APARTMENT HOTEL Hotel-Jezzine.pdf · LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International Jezzine - Feasibility Study – Apartment Hotel 3 2 Project description

AFC Consultants International

APARTMENT HOTEL

TABLE OF CONTENTS

1 EXECUTIVE SUMMARY ................................................................... 2 2 PROJECT DESCRIPTION................................................................. 3 3 SERVICE STRATEGY....................................................................... 3 4 MARKET ANALYSIS........................................................................ 3

4.1 TOURISM INDUSTRY OVERVIEW ...................................................................................................3 4.2 TOURISM TRENDS........................................................................................................................4 4.3 HOTEL SECTOR ANALYSIS ...........................................................................................................5 4.4 HOTEL OCCUPANCY RATES...........................................................................................................6 4.5 MAIN COMPETITION .....................................................................................................................6 4.6 TARGET MARKET .........................................................................................................................7 4.7 SWOT ANALYSIS ........................................................................................................................8

5 MARKETING PLAN ......................................................................... 9 5.1 PRICING ......................................................................................................................................9 5.2 SALES CHANNELS ........................................................................................................................9 5.3 ADVERTISING AND PROMOTION....................................................................................................9 5.4 PUBLIC RELATIONS .................................................................................................................... 10

6 FINANCIAL PLAN......................................................................... 10 6.1 CONSTRUCTION COSTS............................................................................................................... 10 6.2 MAJOR ASSUMPTIONS ................................................................................................................ 10 6.3 PROJECTED INCOME STATEMENT ............................................................................................... 14 6.4 PROJECTED BALANCE SHEET .....................................................................................................15 6.5 PROJECTED CASH FLOWS...........................................................................................................16 6.6 RATIO ANALYSIS ....................................................................................................................... 16 6.7 BREAK-EVEN ANALYSIS ............................................................................................................. 17 6.8 SENSITIVITY ANALYSIS .............................................................................................................. 17

7 RECOMMENDATIONS AND KEY SUCCESS FACTORS...................... 18 8 ECONOMIC IMPACT EVALUATION................................................ 18

LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

Jezzine - Feasibility Study – Apartment Hotel 2

1 Executive Summary The proposed project consists of establishing an apartment hotel in Jezzine. The apartment hotel project will include 27 suites, a roof top restaurant and a banquet hall. The apartment hotel will mainly target vacationing families from neighboring cazas as well as expatriates coming to visit their families. It will also target members from NGOs working in the area. The Jezzine region lacks furnished apartments and hotels as well as entertainment facilities as confirmed by the market study. Moreover, the field survey showed that the number of residents increases by 150% in the summer, which creates demand for various services, especially in the hospitality and entertainment fields. The apartment hotel’s construction costs are estimated at $5.1 million for a built-up area of 4,100 square meters. The total land area is of 1,700 square meters. The daily rate is assumed at $120. The occupancy rate is assumed at 35% increasing to 40% in year 2, 45% in year 3, and reaching a stable rate of 50% by year 4. The projections are taken over a period of 7 years. The apartment hotel is expected to provide an average annual net profit of $700,407. It will be able to distribute dividends of $525,373 starting in year 1, which will grow to reach $653,121 by year 7. The apartment hotel provides an internal rate of return (IRR) of 16.6% and a payback period of 6 years and 6 months. These results demonstrate that the project is viable and provides healthy returns to its shareholders. A worst-case scenario is taken by assuming that the average occupancy rate is at 35.71% instead of 45.71%. In this case, the apartment hotel has a profitability of $616,493 annually. The internal rate of return is 14.4%. The payback period is 7 years and 2 months. A best case scenario is developed by considering an increase in occupancy rate from 45.71% to 50.71% as an average throughout the years. In this case, the apartment hotel has a profitability of $742,363 annually. The internal rate of return is 17.7%. The payback period is 6 years and 2 months. Besides the business benefits and satisfactory performance that the apartment hotel is expected to deliver, it will also reshape and positively influence the economic and social environment of Jezzine by offering 13 full time job opportunities and 7 part-timers as well as lifting the standards of the area and enhancing the tourism potential of Jezzine.



2 Project description The project consists of developing a bed & breakfast type of apartment hotel in the Jezzine caza. The apartment hotel will have 27 suites spread on 3 floors. The project will include a roof top restaurant, and a banquet hall for weddings, special meetings, seminars and other events. The total land area is assumed to be 1,700 m2. The following table shows the proposed space program with the various planned outlets and their respective areas in square meters. The total built-up area is 4,100 square meters.

