MARKET STUDY Proposed Hotel at Lake Toho, Kissimmee, FL RUBY AVENUE AND PLEASANT STREET KISSIMMEE, FLORIDA SUBMITTED TO:Mr. Terry Wayland Mosaic Development 1763 1st Avenue N Saint Petersburg, Florida 33713 +1 (727) 431-3489 PREPARED BY: HVS Consulting & Valuation Division of HVS Consulting & Valuation 111 Granada Court Orlando, Florida 32803 +1 (407) 203-1122 June-2018
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MARKET STUDY Proposed Hotel at Lake Toho, Kissimmee, FL...Re: Proposed Hotel at Lake Toho, Kissimmee, FL Kissimmee, Florida HVS Reference: 2018020960 Dear Mr. Wayland: Pursuant to
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MARKET STUDY
Proposed Hotel at Lake Toho, Kissimmee, FL
RUBY AVENUE AND PLEASANT STREET KISSIMMEE, FLORIDA
SUBMITTED TO:PR OPOSED
Mr. Terry Wayland Mosaic Development 1763 1st Avenue N Saint Petersburg, Florida 33713 +1 (727) 431-3489
Mr. Terry Wayland Mosaic Development 1763 1st Avenue N Saint Petersburg, Florida, 33713
Re: Proposed Hotel at Lake Toho, Kissimmee, FL
Kissimmee, Florida
HVS Reference: 2018020960
Dear Mr. Wayland:
Pursuant to your request, we herewith submit our market study pertaining to the above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the Kissimmee, Florida area. We have studied the proposed project, and the results of our fieldwork and analysis are presented in this report.
The objective of this assignment is to perform a market study for the purpose of forecasting occupancy, average daily rate, and projecting income and expense for a proposed lodging facility; it has been assumed that the hotel will be affiliated with a nationally-recognized hotel brand and managed by a competent management team familiar with operational experience in Central Florida. HVS recommends the prospective hotel be positioned within the upper midscale price/quality tier of STR’s chain scales ranking, with optional branding considerations in the higher-tiered upscale segment.
We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings. This study is subject to the comments made throughout this report and to all assumptions and limiting conditions set forth herein.
Sincerely, HVS Consulting & Valuation Jeffrey D. Pennington, Vice President [email protected], +1 (850) 766-6109 Donald C. Stephens Jr., Managing Director [email protected], +1 (407) 203-1122
HVS ORLANDO
111 Granada Court
Orlando, Florida 32803
+1 (407) 203-1122
+1 (516) 742-3059 FAX
www.hvs.com
Superior results through unrivaled hospitality intelligence. Everywhere.
Ownership, Franchise, and Management Assumptions 2
Summary of Hotel Market Trends 2
Recommended Hotel Positioning - Conclusions 7
Summary of Forecast Occupancy and Average Rate 7
Summary of Forecast Income and Expense Statement 7
Scope of Work 10
2. Description of the Site and Neighborhood 12
Physical Characteristics 12
Access and Visibility 14
Airport and Metrorail Access 16
Neighborhood 16
Proximity to Local Demand Generators and Attractions 19
Flood Zone 20
Zoning 21
3. Market Area Analysis 22
Workforce Characteristics 26
Radial Demographic Snapshot 30
Unemployment Statistics 31
Major Business and Industry 32
Office Space Statistics 35
Convention Activity 37
Airport Traffic 39
Tourist Attractions 41
4. Supply and Demand Analysis 45
Definition of Subject Hotel Market 45
National Trends Overview 45
Orlando, FL Lodging Market 49
Historical Supply and Demand Data 51
Seasonality 54
Patterns of Demand 57
Competitors 59
Supply Changes 62
Demand Analysis Using Market Segmentation 63
Base Demand Growth Rates 66
Latent Demand 66
Unaccommodated Demand 66
Induced Demand 68
Accommodated Demand and Market-wide Occupancy 68
5. Projection of Occupancy and Average Rate 70
Historical Penetration Rates by Market Segment 70
Forecast of Subject Property’s Occupancy 71
Average Rate Analysis 74
Competitive Position 74
6. Projection of Income and Expense 80
Comparable Operating Statements 80
Forecast of Income and Expense 84
Rooms Revenue 87
Other Operated Departments Revenue 87
Miscellaneous Income 87
Rooms Expense 88
Other Operated Departments Expense 88
Administrative and General Expense 89
Information and Telecommunications Systems Expense 89
Marketing Expense 89
Franchise Fee 90
Property Operations and Maintenance 90
Utilities Expense 91
Management Fee 92
Property Taxes 92
Insurance Expense 95
Reserve for Replacement 95
Forecast of Revenue and Expense Conclusion 96
7. Statement of Assumptions and Limiting Conditions 97
June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 1
1. Executive Summary
The objective of this assignment is to perform a market study for the purpose of evaluating the market demand, analyzing the economics, forecasting occupancy, average rate, and projecting income and expense for a proposed hotel at Lake Toho in Kissimmee, Florida. Our study also includes a recommendation of the size, quality and type of lodging facility, and an optimal brand chain scale for the hotel.
The subject of the market study is a 27,878-square-foot (0.64-acre) site to be improved with a lodging facility. HVS recommends the prospective hotel be positioned within the upper midscale price/quality tier of STR’s chain scales ranking, with optional branding considerations in the higher-tiered upscale segment.
The hotel property, which HVS has projected to open on March 1, 2020, is assumed to feature 120 guestrooms, amenities and facilities for a branded upper-midscale limited-service hotel, all necessary back-of-the-house space. The appropriate parking capacity is assumed to be provided within the adjacent parking garage and proposed hotel site.
PROPOSED HOTEL SITE
Objective of the Market Study
Subject of the Market Study
June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 2
The subject site is approved for a 120-key five-story hotel, and the site is located within a designated Community Revitalization Area in Downtown Kissimmee. Additionally, the site has a brownfield designation, and the city impact fees and building permit fees will be abated. New infrastructure connects to the site, and the site also qualifies for EB-5 funding and New Market Tax Credits. The subject site is located adjacent to a newly constructed parking garage, which will provide parking to guests. The proposed subject hotel is part of the larger redevelopment of Downtown Kissimmee that will include market-rate apartments, retail, and parking.
The subject site’s location is to the east of the intersection of Ruby Avenue and Pleasant Street, Kissimmee, Florida, 34741.
The effective date of the report is June 15, 2018. The subject site was inspected by Jeffrey D. Pennington on June 6, 2018 and by Don C. Stephens Jr. on June 10, 2018.
The master developer of the greater Lake Toho Redevelopment mixed-use project is Mosaic Development; however, it is our understanding that Mosaic Development would not develop the proposed subject hotel. The larger parcel (Tract A) is currently owned by Condo at Toho Square Association Inc., while the smaller parcel (Tract 1) is currently owned by the City of Kissimmee.
Details pertaining to management terms were not yet determined at the time of this report; however, we assume that the proposed hotel will be managed by a professional hotel-operating company, with fees deducted at rates consistent with current market standards. We have assumed a market-appropriate total management fee of 3.0% of total revenues in our study.
For the purposes of this study HVS has assumed the subject hotel will operate as an upper midscale, limited-service property. A specific franchise affiliation and/or brand has yet to be finalized. As such, we have used an average of typical franchise fees for hotels that offer a limited-service product within the upper-midscale chain scale.
Both market occupancy and average rate declined in 2009 given an increase in supply and the effects of the national recession, which forced hotel operators to decrease average rates in order to maintain occupancy. In 2010, demand increased significantly, while average rate declined and bottomed out in the high $80s; however, the increased occupancy levels resulted in positive RevPAR growth. The recovery of RevPAR continued in 2011, surpassing RevPAR levels from 2008, and this positive trend extended through 2015. This positive trend was attributed to the improvement in the national and global economies, the addition of high-quality nationally branded hotels, and strong demand levels. RevPAR declined in 2016, as supply growth outpaced demand increases for the selected set of hotels;
Pertinent Dates
Ownership, Franchise, and Management Assumptions
Summary of Hotel Market Trends
June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 3
furthermore, the increased competition forced local operators to lower average rates slightly in order to maintain occupancy levels. RevPAR growth resumed in 2017 and continued through the trailing-twelve-month period ending in April 2018, with growth driven largely by demand growth. Demand was strong to start 2017. Furthermore, similar to many hotel markets in Orlando and throughout Florida, this market experienced a surge in demand in September 2018 given the presence of evacuees and relief efforts from hurricanes during that month, which historically is considered to be one of the weaker months during the year.
Year-to-date 2018 data illustrate continued strengthening in occupancy and a roughly $7 gain in average rate (ADR), following the significant upward change in occupancy in 2017 relative to 2016 levels. RevPAR reached its high point in the spring of 2018. The overall strong economy, resulting in increased leisure travel, and the stability in supply have contributed to the latest trend. The near-term outlook is positive due to continued economic growth in the region and major expansions and investments at the area's major demand generators. Market participants expect that going forward, RevPAR growth will be related to modest average rate increases because of aggressive yield management amid steady growth in room night demand.
The following table provides a historical perspective on the supply and demand trends for a selected set of hotels, as provided by STR. The subsequent tables reflect our estimates of operating data for hotels on an individual basis. These trends are presented in detail in the Supply and Demand Analysis chapter of this report.
June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 4
FIGURE 1-1 HISTORICAL SUPPLY AND DEMAND TRENDS (STR)
Hampton Inn & Suites Orlando South Lake Buena Vis ta 125 90 10 125 75 - 80 100 - 105 75 - 80 125 80 - 85 105 - 110 85 - 90 95 - 100 90 - 95
SpringHi l l Sui tes by Marriott Orlando Lake Buena Vis ta in Marriott Vi l lage 400 85 15 400 80 - 85 105 - 110 85 - 90 400 85 - 90 105 - 110 90 - 95 100 - 110 95 - 100
Courtyard by Marriott Orlando Lake Buena Vis ta in the Marriott Vi l lage 312 75 25 312 75 - 80 100 - 105 75 - 80 312 80 - 85 105 - 110 90 - 95 100 - 110 90 - 95
* Specific occupancy and average rate data were utilized in our analysis, but are presented in ranges in the above table for the purposes of confidentiality.
Average RateTran
sient
Gro
upNumber of
Rooms Average Rate Occ.
Weighted
Annual
Room
Count
Weighted
Annual
Room
Count
June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 6
* Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality.
Tran
sient
Gro
up
Total
Competitive
Level
Weighted
Annual
Room
Count
Weighted
Annual
Room
Count
June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 7
In summary, our various interviews and prior experience and knowledge of the Kissimmee market revealed that there is demand generated in the Kissimmee downtown, and nearby surrounding areas, that is currently unaccommodated by the current supply of older, outdated, economy and budget hotels located along the nearby stretch of U.S. Highway 192. This demand is reportedly utilizing the branded, upper-midscale, upscale, and upper-upscale hotels located approximately five to ten miles away from the proposed subject site.
HVS has used a maximum 120 guestroom for the proposed subject hotel; however, it is our opinion (supported by discussions with brand representatives) that to maximize average rate levels for this proposed hotel, the development may warrant a lower room count. As you progress through the development cycle, we recommend further investigation by revisiting room count through a sensitivity analysis at that time.
Based on our analysis presented in the Projection of Occupancy and Average Rate chapter, we have chosen to use a stabilized occupancy level of 74% and a base-year (2017) rate position of $120.00 for the proposed subject hotel. The following table reflects a summary of our market-wide and proposed subject hotel occupancy and average rate projections.
FIGURE 1-4 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST
ADR Expressed in Base-Year Dol lars Deflated @ Inflation Rate $117.45 $120.41 $124.13 $124.13
Our positioning of each revenue and expense level is supported by comparable operations or trends specific to this market. Our forecast of income and expense is presented in the following table.
Recommended Hotel Positioning - Conclusions
Summary of Forecast Occupancy and Average Rate
Summary of Forecast Income and Expense Statement
June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 8
FIGURE 1-5 DETAILED FORECAST OF INCOME AND EXPENSE
2020/21 Begins March 2021/22 Stabilized 2023/24 2024/25
Number of Rooms: 120 120 120 120 120
Occupancy: 68% 72% 74% 74% 74%
Average Rate: $127.10 $134.21 $142.51 $146.79 $151.19
RevPAR: $86.43 $96.63 $105.46 $108.62 $111.88
Days Open: 365 365 365 365 365
Occupied Rooms: 29,784 %Gross PAR POR 31,536 %Gross PAR POR 32,412 %Gross PAR POR 32,412 %Gross PAR POR 32,412 %Gross PAR POR
*Departmental expenses are expressed as a percentage of departmental revenues.
% of
Gross
June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 10
As illustrated, the hotel is expected to stabilize at a profitable level. Please refer to the Forecast of Income and Expense chapter of our report for a detailed explanation of the methodology used in deriving this forecast.
The methodology used to develop this study is based on the market research and valuation techniques set forth in the textbooks authored by Hospitality Valuation Services for the American Institute of Real Estate Appraisers and the Appraisal Institute, entitled The Valuation of Hotels and Motels,1 Hotels, Motels and Restaurants: Valuations and Market Studies,2 The Computerized Income Approach to Hotel/Motel Market Studies and Valuations,3 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations,4 and Hotels and Motels – Valuations and Market Studies.5
1. All information was collected and analyzed by the staff of HVS Consulting & Valuation. Information was supplied by the client and/or the property’s development team.
2. The subject site has been evaluated from the viewpoint of its physical utility for the future operation of a hotel, as well as access, visibility, and other relevant factors.
3. The surrounding economic environment, on both an area and neighborhood level, has been reviewed to identify specific hostelry-related economic and demographic trends that may have an impact on future demand for hotels.
4. Dividing the market for hotel accommodations into individual segments defines specific market characteristics for the types of travelers expected to utilize 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 provides an indication of the current accommodated demand, along with market penetration and the
1 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of
Real Estate Appraisers, 1978). 2 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies.
(Chicago: American Institute of Real Estate Appraisers, 1983). 3 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and
Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990). 4 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment
Analysis, and Valuations (Chicago: Appraisal Institute, 1992). 5 Stephen Rushmore and Erich Baum, Hotels and Motels – Valuations and Market Studies.
(Chicago: Appraisal Institute, 2001).
Scope of Work
June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 11
degree of competitiveness. Unless noted otherwise, we have inspected the competitive lodging facilities summarized in this report.
6. Documentation for an occupancy and ADR projection is derived utilizing the build-up approach based on an analysis of lodging activity.
7. A detailed projection of income and expense made in accordance with the Uniform System of Accounts for the Lodging Industry sets forth the anticipated economic benefits of the proposed subject property.
