.96 190 48.7 760 2.78

Total 4,256 44.9 17,025 63.03 4,147 44.0 16,589 60.60

DEPARTMENTAL INCOME 5,219 55.1 20,875 77.29 5,284 56.0 21,135 77.20

OPERATING EXPENSES

Administrative & General 777 8.2 3,108 11.51 758 8.0 3,032 11.08

Marketing 265 2.8 1,061 3.93 259 2.7 1,035 3.78

Property Operations & Maintenance 360 3.8 1,440 5.33 351 3.7 1,405 5.13

Energy 237 2.5 948 3.51 231 2.5 924 3.38

Total 1,639 17.3 6,557 24.28 1,599 17.0 6,397 23.37

HOUSE PROFIT 3,580 37.8 14,318 53.01 3,685 39.0 14,738 53.84

Management Fee 284 3.0 1,137 4.21 290 3.1 1,160 4.24

INCOME BEFORE FIXED CHARGES 3,295 34.8 13,181 48.80 3,395 36.0 13,578 49.60

FIXED EXPENSES

Property Taxes 199 2.1 796 2.95 194 2.1 776 2.84

Insurance 28 0.3 114 0.42 28 0.3 111 0.41

Incentive Fee 330 3.5 1,318 4.88 339 3.6 1,358 4.96

Reserve for Replacement 284 3.0 1,137 4.21 283 3.0 1,132 4.13

Total 841 8.9 3,365 12.46 844 9.0 3,377 12.34

NET INCOME 2,454 25.9 % 9,816 36.34 2,550 27.0 % 10,201 37.26

Based on the market for hotel accommodation in the Newtown area, as

well as the Hotel's anticipated future market position, we have

developed a forecast of income and expense. The forecast starts on 1

January 2001 and represents our opinion of how a competent

man agement comp any wou ld operate the Hotel.

In forecasting revenues and expenses for a hotel, we use a fixed and

variable component model. This model is based on the premise that

hotel revenues and expenses have one component that is fixed and

another that varies directly with occupancy or facility usage. A

projection can be made by taking a known level of revenue or expense

and calculating the fixed and variable components. The fixed

component is adjusted only for inflation, while the variable component

is also adjusted for the percentage change between the projected

occupancy and facility usage that produced the known level of revenue

or expen se.

Forecast of Incomeand Expense

Rooms Revenue


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Rooms revenue is determined by two variables, occupancy and averagerate, as discussed in Section 7, Projection of Hotel Demand, Occupancy and

Average Rate.

The Uniform System of Accounts for Hotels defines food revenue as

revenue derived from the sale of food, including coffee, milk, tea and

soft drinks. Food

sha563 wellington

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