Each suite will have a total area of 103 square meters, which includes the corridors in each floor. The total built-up area is 4,100 square meters.

3 Service strategy The apartment hotel’s main strategic objectives will involve gaining market share and building a loyal clientele. Its strategy will mainly rely on offering quality service, which implies well-trained and courteous staff, impeccably clean rooms and bathrooms, and good quality food at the restaurant and for banquets. The apartment hotel will offer the following amenities and services:

27 well-fitted and spacious suites spread over 3 floors and overlooking the beautiful Jezzine’s natural landscape and waterfalls.

Roof top restaurant Banquet hall on the ground level.

4 Market Analysis 4.1 Tourism industry Overview Tourism is vital for the Lebanese economy providing 12% of GDP and valued at around $4.5 billion in 2006. In year 2007, however, contribution to GDP of this sector declined at 4.4% contribution translated to 1.08$ billion. Most visitors come from the Arab Gulf region, to spend the summer vacations and enjoy the cool climate in the mountains above Beirut. A significant number of Europeans also visit the country, mostly for its archeological sites as well as to enjoy Beirut’s vibrant and renowned night life.

Space program Item sqm2 qty Tota sqm

Suites 900 sqm/floor)*3 floors + corridors 103 27 2,777 Basic construction + banquet hall + terrasse 900 1 900 Fixtures and furniture-suites + lobby 103 1 103 Kitchen equipment 200 1 200 Roof top restaurant 120 1 120 Total built up area 4,100



Prior to the war, Lebanon was known as the ‘Paris of the Middle East’ based on Lebanon’s eastern-western sophisticated culture, historical architecture, social outings, nightlife, mountain ski lodges, and beach resorts. This reputation will be revived by the restoration of many of these sites, implementing the future construction plans, and stabilizing the political turmoil. Lebanon enjoys a multi-faceted tourism, including diaspora tourism, historical tourism, eco-tourism, leisure, sports, ski, cultural, health, educational, fairs and exhibitions, etc… Since the end of the civil war, intensive efforts have been made by the Ministry of Tourism to revive this vital industry. Prior to the Israel war on Lebanon in June 2006, the tourism was expecting a total of 1.6 million tourists and receipts that would top $6 billion. Following the outbreak of the July 2006 war, many apartment hotels went from full occupancy to zero occupancy within hours. Apartment hotel receipts for the summer season were expected to reach $266 million; however, they barely reached $37 million. The political instability and the Israeli aggression have been heavily hurting the tourism sector. However, people in the sector are optimistic that once confidence is restored to Lebanon, tourists will again find Lebanon a perfect vacation spot; if an adverse event like the civil war did not diminish the country’s tourism potential, the prevailing setbacks will only impact the sector temporarily. Expectations remain high that Arab tourists and Lebanese expatriates will be eager to return when the political situation stabilizes and hence Lebanon will regain its former position as a holiday destination in the Middle East. 4.2 Tourism Trends The return of peace and the reconstruction boom that took place in Lebanon contributed in attracting an increasing number of visitors to the country. The number of tourist arrivals had been growing, on average, by 14% annually from 1996 to 2004 with exceptional declines in the years 2005 and 2006 attributed to the assassination of PM Hariri and ensuing political tensions in 2005, and the Israeli aggression on Lebanon in June 2006. In 2003, Lebanon received more than one million tourists (1,015,793) for the first time in nearly 20 years. This number increased by 26% to reach 1.28 million visitors by the end of 2004.

Year Number of visitors

Growth over previous year

1995 417,142 24%1996 424,000 2%1997 557,568 32%1998 599,765 8%1999 673,261 12%2000 741,648 10%2001 873,745 18%2002 956,464 9%2003 1,015,793 6%2004 1,279,899 26%2005 1,139,524 -11%2006 1,062,635 -7%2007 921,986 -13%

Source: Ministry of Tourism



This growth rate in tourist arrivals in 2004 was quite impressive at 26% compared to the growth rates achieved in 2002 and 2003, respectively 9% and 6%. It shows that Lebanon was able to become a true tourist destination in the Middle East. Political instabilities in 2005 resulted in a decline in the number of tourists by 11%. In 2006, over 1.6 million tourists were expected; however, the outcome of the war was total visitors of 1,062,635, $2 billion dollar loss of revenues and a hotel occupancy that did not exceed 30 percent. In year 2007, the tourism sector did not improve due to the political instabilities that discouraged tourists to visit Lebanon. Lebanon, however, is expected to rapidly reclaim its position as a tourism hub as soon as the political situation stabilizes.

