Short Feasibility Study for a Hotel

Project in Asaba, Delta State

DECEMBER, 2015

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 Executive Summary

A lodging feasibility study and market analysis in Asaba, Delta State was conducted to determine
the potential to absorb a full-service hotel development. In doing so, analyses were made of
market variables. Also, the potential project site was visited and meetings were held with local
area officials, hotel operators and key demand generators.

Following this, conclusions were formed on overall development feasibility.

General Findings

Based on the market research and analyses, it appears that there is sufficient demand to
pursue a full-service hotel development. The assumption is that the hotel would be a mid- scale
facility with the following amenities and services:

• 30 guestrooms and suites;

Food and Beverage facilities to include:

• Restaurant/bar serving breakfast, lunch and dinner;
• Additional bars/lounge;
• Room-service;

Recreational amenities to include:

• Spa/fitness center;
• Swimming Pool.
• Sports Lounge

Conference facilities to include:

• Breakout/meeting rooms.

A prerequisite for a professional feasibility study is the depiction of the macro economic
circumstances which are relevant to the project. The comprehensiveness and accuracy of the
feasibility study submitted relies on information provided by the owner and acquired through
extensive secondary data research.

Assuming that the city of Asaba economic and social outlook will develop as expected, the
proposed hotel project should achieve the success desired by the investor.

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Table of Contents

Executive Summary……………………………………………………..2

Introduction……………………………………………………………..4

Chapter 1: Market Overview…………………………………………….6

Chapter 2: Location Analysis…………………………………………..12

Chapter 3: Market/Competition Analysis………………………………15

Chapter 4: Project Concept……………………………………………..21

Chapter 5: Financial Analysis…………………………………………..24

Conclusion:……………………………………………………………..30

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 Introduction

The hospitality industry refers to the provision of lodging services, restaurants, event planning,
theme parks, transportation, cruise line, and additional fields within the tourism industry. The
world over, hospitality industry has provided high yields in returns to investors, being an
important part of development and economic emergence and attractiveness.

As the world continues on its recovery path, the Nigerian market has seen an influx of
international brands, as well as better standardization by independent indigenous brands . Also,
there has been growth and expansion in the already established hotels. This development can
be seen in almost all the major cities around the country.

Below is an analysis of the hospitality industry’s attractiveness based on Porter’s five forces for
discerning investors.

i) THREAT OF NEW ENTRANTS

An industry is attractive if there are entry barriers that reduce the rate at which new entrants
can spring up. We believe that entry barrier is high for the hospitality industry, as it is capital
intensive and has become more technology driven than was previously required in the industry.
Hence, this factor increases the attractiveness of the hospitality Industry.

ii) COMPETITORS’ RIVALRY

A high level of rivalry within an industry usually leads to a ‘price war’ among the current players.
This will in turn increase the cost of doing business and put downward pressure on margins and
profitability. Though the hospitality industry has a large number of competitors with very low
customer loyalty and low switching costs, these issues do not decrease the attractiveness of the
industry because rivalry can be effectively managed through quality differentiation, innovative
technology, style and exquisite service delivery.

iii) SUPPLIERS’ POWER

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When an industry’s suppliers have bargaining power, they dictate price which will in turn reduce
margins of the industry players. The suppliers to the hospitality industry are numerous and can
easily be replaced, hence are unable to exert any significant power on the industry players. This
makes the industry very attractive for prospective investors.

iv) BUYERS’ POWER

In the hospitality industry, customers are afforded a variety of options based on costs, quality of
service, product categories, and special offers. Indeed, the customers’ power is high, which
ordinarily should make the industry less attractive. However, due to the seasonality of the
hospitality business, customers can only meaningfully take advantage during off-peak period.
However, in peak seasons like December, when the demand for hospitality industry services is
high, the customers’ power is low, giving the firm an opportunity to set prices and increase
profits, recovering most of the off-peak short falls. Overall, the buyer’s power on the industry is
considered to be average.

v) THREAT OF SUBSTITUTE GOODS

A substitute can be regarded as something that meets the same need, but currently outside the
specific industry being reviewed. The threat of substitutes though present is moderate at best
and does not affect the attractiveness of the hospitality industry. The only known substitute for
the industry is squatting with friends/relatives, which has proven to be more expensive
qualitatively.