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 12
2. Description of the Site and Neighborhood
The suitability of the land for the operation of a lodging facility is an important consideration affecting the economic viability of a property and its ultimate marketability. Factors such as size, topography, access, visibility, and the availability of utilities have a direct impact on the desirability of a particular site.
The subject site is located in Downtown Kissimmee, directly east of the intersection formed by Pleasant Street and Ruby Avenue. The subject site is approximately two blocks northwest of Lake Tohopekaliga. This site is in the city of Kissimmee, Florida.
The subject site measures approximately 0.64 acres, or 27,878 square feet. The parcel's adjacent uses are set forth in the following table.
FIGURE 2-1 SUBJECT PARCEL'S ADJACENT USES
Direction Boundary
Northeast Property Line Toho Square Parking Garage
The subject site comprises two separate parcels. The main parcel (Tract 1) measures 7,405.2 square feet. The second parcel (Tract A) measures 20,473.2 square feet. At the time of inspection in early June 2018, both parcels appeared to be cleared and prepped for development.
Physical Characteristics
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 13
VIEW OF SUBJECT SITE
The topography of the site is generally flat, and the shape should permit efficient use of the site for building and site improvements, including ingress and egress. Upon completion of construction, the subject site will not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. It is expected that the site will be developed fully with building and site improvements, thus contributing to the overall profitability of the hotel.
AERIAL PHOTOGRAPH
Topography and Site Utility
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 14
VIEW FROM SITE TO THE NORTH
VIEW FROM SITE TO THE SOUTH
VIEW FROM SITE TO THE EAST
VIEW FROM SITE TO THE WEST
It is important to analyze the site with respect to regional and local transportation routes and demand generators, including ease of access. The subject site is readily accessible to a variety of local and county roads, as well as state and interstate highways.
Access and Visibility
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 15
MAP OF REGIONAL ACCESS ROUTES
Primary regional access through the area is provided by east/west Interstate 4, which extends to such cities as Tampa to the southwest and Daytona Beach to the northeast. North/south Interstate 95 is another major highway, providing access to such cities as Miami to the south and Jacksonville to the north. Regional access through the area is also provided by Florida's Turnpike, which extends from southeast Florida, through Orlando, to Interstate 75 to the northwest. The subject market is served by a variety of additional local highways, which are illustrated on the map.
Primary vehicular access to the subject site is provided by Ruby Avenue. Access is also available from Pleasant Street. The subject site is located one block from Broadway/North Main Street, the principal artery through Downtown Kissimmee that extends south of West Irlo Bronson Memorial Highway/U.S. Highway 192, which is the nearest major highway. The proposed subject hotel is anticipated to have adequate signage at the street and on its façade. Visibility of the proposed hotel
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 16
from Broadway is expected to be limited given the site's location behind existing structures. Overall, the subject site benefits from good accessibility, and the proposed hotel is expected to enjoy fair visibility from within its local neighborhood.
The proposed subject hotel will be served by the Orlando International Airport, which is located approximately ten miles to the northeast of the subject site.
The first phase of SunRail, Central Florida’s $1.3 billion commuter rail system, began operations in 2014 from DeBary in Volusia County to Sand Lake Road in Orange County. SunRail is expected to help alleviate traffic on Interstate 4 that likely will worsen during the Florida Department of Transportation’s $2.1-billion overhaul. The remaining portion of the SunRail system includes the south alignment (which will run from Sand Lake Road to Poinciana in Osceola County), the north alignment (extending from DeBary to DeLand), and an extension to Orlando International Airport. Construction began in April 2016 on the south alignment, a 17.2-mile extension that will provide rail service for residents and visitors from Meadow Woods in Orange County and Tupperware, Kissimmee, and Poinciana in Osceola County. Service for this extension is scheduled to begin in late June or early July 2018. Testing of this new extension was already underway as of early June 2018. The Kissimmee SunRail station is located approximately one-quarter mile northeast of the subject site. The station is adjacent to the recently constructed Lynx Intermodal Station and Kissimmee Intermodal Parking Garage. The new Kissimmee SunRail station is projected to be the busiest of the new stations, which will also include a station in Poinciana, Tupperware, Meadow Woods.
The neighborhood surrounding a lodging facility often has an impact on a hotel's status, image, class, style of operation, and sometimes its ability to attract and properly serve a particular market segment. This section of the report investigates the subject neighborhood and evaluates any pertinent location factors that could affect its future occupancy, average rate, and overall profitability.
The neighborhood that surrounds the subject site is generally defined by Neptune Road to the north, Lake Tohopekaliga to the east and south, and North Rose Avenue to the west. The neighborhood is characterized by historic buildings, Kissimmee Lakefront Park, independent retail shops, city and county municipal buildings, parking structures, Kissimmee Civic Center, and Lake Tohopekaliga, as well as residential areas located along the secondary roadways. Some specific businesses, entities, and attractions in the area include Kissimmee Lakefront Park, Kissimmee Civic Center, Berlinksy Community House, Osceola County Courthouse, and the Bog Toho Marina. The only existing lodging establishment in the vicinity is the Kapp and Kappy B&B located along North Clyde Avenue. Restaurants located near the subject site include Shipwrecked in the Islands, Main Street Pizza, Big John's Rockin' BBQ, Broadway Pizza Bar, Savion's Place Family Cuisine, and Nadia's Cafe; the proximity
Airport and Metrorail Access
Neighborhood
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 17
of these restaurants is considered supportive of the operation of a limited-service lodging property.
In general, this neighborhood is in the revitalization stage of its life cycle. The Kissimmee Lakefront Park underwent significant redevelopment that was completed in 2015 after an approximately $30-million, five-year update. The facility spans 24 acres along the northern banks of Lake Tohopekaliga and features views of the lake, open space, event stages, a newly constructed marina, public pavilions, concession stand, a splash park and playground, paved trails, and various recreational areas. The park's Lake Toho Marina offers over 52 new brick-paved floating docks, as well as the Bog Toho Marina Bait & Tackle Shop. Other notable changes in this neighborhood include the March 2018 completion of a parking structure with over 380 spaces located between Ruby Avenue and East Monument Avenue. The parking garage is free to the public and designed to increase pedestrian traffic and raise parking capacity for residents and events in the downtown Kissimmee area. Furthermore, SunRail will begin offering service to/from Downtown Kissimmee via its south extension in July 2018.
MAP OF NEIGHBORHOOD
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 18
LAKE TOHO REDEVELOPMENT
Mosaic Development is redeveloping approximately eleven acres in the downtown area adjacent to the Kissimmee Lakefront Park. This proposed $65-million mixed-use development is planned to include 570 market-rate apartments, retail space, and the proposed subject hotel. As of early June 2018, the developer planned to break ground on Phase I, which includes the apartment and retail components of the proposed development, in late 2018 or early 2019, with a planned buildout time of approximately 18–24 months. The retail portion is proposed to be located on the street level below the apartments. Phase II of the development, referred to as the "Hansel Site," is slated to break ground in early 2019 and will include additional apartments, parking, and retail. The proposed subject hotel's opening should be a positive influence on the area; the hotel will be in character with and will complement surrounding land uses. Overall, the supportive nature of the development in the immediate area, as well as the planned redevelopments, are considered acceptable for the operation of a hotel.
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 19
The subject site is located near the area's primary generators of lodging demand. A sample of these demand generators is reflected on the following map, including respective distances from and drive times to the subject site. Additionally, the subject site is proximate to a new SunRail station that will provide access to other parts of the metropolitan Orlando area. Overall, the subject site is well situated with respect to demand generators.
ACCESS TO DEMAND GENERATORS AND ATTRACTIONS
Proximity to Local Demand Generators and Attractions
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 20
The subject site will reportedly be served by all necessary utilities.
Geological and soil reports were not provided to us or made available for our review during the preparation of this report. We are not qualified to evaluate soil conditions other than by a visual inspection of the surface; no extraordinary conditions were apparent.
We were not informed of any site-specific nuisances or hazards, and there were no visible signs of toxic ground contaminants at the time of our inspection. Because we are not experts in this field, we do not warrant the absence of hazardous waste and urge the reader to obtain an independent analysis of these factors.
According to the Federal Emergency Management Agency map illustrated below, the subject site is located in X.
COPY OF FLOOD MAP AND COVER
Utilities
Soil and Subsoil Conditions
Nuisances and Hazards
Flood Zone
June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 21
The flood zone definition for the X designation is as follows: areas outside the 500-year flood plain; areas of the 500-year flood; areas of the 100-year flood with average depths of less than one foot or with drainage areas less than one square mile and areas protected by levees from the 100-year flood.
According to the local planning office, the subject property is zoned as follows: MUPUD - Mixed Use Planned Unit Development. Additional details pertaining to the proposed subject property’s zoning regulations are summarized in the following table.
FIGURE 2-2 ZONING
Municipal i ty Governing Zoning City of Kiss immee
Current Zoning MUPUD (Mixed Use Planned Unit Development)
Current Use Vacant Land
Is Current Use Permitted? Yes
Is Change in Zoning Likely? No
Permitted Uses Res identia l , hotel , reta i l
Hotel Al lowed Yes
We are not aware of any easements attached to the property that would significantly affect the utility of the site or marketability of this project.
We have analyzed the issues of size, topography, access, visibility, and the availability of utilities. The subject site is located in Downtown Kissimmee and is planned to be a part of a larger development in the downtown. In general, the site should be acceptable for future hotel use, with acceptable access, fair visibility, and topography for an effective operation.
Zoning
Easements and Encroachments
Conclusion
June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 22
3. Market Area Analysis
The economic vitality of the market area and neighborhood surrounding the subject site is an important consideration in forecasting lodging demand and future income potential. Economic and demographic trends that reflect the amount of visitation provide a basis from which to project lodging demand. The purpose of the market area analysis is to review available economic and demographic data to determine whether the local market will undergo economic growth, stabilize, or decline. In addition to predicting the direction of the economy, the rate of change must be quantified. These trends are then correlated based on their propensity to reflect variations in lodging demand, with the objective of forecasting the amount of growth or decline in visitation by individual market segment (e.g., commercial, meeting and group, and leisure).
The market area for a lodging facility is the geographical region where the sources of demand and the competitive supply are located. The subject site is located in the city of Kissimmee, the county of Osceola, and the state of Florida. Kissimmee is the county seat of Osceola County and is a principal city in the Orlando-Kissimmee-Sanford MSA. In addition to being recognized as one of the nation's foremost vacation destinations, anchored by the formidable Walt Disney World Resort and Universal Orlando, Orlando is the major center for commerce in the Central Florida region. The Central Florida Research Park, totaling more than 1,000 acres, is ranked as one of the top ten research parks in the nation and is home to over 125 companies. Moreover, the University of Central Florida (UCF) is the second-largest university in the nation, with more than 60,000 students. Orlando's economic climate is characterized by tourism, healthcare services and research, financial services, and educational institutions.
Market Area Definition
June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 23
KISSIMMEE
The proposed subject property’s market area can be defined by its Combined Statistical Area (CSA): Orlando-Deltona-Daytona Beach, FL. The CSA represents adjacent metropolitan and micropolitan statistical areas that have a moderate degree of employment interchange. Micropolitan statistical areas represent urban areas in the United States based around a core city or town with a population of 10,000 to 49,999; the MSA requires the presence of a core city of at least 50,000 people and a total population of at least 100,000 (75,000 in New England). The following exhibit illustrates the market area.
June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 24
MAP OF MARKET AREA
A primary source of economic and demographic statistics used in this analysis is the Complete Economic and Demographic Data Source published by Woods & Poole Economics, Inc.—a well-regarded forecasting service based in Washington, D.C. Using a database containing more than 900 variables for each county in the nation, Woods & Poole employs a sophisticated regional model to forecast economic and demographic trends. Historical statistics are based on census data and information published by the Bureau of Economic Analysis. Projections are formulated by Woods & Poole, and all dollar amounts have been adjusted for inflation, thus reflecting real change.
These data are summarized in the following table.
Economic and Demographic Review
June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 25
State of Florida 241,567 268,761 328,454 349,959 1.1 2.9 2.1
United States 3,902,830 4,130,414 4,932,756 5,181,433 0.6 2.6 1.7
* Inflation Adjusted
Source: Woods & Poole Economics , Inc.
June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 26
The U.S. population has grown at an average annual compounded rate of 0.8% from 2010 through 2017. The county’s population has grown at a quicker pace than the nation’s population; the average annual growth rate of 3.1% between 2010 and 2017 reflects a rapidly expanding area. Following this population trend, per-capita personal income increased slowly, at 0.8% on average annually for the county between 2010 and 2017. Local wealth indexes have remained stable in recent years, registering a relatively low 62.2 level for the county in 2017.
Food and beverage sales totaled $583 million in the county in 2017, versus $412 million in 2010. This reflects a 5.1% average annual change, which is stronger than the 1.3% pace recorded in the prior decade, the latter years of which were adversely affected by the recession. Over the long term, the pace of growth is forecast to moderate to a more sustainable level of 3.3%, which is forecast through 2020. The retail sales sector demonstrated an annual increase of 3.0% registered in the decade 2000 to 2010, followed by an increase of 4.4% in the period 2010 to 2017. An increase of 3.2% average annual change is expected in county retail sales through 2020.
The characteristics of an area's workforce provide an indication of the type and amount of transient visitation likely to be generated by local businesses. Sectors such as finance, insurance, and real estate (FIRE); wholesale trade; and services produce a considerable number of visitors who are not particularly rate-sensitive. The government sector often generates transient room nights, but per-diem reimbursement allowances often limit the accommodations selection to budget and mid-priced lodging facilities. Contributions from manufacturing, construction, transportation, communications, and public utilities (TCPU) employers can also be important, depending on the company type.
The following table sets forth the county workforce distribution by business sector in 2000, 2010, and 2017, as well as a forecast for 2020.
Workforce Characteristics
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FIGURE 3-2 HISTORICAL AND PROJECTED EMPLOYMENT (000S)
Average Annual
Compounded Change
Percent Percent Percent Percent
Industry 2000 of Total 2010 of Total 2017 of Total 2020 of Total
June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 28
Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county grew at an average annual rate of 3.8%. This trend was above the growth rate recorded by the MSA and also outpaced the national average. More recently, the pace of total employment growth in the county slowed to 3.5% on an annual average from 2010 to 2017.
Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2010 to 2017, increasing by 14,954 people, or 32.9%, and rising from 48.8% to 51.0% of total employment. Of the various service sub-sectors, Accommodation And Food Services and Administrative And Waste Services were the largest employers. Strong growth was also recorded in the Total Trade sector, as well as the Total Government sector, which expanded by 29.4% and 19.2%, respectively, in the period 2010 to 2017. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 2.6% on average annually through 2020. The trend is above the forecast rate of change for the U.S. as a whole during the same period.
