Hotels Pre Feasibilities

Yanbu Waterfront 250 Room Hotel Preliminary Financial Feasibility Study Page 1

Yanbu Waterfront Hotel

Preliminary Financial Feasibility For a

250 Room 3* Hotel

(Package #3; Parcel 3.07 - Harbour Village Hotel)

Yanbu Al-Sinaiyah

Madinah Province

Kingdom of Saudi Arabia

2012 September

Prepared by Economic Planning Department

Royal Commission at Yanbu Yanbu Al-Sinaiyah, Kingdom of Saudi Arabia


Introduction Investors in the Yanbu Waterfront are being offered a unique opportunity to invest in a once in lifetime world class resort on the spectacular Red Sea coast of Saudi Arabia. In order to assist investors considering these opportunities, a preliminary financial feasibility study has been prepared for the hotel component of this investment opportunity. The projections in this preliminary study reflect reasonable assumptions prepared by the Royal Commission at Yanbu based on independent analysis prepared by the international firm Albert Speer & Partners (AS&P), as well as published market and financial conditions in Yanbu Al-Sinaiyah and the Kingdom of Saudi Arabia. This preliminary study is intended to serve investors as a basis for a more detailed analysis and by providing reasonable projections for the investors independent analysis.

Executive Summary This preliminary financial feasibility study is presented in five sections. The results of this study conclude that a 3* waterfront hotel in Yanbu Al-Sinaiyah with 250 rooms is a profitable financial investment. Furthermore: It is estimated that the hotel construction will cost a total of approximately SR 74 million. The hotels occupancy is projected to range 64% in year 1 to 70% in the 5th year of operation. The Internal Rate of Return (IRR) is estimated to average 18.6% during the first 5 years of

operation. This study is presented in five sections:

1. Hotel Development Costs

2. Hotel Operational Costs

3. Projected Hotel Occupancy

4. Hotel Revenues and Net Operating Income

5. Projected Internal Rate of Return (IRR).



The total development cost relies upon Royal Commission at Yanbu experience from apartment and dormitory residential projects constructed in the city. Preliminary hotel construction cost estimates also are based from data presented by AS&P, the Yanbu Waterfront Master Plan consultant, who utilized lodging industry data and figures. It is estimated that the hotel construction in Yanbu Al-Sinaiyah will cost approximately SR100 million:

Total Rooms 250 guest rooms (minimum 24 M per room)

Hotel Total Gross Floor Area 22,085 M

Average Cost per Room USD SR296,000

Total Hotel Development Cost SR100 million


Operational costs are include payroll, the cost of sales and marketing, utilities, insurance, management fee, land lease payments, and FF&E (fixtures, furnishings and equipment). Operational and other on-going costs projected by AS&P range from 66% to 68% of the annual revenue. For purposes of this preliminary analysis, an adjusted more conservative estimate of 71% to 73% of annual revenue is considered reasonable operational costs for Yanbu. These percentages have been applied to the annual revenues projected in this study to determine the net annual operating income. Annual land leases payments are considered to be a part of the operational costs since there is no land ownership acquisition cost to the hotel operator/developer


Hotel occupancy will be greatly influenced by tourism activity in the Kingdom of Saudi Arabia.

Tourism plays an increasingly pivotal role in Saudi Arabias economy. Yanbu is positioned to maximize

the citys strategic Red Sea location and proximity to Madinah as a major tourist destination.

According to the 2012 Saudi Tourism Outlook, published by the Saudi Commission for Tourism &

Antiquities (SCTA) in January 2012:

The Saudi tourism industry recorded SR84 billion ($22 billion) in tourist expenditures in

2011.

The average room occupancy rate in hotels in the Kingdom was 63% in 2011.

The Kingdoms domestic tourism expenditures are expected to increase by 12.4% in 2012; Inbound tourism expenditures are forecast to rise by 9% in 2012.