OVERALL SUMMARY:
Based on the above analysis, it is considered that the industry is attractive to prospective
investors. Therefore, the industry scored eight (8) out of ten (10) on the industry attractiveness
grid.

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CHAPTER 1

Market Overview

NIGERIA: (Economic Overview)

With a population of about 170 million people, Nigeria is the largest country in Africa and
accounts for 47% of West Africa’s population. It is also the biggest oil exporter in Africa, with the
largest natural gas reserves in the continent. Given these large reserves of human and natural
resources, the country has significant potential to build a prosperous economy characterized by
rapid economic growth and access to quality health care, education and infrastructure services.

Since 1999, Nigeria embarked on an ambitious economic reform agenda on several fronts. The
most far reaching was to base the budget on a conservative reference price for oil, with an
excess saved in a special, Excess Crude Account (ECA). Nigeria was among the first countries to
adopt and implement the Extractive Industries Transparency Initiative (EITI) to improve
governance in the oil sector. The NEITI Act was passed into law in 2007, and the country became
EITI compliant in 2011. The power sector reform initiative was launched in 2005, recognizing
that improving power sector performance is critical to address development challenges. The
challenging process of implementing power reforms was revitalized through a roadmap
developed in 2010, which clearly outlines the government’s strategy and actions for
implementing comprehensive power sector reforms to expand supply, open the door to private
investment and address some of the chronic sector issues hampering improvement of service
delivery. The government has gradually implemented the road map over the past several years.

During the past decade, Nigeria has registered strong economic growth averaging 6.5%. The
government has maintained prudent fiscal policy management as witnessed by a declining fiscal
deficit and low level of public sector debt. Monetary policy has been focused on stabilizing the
currency thereby contributing to a decline in inflation to single digit in recent years.

The Nigerian economy has continued to experience robust growth in 2015 largely driven by the
non-oil sector while oil prices dropped. Real GDP is estimated to have grown by 6.1% owing to
continued strong performance mainly in services, but also industry (apart from oil mining) and
agriculture.

Inflationary pressures have moderated in the last few years; with year-on-year inflation staying

6
within the single digit bracket since January 2013. While headline inflation declined from 12.2%
FYE 2012 to 8.1% FYE 2014, core inflation dropped from 13.7% to 6.2% within the same period
while food inflation dropped from 10.2% to 9.2%. This trend in inflation is in line with the
monetary authority’s goal of single digit inflation and has been helped by buoyant agricultural
production of staple food crops. While the recent depreciation of the Naira has increased the
pace of inflation temporarily, there are no other major sources of inflationary pressures in
Nigeria at present.

The economic analysis of the Nigerian economy shows a stable economy with a huge growth
potential which local and foreign investors would be prudent to take advantage of.

NIGERIA: (Market Overview)

The Nigerian hotel industry has witnessed considerable growth in recent years. New hotel
operators continue to spring up in different parts of the country. This is in spite of obstacles to
growth such as poor infrastructure, security challenges and skilled labour shortages. This was
revealed in a report on the sector by foremost research agency, Agusto & Co. in Lagos.
According to the report, despite the aforementioned hindrances to hotel operations, the failure
rate for Nigerian hotels remained low at about 5% on a year – on–year basis. The hotel market
in Nigeria grew 12 per cent in 2014 and the hospitality sector is poised for further growth in the
next five years in the wake of a number of inbound travellers into the African continent.

Nigeria’s economy is growing, buoyed in part by regional and international investment. Hotel
room revenue in Nigeria rose 59% between 2009 and 2014, while it grew by 10% in 2014. Stay
unit nights increased by 6.3% in 2014 and have grown faster than room availability over the past
three years. Average room rates have grown slowly in the last two years, rising by only 2.5% in
2014. The number of hotel rooms is expected to triple during the next five years and overall
hotel room revenue is also anticipated to expand at a 22.6% compound annual rate to $1.1
billion in 2018 from about $400 million in 2014.

In 2014, the Nigerian hotel industry boasted about 7,000 hotels nationwide with an estimated
room supply of 245,000. Local brand hotels supply about 91% of total rooms, while
international brand hotels supply about 9% of the nation’s hotel rooms. Agusto & Co.
emphasized that though the number of hotel rooms supplied by international brand hotels was
low in comparison to local brand hotels, the foremost research agency believed that this was
soon to change with the rise of new hotel development deals between local investors and
international hospitality groups such as Accor Hotel Group, Hilton Worldwide and The Mantis
7
Group. The report further revealed that the average occupancy rate for Nigerian hotels was
estimated at 60%.