32%

8%

12%10%

18%9%

6%

26%

-11%-7%

-13%-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

150,000

300,000

450,000600,000

750,000

900,000

1,050,000

1,200,0001,350,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Growth in Number of Visitors 1997- 2007

Number of visitors Growth over previous year

Source: Ministry of Tourism While the short term outlook for the country is uncertain, in the long term, economic prosperity is anticipated at all levels and especially the tourism sector. 4.3 Hotel Sector Analysis Recent official figures released by the Ministry of Tourism show that the number of apartment hotels increased in the regions between the years 2000 and 2006. The apartment hotel industry itself has seen well over $ 1 billion spent, with a rush of five-star apartment hotel openings in the past years. Between the years 2000 to 2006, new hotels were opened, while others were closed. The South of Lebanon has 9 hotels as of 2006. The new hotel distribution as of 2006 is shown in the table below.

M ohafazat Num ber of hotels(2000)

Num ber of hotels(2006)

% Change 2000-2006

Num ber of room s(2006)

Num ber of beds

(2006)

Num ber of em ployees

(2006)Beirut 52 62 16% 5,371 7,625 3,772M ount Lebanon 122 133 8% 6,571 11,187 2,982North Lebanon 20 37 46% 1,304 2,619 336Bekaa 4 18 78% 625 1,108 201South Lebanon 8 9 11% 340 635 169Total 206 259 20% 14,211 23,174 7,460Source: Min istry of Tourism (2006)



4.4 Hotel occupancy rates All hotel categories experience a strong seasonality factor. Occupancy rates tend to soar during the summer season (mid-June to mid-September) as Arab nationals and Lebanese expatriates enjoy spending their vacations in Lebanon. Typically, occupancy rates increase significantly from mid-December to mid-January during Christmas and New Year. Holidays such as Ramadan, Eid El-Adha, also generate high occupancy rates at most apartment hotels. Occupancy rates increase in the seasonal months such as in the summer season and the holidays 4.5 Main competition The following table shows major hotels or furnished apartments currently operating in Jezzine and vicinities, i.e in the South region: Name of hotel Address Amenities Rating (*) Auberge Wehbeh

Jezzine 24 rooms / 60 beds UL

Rizk Plaza Motel Jezzine Kitchenette - Heating and Air conditioner- TV satellite

2 stars

La Fregate Orass Jadra 48 chalets /88 beds UL Mina Beach Wadi el Zeina 40 rooms /80 beds

4 restaurants Swimming pool Night club Conference hall Diving club

UL

Charlotte hotel Nabatieh 41 rooms / 80 beds UL Dana Hotel Ebl El Saqi,

Marjeyoun 36 rooms/80 beds 3 restaurants Night club Swimming pool Conference room

3 stars

Rest House Tyr Hotel

Tyr 66 rooms/80 beds 3 restaurants Night club Swimming pool Health club Conference hall Business center

4-star B

Mouness Hotel Khaizaran 52 rooms/110 beds 2 restaurants Night club Swimming pool Conference hall

UL

Abou Deeb motel Kassmieh-tyr 36 rooms/72 beds 3 restaurants Swimming pool Conference hall

3 star

Murex Tyr 30 rooms/60 beds 2 restaurants Conference hall

UL



Source: Compiled by ECE Consultants from Ministry of Tourism apartment hotels guide *Ratings are in accordance with the listed ratings by the Ministry of Tourism As the above table shows there is limited competition to the project in Jezzine and even in the whole South area. In fact, the region did not develop in terms of hospitality services mainly due to long years of Israeli occupation. 4.6 Target market Since the end of the occupation, a growing number of people have been visiting the Jezzine region. Among others, the Lebanese expatriates living in various parts of the world have been increasing in numbers. Following the withdrawal of the Israeli Army a large number of NGOs and other aid associations rushed to the country to provide help and assistance to families. Their actions included development programs and capacity building schemes as well as vocational training and micro-credit financing aiming to revitalize the region. The NGO’s activities created demand for apartment hotel rooms, rental of conference halls, restaurant services, etc… The apartment hotel will mainly target the following market segments:

The expatriates visiting the caza during the summer The local residents in Beirut who are originally from Jezzine also create demand

during holidays and the summer season. The apartment hotel will also target the weddings market as well as conferences,

seminars or other meetings. The NGOs operating in the Jezzine region require hospitality services and will

appreciate the proximity of the apartment hotel to their main service centers in Jezzine.