The Yanbu Waterfront Master Plan consultant AS&P projected hotel occupancy in the first year of

operation of Yanbus waterfront hotels to be 65% and reach 72% by the 5th year of operation. For


purposes of this preliminary feasibility study, a mid-point between the Kingdoms 2011 average hotel

occupancy rate and the Yanbu Waterfront Master Plan was used ranging from 64% in year 1 to 70%

in the 5th year of operation.

Source: SCTA; RC-Y Economic Planning Department.


The AS&P Yanbu Waterfront Master Plan projected an average room rate for Yanbu Waterfront hotels opening in 2012 of $165 to $185 (SR620 to SR695). However, the average published rate for a standard room at three existing international branded hotels in Yanbu Al-Sinaiyah and Yanbu Al-Bahr in August, 2012 is SR765 and ranges from SR546 to SR936 per night. Table I Yanbu Al Sinaiyah International Branded Hotels Room Rates 2012

Hotel Name Location Waterfront Site Hotel Rating

Published Room Rate (for 2 guests)

Movenpick Yanbu Al-Sinaiyah Yes 4 * SR 825 SR 900

Radisson Blu Yanbu Al-Bahr Yes (limited) 3 * SR 546 SR 600

Radhwa Holiday Inn Yanbu Al-Bahr No 3 * SR 793 SR 936

Average Published Rate SR 765

Source: Hotels.com.

For purposes of this preliminary feasibility study, an average room rate of SR600 per night is conservatively projected for the 1st year and is projected to increase to an average of SR675 per night in the 5th year of operation. Revenues from operation of other hotel services will also be generated from hotel guests. Additional revenues are projected to average SR150 per room in the first year of operation increasing to SR170 per room by the 5th year of operation.

63%

64% 66% 67%

68% 70%

50%

55%

60%

65%

70%

75%

Saudi Arabia 2011 Year 1 Year 2 Year 3 Year 4 Year 5

Projected Yanbu Waterfront Hotel Annual Occupancy Rate


Table II Summary of Hotel Annual Revenues and Expenses Years 1 5

Year of Operation

Average Nightly Room Rate

Other Revenue per Room

Total Revenue per Room

Average Occupancy Rate

Total Revenues (SR)

Total Operating Expenses (SR)

NET OPERATING INCOME (SR)

Year 1 SR600 SR150 SR750 64% 43,800,000 31,974,000 11,826,000

Year 2 SR620 SR155 SR775 66% 46,749,656 33,659,753 13,089,904

Year 3 SR638 SR162 SR800 67% 48,833,578 35,160,176 13,673,402

Year 4 SR655 SR165 SR820 68% 50,958,563 36,180,579 14,777,983

Year 5 SR675 SR170 SR845 70% 53,894,531 38,265,117 15,629,414

Source: AS&P; SCTA.

5. Projected Internal Rate of Return (IRR) The two most important factors in determining a hotels feasibility are the net operating income (NOI) and the internal rate of return (IRR). The projected NOI for the hotel is estimated to range from 27% to 29% during the first 5 years of operation. The hotels IRR is projected to range from 16.0% to 21.1% during this 5 year period.

Table III Summary of NOI and IRR Years 1 - 5

Year of

Operation

Total

Annual Revenues (SR)

NET ANNUAL OPERATING

INCOME (SR)

NOI % of

Annual Revenues

Internal Rate of

Return

Year 1 43,800,000 11,826,000 27% 16.0%

Year 2 46,749,656 13,089,904 28% 17.7%

Year 3 48,833,578 13,673,402 28% 18.5%

Year 4 50,958,563 14,777,983 29% 20.0%

Year 5 53,894,531 15,629,414 29% 21.1%

5 Year Annual Average 28% 18.6%

Source: AS&P; RC-Y EP Dept.

In conclusion, based on these preliminary projections, a 250 room 3* hotel located along the

waterfront in Yanbu Al-Sinaiyah will be a profitable financial investment.