DELTA STATE: ( Overview)

The area of Nigeria called Delta State was once an integral part of the old Western Region of
Nigeria. It became an autonomous entity on August 27, 1991 after having been part of the
defunct Bendel State.

Delta State started with twelve Local Government Areas (LGAs). These were split further into
nineteen LGAs on September 27, 1991, and to twenty - five LGAs in 1997. Asaba, located at the
northern end of the state, is the capital. A master plan for Asaba Capital Territory, with an
estimated area of 762 sq. km and designed to transform Asaba into a modern metropolis is
being pursued by the state government.

Delta State is a major oil producing state and ranks second only to Rivers State in Nigeria. The
state supplies about 35% of Nigeria's crude oil and some considerable amount of natural gas.
The oil producing LGAs are Warri North and South, Burutu, Isoko North and South, Ughelli North
and South, Okpe, Ethiope East and West, Sapele and Ndokwa East and West. The nation's
second oil refinery as well as petrochemical plant are located in the state at Warri.

The state is also rich in major tubers and root crops such as cassava, coco yams, yam and
potatoes. There are programmes initiated to encourage agriculture in the state. These include
Delta Agricultural Development Programme (DADP), Task Force on communal farming,
Agricultural Loan schemes to small scale farmers; Fishermen Farm Settlement Scheme, Tree
Crop Unit and Livestock Production are also encouraged.

Delta State is bordered by Edo State to the north, Ondo State to the northwest, Anambra state
to the east and Bayelsa and Rivers states to the southeast. On its southern flank is 160 km of the
coastline of the Bight of Benin.

The major ethnic groups in the State are Urhobo, lgbo, lzon, Isoko and Itsekiri. Many of the
people claim a common ancestry; consequently, their cultures are similar. These similarities are
manifested in their religious worship, music, dance, festivals, and arts and crafts. The practice of
Christianity, Islam and traditional worship flourishes in varying degrees among the people of
Delta state.
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According to the national census conducted in 2006, the population of the state was 4,098,391,
representing 2.97% of the country’s population.

The state government is making concrete efforts to diversify the state's revenue base from solely
oil. Tourism and agricultural development are some of the areas the government is looking at
developing into major revenue earners.

Industries in Delta State include Glass Factory at Ughelli, the African Timber and Plywood
Factory, Sapele and Asaba Textile Mills. There are several industries in the state participating
primarily in the processing of raw materials such as rubber and timber, such as the African
Timber and Plywood (AT&P) in Sapele, Asaba Textile Mill, Ughelli Glass Factory, Delta Boatyard,
and the Delta Steel Company Aladja.

Asaba: (Overview)

Asaba is the capital of Delta State, since its emergence as the state capital in 1991, the town has
witnessed an increase in infrastructural development and commercial activities which have
brought about an increase in the number of banks, hospitality industries, eateries, estates,
plaza, churches and people including foreigners. One can safely say the city has experienced
considerable transformation over the years.

A visit round the city reveals massive development in the city. Almost all leading financial
institutions existing in the country are in Asaba. Also, shopping malls and plazas which were
hitherto non- existent are now adding to the allure of the state capital. The popular Nnebisi
Road which is one of the major roads in the city is the location of so many plazas where a
variety of commercial activities occur.

The vast population of different people coming to settle in the city explains the fact that it is
gradually growing into an urban commercial hub which could be comparable to other famous
Nigerian cities or city states like Lagos, Abuja, Port Harcourt, Ibadan, Kano among others.

Indeed, few metropolitan areas in Nigeria combine such favorable qualities as the environment,
resources and business amenities as Asaba. With safe streets, a diverse and strong workforce,
peaceful environment and accommodating people, Asaba is poised for continued success in
fostering new enterprise throughout the city and its neighbouring communities.
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Increasingly, companies are discovering new market opportunities in urban and rural
neighbourhoods where investment in new infrastructure and access to employees form a
framework for growth. In addition, there are incentive programmes by the Delta State
government to help businesses develop, and communities expand their businesses. These
include the state micro-credit scheme, and various poverty alleviation programmes.