4.7 SWOT Analysis STRENGTHS WEAKNESSES

It will be a unique quality “apartment hotel & resort” in the region at the proximity of the world famous Jezzine waterfalls.

Banquet facilities for up to 600 seats with

direct access to a contiguous large outdoor private terrace, which is perfect for special events and weddings.

A joint program between Lebanon and the

European Union is providing subsidized long-term loans for apartment hotels. Currently, the subsidy covered by the Banque du Liban is 7% for loans up to 5 billion Lebanese Pounds and 5% for amounts over 5 billion and up to 15 billion Lebanese Pounds.

The main weakness for the apartment

hotel will be the highly seasonal activities, which will essentially rely on the summer volume. Indeed, the number of residents in the summer increases by around threefold as compared with the winter. This will require extra marketing efforts to smooth out the seasonality factors by organizing special discount packages during the winter, spring, and autumn seasons.

OPPORTUNITIES THREATS Jezzine caza has a high percentage of wealthy

and educated expatriates and residents in Beirut and its vicinity who still have constant links with their original villages.

The future of the industry seems optimistic

with the prospective peace process. Furthermore, there are plans for regional integration between Lebanon, Jordan and Syria, which will allow visiting the 3 different countries in one trip: Lebanon with its cosmopolitan lifestyle, Jordan with its archeology and desert safaris, and Syria with its authentic and preserved Middle Eastern life.

Lebanon is gradually regaining its pre-war

regional role especially in the leisure and entertainment field. Indeed, Lebanon's nightlife and recreation activities are attracting a growing number of expatriates visiting their relatives in Lebanon. The same pattern is happening in the various Lebanese villages. Even if a large number of expatriates generally have members of their family that would offer them accommodation, there is still a large need for apartment hotels or furnished apartments for a portion of them.

Cost Structure: The hospitality industry requires important investments with long-term returns and it is not easy to raise capital in Lebanon. Moreover, the operating costs are relatively high in Lebanon as compared with other countries in the region, thus increasing the pressure on the apartment hotel performance.

Economic: Environmental threats include

the economic recession in the country and the unstable political situation in the country. Moreover, the proximity to Israel and the continuous threats from war constitute major risks for the apartment hotel.



5 Marketing Plan The apartment hotel’s main marketing objectives involve:

Promoting the apartment hotel as a unique destination for expatriates visiting home, local residents from the Capital and main cities, as well as summer vacationers.

Building a loyal clientele and gaining awareness among expatriates and locals residing in the Capital and main cities.

Promote the banquets room for weddings and private parties Offer packages for tour operators and travel agencies.

5.1 Pricing The prices for the services are determined first and foremost by the market, the competition, and the seasonality and types of customers. The apartment hotel will price the suites at a net price of $120 per night. The apartment hotel will offer differentiated pricing depending on various factors including:

The seasonality: For example, it will give exceptional rates and weekend package deals during the low seasons months

The number of days: for example, it would offer package deals including one night free of charge for reservations of at least 4 days in a row.

Group rates offering discounts based on the number of rooms taken 5.2 Sales channels The apartment hotel will establish strategic alliances with travel and tour agents locally as well as internationally, especially with tour agencies in countries with high concentration of Jezzine people. This will increase the exposure of the apartment hotel to expatriates. The apartment hotel will also establish deals with NGOs, by offering them especially low rates for large groups that would rent a number of rooms as well as conferences. 5.3 Advertising and promotion The apartment hotel will allocate a yearly budget for marketing expenses. This budget will mainly cover brochures, advertising in local magazines, as well as sponsoring of events in the area. The apartment hotel will start by preparing a colorful and attractive brochure, with pictures of the suites, restaurant and banquet hall. This brochure will be distributed to various NGOs and companies operating in the area and Jezzine region. It will also be distributed to expatriates through a network of contacts with key people in foreign countries who have hosted a large number of people from the Jezzine region.