For the Orlando market, of the roughly 1,300,000 persons employed, 31% are categorized as office employees, while 8% are categorized as industrial employees. Total employment decreased by an average annual compound rate of -2.8% during the recession of 2009 to 2012, followed by an increase of 3.4% from 2012 to 2017. By comparison, office employment reflected compound change rates of -2.6% and 3.4%, during the same respective periods. Total employment is expected to expand by 4.6% in 2018, while office employment is forecast to expand by 3.6% in 2018. From 2017 through 2022, REIS anticipates that total employment will expand at an average annual compound rate of 1.9%, while office employment will expand by 1.8% on average annually during the same period.
The number of households is forecast to expand by 3.7% on average annually between 2017 and 2022. Population is forecast to expand during this same period, at an average annual compounded rate of 2.9%. Household average income is forecast to grow by 4.0% on average annually from 2017 through 2022.
The following table illustrates historical and projected employment, households, population and average household income data as provided by REIS for the overall Orlando market.
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FIGURE 3-3 HISTORICAL & PROJECTED EMPLOYMENT, HOUSEHOLDS, POPULATION, AND HOUSEHOLD INCOME STATISTICS
0.00 - 1.00 miles 0.00 - 3.00 miles 0.00 - 5.00 miles
Source: Environics Analytics
Radial Demographic Snapshot
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This source reports a population of 165,748 within a five-mile radius of the subject site, and 55,773 households within this same radius. Average household income within a five-mile radius of the subject site is currently reported at $59,945, while the median is $45,814.
The following table presents historical unemployment rates for the proposed subject hotel’s market area.
FIGURE 3-5 UNEMPLOYMENT STATISTICS
Year
2008 6.5 % 6.1 % 6.3 % 5.8 %
2009 11.2 10.5 10.4 9.3
2010 12.5 11.1 11.1 9.6
2011 11.3 10.0 10.0 8.9
2012 9.5 8.4 8.5 8.1
2013 7.9 7.0 7.2 7.4
2014 6.7 6.0 6.3 6.2
2015 5.8 5.2 5.5 5.3
2016 4.9 4.5 4.8 4.9
2017 4.2 3.8 4.2 4.4
Recent Month - Apr
2017 4.0 % 3.6 % 4.0 % 4.4 %
2018 3.4 3.1 3.4 3.9
* Letters shown next to data points (if any) reflect revised population controls
and/or model re-estimation implemented by the BLS.
Source: U.S. Bureau of Labor Statis tics
U.S.City MSA State
Current U.S. unemployment levels are now firmly below the annual averages of the last economic cycle peak of 2006 and 2007, when annual averages were 4.6%. National unemployment registered 4.1% each month during the first quarter of 2018, as well as the last quarter of 2017, roughly six points below the October 2009 peak of 10.0%. In April 2018, the rate fell further to 3.9%. Total nonfarm payroll employment increased by 324,000, 135,000, and 164,000 jobs in February, March, and April of 2018, respectively. Gains in April occurred in the professional and business services, manufacturing, health care, and mining sectors. Unemployment has remained under the 5.0% mark since May 2016, reflecting a trend of relative stability and the overall strength of the U.S. economy.
Unemployment Statistics
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Locally, the unemployment rate was 4.2% in 2017; for this same area in 2018, the most recent month’s unemployment rate was registered at 3.4%, versus 4.0% for the same month in 2017. Unemployment rose in 2009 because of the national recession, which also affected this region in 2010, reaching double digits as the height of the recession took hold. However, unemployment declined in 2011, a trend that continued through 2017. The most recent comparative period illustrates further improvement, indicated by the lower unemployment rate in the latest available data for 2018. Local economic development officials noted that over the course of the economic recovery, Orlando has been a state leader in job creation, and this job growth has been fueled largely by the hospitality sector. Furthermore, local medical, research, and higher-education facilities continue to expand, and employment is strong within these sectors. Continued growth in the tourism industry and the biotechnology sector is anticipated to help stabilize employment levels. Our interviews with economic development officials reflect a positive outlook.
Providing additional context for understanding the nature of the regional economy, the following table presents a list of the major employers in the subject property’s market.
FIGURE 3-6 MAJOR EMPLOYERS
Number of
Rank Firm Employees
1 Walt Disney World Resort 74,000
2 Universa l Orlando 21,000
3 Adventis t Health System/Florida Hospita l 20,413
4 Publ ix 19,783
5 Orlando International Airport 18,000
6 Orlando Health 16,828
7 Univers i ty of Centra l Florida 11,833
8 Lockheed Martin 7,000
9 Darden Restaurants 6,149
10 SeaWorld Parks & Enterta inment 6,032
Source: Orlando Economic Development Commiss ion, 2017
The following bullet points highlight major demand generators for this market:
• Our previous experience in this market, conversations with local officials and market participants, and additional research revealed a number of economic anchors within Kissimmee. Various county and city government offices and facilities are located in Downtown Kissimmee and attract a variety of visitors to
Major Business and Industry
June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 33
the market, including attorneys, government employees, and consultants. The 404-bed Osceola Regional Medical Center is the fourth-largest hospital in the Orlando metropolitan area. In recent years, the hospital has undergone significant renovations and additions to its campus located in northern downtown. In 2017 and early 2018, as part of a multi-phase $50-million expansion, updates to the hospital included a new rehabilitation center, an AHCA Certified Comprehensive Stroke Center, an MRI scanner, an endoscopy unit, two new floors on the Tower A building, and a Level III Neonatal Intensive Care Unit (NICU). Florida Hospital Kissimmee offers comprehensive inpatient and outpatient services in a full range of specialties. The Kissimmee Gateway Airport, located west of downtown, accommodates general aviation air service. Three Fixed-Based Operators (FBOs) are located on the airport property, as well as a number of flight-training schools. Tupperware Brands Corporation's global headquarters is located near the northern border of Osceola County. Furthermore, the emerging growth at the NeoCity campus, which is a planned 500-acre technology district, is anticipated to bolster the local economy into the future.
• Year-round tourism remains a cornerstone of lodging demand, drawing over 60 million visitors to the market annually. World-class theme parks and attractions create a unique family destination that cannot be found anywhere else in the world. Walt Disney World Resort, the heart of Orlando’s attraction experience, includes the Magic Kingdom, Epcot, Disney’s Hollywood Studios, and Disney’s Animal Kingdom. Additionally, Walt Disney World Resort features two water parks, 30 themed hotels, and a variety of dining and entertainment venues. Other major theme parks in the area include Universal Orlando Resort and SeaWorld Orlando. New attractions in recent years include Diagon Alley, an expansion of the Wizarding World of Harry Potter at Universal Orlando Resort that opened in 2014; Heartlake City, an expansion of LEGOLAND that opened in 2015; and Universal Studios' Volcano Bay water park, which opened in the summer of 2017. In 2014, Walt Disney World Resort opened the New Fantasyland; this area includes a ride based on The Little Mermaid, the Beauty and the Beast-themed Beast's Castle and Gaston's Tavern, the Seven Dwarfs Mine Train roller coaster, and additional interactive areas. In 2013, the transformation of Downtown Disney began, expanding it from 75 to more than 150 shopping, dining, and entertainment venues and renaming it Disney Springs. The development was completed in two phases in 2015 and 2016.
• The success of Orlando’s healthcare system has led the way for the city’s surging biotechnology sector. Orlando's ever-growing Lake Nona Medical City is a 650-acre health and life-sciences park located near Orlando International Airport and within the master-planned community of Lake Nona. The medical city currently serves as a home to the University of Central Florida (UCF) Health Sciences Campus, Sanford-Burnham Medical Research Institute, Nemours
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Children’s Hospital, M.D. Anderson Orlando Cancer Research Institute, and a University of Florida Academic and Research Center. Future components of the park are expected to include additional colleges and a teaching hospital at Central Florida’s College of Medicine. Furthermore, the $665-million Orlando VA Medical Center, which fully opened in 2015, will be an integral part of the park, along with its $20-million National Simulation Center, which opened in November 2016. Additionally, Orlando Health is a $2.8-billion, nonprofit healthcare network in Central Florida. The organization is home to the area’s only Level One Trauma Centers for adults and pediatrics and is a teaching hospital system, with both specialty and community hospitals. In June 2017, Orlando Health broke ground on a cancer-center expansion at the Ocoee Health Central Hospital Campus. The first phase of the Orlando Health UF Health Cancer Center opened in early 2018, with the second phase planned for completion in the summer of 2018.
• Florida Hospital is one of the largest hospital systems in the country, treating nearly one million patients on a yearly basis, and spanning seven hospitals and fifteen Central Care walk-in medical centers. This healthcare system specializes in a diverse range of services, including globally recognized programs in cardiology, cancer, women’s medicine, neurology, diabetes, orthopedics, and rehabilitation. Florida Hospital is routinely recognized as one the best medical facilities in the country by U.S. News & World Report and serves as a prominent referral hospital throughout areas of the southeastern United States, the Caribbean, and South America. Construction of Florida Hospital's new, $65-million hospital facility in Winter Garden was completed in 2016; it comprises a three-story, 75,000-square-foot building that houses an emergency department and outpatient imaging, and the second and third floors serve as outpatient surgery centers. In May 2016, Florida Hospital Lake Mary ER opened; the new facility features 24 beds and offers an array of services including cardiology, general and robotic surgery, internal medicine, and orthopedics.
Orlando's popularity as a year-round tourism destination contributes to the area's overall economic strength. According to Visit Orlando, over 68 million people visited Orlando in 2016, representing a 3% increase in visitation from 2015 and reaching a new peak level for the seventh consecutive year. This figure represents a record for Orlando as the most-visited U.S. destination and sets a new milestone for the U.S. tourism industry. New or expanded tourism attractions and refurbishments to area resorts are expected to continue to support growth in the tourism industry. Additionally, growth is planned for Downtown Orlando with a 30-year phased rollout of Creative Village, a transformation of the city's old Amway Arena site into a 68-acre mixed-use development, which will create a residential, employment, and educational village for the digital media industry. The new Amway Center opened in late 2010 as part of Downtown Orlando's Master Plan 3, which also included the
June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 35
$207-million renovation of the Citrus Bowl and construction of the new Doctor Phillips Center for the Performing Arts (opened in 2014). Moreover, a new $110-million Major League Soccer stadium, Orlando City Stadium, opened in February 2017. Furthermore, the transportation sector is growing with the widening of Interstate 4 and the SunRail system construction. The SunRail construction project comprises three stages. Phase I was completed in May 2014, while Phase II, which will extend the SunRail further north and south, is slated for completion mid-year 2018. Phase III will connect the SunRail to the Orlando International Airport, with anticipated completion in 2020.
Trends in occupied office space are typically among the most reliable indicators of lodging demand, as firms that occupy office space often exhibit a strong propensity to attract commercial visitors. Thus, trends that cause changes in vacancy rates or occupied office space may have a proportional impact on commercial lodging demand and a less direct effect on meeting demand. The following table details office space statistics for the pertinent market area.
FIGURE 3-7 OFFICE SPACE STATISTICS – MARKET OVERVIEW
Submarket
1 South Orlando 96 5,965,000 4,956,900 16.9 % $23.23
2 Kissimmee 17 663,000 574,200 13.4 21.81
3 East/Univers i ty of Centra l Florida 75 3,693,000 3,205,500 13.2 19.99
Totals and Averages 533 32,326,000 27,655,300 14.4 % $23.15
Inventory Occupied Office
Space
Vacancy
Rate
Average Asking
Lease RateBuildings Square Feet
Source: REIS Report, 1st Quarter, 2018
The greater Orlando market comprises a total of 32.3 million square feet of office space. For the 1st Quarter of 2018, the market reported a vacancy rate of 14.4% and an average asking rent of $23.15. The subject property is located in the Kissimmee submarket, which houses 663,000 square feet of office space. The submarket's vacancy rate of 13.4% is below the overall market average. The average asking lease rate of $21.81 is below the average for the broader market.
The following table illustrates a trend of office space statistics for the overall Orlando market and the Kissimmee submarket.
Office Space Statistics
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FIGURE 3-8 HISTORICAL AND PROJECTED OFFICE SPACE STATISTICS – GREATER MARKET VS. SUBMARKET
June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 37
The inventory of office space in the Orlando market increased at an average annual compound rate of 0.3% from 2005 through 2017, while occupied office space remained relatively stable at an average annual rate of 0.1% over the same period. During the period of 2005 through 2009, occupied office space expanded at an average annual compound rate of 2.4%. From 2009 through 2012, occupied office space contracted at an average annual compound rate of -2.6%, reflecting the impact of the recession. The onset of the recovery is evident in the 0.5% average annual change in occupied office space from 2012 to 2017. From 2017 through 2022, the inventory of occupied office space is forecast to increase at an average annual compound rate of 0.3%, with available office space expected to increase 0.6%, thus resulting in an anticipated vacancy rate of 14.9% as of 2022.
A convention center serves as a gauge of visitation trends to a particular market. Convention centers also generate significant levels of demand for area hotels and serve as a focal point for community activity. Typically, hotels within the closest proximity to a convention center—up to three miles away—will benefit the most. Hotels serving as headquarters for an event benefit the most by way of premium rates and hosting related banquet events. During the largest of conventions, peripheral hotels may benefit from compression within the city as a whole.
The Orange County Convention Center (OCCC) is a vital component of the economic health of Orlando’s hotel market and provides an average annual economic impact of $2.1 billion to the Central Florida economy. This center is the second largest in contiguous space in the United States, with over 2.5 million gross square feet. Positioned eleven miles southwest of Downtown Orlando, the center is located on International Drive, just northeast of the intersection formed by Interstate 4 and State Highway 528. The OCCC comprises two separate facilities, the west building and the north/south building. Features of the OCCC include 2.1 million square feet of exhibit space, 74 meeting rooms, 235 breakout rooms, a 2,643-seat theatre, 4 business centers, 3 full-service restaurants, and 8 food courts. In 2013, the OCCC undertook a five-year renovation project at a total cost of approximately $187 million. At the end of 2015, the Tangerine Ballroom was completed, and new digital signage was added to the Westwood lobby. Renovations to the Valencia Ballroom and Destination Lounge were completed in 2016. A pedestrian bridge connecting the convention center to the adjacent Hyatt Regency was completed in the summer of 2017; additionally, exterior upgrades to the site and structure were performed in 2017. In June 2017, the OCCC executive team proposed several campus updates, including an enclosed Grand Concourse that would connect the North and South Concourses, as well as a 200,000-square-foot multipurpose venue.