Previously, only one major market existed in Asaba, but due to influx of people into the town
after it was named a state capital, there had been expansion of the modern Ogbeogonogo
market to a more developed and accommodating market to cater for the increasing populace.
Furthermore, other markets within Asaba, such as the Cable market, Abraka market, mammy
market and the new market near legislative quarters have witnessed definite expansion, as have
other mini-markets within the city.

Put simply, Asaba is now a new Capital place for Commerce.

Summary of the Asaba business environment is represented in the SWOT analysis below:

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 STRENGTHS WEAKNESSES
- A developing city with a high growth
potential
- Very low Local and multinational
- The city is located at the entrance of
corporate presence and is mainly public
Nigeria’s eastern heartland.
service oriented.
- The city has a swinging nightlife because of
the indigenous culture
- Easily accessible (public transport,
motorways, airport)
OPPORTUNITIES THREATS

- Increase of international flight connections - Increasing competition levels

due to ongoing upgrade of Asaba
International airport

- Opportunities for business expansion as the

city is still in its growth phase.

Chart 1: SWOT analysis of the Asaba Business Environment

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CHAPTER 2

Location Analysis
ASABA

Asaba is rich in history and culture with a beautiful natural setting of riverfront
access and many entertainment centres that attract people of all ages who love life
and the outdoors. Nationally recognised for its vitality and economic development,
the city consistently ranks among “Best Places to Live and Work in Nigeria” in several
national publications and is currently the location of choice for the multi- billion
Naira Nigerian movie industry Nollywood.

Specifically, in the past sixteen years, Asaba has turned to be a welcoming and
engaging community that has a growing and strong economy which is increasingly
attracting new businesses and creating jobs in the city. With safe streets and a
convivial atmosphere, Asaba is set to be a city that works for everyone.

Before Asaba was made capital city of Delta State in 1991, it was a sleepy town with
a low density dominated mainly by farmers and indigenes who are involved in petty
trading. But now as Delta State Capital City, Asaba is a hub of government action,
business activity and arts and cultural affairs. With a metro population of nearly
500,000, Asaba offers some of the nation’s best schools, good public services,
friendly, caring neighbourhoods and relatively affordable housing , when compared
to other developing cities in the country.

Businesses are expanding by the day, for instance, a lot of plazas have been
established in the city such as Royal crown, Crown Plaza, Avanti Plaza, among others
apart from the formerly known Konwea Plaza. Also the fact that Onitsha, its
neighbouring town, is a massive business town seen as an overpopulated and highly
clustered city, a lot of Onitsha residents have developed admiration for Asaba and
have relocated with their families to city. These relocated groups aid in bringing in
investments from Onitsha thereby improving business development in Asaba.

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Many supermarkets and eateries are sprouting up in the city and they are indeed
changing the face of Asaba city. The latest among these eateries which include
Favorite, Ultimate Taste, have really helped in beautifying the city landscape. Also,
the increasing number of visitors has also attracted the establishment of new and
beautiful hotels. Some of the major local brand hotels are Grand Hotel, Nelrose,
Orchids and International brands such as Swiss Spirit Hotel, Best Western, Hilton and
others have added their footprints in the city.

Asaba has a number of tourist attractions, which attract tourists from all over the
country and beyond. Some of which are:

 Mungo Park Building/Asaba Museum

 The Expatriates Graveyard
 Otu – Ogwu Beach

Accessibility

Air – Asaba is easily accessible by air as it is has an international airport which serves
the city and some of the neigbouring towns in the east such as Onitsha, the largest
town in Anambra State.

Sea – The Government is currently developing a masterplan to build a deep seaport

in Asaba to ease the movement of heavy duty cargo to the city and its environs.

Road – Asaba has a good network of roads leading into the town and within the
metropolis. The city transportation master plan covers four basic areas. One, the
highway, an intra-state highway that takes you from Asaba and returns you back to
Asaba across the state. It takes you from Asaba to Patani on the bank of the River
Niger; it takes you from Patani to Burutu to Forcados through Escravos, Ogheye,
Koko, back through Sapele, Agbor and then back to Asaba.

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Rail – The Delta State government is currently working on a masterplan to provide a
rail network for the state. This network will link Asaba to other communities in the
state. The rail project is one of the priorities of the current administration.