5.4 Public relations The public relations efforts will mainly rely on the following:

Develop a sustained public relations effort, with ongoing contact with key leaders in foreign countries with high concentration of Jezzine people such as USA, African countries and Australia.

Establish contact with Ministry of Tourism and other tourist organizations or

publications staff for the purpose of being included in apartment hotels services comparisons, and publications where competing services are compared. This exposure builds credibility and market acceptance.

6 Financial Plan This section details the calculations, assumptions and methodology used as a basis for the projections of the expected financial performance of the apartment hotel. 6.1 Construction costs CONSTRUCTION COST ANALYSISCost Items Total m² $/m² Total cost % of totalLand Acquisition Cost 1,700 500 850,000 16.7%Building permit 30,000 0.6%Total land cost 880,000 17%Basic construction 4,100 650 2,665,000 52.2%Basic construction -banquet hall + terrasse 900 550 495,000 9.7%Fixtures and furniture-suites + lobby 4,100 200 820,000 16.1%Kitchen equipment 200 300 60,000 1.2%Generator 15,000 0.3%Office equip, computers, telephones, TVs 25,000 0.5%Total construction costs (hard costs) 4,080,000 80%Soft costsEngineering & supervision 4% 126,400 2.5%Pre-opening expenses (marketing, lawyer) 15,000 0.3%Total soft costs 141,400 3%Working capital needs 0%Total project cost 5,101,400 100% The above table shows the various construction cost elements. The project’s total cost is evaluated at USD 5.1 million. This includes the permits, hard and soft costs as well as the working capital needs at the start of operations. 6.2 Major assumptions The assumptions on the income side are conservative and are based on current market levels and achieved results at comparable apartment hotels in the region. They take into consideration risks and contingencies as well as market levels for costs and prices. The apartment hotel will have a total of 27 rooms with the following pricing:



Growth in occupancy Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Occupancy for suites 35.00% 40.00% 45.00% 50.00% 50.00% 50.00% 50.00% The apartment hotel is expected to have an occupancy rate of 35% in year 1 and is expected to increase up to 50% from year 4 and onward. This gives an average 7-years occupancy rate of 45.71%. In the second year of operation the apartment hotel is expected to achieve occupancy rate of 40%. (However, the apartment hotel could achieve higher rates in case intensive marketing is done and as the security situation in Lebanon and more particularly in Jezzine improves). The following table shows assumptions related to rooms revenues including telecommunications and laundry revenues, as well as the related costs. The marketing expenses are assumed to be 1.5% of annual suites revenues. An annual increase in general expenses of 3% is taken to account for inflation factors. The maintenance expenses are taken as 3% of suites revenues. Seasonal wages are based on 3 months of summer. An annual increase in salaries of 1% is taken. Income Statement AssumptionsTelecommunications revenues 1% of suites revenuesTelecom. Cost of sales 50% of telecom revenuesLaundry: Avg. revenue 0.3% of suites revenuesLaundry consumable supplies 32% of laundry revenuesHousekeeping supplies 2.5% of suites revenuesCredit card commissions 2% of 30% of revenuesConsumable supplies 0.5% of total revenuesMarketing Expenses 1.5% of suites revenuesUtilities: Electricity, Water, Telephone 8% of suites revenuesHeating Fuel 3% of suites revenuesMaintenance expenses 3% of suites revenuesAnnual increase in general expenses 3%Annual increase in salaries 1% annuallyDividends distribution 90% of net incomeIncome Tax Rate 15% The following table shows the assumptions for the computation of the food and beverages, the rooftop restaurant and the banquet hall revenues:

Average Avge # AvgeFood & beverage assumptions Occup. cov./day Days in yr checkRoom service 5% of room revenuesMain restaurant 120 seats 60% 72 120 $15.00Banquets 600 seats 50% 300 120 $25.00Credit card commissions 2% of 30% of F&B revenuesCost of sales (consumables) 30.5% of F&B revenuesExternal charges 5% of F&B revenues

