Asset Management

1. Asset Management Introductory Guide

2. Brand vs. Owner vs. Manager Brand • Marriott, Hilton, Starwood, IHG, Hyatt, Carlson, Wyndham, Choice, Accor, etc.. • Brands hold the power of name recognition but often don’t manage the hotels under their name. They are able to sell their name to owners who pay the brands a fee to essentially use the brand name. Owner • Public and Private REITS, independent owners, HERSHA, LaSalle, White Lodging, etc. • The owner carries the risk associated with the hotels success. They are responsible for funding CapEx needs but are rewarded when a hotel performs well. Manager • White Lodging, Interstate, Sage, Winegardner & Hammons, etc.. • Management companies run the hotels for the owners. Owners will pay a base fee and often times and incentive fee to the management companies for their operational services. * Brands can participate in all three aspects but it is not typical

3. Asset Management – Duties/Goals Asset Managers primary job – achieve ownership goals which include; maximizing property value, monitoring performance, and protecting economic value and physical condition. Different levels of Asset Management: • Assist in various phases of hotel investment life cycle • Detailed review of all opportunities to maximize cash flow • Management Company RFP solicitation • Set and monitor property budgets and forecasts • Develop operational tools to increase managements productivity • Contract negotiations • Assist throughout the entire takeover process 4 Primary phases of Asset Management: • Determine ownership objectives • Absorbing asset after acquisition or development • Unlocking value and monitoring operating performance • Divesting the asset

4. Takeover Outline • Due Diligence material – underwriting model, deal performance expectations • Property Level Reports – Balance Sheets, P&L, Budgets, STR reports • Key Agreements – Management, Franchise • Licenses and Contracts • Third Party Reports – Appraisal, Engineering, Property Condition reports

5. Contracts Condominium Agreement Abstract Outline • How are costs allocated • Voting rights of members • When the board meets • Definition of common areas • Can management company be hired for common areas • How is board or association elected and terms of members • Anything else that seems of high importance Management Agreement Abstract Outline • Contract details • Management fees & reimbursable expense • Reporting requirements • Performance termination • Other material provisions • Competing facilities clause • Owner approval of GM • Comp set Franchise Agreement Abstract Outline • Contract Details • Terms • Dates • Restriction if applicable • License Fees and Reimbursable Expenses • Reporting Requirements • Termination Provisions • Other Material Provisions • Record Keeping • Responsibilities of franchisee

6. Common Terms • FFO = Funds From Operations • CapEx= Capital Expenditure • RFP = Request For Proposal • PCA = Property Condition Assessment • Working Capital = Cash on hand • IMF = Incentive Management Fee • OLAP = online analytical processing • Flow through = the percent of excess revenue that results in extra profit or the percent of saved money when revenue fails to meet expectations. • DSCR = Debt service coverage ratio – amount of cash available to meet principle debt payments + annual interest • Pro Forma = gives a fair idea of the cash outlay for a shipment or anticipated occurrence. Pro Forma financial statements give an idea of how the actual statements will look if underlying assumptions hold true. • Cap Rate = imputed value between what the asset sold for and NOI stream (reflection of risk) • Equity Yield = ratio of earnings in relation to the amount of equity invested • Capital Stack = sources of capital and costs of capital • Appraisers = Usually 3rd party companies that are involved when a sale of asset is being negotiated. • CI= consolidated Inventory • Underwrite = trying to come up with an estimated value of a property years down the road using benchmarks, previous management company info, and other resources. • Easement = right given to 3rd party for land use and it cant be revoked • Group Pace = now vs. last year amount of group bookings • LRA = Last Room Availability • Amortization = paying off of debt in regular installments over a period of time. • Allowance = reduction in rev. due to service problem • Adjustments = subtracted from total revenue for things like a posting error. • Residual IMF = money given to the management company if the hotel is sold. A percentage of the revenue from the sale after owner’s priority. • Key Money = money used to add incentive to deals. Ex: we agree to help fund the project if they agree to give us the project.

7. Important Industry Equation’s • Occ. % = rooms occupied/rooms available • RevPAR = Revenue / rooms available or ADR x Occ. % • Profit Margin = NI(profit)/revenue • Gross Profit = Revenue – cost of sales • Equity Yield = earning on equity / amount of equity • Cap Rate = NOI/ total value (value = sales price, ask price, or appraisal value) • Estimated value = NOI/cap rate • ***Flow Through = change in GOP/ Change in Rev. • Sales positive =Act. – Budg. Reflects a positive number • Sales negative =Act. – Budg. Reflects a negative number • Flow on Positive = change in GOP/Change in sales • Flow on Negative = 1-(change in GOP/Change in sales) • IMF = % of available cash flow • Cash Flow = operating profit – owners priority • Owners Priority = __% (owners ttl. capital invest. + add. capital invest.) • DSCR= NOI/total debt service • COS % = COS/total department revenue • Residual IMF = sale proceeds * (20%) (after owners residual priority of 10% cumulative unleveraged IRR). • Total room sales = #days in month x # of rooms occupied x # of room avail. x RevPAR for month • __(GOP, profit, revenue, etc.)__ Achievement = Actual _( )_/ Budgeted _( )_ • Market Cap – common shares x value of shares • Discount Factor – P(t) = 1/(1+r)^t • LTV (loan to value) = loan amount divided by property value or cost