Conclusion

Asaba is a developing city with acceptable growth opportunities and is expected

over the next few years to rival some of the major cities in the country in terms of
infrastructure, business and social development. The potential for investors in Asaba
is satisfactory especially in the hospitality industry because of the gregarious lifestyle
and culture of its people.

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CHAPTER 3

Market/Competition Analysis

Asaba, in recent years, has experienced rapid growth in the hotel market. This
growth is attributable to its status as the capital of one of the richest states in
Nigeria, Delta State. As is typical of a growing market, Asaba currently does not have
segmentation amongst various classes of hotel accommodation. That is, availability
of adequate supply at different hotel categories. This is primarily because the
pattern of supply growth in Asaba has followed the direction of demand, hence the
majority of hotels in Asaba are mid - scale budget boutique hotels and there are
very few high-priced upscale business hotels (branded or unbranded).

Some of the branded hotels presently in Asaba are Swiss Spirit Hotels and Best
Western Hotels , others such as Hilton have commenced development and are
expected to begin operations soon. There are also a few more branded names that
have shown interest in the Asaba Hotel market (eg Protea). For the most part
however, hotels in Asaba are unbranded. There are a few indigenous hotels which
provide upscale facilities and services of acceptable standards such as Grand Hotel
and Orchid Hotel . However, as mentioned earlier, most of the hotels in Asaba are
mid - scale indigenous independent budget hotels.

The average daily rate (ADR) and revenue per allocated room (RevPar) of hotels in
the city have witnessed a marginal increase over the recent years suggesting that
there is room for more hotels in the town. It is expected that demand for hotel
rooms will increase as the state government implements some of the programmes in
the pipeline that are aimed at improving the investment and business climate in the
state. Such programmes include the completion of the forty million dollars
(N10billion) state – of - the - art shopping mall and upgrading the Asaba
international airport to world class international standards .

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Survey indicates that many of the hotels in Asaba provide the basic amenities like
restaurant, swimming pool, bar, internet and gym. However, only a handful (eg
Grand hotel ) have upscale amenities like a spa, lawn- tennis court and sports lounge.

The current supply of low or mid-scale properties tend to be locally operated

properties built to low quality standards and are usually not expertly managed.
However, as the market continues to grow and evolve in the future, it is expected
that there will be greater segmentation and well-defined tiers in the hotel sector.

This will mean more international standard properties at different price points to
cater to a more diversified hotel demand market. A strong advantage of some of the
bigger hotel chains is the variety of brands in their portfolio to serve different
demand categories.

Competition
Information about some of the competition operating within the metropolis is given
below:

he

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 Hotel Benezia

1-4 Kingsley Emu street, off Summit Rd. Asaba

Number of Rooms 79

Occupancy(Jan 2015 to date) 50%

Rooms & Suites Price/room

Classic Room N 12,000

Premium Room N 18,000

Alcove Room N 20,000

Diplomatic Room N 30,000

Presidential suite N 60,000

Meeting Rms/Halls N 30,000 – N100,000

Chart 2: Hotel Benezia

Orchid Hotel Limited

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 DBS Road, GRA. Asaba

Since 2008

Number of Rooms 50

Occupancy (Jan 2015 to date) 50%

Rooms & Suites Price/room

Deluxe Room N 17,350

Super Room N 20,790

Executive Suite N 23,100

Luxury Room N 25,410

Presidential N 34,650

Hall N 150,000

Chart 3: Orchid Hotels Ltd.

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 Nelrose Hotels Limited_

Government House Road. Asaba

Since 2001

Number of Rooms 50

Occupancy (Jan 2015 to date) 40%

Rooms & Suites Price/room

Classic King N 17,000

Executive Suite N 35,000

Pent House N 52,000

Meeting Rms/Halls N30,000 -120,0000

Chart 4: Nelrose Hotel Ltd.