Convention Activity
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CONVENTION CENTER
The following table illustrates recent use statistics for this facility.
FIGURE 3-9 CONVENTION CENTER STATISTICS
Percent Percent
Year Change Change
2010 201 — 1,178,408 —
2011 179 (10.9) % 1,214,434 3.1 %
2012 181 1.1 1,319,829 8.7
2013 194 7.2 1,244,229 (5.7)
2014 188 (3.1) 1,350,545 8.5
2015 192 2.1 1,372,827 1.6
2016 226 17.7 1,456,816 6.1
2017 (est.) 240 6.2 1,530,000 5.0
Number of
Delegates
Source: Orange County Convention Center
Number of
Conventions
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According to the Convention and Visitors Bureau, statistics fluctuated late last decade because of the effects of the recession. Convention activity began to rebound in 2010, with an increase in the number of attendees, although the number of events continued to decline that year. According to representatives of the OCCC, activity in 2011 and 2012 was positively influenced by the return of the International Builders' Show and by the National Plastics Expo, which was held in Orlando in 2011 and 2012. The Convention and Visitors Bureau reported that the number of citywide events and overall attendance fluctuated in 2013 and 2014 as larger trade shows rotated out of the center to other destinations. In 2014, the International Association of Amusement Parks & Attractions (estimated 25,000 attendees) announced a six-year extension of its current agreement with the OCCC, extending its Attractions Expo through 2025. Additionally, the Society for Human Resource Management Annual Conference (estimated 15,000 attendees) returned in 2014, while National Plastics Expo (estimated 60,000 attendees) and the tile-and-stone trade show Coverings (estimated 30,000 attendees) returned in 2015. Furthermore, the International Builders' Show, which returned to Orlando in January 2017, is scheduled to repeat in 2018, 2021, and 2022. In the 2016/17 fiscal year, the convention center reported a total economic impact of $2.4 billion.
Airport passenger counts are important indicators of lodging demand. Depending on the type of service provided by a particular airfield, a sizable percentage of arriving passengers may require hotel accommodations. Trends showing changes in passenger counts also reflect local business activity and the overall economic health of the area.
Orlando International Airport (MCO) is located approximately six miles southeast of Downtown Orlando. Many major airlines service MCO, and the modern terminal facility offers a convenient passenger transportation system linking the concourse gates to the multilevel terminal. Orlando International Airport offers a variety of retail outlets and services, including numerous restaurants and bars. In January 2015, a $1.1-billion expansion/modernization project commenced at the airport. Initial changes will include the expansion of the automated people mover, a $215-million intermodal transportation hub, upgraded ticket lobbies, and a $114-million expansion and refurbishment of Airside 4. Construction on the initial improvements is scheduled for completion by 2018. Future plans call for the addition of up to 120 domestic and international gates at the South Terminal, a 1,000-room hotel, and over 750,000 square feet of additional retail space.
The following table illustrates recent operating statistics for the Orlando International Airport, which is the primary airport facility serving the proposed subject hotel’s submarket.
Airport Traffic
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FIGURE 3-10 AIRPORT STATISTICS - ORLANDO INTERNATIONAL AIRPORT
Year
2008 35,661,269 — —
2009 33,693,649 (5.5) % (5.5) %
2010 34,877,899 3.5 (1.1)
2011 35,426,006 1.6 (0.2)
2012 35,273,036 (0.4) (0.3)
2013 34,768,945 (1.4) (0.5)
2014 35,714,091 2.7 0.0
2015 38,809,337 8.7 1.2
2016 41,923,399 8.0 2.0
2017 44,611,265 6.4 2.5
Year-to-date, Apr
2017 15,142,030 — —
2018 16,083,478 6.2 % —
*Annual average compounded percentage change from the previous year
**Annual average compounded percentage change from first year of data
Change**
Passenger
Change*Traffic
Percent Percent
Source: Orlando International Airport
FIGURE 3-11 LOCAL PASSENGER TRAFFIC VS. NATIONAL TREND
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2009 2010 2011 2012 2013 2014 2015 2016 2017
Cha
nge
in P
ass
enge
r Act
ivit
y
Source: HVS, Local Airport Authority
Local Passenger Volume National Passenger Volume
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This facility recorded 44,611,265 passengers in 2017. The change in passenger traffic between 2016 and 2017 was 6.4%. The average annual change during the period shown was 2.5%. The number of passengers traveling through Orlando International Airport surpassed Miami International Airport passenger data in 2017 for the first time. The recent uptick in passenger traffic is largely attributable to the addition of several new routes (on various air carriers), including Havana, Cuba; Dusseldorf, Germany; Niagara Falls, New York; and Oklahoma City, Oklahoma. As one of the most visited cities in the world, Orlando boasts an ever-expanding route network. Healthy increases in domestic and international travel have been partly due to the substantial growth in seating availability in the market. Additionally, new routes and additional flights by many of the major airlines contributed to the growth in 2015, 2016, and 2017. Most recently, nonstop flights to/from Paris, Rio de Janeiro, and Santiago were introduced during the summer of 2017, while additional routes continue to be added.
The market benefits from a variety of tourist and leisure attractions in the area. Central Florida's $70-billion tourism industry, which drew a record 72 million visitors to the region in 2017, serves as the area's top economic engine and major job creator. The peak season for tourism in this area is from February through August, with another visitation spike in October. However, visitation remains strong during other times of the year because of the worldwide appeal of Orlando as a major tourism destination. A favorable year-round climate also contributes to strong tourism throughout the year. Primary attractions in the area include the following:
• Walt Disney World Resort is one of the world's preeminent vacation destinations. The resort offers four major theme parks (Magic Kingdom, Epcot, Disney's Hollywood Studios, and Disney's Animal Kingdom) and two water parks (Blizzard Beach and Typhoon Lagoon). In 2016, Disney completed a multi-year transformation of Downtown Disney; the development was renamed Disney Springs in 2015 and features four outdoor neighborhoods connected by a flowing spring and nearby lakefront. Town Center offers a sophisticated mix of shopping and dining; the Landing is a commercial district with inspired cuisine and waterfront views; Marketplace is a family-friendly district that will feature an over-the-water pedestrian causeway connecting both ends of its crescent shaped design; and the West Side was largely unchanged, still offering a series of elevated spaces providing shade and overlooking activity below. In May 2017, the twelve-acre Pandora - World of Avatar opened at Disney's Animal Kingdom. Moreover, a new gondola, known as The Disney Skyline, is planned to connect several parks within the resort. Additionally, Toy Story Land, which is currently under construction, is expected to open by July 2018. Furthermore, the Star Wars: Galaxy's Edge is a highly anticipated addition, reported to cost
Tourist Attractions
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roughly $1 billion. The attraction is planned to open in 2019 along with an immersive Star Wars-themed hotel modeled after the Millennium Falcon.
• SeaWorld Orlando’s Aquatica water park spans nearly 60 acres. The park was designed to model the natural scenery of New Zealand and Australia and includes live animals such as dolphins and macaws, as well as other tropical wild and sea life. Offering 80,000 square feet of beach area and featuring lagoons, 6 rivers, and 36 water slides, Aquatica is a premier water attraction in Florida. The most noteworthy attraction of the park is a series of slides constructed of clear tubes that extend underwater through a habitat of Commerson's dolphins. Aquatica also offers side-by-side wave pools. The Aquatica water park has been expanded with new attractions, including a 105-foot water slide that opened in May 2014. In March 2016, SeaWorld announced plans to phase out orca shows by 2019. Despite the shift, the orcas are likely to live at the water park through the foreseeable future as SeaWorld creates educational programs focused around the existing pod. In June 2017, the Kraken roller coaster was updated, and construction began on the new Infinity Falls water-raft ride that is expected to open in the summer of 2018. The Ray Rush family raft slide opened in 2018. In 2017, SeaWorld Orlando announced that Sesame Street Land would replace Shamu's Happy Harbor play area in late 2022. SeaWorld is reportedly cutting 350 positions in October 2018 in response to declining attendance; these cuts will primarily affect the Orlando corporate headquarters and the San Diego and Orlando water parks.
• Universal Orlando offers major theme parks such as Islands of Adventure and Universal Studios, as well as the Wet 'n Wild water park. Islands of Adventure features marquis rides including the Amazing Adventures of Spider Man and Jurassic Park River Adventure, while Universal Studios offers Shrek 4-D and Revenge of the Mummy, among many others. In June 2010, Universal Orlando opened the Wizarding World of Harry Potter, which is based on the popular Harry Potter books and movies. The park opened a new attraction, Despicable Me: Minion Mayhem, in July 2012, and in August 2013, the resort officially opened its Simpsons-themed Springfield U.S.A. expansion. Furthermore, an expansion of the Wizarding World of Harry Potter, including the Diagon Alley and Hogwarts Express connector to the original Wizarding World, opened in July 2014. A new attraction known as Skull Island: Reign of Kong opened in June 2016, and the Volcano Bay water park opened in the summer of 2017. Furthermore, Universal CityWalk, a three-block entertainment district, underwent an extensive expansion in 2014 that included the addition of eight restaurants, a Universal Studios store, and Hot Dog Hall of Fame. Universal Orlando has announced plans to add a Pokémon area, expected to open in 2020 in the existing KidZone section of the theme park. Additionally, a 400-acre site recently purchased by Universal Orlando is slated for a Nintendo-themed park, which is anticipated to open in 2023.
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• Orlando boasts a wide array of shopping and dining venues that accommodate diverse budgets. The Mall at Millenia comprises upscale stores such as Neiman Marcus and Tiffany & Co. and restaurants such as Brio Tuscan Grille and The Capital Grille. The Florida Mall is anchored by Dillard's, JCPenney, and Macy's. In June 2015, the mall's new 100,000-square-foot Dining Pavilion opened, featuring 23 restaurants and over 1,300 indoor and outdoor seats combined, as well as five new retail stores. Pointe Orlando and Orlando Premium International Outlets are additional retail complexes located along International Drive. In May 2015, the I-Drive 360 entertainment complex opened, unveiling the 400-foot observation wheel Orlando Eye, Madame Tussauds Wax Museum, the SEA LIFE Aquarium, and assorted shops and restaurants. The iSquare mall and hotel project is anticipated to break ground in the coming years. This development will comprise a multi-level mall, restaurants, the five-star Solis Orlando Hotel, a performance theater, and an ice-skating rink. Other projects that were completed in 2017 along the International Drive corridor include the 140,000-square-foot Andretti Indoor Karting & Games, iFLY Orlando Indoor Skydiving, Topgolf Orlando, new dining outlets, a pedestrian bridge outside the Hyatt Regency, and various residential developments.
WALT DISNEY WORLD RESORT
This section discussed a wide variety of economic indicators for the pertinent market area. Greater Orlando is experiencing a period of economic strength and
Conclusion
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expansion, primarily led by the entertainment industry and the healthcare sector. The significant presence and continued growth of Walt Disney World and Universal Studios continues to bolster the economy and lodging demand in the market; furthermore, with the increasing diversity of Orlando's economy, the city is anticipated to remain a top destination for both business and leisure travel. The Orange County Convention Center, the second largest convention facility in America, continues to break attendance records and undergo expansions and upgrades to remain a premier option for meeting and event planners around the world. The outlook for the market area is positive.
Our analysis of the outlook for this specific market also considers the broader context of the national economy. The U.S. economy expanded during the last three years, with a relatively low point in growth occurring during the fourth quarter of 2015 and the first quarter of 2016, as well as the first quarter of 2017. Most recently, the U.S. economy expanded by 2.9% and 2.3% in the fourth quarter of 2017 and first quarter of 2018, respectively. The recent growth reflected strong nonresidential fixed investments, personal consumption expenditures (PCE), exports, private inventory investments, federal government spending, and state and local government spending.
FIGURE 3-12 UNITED STATES GDP GROWTH RATE
-1.2
4.0
5.0
2.0
3.22.7
1.6
0.5 0.6
2.22.8
1.81.2
3.1 3.2 2.92.3
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2014 2015 2016 2017 2018
Source: tradingeconomics.com, Bureau of Economic Analysis
U.S. economic growth continues to support expansion of lodging demand. In 2017, demand growth through November registered 2.7%, stronger than the 1.6% level recorded in 2016. The economic growth, low unemployment, higher levels of personal income, and stability in the U.S. economy as of mid-year 2018 is helping to maintain strong interest in hotel investments by a diverse array of market participants.
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 45
4. Supply and Demand Analysis
In the lodging industry, price varies directly, but not proportionately, with demand and inversely, but not proportionately, with supply. Supply is measured by the number of guestrooms available, and demand is measured by the number of rooms occupied; the net effect of supply and demand toward equilibrium results in a prevailing price, or average daily rate (ADR). The purpose of this section is to investigate current supply and demand trends, as indicated by the current competitive market, and to set forth a basis for the projection of future supply and demand growth.
The subject site is located in the greater Orlando lodging market, which encompasses 505 open and operating lodging facilities totaling roughly 125,750 guestrooms. Within this greater market, the direct submarket that will include the proposed subject hotel is known as Kissimmee and Lake Buena Vista. Within this market, the proposed subject hotel will compete with a smaller set of hotels based on various factors, such as chain scale, product offering, price point, and location. During our study, HVS found that there are no hotels in the upper-midscale, upscale, or upper-upscale chain scale within a 5.5-mile distance of the subject site. While there are numerous hotels proximate to downtown, within five miles of the subject site, and along West Irlo Bronson Highway/U.S. Highway 192, these hotels offer budget products and operate at a significantly lower price point than that expected for the proposed subject hotel. We are familiar with the product and client mix at these hotels and do not consider them to be competitive given their older physical plants, brand affiliations, facilities, and price point.
The subject property’s local lodging market is most directly affected by the supply and demand trends within the immediate area. However, individual markets are also influenced by conditions in the national lodging market. We have reviewed national lodging trends to provide a context for the forecast of the supply and demand for the proposed subject hotel’s competitive set.
STR is an independent research firm that compiles and publishes data on the lodging industry, and this information is routinely used by typical hotel buyers. The following STR diagram presents annual hotel occupancy and average rate data since 1987. The next two tables contain information that is more recent; the data are categorized by geographical region, price point, type of location, and chain scale, and the statistics include occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.