Note: The financial projections used in this study should be viewed as approximations. These projections assume that the hotel will be professionally marketed, managed and maintained under international hospitality standards and the hotel will be built using quality design, construction practices and materials. Each hotel investor may undertake their own study based on their experience in the hotel industry. The Royal Commission at Yanbu Economic Planning Department is available to discuss this preliminary study, the data and assumptions incorporated in this document. For a confidential meeting, contact the Economic Planning Department.

Office: (04) 321-6267 Mobile: (055) 600-7113 Fax: (04) 321-6343




200 Room 3* Hotel


Yanbu Al-Sinaiyah

Madinah Province


2012 September





Executive Summary This preliminary financial feasibility study is presented in five sections. The results of this study conclude that a 3* waterfront hotel in Yanbu Al-Sinaiyah with 200 rooms is a profitable financial investment. Furthermore: It is estimated that the hotel construction will cost a total of approximately SR 70.5 million. The hotels occupancy is projected to range 64% in year 1 to 70% in the 5th year of operation. The Internal Rate of Return (IRR) is estimated to average 17.3% during the first 5 years of









The total development cost relies upon Royal Commission at Yanbu experience from apartment and dormitory residential projects constructed in the city. Preliminary hotel construction cost estimates also are based from data presented by AS&P, the Yanbu Waterfront Master Plan consultant, who utilized lodging industry data and figures. It is estimated that the hotel construction in Yanbu Al-Sinaiyah will cost approximately SR70.5 million:




Total Hotel Development Cost SR70.5 million










2011.


















Source: Hotels.com.

For purposes of this preliminary feasibility study, an average room rate of SR600 per night is conservatively projected for the 1st year and is projected to increase to an average of SR675 per night in the 5th year of operation. Revenues from operation of other hotel services will also be generated

63%

64% 66% 67%

68% 70%

50%

55%

60%

65%

70%

75%




from hotel guests. Additional revenues are projected to average SR150 per room in the first year of operation increasing to SR170 per room by the 5th year of operation. Table II Summary of Hotel Annual Revenues and Expenses Years 1 5

Year of Operation





Total Revenues (SR)



Year 1 SR600 SR150 SR750 64% 46,428,000 33,892,440 12,535,560

Year 2 SR620 SR155 SR775 66% 49,324,275 35,513,478 13,810,797

Year 3 SR638 SR162 SR800 67% 51,355,500 36,975,960 14,379,540

Year 4 SR655 SR165 SR820 68% 53,983,500 38,328,285 15,655,215

Year 5 SR675 SR170 SR845 70% 57,487,500 40,816,125 16,671,375

Source: AS&P; SCTA.



Year of

Operation

Total



INCOME (SR)

NOI % of

Annual Revenues

Internal Rate of

Return

Year 1 46,428,000 12,535,560 27% 14.8%

Year 2 49,324,275 13,810,797 28% 16.3%

Year 3 51,355,500 14,379,540 28% 17.1%

Year 4 53,983,500 15,655,215 29% 18.6%

Year 5 57,487,500 16,671,375 29% 19.7%






200 Room 3* Hotel


Yanbu Al-Sinaiyah

Madinah Province


2012 September



















2011.


















Source: Hotels.com.

For purposes of this preliminary feasibility study, an average room rate of SR600 per night is conservatively projected for the 1st year and is projected to increase to an average of SR675 per night in the 5th year of operation. Revenues from operation of other hotel services will also be generated from hotel guests. Additional revenues are projected to average SR150 per room in the first year of operation increasing to SR170 per room by the 5th year of operation.

63%

64% 66% 67%

68% 70%

50%

55%

60%

65%

70%

75%





Year of Operation





Total Revenues (SR)



Year 1 SR600 SR150 SR750 64% 46,428,000 33,892,440 12,535,560

Year 2 SR620 SR155 SR775 66% 49,324,275 35,513,478 13,810,797

Year 3 SR638 SR162 SR800 67% 51,355,500 36,975,960 14,379,540

Year 4 SR655 SR165 SR820 68% 53,983,500 38,328,285 15,655,215

Year 5 SR675 SR170 SR845 70% 57,487,500 40,816,125 16,671,375

Source: AS&P; SCTA.