Kim Royal Hotel

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 1 -7 Fabian Edwards St. Off Asaba/Onitsha Exp. Asaba

Since

Number of Rooms 55

Occupancy(Jan 2015 to date) 35%

Rooms & Suites Price/room

Single Room N 10,000

Classic N 11,000

Standard N 12,000

Executive Deluxe N 13,000

Super Executive N 15,000

Royal Suite N 20,000

Meeting Rms/ Halls N 50,000

Chart 5: Kim Royal Hotel

CHAPTER 4
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 The Project Concept
The whole project site encompasses approximately 2,500 sq meters(4 plots). The
floor space is spread over three floors above ground. The following overview
illustrates the elements foreseen within the framework of the project:

Main Entrance and Lobby

The main entrance provides to a generous lounge and lobby which will serve guests
either arriving or departing but also visitors as a “meeting point”. Furthermore, the
ambience on the ground floor is enhanced by the integration of a state-of-the art
champagne bar & café.

The Restaurant

The restaurant is situated at the top of the stairs from the ground floor and will have
a lounge, bar and a grand interior design providing guests with a magnificent
atmosphere. The restaurant will offer the highest international standards in terms of
a comprehensive, contemporary arrangement of food and wine in combination with
an outstanding and unique service.

Roof Top Bar

In addition to previously mentioned gourmet facilities, the hotel will integrate a

splendid roof top bar on the attic floor of the building, providing a magnificent view
of the sea.

Meeting Rooms

The meeting rooms are planned to be located on the first and second floors. There
will be six meeting rooms which will provide adequate space to assure private and
exclusive accommodation for large-scale, but also small, meetings.

Guest Rooms

From the first floor to the top floor, the hotel will be equipped with 30 guest rooms
and suites, all featuring the highest international luxury standards in terms of size,
21
layout, furnishings and equipment. Approximately 60 per cent (18 rooms) of the
total amount of guest rooms will be designed as superior double rooms with an
average size of approximately 44 square meters.

The remaining 40 per cent ( 12 rooms) of all guest rooms will be designed as suites in
order to attract the high-end clientele. Depending on type and size, the suites will
feature spacious living and dining areas, one to three bedrooms, state-of-the-art
bathrooms equipped with wellness and spa facilities as well as splendid balconies.

Spa & Wellness Area

Plans include an exclusive spa and wellness area offering all types of treatments,
therapies and further amenities as well as recreation facilities such as sauna and
herbal steam bath. An indoor pool will be integrated on the same floor, but
separated by a reasonable distance from the spa area. In addition, an exercise room
including a gym will be attached.

Sports Lounge
The project will have a sports lounge which will provide facilities for various sports
and games such as billiards, chess, scrabble, table tennis etc

Car Parking Facilities

Car parking facilities will be provided which will accommodate approximately 100
cars. The car park will be situated in front of the hotel to provide easy access for
guests.

The following illustration will provide an overview of the proposed hotel layout:

Ground floor Main entrance, lobby, delivery zone, front

desk and front office, back offices (booking,
22
 guest relations), general storage facilities,
lounge area, champagne bar & café

1st floor Restaurant, bar, lounge, kitchen, F&B storage

area, several office rooms (HR, M&S, sales
and catering, accounting offices, executive
office), meeting rooms

Guest rooms/suites, meeting rooms

2nd floor

Guest rooms/suites, meeting rooms

3rd floor

CHAPTER 5

Financial Analysis
23
 According to market analysis Asaba represents a solid hotel market with good
growth potential. Even with the expected competition, the market is big enough to
continue to be viable. Below are financial expectations for the hotel development
project.

Hotel Development Costs

Our analysis of total development costs relies upon research gathered through
interviews and studies conducted by industry professionals. All of the numbers used
in this section should be viewed as approximations. The financial analysis reflects
costs of a medium sized thirty room hotel with amenities such as a restaurant, bar,
spa, swimming pool and well - equipped gym.

After interviewing local developers and studying available hotel prototypes we have
determined an acquisition price of between N40 – N50 million to purchase about
2,500 square metres (4 plots) of land in the designated area and a minimum of N150
million to complete the project as required. This brings the total project cost to
approximately N200 million.