Definition of Subject Hotel Market
National Trends Overview
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 46
FIGURE 4-1 NATIONAL OCCUPANCY, AVERAGE RATE, AND REVPAR TRENDS
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
$0
$20
$40
$60
$80
$100
$120
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: STR
RevPAR Average Rate Occupancy
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 47
FIGURE 4-2 NATIONAL OCCUPANCY AND ADR TRENDS – YEAR-TO-DATE DATA
United States 62.6 % 63.2 % 0.9 % $124.78 $128.19 2.7 % $78.12 $81.00 3.7 % 2.0 % 3.0 %
Region
New England 54.8 % 56.7 % 3.5 % $133.76 $134.48 0.5 % $73.26 $76.26 4.1 % 1.9 % 5.5 %
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 49
Following the significant RevPAR decline experienced during the last recession, demand growth resumed in 2010, led by select markets that had recorded growth trends in the fourth quarter of 2009. A return of business travel and some group activity contributed to these positive trends. The resurgence in demand was partly fueled by the significant price discounts that were widely available in the first half of 2010. These discounting policies were largely phased out in the latter half of the year, balancing much of the early rate loss. Demand growth remained strong, but decelerated from 2011 through 2013, increasing at rates of 4.7%, 2.8%, and 2.0%, respectively. Demand growth then surged to 4.0% in 2014, driven by a strong economy, a robust oil and gas sector, and limited new supply, among other factors. By 2014, occupancy had surpassed the 64% mark. Average rate rebounded similarly during this time, bracketing 4.0% annual gains from 2011 through 2014.
In 2015, demand growth continued to outpace supply growth, a relationship that has been in place since 2010. With a 2.9% increase in room nights, the nation's occupancy level reached a record high of 65.4% in 2015. Supply growth intensified modestly in 2015 (at 1.1%), following annual supply growth levels of 0.7% and 0.9% in 2013 and 2014, respectively. Average rate posted another strong year of growth, at 4.7% in 2015, in pace with the annual growth of the last four years. Robust job growth, heightened group and leisure travel, and waning price-sensitivity all contributed to the gains. In 2016, occupancy showed virtually no change, as demand growth kept pace with supply additions. Occupancy then moved even higher in 2017, to a new peak of 65.9%. Average rate increased roughly 3% and 2% in 2016 and 2017, respectively. By year-end 2017, the net change in RevPAR was 3.0%, reflecting a healthy lodging market overall. However, we note that industry experts report that the strong 2017 industry performance was enhanced by demand generated by the hurricanes, floods, and fires experienced throughout the U.S. in September and October. The performance of several major markets indicates that many areas continue to benefit in 2018 from the demand generated by insurance adjusters, displaced residents, and contractors. Year-to-date statistics through April reflect a 0.6-point occupancy increase, while average rate increased by just over $3.00, resulting in a 3.7% upward change in RevPAR.
According to STR Global, as of December 31, 2017, the greater Orlando, FL area had 498 hotels with a total of 124,879 guestrooms. These totals represent a 0.8% change over the 2016 year-end inventory of 123,878 guestrooms. The following table presents the historical occupancy, average rate, and RevPAR data for the Orlando metropolitan area for the years 2000 through 2017, as well as for the comparative year-to-date period ending in April 2017 and 2018.
Orlando, FL Lodging Market
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FIGURE 4-4 ORLANDO LODGING MARKET DATA – 2000 TO YTD APRIL 2018
Year
2000 72.1 % — $86.07 — $62.06 —
2001 64.0 (11.2) % 88.14 2.4 % 56.41 (9.1) %
2002 62.6 (2.2) 86.16 (2.2) 53.94 (4.4)
2003 62.7 0.2 84.94 (1.4) 53.26 (1.3)
2004 70.7 12.8 87.78 3.3 62.06 16.5
2005 70.7 0.0 91.91 4.7 64.98 4.7
2006 67.7 (4.2) 100.52 9.4 68.05 4.7
2007 67.9 0.3 105.82 5.3 71.85 5.6
2008 65.9 (2.9) 106.11 0.3 69.93 (2.7)
2009 60.7 (7.9) 92.91 (12.4) 56.40 (19.3)
2010 63.2 4.1 91.95 (1.0) 58.11 3.0
2011 67.6 7.0 93.94 2.2 63.50 9.3
2012 68.8 1.8 96.88 3.1 66.65 5.0
2013 71.0 3.2 101.53 4.8 72.09 8.2
2014 73.7 3.8 108.03 6.4 79.62 10.4
2015 76.7 4.1 112.05 3.7 85.94 7.9
2016 75.6 (1.4) 115.93 3.5 87.64 2.0
2017 79.3 4.9 121.53 4.8 96.37 10.0
Year to date through April
2017 82.3 % $133.22 $109.64
2018 83.2 1.1 % 140.90 5.8 % 117.23 6.9 %
Average Annual Compound Growth
2000 to 2017 0.6 % 2.1 % 2.6 %
Percent
Change
Source: STR Global , STR Monthly Hotel Review
Occupancy
Percent
Change Average Rate
Percent
Change RevPAR
World-class theme parks, local employers, and the convention center represent the primary sources of demand in the greater Orlando market. Occupancy spiked in 2004 because of the active hurricane season that year and the related demand increase from recovery personnel. Demand levels remained relatively stable in 2005 and then decreased in 2006, as the temporary demand dissipated. Average rate (ADR) in the local market increased from 2004 through 2007 given the strength of the economy during that time, with little rate-resistance from leisure travelers. In 2007, occupancy remained relatively stable, but declined again in 2008 with the onset of the Great Recession. In 2009, with the recession in full swing, both occupancy and ADR dropped; average rate also declined in 2010 along with the nationwide contraction of destination travel and lower levels of discretionary spending. Occupancy began to recover in 2010, and ADR increased in 2011, largely due to the opening of new attractions at the local theme parks. In line with the
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 51
broader economic recovery, ADR in 2013 exceeded its previous peak, and occupancy in 2014 rebounded above the strong 2004 and 2005 levels. Both metrics increased in 2015. Although supply has steadily increased since 2012, the Orlando market sustained strong RevPAR growth from 2011 through 2015. Data for 2016 illustrate increases in ADR and RevPAR, although occupancy declined modestly. In 2017, both occupancy and ADR increased significantly, with RevPAR increasing 10% over 2016. Occupancy peaked in 2017 given strong demand growth across all segments. With all three indices recording continued growth in 2017, growth in 2018 in anticipated to be predominantly ADR-driven amid a steady increase in demand and limited new supply entering the market. Forecasted economic growth throughout the MSA, ongoing expansions at Orlando International Airport, and ongoing developments at area resorts and attractions should support demand growth in the near future.
As previously noted, STR is an independent research firm that compiles and publishes data on the lodging industry, routinely used by typical hotel buyers. HVS has custom ordered and analyzed an STR Trend Report of historical supply and demand data for a group of hotels considered applicable to this analysis for the proposed subject hotel. This information is presented in the following table, along with the market-wide occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.
Historical Supply and Demand Data
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 52
Hotels Included in Sample Proximity to Proposed Hotel Site
Radisson Hotel Orlando Lake Buena Vis ta Upscale Class Radisson 196 Feb 2008 Jan 1984 Approximately 8.6 mi les
Delta Hotel Orlando Lake Buena Vis ta Upper Upscale Class Marriott 241 Jan 2016 Feb 1985 Approximately 8.9 mi les
Courtyard Orlando Lake Buena Vis ta @ Vis ta Centre Upscale Class Marriott 308 Jan 1999 May 1989 Approximately 8.8 mi les
Staybridge Suites Lake Buena Vis ta Upscale Class IHG 150 Oct 2003 Sep 1993 Approximately 9.1 mi les
Autograph Col lection Bohemian Hotel Celebration Upper Upscale Class Marriott 115 Apr 2010 Nov 1999 Approximately 8.4 mi les
Courtyard Orlando Lake Buena Vis ta In The Marriott Vi l lage Upscale Class Marriott 312 Oct 2000 Oct 2000 Approximately 8.3 mi les
Springhi l l Sui tes Lake Buena Vis ta In The Marriott Vi l lage Upscale Class Marriott 400 Dec 2000 Dec 2000 Approximately 8.3 mi les
Springhi l l Sui tes Orlando Kiss immee Upscale Class Marriott 150 Feb 2015 Dec 2000 Approximately 5.7 mi les
Res idence Inn Orlando Lake Buena Vis ta Upscale Class Marriott 210 May 2001 May 2001 Approximately 8.8 mi les
Hol iday Inn Express & Suites South Lake Buena Vis ta Upper Midsca le Class IHG 162 Nov 2017 Oct 2001 Approximately 5.7 mi les
Hampton Inn Suites Orlando South Lake Buena Vis ta Upper Midsca le Class Hi l ton 125 Feb 2008 Feb 2008 Approximately 5.7 mi les
Mel ia Orlando Hotel @ Celebration Upscale Class Mel ia 285 Sep 2011 May 2008 Approximately 8.4 mi les
Homewood Suites Lake Buena Vis ta Orlando Upscale Class Hi l ton 130 Jun 2009 Jun 2009 Approximately 8.8 mi les
Hi l ton Garden Inn Lake Buena Vis ta Orlando Upscale Class Hi l ton 137 Jul 2009 Jul 2009 Approximately 8.8 mi les
Embassy Suites Orlando Lake Buena Vis ta South Upper Upscale Class Hi l ton 300 Sep 2012 Sep 2012 Approximately 5.7 mi les
Courtyard Orlando South John Young Parkway Upscale Class Marriott 128 May 2015 May 2015 Approximately 8.8 mi les
Fa irfield Inn & Suites Orlando Kiss immee Celebration Upper Midsca le Class Marriott 150 Jun 2016 Jun 2016 Approximately 8 mi les
Hyatt Place Orlando Lake Buena Vis ta Upscale Class Hyatt 169 Oct 2016 Oct 2016 Approximately 8.9 mi les
Total 3,668
Source: STR
Class
Number
of Rooms
Year
Opened
Brand Year
Affiliation Affiliated
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 53
It is important to note some limitations of the STR data. Hotels are occasionally added to or removed from the sample; furthermore, not every property reports data in a consistent and timely manner. These factors can influence the overall quality of the information by skewing the results, and these inconsistencies may also cause the STR data to differ from the results of our competitive survey. Nonetheless, STR data provide the best indication of aggregate growth or decline in existing supply and demand; thus, these trends have been considered in our analysis. Opening dates, as available, are presented for each reporting hotel in the previous table.
The STR data for the competitive set reflect a market-wide occupancy level of 2017 in 82.1%, which compares to 75.0% for 2016. The STR data for the competitive set reflect a market-wide ADR level of $114.42 in 2017, which compares to $112.15 For 2016. These occupancy and ADR trends resulted in a RevPAR level of $93.92 in 2017.
Both market occupancy and average rate declined in 2009 given an increase in supply and the effects of the national recession, which forced hotel operators to decrease average rates in order to maintain occupancy. In 2010, demand increased significantly, while average rate declined and bottomed out in the high $80s; however, the increased occupancy levels resulted in positive RevPAR growth. The recovery of RevPAR continued in 2011, surpassing RevPAR levels from 2008, and this positive trend extended through 2015. This positive trend was attributed to the improvement in the national and global economies, the addition of high-quality nationally branded hotels, and strong demand levels. RevPAR declined in 2016, as supply growth outpaced demand increases for the selected set of hotels; furthermore, the increased competition forced local operators to lower average rates slightly in order to maintain occupancy levels. RevPAR growth resumed in 2017 and continued through the trailing-twelve-month period ending in April 2018, with growth driven largely by demand growth. Demand was strong to start 2017. Furthermore, similar to many hotel markets in Orlando and throughout Florida, this market experienced a surge in demand in September 2018 given the presence of evacuees and relief efforts from hurricanes during that month, which historically is considered to be one of the weaker months during the year.
Year-to-date 2018 data illustrate continued strengthening in occupancy and a roughly $7 gain in average rate (ADR), following the significant upward change in occupancy in 2017 relative to 2016 levels. RevPAR reached its high point in the spring of 2018. The overall strong economy, resulting in increased leisure travel, and the stability in supply have contributed to the latest trend. The near-term outlook is positive due to continued economic growth in the region and major expansions and investments at the area's major demand generators. Market participants expect that going forward, RevPAR growth will be related to modest
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 54
average rate increases because of aggressive yield management amid steady growth in room night demand.
The illustrated monthly occupancy and ADR patterns reflect important seasonal characteristics. We have reviewed these trends in developing our forthcoming forecast of market-wide demand and average rate.
Monthly occupancy and ADR trends are presented in the following tables.
Seasonality
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 55
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 57
The competitive market is characterized by a moderate degree of seasonality, which is evident in the monthly occupancy statistics. The strongest occupancy levels are recorded in February and March, when demand from leisure travelers supplements the commercial segment that is the principal source of demand in this submarket. Average rate levels reflect a similar trend, with highest rates recorded in January, February, and March.
A review of the trends in occupancy and average rate by day of the week provides some insight into the impact that the current economic conditions have had on the competitive lodging market. The data, as provided by STR, are illustrated in the following tables.
FIGURE 4-9 OCCUPANCY BY DAY OF WEEK (TRAILING 12 MONTHS)
Month Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Month
In most markets, business travel, including individual commercial travelers and corporate groups, is the predominant source of demand on Monday through Thursday nights. Leisure travelers and non-business-related groups generate a majority of demand on Friday and Saturday nights. The influence of the transient leisure segment, particularly demand generated by major theme parks, is evident in the occupancy levels recorded on Friday and Saturday nights throughout the year.
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Based on an evaluation of the occupancy, rate structure, market orientation, chain affiliation, location, facilities, amenities, reputation, and quality of each area hotel, as well as the comments of management representatives, we have identified several properties that are expected to be primarily competitive with the proposed subject hotel. Additional lodging facilities may be judged only secondarily competitive; although the facilities, rate structures, or market orientations of these hotels prevent their inclusion among the primary competitive supply, they are expected to compete with the proposed subject hotel to some extent.
The following table summarizes the important operating characteristics of the future competitors with an average daily rate over $100, considered to be primary competition, and the aggregate of the competitors with an average rate of $100 and below, which are considered to be secondarily competitive. This information is presented in order from highest to lowest estimated average daily rate. This information was compiled from personal interviews, inspections, online resources, and our in-house database of operating and hotel facility data.