Year of Operation

Total Annual Revenues (SR)

NET ANNUAL OPERATING INCOME (SR)

NOI % of Annual Revenues

Internal Rate of Return

Year 1 46,428,000 12,535,560 27% 12.9%

Year 2 49,324,275 13,810,797 28% 14.2%

Year 3 51,355,500 14,379,540 28% 14.8%

Year 4 53,983,500 15,655,215 29% 16.1%

Year 5 57,487,500 16,671,375 29% 17.2%








300 Room 5* Hotel

(Sports Oasis Hotel)

Yanbu Al-Sinaiyah

Madinah Province


2012 August



















2011.


















Source: Hotels.com.

For purposes of this preliminary feasibility study, an average room rate of SR825 per night is conservatively projected for the 1st year and is projected to increase to an average of SR900 per night in the 5th year of operation. Revenues from operation of the Ladies Club, restaurant and other hotel services will also be generated from hotel guests. Additional revenues are projected to average

63%

63% 64% 65% 66%

67%

50%

55%

60%

65%

70%

75%




SR330 per room in the first year of operation increasing to SR375 per room by the 5th year of operation. Table II Summary of Hotel Annual Revenues and Expenses Years 1 5

Year of Operation





Total Revenues (SR)



Year 1 SR825 SR330 SR1,155 63% 73,584,000 53,716,320 19,867,680

Year 2 SR844 SR338 SR1,181 64% 76,602,094 55,153,508 21,448,586

Year 3 SR863 SR356 SR1,219 65% 79,948,688 57,563,055 22,385,633

Year 4 SR881 SR364 SR1,245 66% 83,085,863 58,990,961 24,094,901

Year 5 SR900 SR375 SR1,275 67% 86,559,750 61,457,423 25,102,328

Source: AS&P; SCTA.



Year of

Operation Total

Annual Revenues (SR) NET ANNUAL OPERATING

INCOME (SR) NOI % of

Annual Revenues Internal Rate of

Return

Year 1 73,584,000 19,867,680 27% 12.5%

Year 2 76,602,094 21,448,586 28% 13.4%

Year 3 79,948,688 22,385,633 28% 14.0%

Year 4 83,085,863 24,094,901 29% 15.1%

Year 5 86,559,750 25,102,328 29% 15.7%






250 Room 5* Hotel

(Seaside Palace Hotel)

Yanbu Al-Sinaiyah

Madinah Province


2012 September



















2011.


















Source: Hotels.com.

For purposes of this preliminary feasibility study, an average room rate of SR825 per night is conservatively projected for the 1st year and is projected to increase to an average of SR900 per night in the 5th year of operation. Revenues from operation of the restaurants and other hotel services will also be generated from hotel guests. Additional revenues are projected to average SR330 per room in the first year of operation increasing to SR375 per room by the 5th year of operation.

63%

63% 64% 65% 66%

67%

50%

55%

60%

65%

70%

75%





Year of Operation





Total Revenues (SR)



Year 1 SR825 SR330 SR1,155 63% 66,398,063 48,470,586 17,927,477

Year 2 SR844 SR338 SR1,181 64% 68,985,000 49,669,200 19,315,800

Year 3 SR863 SR356 SR1,219 65% 72,287,109 52,046,719 20,240,391

Year 4 SR881 SR364 SR1,245 66% 74,980,125 53,235,889 21,744,236

Year 5 SR900 SR375 SR1,275 67% 77,950,313 55,344,722 22,605,591

Source: AS&P; SCTA.



Year of

Operation

Total



INCOME (SR)

NOI % of

Annual Revenues

Internal Rate of

Return

Year 1 66,398,063 17,927,477 27% 17.9%

Year 2 68,985,000 19,315,800 28% 19.3%

Year 3 72,287,109 20,240,391 28% 20.3%

Year 4 74,980,125 21,744,236 29% 21.7%

Year 5 77,950,313 22,605,591 29% 22.6%





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