Total Hotel Development Cost

Acquisition Price (Land) N 50,000,000

Project Development Cost N150,000,000

Land Tax N1,500,000

Total Development Cost N201,500,000

Chart 7: Project Development Cost

Hotel Revenue
Room Revenue

No. of Rooms Type of Rooms Price of Room (NGN) Total Room Revenue
(NGN)

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18 Superior Double 10,000 180,000

8 Junior Suites 14,000 112,000

3 Executive Suites 20,000 60,000

1 Presidential Suites 40,000 40,000

Chart 8: Project Revenue

392,000

100% Occupancy Total Daily Revenue NGN 392,000

Total Yearly Revenue NGN 143,080,000

Year 1 Total Daily Revenue NGN 117,600

30% Occupancy Total Yearly Revenue NGN 42,924,000

Year 2 Total Daily Revenue NGN 156,800

40% Occupancy Total Yearly Revenue NGN 57,232,000

Year 3 Total Daily Revenue NGN 176,400

45% Occupancy Total Yearly Revenue NGN 64,386,000

Year 4 Total Daily Revenue NGN 196,000

50% Occupancy Total Yearly Revenue NGN 71,540,000

Year 5 Total Daily Revenue NGN 196,000

50% Occupancy Total Yearly Revenue NGN 71,540,000

Chart 9: Total room revenue/Occupancy

Average Daily Rate (ADR) in Year 1 = N13,000

Revenue per available room (RevPAR) in year 1= N3,920

25
 Typically, when running a hotel with a restaurant component, you probably would
see 20-30% revenues from F&B and 60-70% from rooms (full service). Meeting
rooms can change the dynamics. But for this study the meetings rooms and minor
operating departments shall account for 15% of total revenue.

Total Revenue Year 1

Room Revenue N 42,924,000

F & B Revenue N 17,885,000
Conference/Meeting Room Revenue N 7,154,000
MODs N 3,577,000

Total Revenue N71,540,000

Chart 10: Year 1 Revenue

Going by this explanation, the total revenue in year 1 will be somewhere in the
region of N71.5 million. The chart below shows what the company’s financial
statement could be in a five- year forecast timeline:

Calendar Year 2017 2018 2019 2020 2021

No. of Rooms 30 30 30 30 30
No. of Occupied Rms/yr 3,285 4,380 4,928 5,475 5,475
ADR (N) 13,000 13,000 13,000 13,000 13,000
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Rev PAR(N) 3,920 5,226 5,880 6,533 6,533
RevPAR Growth 33% 12.5% 11% 0%

Total Sales
Rooms (60%) 42,924,000 57,232,000 64,386,000 71,540,000 71,540,000
F & B (25%) 17,885,000 23,846,000 26,827,500 29,808,000 29,808,000
Meeting Rms(10%) 7,154,000 9,538,000 10,731,000 11,923,000 11,923,000
MODs(5%) 3,577,000 4,769,000 5,365,000 5,961,000 5,961,000

Total Revenue 71,540,000 95,386,000 107,310,000 119,233,000 119,233,000

Expenditure

Rooms (25%) 10,731,000 14,308,000 16,096,000 17,885,000 17,885,000

F & B (78%) 13,950,000 18,599,000 20,925,000 23,250,000 23,250,000
Meeting Rms(17%) 1,216,000 1,621,000 1,824,000 2,026,000 2,026,000
MODs (66%) 2,360,000 3,147,000 3,540,000 3,934,000 3,934,000

Departmental Costs 28,257,000(40%) 37,675,000(40%) 42,385,000(40%) 47,095,000(40%) 47,095,000(40%)

Operating Expenses 19,315,000 (27%) 25,181,000(26.4%) 27,900,000(26%) 30,404,000(25.5%) 29,808,000(25%)

S & M, A & G, Heat, light
Repairs & Maintenance

Total Revenue 71,540,000 95,386,000 107,310,000 119,233,000 119,233,000

Departmental Costs 28,257,000 37,675,000 42,385,000 47,095,000 47,095,000

Gross Profit 43,283,000(60%) 57,711,000(60%) 64,925,000(60%) 72,138,000(60%) 72,138,000(60%)

Operating expenses 19,315,000 25,181,000 27,900,000 30,404,000 29,808,000

Gross Operating Profit 23,968,000(32%) 31,930,000 33% 37,025,000 33% 41,734,000 34% 42,330,000 34%)

Fixed Charges
Property and Tax Insurance 858,000 1,144,000 1,287,000 1,430,000 1,430,000
Management Base Fee 1,788,000 2,384,000 2,682,000 2,980,000 2,980,000
Management incentive Fee 1,788,000 2,384,000 2,682,000 2,980,000 2,980,000
FF & E Reserve 715,000 1,430,000 2,145,000 2,860,000 3,575,000
Total Fixed Charges 5,149,000 7,342,000 8,796,000 10,250,000 10,965,000