SUPPLY
Competitors
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 60
FIGURE 4-12 COMPETITORS WITH AN AVERAGE DAILY RATE OF OVER $100 – OPERATING PERFORMANCE
Hampton Inn & Suites Orlando South Lake Buena Vis ta 125 90 10 125 75 - 80 100 - 105 75 - 80 125 80 - 85 105 - 110 85 - 90 95 - 100 90 - 95
SpringHi l l Sui tes by Marriott Orlando Lake Buena Vis ta in Marriott Vi l lage 400 85 15 400 80 - 85 105 - 110 85 - 90 400 85 - 90 105 - 110 90 - 95 100 - 110 95 - 100
Courtyard by Marriott Orlando Lake Buena Vis ta in the Marriott Vi l lage 312 75 25 312 75 - 80 100 - 105 75 - 80 312 80 - 85 105 - 110 90 - 95 100 - 110 90 - 95
* Specific occupancy and average rate data were utilized in our analysis, but are presented in ranges in the above table for the purposes of confidentiality.
Average RateTran
sient
Gro
upNumber of
Rooms Average Rate Occ.
Weighted
Annual
Room
Count
Weighted
Annual
Room
Count
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 61
The following map illustrates the locations of the subject property and its future competitors.
MAP OF COMPETITION
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 62
It is important to consider any new hotels that may have an impact on the proposed subject hotel’s operating performance. The following chart sets forth the hotels that have recently opened, are under construction, or are in the stages of early development in the Kissimmee area. The list is categorized by the principal submarkets within the city.
FIGURE 4-13 AREA DEVELOPMENT ACTIVITY
Proposed Hotel Name Hotel Product Tier Development StageProposed Hotel 0
Osceola County
Proposed Home2 Suites Kiss immee/Celebration 140 Upper-Midscale Early Development Q1 '20
Proposed Hampton by Hi l ton OBT 125 Upper-Midscale Due Di l igence Period TBD
Estimated
Number of
Rooms
Expected
Qtr. & Year
of Opening
Of the hotels listed in the preceding chart, we have identified the following new supply that is expected to have some degree of competitive interaction with the proposed subject hotel, based on location, anticipated market orientation and price point, and/or operating profile.
FIGURE 4-14 NEW SUPPLY
Total
Proposed Property
Number
of Rooms
Competitive
LevelEstimated Opening
Date Development Stage
Proposed Subject Property 120 100 % 120 March 1, 2020 Early Development
Proposed Home2 Suites Kiss immee/Celebration 140 100 140 January 1, 2020 Early Development
Proposed Hampton by Hi l ton OBT 125 50 63 June 1, 2020 Due Di l igence Period
Totals/Averages 385 323
Weighted
Room
Count
The proposed Home2 Suites by Hilton Celebration/Kissimmee will be located near the existing Fairfield Inn by Marriott Orlando Kissimmee Celebration and will offer a similar product type. We have considered this proposed hotel to be fully competitive given its proposed location, product quality, and price point. A Hampton by Hilton is proposed for a site near the Tupperware Brands Corporation headquarter offices in Kissimmee; however, we have weighted this hotel at a lower competitive level, as the status of this development was uncertain as of early June 2018.
Supply Changes
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 63
While we have taken reasonable steps to investigate proposed hotel projects and their status, due to the nature of real estate development, it is impossible to determine with certainty every hotel that will be opened in the future, or what their marketing strategies and effect in the market will be. Depending on the outcome of current and future projects, the future operating potential of the proposed subject hotel may be affected. Future improvement in market conditions will raise the risk of increased competition. Our forthcoming forecast of stabilized occupancy and average rate is intended to reflect such risk.
We have identified various properties that are expected to be competitive to some degree with the proposed subject hotel. We have also investigated potential increases in competitive supply in this Kissimmee submarket. The Proposed Hotel at Lake Toho, Kissimmee, FL should enter a dynamic market of varying product types and price points. Next, we will present our forecast for demand change, using the historical supply data presented as a starting point.
The following table presents the most recent trends for the subject hotel market as tracked by HVS. These data pertain to the competitors discussed previously in this section; performance results are estimated, rounded for the competition, and in some cases weighted if there are secondary competitors present. In this respect, the information in the table differs from the previously presented STR data and is consistent with the supply and demand analysis developed for this report.
For the purpose of demand analysis, the overall market is divided into individual segments based on the nature of travel. Based on our fieldwork, area analysis, and knowledge of the local lodging market, we estimate the 2017 distribution of accommodated-room-night demand as follows.
Supply Conclusion
DEMAND
Demand Analysis Using Market Segmentation
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 64
FIGURE 4-16 ACCOMMODATED-ROOM-NIGHT DEMAND
Marketwide
Market Segment
Trans ient 824,824 80 %
Group 211,049 20
Total 1,035,874 100 %
Accommodated
Demand
Percentage
of Total
The market’s demand mix comprises transient demand, with this segment representing roughly 80% of the accommodated room nights in this Kissimmee submarket. The group segment comprises 20% of the total.
Using the distribution of accommodated hotel demand as a starting point, we will analyze the characteristics of each market segment in an effort to determine future trends in room-night demand.
Transient demand consists of individuals and families spending time in an area or passing through en route to other destinations; this segment represents travelers that are not associated with a group or room-night contract. Travel purposes include business, sightseeing, recreation, or visiting friends and relatives. Transient demand also includes room nights booked through Internet sites such as Expedia, Hotels.com, and Priceline; however, this demand may include group and convention attendees who use these channels to take advantage of any discounts that may be available on these sites. In resort destinations, transient demand is strongest Friday and Saturday nights, and all week during holiday periods and the summer months. In urban and suburban destinations, transient demand is typically strongest on Tuesday, Wednesday, and Thursday nights. The typical length of stay ranges from one to four days, depending on the destination and travel purpose. The rate of double occupancy typically ranges from 1.0 to 3.0 people per room, with higher double occupancy occurring in resort destinations. Price sensitivity tends to vary with product type. All-suite properties with inclusive food and beverage or luxury destination properties tend to drive strong transient room rates, with discounted rates offered at older or value-oriented hotels with limited amenities. For destination locations, future transient demand is related to the overall economic health of the primary source cities for visitation; the overall economic health of the surrounding neighborhood is considered for urban and suburban locations.
Primary transient leisure demand generators for this market include theme parks in the area, most notably Walt Disney World Resort, Universal Orlando Resort, and
Transient Segment
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 65
SeaWorld Orlando. Additionally, transient leisure demand in the local Kissimmee market is generated by visitors to Lake Tohopekaliga, the Osceola Heritage Park and nearby youth sporting complexes, and the Kissimmee Civic Center. Lake Tohopekaliga is a well-known destination for bass fishing throughout the year. Transient demand is also generated by commercial demand sources in the area, including the Osceola County Courthouse, Osceola Regional Medical Center, Florida Hospital Kissimmee, and Tupperware Brands Corporation's offices. Consultants and government officials from outside Kissimmee were reported to use hotels closer to Interstate 4 and State Highway 535 while completing business in Downtown Kissimmee. Doctors, traveling nurses, and healthcare industry participants reportedly create room-night demand in the local market when visiting the two major hospitals in the area. Additional demand is anticipated to be created by the NeoCity Tech Center developments as they continue to grow. Demand from small aircraft owners, transitory flight crews, and professionals taking accelerated flight training courses at the nearby the Kissimmee Gateway Airport also reportedly utilizes hotels near State Highway 535. We project overall demand in this segment to increase by the stabilized year.
In the limited-service sector, group demand is most commonly generated by groups that require ten or more room nights, but need little to no meeting space within the hotel. Examples of these groups include family reunions, sports teams, and bus tours. In some markets, limited-service hotels may also accommodate demand from groups or individuals attending events at the local convention center or at one of the larger convention hotels in the area.
A wide variety of youth sporting groups visiting the ESPN Wide World of Sports Complex generate meeting and group demand for local hotels; additionally, group demand is also generated by baseball and softball tournaments held at the sporting complex adjacent to the Osceola County Stadium. The proximity to theme parks is attractive for tournaments and competitions, as competitors and their families often stay for several nights. Lake Tohopekaliga is a well-known destination for bass fishing and hosts numerous tournaments during the year, including the Bass Pro Shops Bassmaster Eastern Open. Furthermore, family reunions, weddings, and bus tours also represent primary sources of demand during weekend and holiday periods. Local officials noted that the Berlinsky Community House and Kissimmee Civic Center generate hotel room nights for special events and weddings; moreover, the recent redevelopment of the Kissimmee Lakefront Park, which offers several pavilions, is anticipated to be a source of demand moving forward for various events held at the park. The potential to attract some smaller scale aviation conventions was also noted as a potential demand source.
Group Segment
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The purpose of segmenting the lodging market is to define each major type of demand, identify customer characteristics, and estimate future growth trends. Starting with an analysis of the local area, two segments were defined as representing the subject property’s lodging market. Various types of economic and demographic data were then evaluated to determine their propensity to reflect changes in hotel demand. Based on this procedure, we forecast the following average annual compounded market-segment growth rates.
FIGURE 4-17 AVERAGE ANNUAL COMPOUNDED MARKET-SEGMENT GROWTH RATES
We have decreased the base demand growth for 2018 given the presence of non-recurring demand in September and October 2017 from hurricane evacuees and relief workers.
A table presented earlier in this section illustrated the accommodated-room-night demand in the subject property’s competitive market. Because this estimate is based on historical occupancy levels, it includes only those hotel rooms that were used by guests. Latent demand reflects potential room-night demand that has not been realized by the existing competitive supply, further classified as either unaccommodated demand or induced demand.
Unaccommodated demand refers to individuals who are unable to secure accommodations in the market because all the local hotels are filled. These travelers must defer their trips, settle for less desirable accommodations, or stay in properties located outside the market area. Because this demand did not yield occupied room nights, it is not included in the estimate of historical accommodated-room-night demand. If additional lodging facilities are expected to enter the market, it is reasonable to assume that these guests will be able to secure hotel rooms in the future, and it is therefore necessary to quantify this demand.
Unaccommodated demand is further indicated if the market is at all seasonal, with distinct high and low seasons; such seasonality indicates that although year-end occupancy may not average in excess of 70%, the market may sell out certain nights during the year. To evaluate the incidence of unaccommodated demand in the market, we have reviewed the average occupancy by the night of the week for the
Base Demand Growth Rates
Latent Demand
Unaccommodated Demand
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 67
past twelve months for the competitive set, as reflected in the STR data. This is set forth in the following table.
FIGURE 4-18 OCCUPANCY BY NIGHT OF THE WEEK
Month Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Month
Our interviews with market participants found that the market generally sells out on Friday and Saturday nights during the peak travel season, as well as sporadically within other periods throughout the year. Special events, tournaments, competitions, as well as the consistent demand visiting local theme parks regularly sell out competitive hotels. A portion of this demand, which is currently turned away, should return to the market concurrent with the supply increase. The following table presents our estimate of unaccommodated demand in the subject market.
FIGURE 4-19 UNACCOMMODATED DEMAND ESTIMATE
Market Segment
Trans ient 824,824 2.5 % 20,730
Group 211,049 1.5 3,196
Total 1,035,874 2.3 % 23,926
Unaccommodated
Demand Percentage
Unaccommodated
Room Night Demand
Accommodated Room
Night Demand
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 68
Accordingly, we have forecast unaccommodated demand equivalent to 2.3% of the base-year demand, resulting from our analysis of monthly and weekly peak demand and sell-out trends.
Induced demand represents the additional room nights that are expected to be attracted to the market following the introduction of a new demand generator. Situations that can result in induced demand include the opening of a new manufacturing plant, the expansion of a convention center, or the addition of a new hotel with a distinct chain affiliation or unique facilities. Although increases in demand are expected in the local market, we have accounted for this growth in the determination of market-segment growth rates rather than induced demand.
Based upon a review of the market dynamics in the subject property’s competitive environment, we have forecast growth rates for each market segment. Using the calculated potential demand for the market, we have determined market-wide accommodated demand based on the inherent limitations of demand fluctuations and other factors in the market area.
The following table details our projection of lodging demand growth for the subject market, including the total number of occupied room nights and any residual unaccommodated demand in the market.
Induced Demand
Accommodated Demand and Market-wide Occupancy
June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 69
¹ Opening in March 2020 of the 100% competitive, 120-room Proposed Subject Property²
Opening in January 2020 of the 100% competitive, 140-room Proposed Home2 Suites Kiss immee/Celebration³
Opening in June 2020 of the 50% competitive, 125-room Proposed Hampton by Hi l ton OBTA Change of room count in November 2017 of the 75% competitive, Hol iday Inn Express & Suites South Lake Buena Vis ta
Existing Hotel Supply
Proposed Hotels
Totals
Trans ient
Group
Total Demand
Growth Rate
Unaccommodated Demand
2023
Base Demand
Total Demand
Group
Base Demand
Transient
2017 2018 2019 2020 2021 2022
The defined competitive market of hotels should experience modest occupancy growth by the stabilized year. Based on historical occupancy levels in this market, and taking into consideration typical supply and demand cyclicality, market occupancy is forecast to stabilize in the high 70s.
June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 70
5. Projection of Occupancy and Average Rate
Along with average rate results, the occupancy levels achieved by a hotel are the foundation of the property's financial performance and market value. Most of a lodging facility's other revenue sources (such as food, beverages, other operated departments, and rentals and other income) are driven by the number of guests, and many expense levels vary with occupancy. To a certain degree, occupancy attainment can be manipulated by management. For example, hotel operators may choose to lower rates in an effort to maximize occupancy. Our forecasts reflect an operating strategy that we believe would be implemented by a typical, professional hotel management team to achieve an optimal mix of occupancy and average rate.
The subject property's forecasted market share and occupancy levels are based upon its anticipated competitive position within the market, as quantified by its penetration rate. The penetration rate is the ratio of a property's market share to its fair share.
In the following table, the penetration rates attained by the primary competitors and the aggregate secondary competitors are set forth for each segment for the base year.
Penetration Rate Analysis
Historical Penetration Rates by Market Segment
June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 71
FIGURE 5-1 HISTORICAL PENETRATION RATES
Property
Bohemian Hotel Celebration Autograph Col lection 105 % 46 % 93 %
Staybridge Suites Orlando Lake Buena Vis ta 119 116 119
Res idence Inn by Marriott Orlando Lake Buena Vis ta 95 123 100
Courtyard by Marriott Orlando South/John Young Parkway 105 102 104
Embassy Suites Orlando Lake Buena Vis ta South 87 146 99
Homewood Suites by Hi l ton Lake Buena Vis ta Orlando 118 115 117
Hyatt Place Orlando Lake Buena Vis ta 107 140 114
Hi l ton Garden Inn Lake Buena Vis ta Orlando 101 169 115
Mel ia Orlando at Celebration 101 70 94
Hampton Inn & Suites Orlando South Lake Buena Vis ta 112 49 99
SpringHi l l Sui tes by Marriott Orlando Lake Buena Vis ta in Marriott Vi l lage 111 77 104
Courtyard by Marriott Orlando Lake Buena Vis ta in the Marriott Vi l lage 96 125 102
Fairfield Inn & Suites Orlando Kiss immee Celebration 103 45 91
SpringHi l l Sui tes Orlando Kiss immee 90 88 90
Secondary Competition 90 90 90
Ove
rall
Tran
sient
Gro
up
The Staybridge Suites Orlando Lake Buena Vista achieved the highest penetration rate within the transient segment. The highest penetration rate in the group segment was achieved by the Hilton Garden Inn Lake Buena Vista Orlando.
