Franchise Affiliation Model

Convert Independent Property to Franchise Affiliated Property

Assumptions for Analysis Franchise Costs

Year of Franchise Decision 0 1 Occupancy if Franchised 69.00% Product Improvement Plan (PIP) $5,000 per room
Room Count 200 1 ADR if Franchised $142.00 Initial Fee $500 per room
1 Occupancy if No Change 63.00% Change in RevPAR 18.72% Royalty 5.00% of RR
1 ADR if No Change $131.00 Change in F& B Revenues 9.52% Advertising & Marketing Fees 2.00% of RR
F&B Revenues 40.0% of RR Change in Other Revenues 9.52% Reservation Fees 1.75% of RR
Other Revenues 10.0% of RR "Flow Through" on Increase in Occ/ADR 65.0% Loyalty Program Cost 4.75% of Loyalty RR
Inflation - per year 3.00% Operating Cost Reductions (% Revs) 2.00% % of Guests in Loyalty Prog. 40.0%
Desired Annual Rate of Return 14.0% Operating Cost Increases (% Revs) 1.00% Other Fees (per rm. per mo.) $20
Cap Rate for Terminal Value 8.0% Additional Compliance Costs $0
Add in Row 44 Below

Annual Benefits: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Pre-Franchise Revenues
Rooms $6,024,690 $6,205,431 $6,391,594 $6,583,341 $6,780,842 $6,984,267 $7,193,795 $7,409,609 $7,631,897 $7,860,854
F&B $2,409,876 $2,482,172 $2,556,637 $2,633,337 $2,712,337 $2,793,707 $2,877,518 $2,963,844 $3,052,759 $3,144,342
Other $602,469 $620,543 $639,159 $658,334 $678,084 $698,427 $719,379 $740,961 $763,190 $786,085
Pre-Franchise Revenues - Total $9,037,035 $9,308,146 $9,587,390 $9,875,012 $10,171,263 $10,476,400 $10,790,692 $11,114,413 $11,447,846 $11,791,281

Post-Franchise Revenues
Rooms $7,152,540 $7,367,116 $7,588,130 $7,815,774 $8,050,247 $8,291,754 $8,540,507 $8,796,722 $9,060,624 $9,332,442
F&B $2,639,388 $2,718,570 $2,800,127 $2,884,131 $2,970,654 $3,059,774 $3,151,567 $3,246,114 $3,343,498 $3,443,803
Other $659,847 $679,642 $700,032 $721,033 $742,664 $764,944 $787,892 $811,529 $835,874 $860,951
Post-Franchise Revenues - Total $ 10,451,775 $ 10,765,328 $ 11,088,288 $ 11,420,937 $ 11,763,565 $ 12,116,472 $ 12,479,966 $ 12,854,365 $ 13,239,996 $ 13,637,196
Difference in Revenues $ 1,414,740 $ 1,457,182 $ 1,500,898 $ 1,545,925 $ 1,592,302 $ 1,640,071 $ 1,689,274 $ 1,739,952 $ 1,792,150 $ 1,845,915
Operating Cost Reductions $ 209,036 $ 215,307 $ 221,766 $ 228,419 $ 235,271 $ 242,329 $ 249,599 $ 257,087 $ 264,800 $ 272,744
Total Benefits $ 1,623,776 $ 1,672,489 $ 1,722,663 $ 1,774,343 $ 1,827,574 $ 1,882,401 $ 1,938,873 $ 1,997,039 $ 2,056,950 $ 2,118,659
Adjustment for Flow Through $ (495,159) $ (510,014) $ (525,314) $ (541,074) $ (557,306) $ (574,025) $ (591,246) $ (608,983) $ (627,253) $ (646,070)
Total Adjusted Benefits $ 1,128,617 $ 1,162,475 $ 1,197,349 $ 1,233,270 $ 1,270,268 $ 1,308,376 $ 1,347,627 $ 1,388,056 $ 1,429,698 $ 1,472,589

Annual Costs: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Initail Fee $ 100,000
Initial PIP $ 1,000,000
Royalty Fees $ 357,627 $ 368,356 $ 379,406 $ 390,789 $ 402,512 $ 414,588 $ 427,025 $ 439,836 $ 453,031 $ 466,622
Advertising & Marketing Fees $ 143,051 $ 147,342 $ 151,763 $ 156,315 $ 161,005 $ 165,835 $ 170,810 $ 175,934 $ 181,212 $ 186,649
Reservation Fees $ 125,169 $ 128,925 $ 132,792 $ 136,776 $ 140,879 $ 145,106 $ 149,459 $ 153,943 $ 158,561 $ 163,318
Freq Traveler Cost $ 135,898 $ 139,975 $ 144,174 $ 148,500 $ 152,955 $ 157,543 $ 162,270 $ 167,138 $ 172,152 $ 177,316
Other Fees $ 48,000 $ 48,000 $ 48,000 $ 48,000 $ 48,000 $ 48,000 $ 48,000 $ 48,000 $ 48,000 $ 48,000
Operating Costs Increases $ 104,518 $ 107,653 $ 110,883 $ 114,209 $ 117,636 $ 121,165 $ 124,800 $ 128,544 $ 132,400 $ 136,372
'Out-Year' Costs to Meet $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Franchise Standards
Total Costs $ 1,100,000 $ 914,263 $ 940,251 $ 967,019 $ 994,589 $ 1,022,987 $ 1,052,237 $ 1,082,364 $ 1,113,395 $ 1,145,356 $ 1,178,277

Net Change in Annual Cash Flow $ 214,353 $ 222,224 $ 230,331 $ 238,680 $ 247,281 $ 256,139 $ 265,263 $ 274,661 $ 284,341 $ 294,311

End of Analysis Period Benefits

Higher Terminal Value $ 3,678,893

NPV and IRR Analysis Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Benefits $ - $ 1,128,617 $ 1,162,475 $ 1,197,349 $ 1,233,270 $ 1,270,268 $ 1,308,376 $ 1,347,627 $ 1,388,056 $ 1,429,698 $ 1,472,589
Costs $ 1,100,000 $ 914,263 $ 940,251 $ 967,019 $ 994,589 $ 1,022,987 $ 1,052,237 $ 1,082,364 $ 1,113,395 $ 1,145,356 $ 1,178,277
Difference $ (1,100,000) $ 214,353 $ 222,224 $ 230,331 $ 238,680 $ 247,281 $ 256,139 $ 265,263 $ 274,661 $ 284,341 $ 294,311
Present Value Factor 1.0000 0.8772 0.7695 0.6750 0.5921 0.5194 0.4556 0.3996 0.3506 0.3075 0.2697
Present Value $ (1,100,000) $ 188,029 $ 170,994 $ 155,467 $ 141,318 $ 128,430 $ 116,694 $ 106,009 $ 96,285 $ 87,437 $ 79,389
NPV $ 170,051
IRR 17.6%