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Introductory Guide Asset Management

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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 dont 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

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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

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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

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Contracts Management Agreement Abstract Outline 1. Contract details 2. Management fees & reimbursable expense 3. Reporting requirements 4. Performance termination 5. Other material provisions Competing facilities clause Owner approval of GM Comp set Franchise Agreement Abstract Outline 1. Contract Details Terms Dates Restriction if applicable 2. License Fees and Reimbursable Expenses 3. Reporting Requirements 4. Termination Provisions 5. Other Material Provisions Record Keeping Responsibilities of franchisee Condominium Agreement Abstract Outline 1. How are costs allocated 2. Voting rights of members 3. When the board meets 4. Definition of common areas 5. Can management company be hired for common areas 6. How is board or association elected and terms of members 7. Anything else that seems of high importance

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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 3 rd 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 3 rd 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 owners 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.

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Important Industry Equations 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