Because the supply and demand balance for the competitive market is dynamic, 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 example) or negatively (when a poorly maintained or marketed hotel loses market share).
A hotel’s penetration factor is calculated as its achieved market share of demand divided by its fair share of demand. Thus, if one hotel’s penetration performance increases, thereby increasing its achieved market share, this leaves less demand available in the market for the other hotels to capture and the penetration performance of one or more 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 performance of one or more hotels in the competitive market. Our projections of penetration,
Forecast of Subject Property’s Occupancy
June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 72
demand capture, and occupancy performance for the subject property account for these types of adjustments to market share within the defined competitive market.
The proposed subject hotel's occupancy forecast is set forth as follows, with the adjusted projected penetration rates used as a basis for calculating the amount of captured market demand.
FIGURE 5-2 FORECAST OF SUBJECT PROPERTY'S OCCUPANCY
Market Segment
Transient
Demand 851,034 858,194 862,485 862,485
Market Share 2.3 % 2.9 % 2.9 % 2.9 %
Capture 19,653 24,641 25,299 25,299
Penetration 85 % 90 % 92 % 92 %
Group
Demand 214,851 216,371 217,453 217,453
Market Share 2.4 % 3.2 % 3.2 % 3.2 %
Capture 5,241 6,892 7,063 7,063
Penetration 90 % 100 % 102 % 102 %
Total Room Nights Captured 24,895 31,533 32,362 32,362
The proposed subject hotel is expected to stabilize with a penetration rate under the market-average level and within the range of the existing competition due to its proposed location in Downtown Kissimmee, anticipated national brand affiliation, and distance from the majority of the region's major demand generators. This penetration level appropriately ramps up during the early years of operation as the hotel gains recognition in the local market. Commercial accounts from the area's transient demand sources will need to visit the property after its opening, and then perhaps test the property with one or two guests, before sending substantial levels of business to the hotel (for both small group and transient corporate travelers). Leisure travelers may need to first see the hotel, as well, before staying at the hotel on their next return visit. Accordingly, by the stabilized year, the proposed hotel
June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 73
reaches an appropriate penetration level based on our assessment of its planned guestroom count, location, and well-recognized brand affiliation, among other factors. Additional insights by segment are presented as follows:
• Within the transient segment, the proposed subject hotel’s occupancy penetration is positioned at a below-market-average level by the stabilized period due to the distance of the subject site from the major regional demand sources, relative to the existing competition. The proposed subject hotel is anticipated to capture a portion of the existing transient demand from individuals working in the local market and staying at hotels located over five miles away from the subject site.
• The proposed subject hotel is expected to become a competitive option for groups demand holding events and competitions in the Kissimmee area; however, the distance of the subject site from the ESPN Wide World of Sports Complex is considered somewhat of a disadvantage when compared to the hotels in the competitive market. We have positioned the proposed subject hotel's group occupancy penetration at the market-average level as the proximity to the Berlinsky Community House, Kissimmee Civic Center, Osceola Heritage Park and nearby sports facilities, and Lake Tohopekaliga should allow the hotel to attract group demand from these sources. A portion of the demand generated from these sources is currently captured by hotels over five miles away.
These positioned segment penetration rates result in the following market segmentation forecast.
Based on our analysis of the proposed subject hotel and market area, we have selected a stabilized occupancy level of 74%. The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life, given all changes in the life cycle of the hotel. Thus, the stabilized occupancy excludes from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusually high or low occupancies. Although the subject property may operate at occupancies
June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 74
above this stabilized level, we believe it equally possible for new competition and temporary economic downturns to force the occupancy below this selected point of stability.
One of the most important considerations in estimating the value of a lodging facility is a supportable forecast of its attainable average rate, which is more formally defined as the average rate per occupied room. Average rate can be calculated by dividing the total rooms revenue achieved during a specified period by the number of rooms sold during the same period. The projected average rate and the anticipated occupancy percentage are used to forecast rooms revenue, which in turn provides the basis for estimating most other income and expense categories.
Although the average rate analysis presented here follows the occupancy projection, these two statistics are highly correlated; in reality, one cannot project occupancy without making specific assumptions regarding average rate. This relationship is best illustrated by revenue per available room (RevPAR), which reflects a property's ability to maximize rooms revenue. The following table summarizes the historical average rate and the RevPAR of the subject property’s future competitors.
Average Rate Analysis
Competitive Position
June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 75
FIGURE 5-4 BASE-YEAR AVERAGE RATE AND REVPAR OF THE COMPETITORS
SpringHi l l Sui tes Orlando Kiss immee 100 - 105 85 - 90 75 - 80 75 - 80
Average - Primary Competitors $120.16 103.9 % $101.64 106.4 %
Average - Secondary Competitors 94.68 81.9 70.49 73.8
Overall Average $115.65 100.0 % $95.52 100.0 %
Estimated 2017
Average Room
Rate
Average Room
Rate Penetration
Rooms Revenue
Per Available
Room (RevPAR)
RevPAR
Penetration
The defined primarily competitive market realized an overall average rate of $120.16 in the 2017 base year, improving from the 2016 level of $119.08. We have analyzed the historical average rate data for the historical set and arranged this data
June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 76
in order from highest to lowest for the year-end 2017 period. Additionally, we have grouped this data into hotels that achieved an average daily rate above $100 and hotels that operated under this level. The Bohemian Hotel Celebration Autograph Collection achieved the highest estimated average rate in the selected competitive market, by a significant margin, because of its high-quality upper-upscale product offering, location in Celebration, proximity to leisure and commercial demand generators, and Marriott affiliation. Other important rate aspects of this market include the relatively modest average rate growth in recent years given the focus on price-sensitive leisure travelers and the presence of lower-rated group demand in the market. The selected rate position for the proposed subject hotel, in base-year dollars, takes into consideration factors such as the hotel's proximity to area demand generators, location in Downtown Kissimmee, and proposed guestroom count, as well as the anticipated future growth in this downtown market. We have selected the rate position of $120.00, in base-year (2017) dollars, for the proposed subject.
Market-wide rates began to trend upward in 2011. Average rate declined minimally in 2016 given the influx of new supply that year. We expect average rates to continue to improve because of the year-to-date data as well as strong demand and occupancy levels. As previously noted, similar to other Orlando-area submarkets, market participants appear confident that going forward, RevPAR growth will be due to modest average rate increases related to aggressive yield management amid steady growth in room-night demand.
Based on these considerations, the following table illustrates the projected average rate and the growth rates assumed. As a context for the average rate growth factors, note that we have applied underlying inflation rates of 2.5%, 2.5%, and 3.0% thereafter for each respective year following the base year of 2017.
June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 77
FIGURE 5-5 COMPARISON OF HISTORICAL AND PROJECTED OCCUPANCY, AVERAGE RATE, AND REVPAR – PROPOSED SUBJECT PROPERTY AND MARKET
ADR Expressed in Base-Year Dol lars Deflated @ Inflation Rate $117.45 $120.41 $124.13 $124.13
As illustrated above, a 4.0%% rate of change is expected for the proposed subject hotel's positioned 2017 room rate in 2018. This is followed by growth rates of 4.0%% and 2.5%% in 2019 and 2020, respectively. This selected Kissimmee and Lake Buena Vista market should experience ADR growth through the near term. The proposed subject hotel's rate position should reflect growth similar to market trends because of the proposed hotel's new facility, the recommended well-recognized brand affiliation, and anticipated economic growth in the Kissimmee and Osceola County area moving forward. The proposed subject hotel’s penetration rate is forecast to reach 103.8% by the stabilized period.
A new property must establish its reputation and a client base in the market during its ramp-up period; as such, the proposed subject hotel’s average rates in the initial operating period have been discounted to reflect this likelihood. We forecast 5.0% and 3.0% discounts to the proposed subject hotel’s forecast room rates in the first two operating years, which would be typical for a new operation of this type.
The following occupancies and average rates will be used to project the subject property's rooms revenue; this forecast reflects years beginning on March 1, 2020, which correspond with our financial projections.
June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 79
FIGURE 5-7 FORECASTS OF OCCUPANCY, AVERAGE RATE, AND REVPAR
Year
2020/21 68 % $133.79 5.0 % $127.10
2021/22 72 138.36 3.0 134.21
2022/23 74 142.51 0.0 142.51
Occupancy
Average Rate
Before Discount Discount
Average Rate
After Discount
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 80
6. Projection of Income and Expense
In this chapter of our report, we have compiled a forecast of income and expense for the proposed subject hotel. This forecast is based on the facilities program set forth previously, as well as the occupancy and average rate forecast discussed previously.
The forecast of income and expense is expressed in current dollars for each year. The stabilized year is intended to reflect the anticipated operating results of the property over its remaining economic life, given any or all applicable stages of build-up, plateau, and decline in the life cycle of the hotel. Thus, income and expense estimates from the stabilized year forward exclude from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusual revenues or expenses. The ten-year period reflects the typical holding period of large real estate assets such as hotels. In addition, the ten-year period provides for the stabilization of income streams and comparison of yields with alternate types of real estate. The forecasted income streams reflect the future benefits of owning specific rights in income-producing real estate.
In order to project future income and expense for the proposed subject hotel, we have included a sample of individual comparable operating statements from our database of hotel statistics. All financial data are presented according to the three most common measures of industry performance: ratio to sales (RTS), amounts per available room (PAR), and amounts per occupied room night (POR). These historical income and expense statements will be used as benchmarks in our forthcoming forecast of income and expense.
Comparable Operating Statements
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 81
FIGURE 6-1 COMPARABLE OPERATING STATEMENTS: RATIO TO SALES
Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject
Year: 2017 2016/17 2016 2016 2015/16 2017
Edition: 11 11 11 11 10 11
Number of Rooms: 80 to 110 70 to 100 90 to 130 110 to 150 80 to 110 120
Days Open: 365 365 365 365 365 365
Occupancy: 77% 74% 80% 71% 80% 74%
Average Rate: $125 $118 $124 $121 $121 $124
RevPAR: $96 $88 $99 $86 $96 $91
REVENUE
Rooms 99.1 % 97.9 % 98.9 % 99.3 % 98.0 % 99.0 %
Other Operated Departments 0.9 1.3 0.7 0.4 1.0 0.8
Miscel laneous Income 0.0 0.8 0.0 0.3 1.0 0.2
Total 100.0 100.0 100.0 100.0 100.0 100.0
DEPARTMENTAL EXPENSES*
Rooms 19.2 20.5 22.2 24.2 22.4 21.5
Other Operated Departments 25.4 38.1 60.3 3.8 132.9 80.0
Total 19.2 20.6 22.4 24.1 23.3 21.9
DEPARTMENTAL INCOME 80.8 79.4 77.6 75.9 76.7 78.1
OPERATING EXPENSES
Adminis trative & General 10.2 8.8 5.7 7.5 9.2 8.5
Info. and Telecom. Systems 1.5 0.7 1.5 0.8 0.0 1.3
INCOME BEFORE FIXED CHARGES 55.96 49.60 58.83 51.23 51.84 53.04
Stabilized $
The departmental income of the comparable properties ranged from 75.9% to 80.8% of total revenue. The comparable properties achieved a house profit ranging from 44.8% to 49.0% of total revenue. We will refer to the comparable operating data in our discussion of each line item, which follows later in this section of the report.
HVS uses a fixed and variable component model to project a lodging facility's revenue and expense levels. This model is based on the premise that hotel revenues and expenses have one component that is fixed and another that varies directly with
Fixed and Variable Component Analysis
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 84
occupancy and facility usage. A projection can be made by taking a known level of revenue or expense and calculating its fixed and variable components. The fixed component is then increased in tandem with the underlying rate of inflation, while the variable component is adjusted for a specific measure of volume such as total revenue.
The actual forecast is derived by adjusting each year’s revenue and expense by the amount fixed (the fixed expense multiplied by the inflated base-year amount) plus the variable amount (the variable expense multiplied by the inflated base-year amount) multiplied by the ratio of the projection year’s occupancy to the base-year occupancy (in the case of departmental revenue and expense) or the ratio of the projection year’s revenue to the base year’s revenue (in the case of undistributed operating expenses). Fixed expenses remain fixed, increasing only with inflation. Our discussion of the revenue and expense forecast in this report is based upon the output derived from the fixed and variable model. This forecast of revenue and expense is accomplished through a systematic approach, following the format of the Uniform System of Accounts for the Lodging Industry. Each category of revenue and expense is estimated separately and combined at the end in the final statement of income and expense.
In consideration of the most recent trends, the projections set forth previously, and our assessment of probable property appreciation levels, we have applied underlying inflation rates of 2.5%, 2.5%, and 3.0% thereafter for each respective year following the base year of 2017. This stabilized inflation rate takes into account normal, recurring inflation cycles. Inflation is likely to fluctuate above and below this level during the projection period. Any exceptions to the application of the assumed underlying inflation rate are discussed in our write-up of individual income and expense items.
Based on an analysis that will be detailed throughout this section, we have formulated a forecast of income and expense. The following table presents a detailed forecast through the fifth projection year, including amounts per available room and per occupied room. The second table illustrates our ten-year forecast of income and expense, presented with a lesser degree of detail. The forecasts pertain to years that begin on March 1, 2020, expressed in inflated dollars for each year.
Inflation Assumption
Forecast of Income and Expense
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 85
FIGURE 6-4 DETAILED FORECAST OF INCOME AND EXPENSE
2020/21 Begins March 2021/22 Stabilized 2023/24 2024/25
Number of Rooms: 120 120 120 120 120
Occupancy: 68% 72% 74% 74% 74%
Average Rate: $127.10 $134.21 $142.51 $146.79 $151.19
RevPAR: $86.43 $96.63 $105.46 $108.62 $111.88
Days Open: 365 365 365 365 365
Occupied Rooms: 29,784 %Gross PAR POR 31,536 %Gross PAR POR 32,412 %Gross PAR POR 32,412 %Gross PAR POR 32,412 %Gross PAR POR
*Departmental expenses are expressed as a percentage of departmental revenues.