Net Operating Income 18,819,000(25%) 24,588,000 ( 25%) 28,229,000 ( 24%) 31,484,000 (26%) 31,365,000 (26%)

Chart 11: Five Year Income Forecast

The following estimates will illustrate figures of Chart 11 :

 Timeline

The financial forecast reflects the first five years from 2017 to 2021. The first two to
three years of operation will constitute the hotel’s start-up phase, hence the first

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stabilized year of operation is assumed to be 2020. The years are all trading years
representing full calendar years. Leap years are not taken into consideration.

 Rooms

Based on the assumption of 30 guest rooms and suites, average room occupancy is
estimated to be at 30 per cent in the first year and is rising continually during the
forecast years. In 2019, the start-up phase ends with an average room occupancy
rate of 45 per cent.

 Revenue per available room (RevPAR)

RevPAR is calculated at N3,920 within the first year of operations. The RevPAR is
expected to increase in the subsequent years as occupancy increases. Rooms
revenue is expected to make up the largest part of total revenue with a percentage
of 60.

 Food & Beverage

Food and Beverage revenue is composed of income from the restaurant and bar, the
lounge and champagne bar in the main floor, the roof top bar, as well as the minibar.
As the hotel is anticipated to attract a high number of external guests for business
dinners and drinks, the total income of F&B is estimated to stabilize at approximately
N30 million. The F&B income is approximately 25 per cent of total room revenue.

 Meeting Rooms/Halls

There will be six meeting rooms which will provide adequate space to assure private
and exclusive accommodation for large-scale, but also small, meetings. Revenue
from the meeting rooms is expected to stabilize at approximately N 10 million.

 Minor Operated Departments (MODs)

MODs are expected to carry revenue of approximately N 5 million, accounting for

about five per cent of the total revenue in the first stabilized year (2020). The
majority of this income represents revenue from the generous spa and recreation
facilities but also from minor services such as laundry, telephone and a gift shop.

 Departmental Costs

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These expenses are expected to stabilize at approximately 41 per cent in the fourth
operating year. Departmental costs are calculated with industry standard parameters
as a percentage of total revenue (see Chart 11).

Department Cost of Total Revenue (%)

Rooms 25%

F&B 78%

Conference/Meeting Rooms 17%

Minor Operating Departments 66%

Chart 12: Departmental costs of total revenue (%)

 Operating Expenses

Operating costs are calculated with 27 per cent of departmental revenue in the first
operating year. Undistributed expenses are estimated to stabilize at some 26 per
cent in 2020 and include the following:

- Administrative & General expenses

- Sales & Marketing

- Repairs & Maintenance

- System costs

- Heat, Light & Power

 Fixed Expenses

The fixed expenses include the property tax & insurance, a base management fee, an
incentive fee and the FF&E reserve. The property tax and insurances are assumed to
amount approximately 1.2 percent of total revenue. The base management fee is
assumed to be at about 2.5 percent. Also, an incentive fee of 2.5 per cent is expected
within the forecast years. The FF&E reserve is calculated with one per cent of total
revenue in year 1, increasing by 1 percent in subsequent years till the fifth year of

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operations. All percentages used are in line with industry standards.

 Gross Operating Profit

In the first operating year, the Gross Operating Profit margin is anticipated to account
for around 32 per cent of total revenue whereas for the fifth operating year, the GOP
is estimated to reach 34 per cent of total revenue. This corresponds to approximately
N 42 million in 2021. These margins are acceptable for such occupancy levels.

 Net Operating Income

After subtraction of all fixed costs and payables, the Net Operating Income (NOI) is
estimated to amount to around 25 per cent, which corresponds to N 19 million in
year 1. In the fifth operating year, in 2021, the NOI is expected to be approximately N
31 million, which amounts to 26 per cent of total revenue. Nevertheless, in order to
achieve these levels of profit, a very efficient and well- controlled operation of the
hotel is necessary and indispensible.

Conclusion

One of the critical factors required for success in the hotel business is the right
location. Asaba is ready for a new signboard, a unique development, bringing
national and international capital to the city.

Furthermore, based on the preceding analyses, a full-service, medium scale hotel

has a good performance potential in Asaba.

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