% of
Gross
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 87
The following description sets forth the basis for the forecast of income and expense. We anticipate that it will take three years for the subject property to reach a stabilized level of operation. Each revenue and expense item has been forecast based upon our review of the proposed subject hotel’s operating budget and comparable income and expense statements. The forecast is based upon fiscal years beginning March 1, 2020, expressed in inflated dollars for each year.
Rooms revenue is determined by two variables: occupancy and average rate. We projected occupancy and average rate in a previous section of this report. The proposed subject hotel is expected to stabilize at an occupancy level of 74% with an average rate of $142.51 in 2022/23. Following the stabilized year, the subject property’s average rate is projected to increase along with the underlying rate of inflation.
According to the Uniform System of Accounts, other operated departments include any major or minor operated department other than rooms and food and beverage. The proposed subject hotel's other operated departments revenue sources are expected to include the hotel's telephone charges, market pantry sales, and guest laundry fees. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel.
The miscellaneous income sources comprise those other than guestrooms, food and beverage, and the other operated departments. The proposed subject hotel's miscellaneous income revenues are expected to be generated primarily by the commissions earned on the vending sales and other minor collections, such as cancelation fees. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel. Changes in this revenue item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy.
Rooms Revenue
Other Operated Departments Revenue
Miscellaneous Income
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 88
Rooms expense consists of items related to the sale and upkeep of guestrooms and public space. Salaries, wages, and employee benefits account for a substantial portion of this category. Although payroll varies somewhat with occupancy and managers can generally scale the level of service staff on hand to meet an expected occupancy level, much of a hotel's payroll is fixed. A base level of front desk personnel, housekeepers, and supervisors must be maintained at all times. As a result, salaries, wages, and employee benefits are only moderately sensitive to changes in occupancy.
Commissions and reservations are usually based on room sales, and thus are highly sensitive to changes in occupancy and average rate. While guest supplies vary 100% with occupancy, linens and other operating expenses are only slightly affected by volume. The proposed subject hotel's rooms department expense has been positioned based upon our review of the comparable operating data and our understanding of the hotel's future service level and price point.
Other operated departments expense includes all expenses reflected in the summary statements for the divisions associated in these categories. This was previously discussed in this chapter. The proposed subject hotel's other operated departments revenue sources are expected to include the hotel's telephone charges, market pantry sales, and guest laundry fees. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel.
Rooms Expense
Other Operated Departments Expense
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 89
Administrative and general expense includes the salaries and wages of all administrative personnel who are not directly associated with a particular department. Expense items related to the management and operation of the property are also allocated to this category.
Most administrative and general expenses are relatively fixed. The exceptions are cash overages and shortages; commissions on credit card charges; provision for doubtful accounts, which are moderately affected by the number of transactions or total revenue; and salaries, wages, and benefits, which are very slightly influenced by volume. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject hotel, we have positioned the administrative and general expense level at a market- and property-supported level.
Information and telecommunications systems expense consists of all costs associated with a hotel’s technology infrastructure. This includes the costs of cell phones, administrative call and Internet services, and complimentary call and Internet services. Expenses in this category are typically organized by type of technology, or the area benefitting from the technology solution. We expect the proposed subject hotel's information and telecommunications systems to be well managed. Expense levels should stabilize at a typical level for a property of this type.
Marketing expense consists of all costs associated with advertising, sales, and promotion; these activities are intended to attract and retain customers. Marketing
Administrative and General Expense
Information and Telecommunications Systems Expense
Marketing Expense
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 90
can be used to create an image, develop customer awareness, and stimulate patronage of a property's various facilities.
The marketing category is unique in that all expense items, with the exception of fees and commissions, are totally controlled by management. Most hotel operators establish an annual marketing budget that sets forth all planned expenditures. If the budget is followed, total marketing expenses can be projected accurately.
Marketing expenditures are unusual because although there is a lag period before results are realized, the benefits are often extended over a long period. Depending on the type and scope of the advertising and promotion program implemented, the lag time can be as short as a few weeks or as long as several years. However, the favorable results of an effective marketing campaign tend to linger, and a property often enjoys the benefits of concentrated sales efforts for many months. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject hotel, we have positioned the marketing expense level at a market- and property-supported level.
We have used an average of typical franchise fees for hotels that offer a limited-service product within the upper-midscale chain scale.
Property operations and maintenance expense is another expense category that is largely controlled by management. Except for repairs that are necessary to keep the facility open and prevent damage (e.g., plumbing, heating, and electrical items), most maintenance can be deferred for varying lengths of time.
Maintenance is an accumulating expense. If management elects to postpone performing a required repair, they have not eliminated or saved the expenditure; they have only deferred payment until a later date. A lodging facility that operates with a lower-than-normal maintenance budget is likely to accumulate a considerable amount of deferred maintenance.
The age of a lodging facility has a strong influence on the required level of maintenance. A new or thoroughly renovated property is protected for several years
Franchise Fee
Property Operations and Maintenance
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 91
by modern equipment and manufacturers' warranties. However, as a hostelry grows older, maintenance expenses escalate. A well-organized preventive maintenance system often helps delay deterioration, but most facilities face higher property operations and maintenance costs each year, regardless of the occupancy trend. The quality of initial construction can also have a direct impact on future maintenance requirements. The use of high-quality building materials and construction methods generally reduces the need for maintenance expenditures over the long term.
We expect the proposed subject hotel's maintenance operation to be well managed. Expense levels should stabilize at a typical level for a property of this type. Changes in this expense item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy.
FIGURE 6-12 PROPERTY OPERATIONS AND MAINTENANCE EXPENSE
The utilities consumption of a lodging facility takes several forms, including water and space heating, air conditioning, lighting, cooking fuel, and other miscellaneous power requirements. The most common sources of hotel utilities are electricity, natural gas, fuel oil, and steam. This category also includes the cost of water service.
Total energy cost depends on the source and quantity of fuel used. Electricity tends to be the most expensive source, followed by oil and gas. Although all hotels consume a sizable amount of electricity, many properties supplement their utility requirements with less expensive sources, such as gas and oil, for heating and cooking. The changes in this utilities line item through the projection period are a result of the application of the underlying inflation rate and projected changes in occupancy.
Utilities Expense
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 92
Management expense consists of the fees paid to the managing agent contracted to operate the property. Some companies provide management services and a brand-name affiliation (first-tier management company), while others provide management services alone (second-tier management company). Some management contracts specify only a base fee (usually a percentage of total revenue), while others call for both a base fee and an incentive fee (usually a percentage of defined profit). Basic hotel management fees are often based on a percentage of total revenue, which means they have no fixed component. While base fees typically range from 2% to 4% of total revenue, incentive fees are deal specific and often are calculated as a percentage of income available after debt service and, in some cases, after a preferred return on equity. Total management fees for the proposed subject hotel have been forecast at 3.0% of total revenue.
Property (or ad valorem) tax is one of the primary revenue sources of municipalities. Based on the concept that the tax burden should be distributed in proportion to the value of all properties within a taxing jurisdiction, a system of assessments is established. Theoretically, the assessed value placed on each parcel bears a definite relationship to market value, so properties with equal market values will have similar assessments and properties with higher and lower values will have proportionately larger and smaller assessments.
Depending on the taxing policy of the municipality, property taxes can be based on the value of the real property or the value of the personal property and the real property. We have based our estimate of the proposed subject property's market value (for tax purposes) on an analysis of assessments of comparable hotel properties in the local municipality.
Management Fee
Property Taxes
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 93
FIGURE 6-14 COUNTY-ASSESSED VALUE OF COMPARABLE HOTELS
Year
Hotel Open
Bohemian Hotel Celebration Autograph Col lection 1999 $14,633,200 $1,170,122
Embassy Suites Orlando Lake Buena Vis ta South 2012 26,045,000 5,289,274
Hampton Inn & Suites Orlando South Lake Buena Vis ta 2008 5,396,600 1,257,168
Fairfield Inn & Suites Orlando Kiss immee Celebration 2016 10,218,300 Not Avai lable
SpringHi l l Sui tes Orlando Kiss immee 2000 13,444,500 1,768,063
Hol iday Inn Express & Suites South Lake Buena Vis ta 2001 5,951,900 537,640
Assessments per Room
Bohemian Hotel Celebration Autograph Col lection 115 $127,245 $10,175
Embassy Suites Orlando Lake Buena Vis ta South 300 86,817 17,631
Hampton Inn & Suites Orlando South Lake Buena Vis ta 125 43,173 10,057
Fairfield Inn & Suites Orlando Kiss immee Celebration 150 68,122 Not Avai lable
SpringHi l l Sui tes Orlando Kiss immee 150 89,630 11,787
Hol iday Inn Express & Suites South Lake Buena Vis ta 162 36,740 3,319
Positioned Subject - Per Room 120 $80,000 $10,000
Positioned Subject - Total $9,600,000 $1,200,000
# of Rms
Source: Osceola County Tax Col lector
Real Personal
Tax rates are based on the city and county budgets, which change annually. The most recent tax rate in this jurisdiction was reported at $14.383 per $1,000 of assessed value. The following table shows changes in the tax rate during the last several years.
FIGURE 6-15 COUNTY TAX RATES
Real Property
Year
2017 $14.383 $4.501 $18.884
School Personal Property
Source: Osceola County Tax Col lector
Millage Rate Millage Rate Millage Rate
Based on comparable assessments and the tax rate information, the proposed subject property's projected property tax expense levels are calculated as follows.
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 94
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 95
The insurance expense category consists of the cost of insuring the hotel and its contents against damage or destruction by fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, and so forth. General insurance costs also include premiums relating to liability, fidelity, and theft coverage.
Insurance rates are based on many factors, including building design and construction, fire detection and extinguishing equipment, fire district, distance from the firehouse, and the area's fire experience. Insurance expenses do not vary with occupancy.
Furniture, fixtures, and equipment are essential to the operation of a lodging facility, and their quality often influences a property's class. This category includes all non-real estate items that are capitalized, rather than expensed. The furniture, fixtures, and equipment of a hotel are exposed to heavy use and must be replaced at regular intervals. The useful life of these items is determined by their quality, durability, and the amount of guest traffic and use.
Periodic replacement of furniture, fixtures, and equipment is essential to maintain the quality, image, and income-producing potential of a lodging facility. Because capitalized expenditures are not included in the operating statement but affect an owner's cash flow, a forecast of income and expense should reflect these expenses in the form of an appropriate reserve for replacement.
The International Society of Hospitality Consultants (ISHC) oversees a major industry-sponsored study of the capital expenditure requirements for full-service/luxury, select-service, and extended-stay hotels. The most recent study was published in 2014.6 Historical capital expenditures of well-maintained hotels were investigated through the compilation of data provided by most of the major hotel companies in the United States. A prospective analysis of future capital expenditure
6 The International Society of Hotel Consultants, CapEx 2014, A Study of Capital
Expenditure in the U.S. Hotel Industry.
Insurance Expense
Reserve for Replacement
June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 96
requirements was also performed based upon the cost to replace short- and long-lived building components over a hotel's economic life. The study showed that the capital expenditure requirements for hotels vary significantly from year to year and depend upon both the actual and effective ages of a property. The results of this study showed that hotel lenders and investors are requiring reserves for replacement ranging from 4% to 5% of total revenue.
Based on the results of our analysis and on our review of the proposed subject asset and comparable lodging facilities, as well as on our industry expertise, we estimate that a reserve for replacement of 4% of total revenues is sufficient to provide for the timely and periodic replacement of the subject property's furniture, fixtures, and equipment. This amount has been ramped up during the initial projection period.
Projected total revenue. House profit, and EBITDA less replacement reserves are set forth in the following table.
FIGURE 6-21 FORECAST OF REVENUE AND EXPENSE CONCLUSION
June-2018 Statement of Assumptions and Limiting Conditions Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 97
7. Statement of Assumptions and Limiting Conditions
1. This report is set forth as a market study of the proposed subject hotel; this is not an appraisal report.
2. This report is to be used in whole and not in part.
3. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed marketable and free of any deed restrictions and easements. The property is evaluated as though free and clear unless otherwise stated.
4. We assume that there are no hidden or unapparent conditions of the sub-soil or structures, such as underground storage tanks, that would affect the property’s development potential. No responsibility is assumed for these conditions or for any engineering that may be required to discover them.
5. We have not considered the presence of potentially hazardous materials or any form of toxic waste on the project site. We are not qualified to detect hazardous substances and urge the client to retain an expert in this field if desired.
6. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have assumed the proposed hotel would be designed and constructed to be in full compliance with the ADA.
7. We have made no survey of the site, and we assume no responsibility in connection with such matters. Sketches, photographs, maps, and other exhibits are included to assist the reader in visualizing the property. It is assumed that the use of the described real estate will be within the boundaries of the property described, and that no encroachment will exist.
8. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS Consulting & Valuation are assumed true and correct. We can assume no liability resulting from misinformation.
9. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property.
10. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including the appropriate liquor license if applicable), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser.
June-2018 Statement of Assumptions and Limiting Conditions Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 98
11. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless specified otherwise.
12. None of this material may be reproduced in any form without our written permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media.
13. We are not required to give testimony or attendance in court because of this analysis without previous arrangements, and shall do so only when our standard per-diem fees and travel costs have been paid prior to the appearance.
14. If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this report, it is recommended that the reader contact us.
15. We take no responsibility for any events or circumstances that take place subsequent to the date of our field inspection.
16. The quality of a lodging facility's onsite management has a direct effect on a property's economic viability. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any departure from this assumption may have a significant impact on the projected operating results.
17. The financial analysis presented in this report is based upon assumptions, estimates, and evaluations of the market conditions in the local and national economy, which may be subject to sharp rises and declines. Over the projection period considered in our analysis, wages and other operating expenses may increase or decrease because of market volatility and economic forces outside the control of the hotel’s management. We assume that the price of hotel rooms, food, beverages, and other sources of revenue to the hotel will be adjusted to offset any increases or decreases in related costs. We do not warrant that our estimates will be attained, but they have been developed based upon information obtained during the course of our market research and are intended to reflect the expectations of a typical hotel investor as of the stated date of the report.
18. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first.
19. Many of the figures presented in this report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors.
June-2018 Statement of Assumptions and Limiting Conditions Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 99
20. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client, and use of this report by third parties shall be solely at the risk of the client and/or third parties. The use of this report is also subject to the terms and conditions set forth in our engagement letter with the client.
21. Evaluating and comprising financial forecasts for hotels is both a science and an art. Although this analysis employs various mathematical calculations to provide value indications, the final forecasts are subjective and may be influenced by our experience and other factors not specifically set forth in this report.
22. This study was prepared by HVS Consulting & Valuation. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of HVS Consulting & Valuation as employees, rather than as individuals.