Suites Number Pricing Suites 27 $120



The following table shows the main assumptions for the food & beverage outlets including the main restaurant with 120 seats and banquet hall with 600 seats, and the room service. The assumptions are conservative and take into consideration the low seasons. For example, for the room service the assumptions consider 5% of the room revenues. The main restaurant also takes into consideration only 120 days in the year with an average occupancy of 60%. An average check per person of $15 is considered as a base for restaurant revenues. For the banquets, only 120 days in the year are considered and an occupancy of 50% is taken for these days with an average revenue of $25 per cover. Growth in F&B Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Increase in F& B revenues 5% 3% 2% 0% 0% 0% It is assumed that food & beverage revenues will grow by 5% in year 2, by 3% in year 3, and by 2% in year 4, and remain constant beyond year 4. The following table shows the balance sheet assumptions: Balance Sheet AssumptionsAccounts Receivable 15% salesInventories 2 months of consumablesAccounts payable 2 months of consumablesExpenses payable 5% of general expenses The following table shows the depreciation rates, which follow international accounting standards: DEPRECIATION RATESFurniture 7.5%Fixtures & installations 10.0%Office equipment and computers 20%Construction costs 2.5% Staff structure The staff of the apartment hotel will be carefully selected in order to ensure a dynamic and competent team, which will be able to provide high standards of services. A thorough training will be provided to all the staff. The staff will be as follows: 13 full time and an extra 7 part timers in the high season.



Jezzine Country Club - Bungalows & ResortSTAFF STRUCTURE

Department Job Title Nbr. Base Salary Total Salaries NSSF

Total Monthly Salaries

Administrative General Manager 1 1,500 1,500 258 1,758Accountant 1 700 700 151 851

Total Administration 2 2,200 2,200 408 2,608Front Office Manager 2 500 1,000 215 1,215House Maid 2 350 700 151 851

Total Bungalows 4 850 1,700 366 2,066Food & Beverages Chef 1 900 900 207 1,107

Assistant Chef 1 600 600 129 729Maitre 1 600 600 129 729Waiters 2 500 1,000 215 1,215Stewards 2 330 660 142 802

Total F& B 7 2,930 3,760 821 4,581GRAND TOTAL 13 5,980 7,660 1,595 9,255 Summer StaffF&B Number Base Salary Monthly SalariesWaiters 2 500 1,000Stewards 2 330 660Seasonal Months 3Total Seasonal Wages 7 4,980



6.3 Projected Income Statement The following income statement is based on conservative assumptions of revenues as well as costs.

The income statement shows satisfactory income levels with an average net profit margin of 42% and average profits of $700,407.

APARTMENT HOTEL Projected Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Revenues Suites revenue 413,910 473,040 532,170 591,300 591,300 591,300 591,300 Total bungalows Revenue 413,910 473,040 532,170 591,300 591,300 591,300 591,300 bungalows Expenses Housekeeping supplies 10,348 11,826 13,304 14,783 14,783 14,783 14,783 Heating fuel 12,417 14,191 15,965 17,739 17,739 17,739 17,739 Utilities:Electricity,water,telephone 33,113 34,106 35,129 36,183 37,269 38,387 39,538 Salaries & Social charges 24,786 25,034 25,284 25,537 25,792 26,050 26,311 Seasonal Salaries 4,800 4,848 4,896 4,945 4,995 5,045 5,095 Credit card commissions 2,483 2,838 3,193 3,548 3,548 3,548 3,548 Total bungalows Expenses 87,947

32,244 32,567 32,892 33,221 Depreciation expenses 177,785 177,785 177,785 179,785 224,535 219,535 221,535 Other expenses 2,000 2,020 2,040 2,061 2,081 2,102 2,123 Total General & Administrative Exp 255,782 260,212 264,259 270,105 315,297 310,745 313,199 EBIT 686,762 769,794 840,653 902,996 855,797 858,299 853,752 Tax expenses 103,014 115,469 126,098 135,449 128,370 128,745 128,063 Net Income 583,748 654,325 714,555 767,547 727,427 729,554 725,689

Net profit Margin 40% 42% 43% 44% 42% 42% 41%



6.4 Projected Balance Sheet The balance sheet shows the projected assets and liabilities of the company. APARTMENT HOTEL

Projected Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Cash & Equivalents 27,701 254,589 490,347 724,923 574,769 867,328 1,151,502Accounts Receivable 219,631 236,378 250,210 262,487 262,487 262,487 262,487Inventory 55,115 58,031 59,959 61,360 61,360 61,360 61,360Current Assets 302,446 548,997 800,515 1,048,770 898,616 1,191,175 1,475,349Land 850,000 850,000 850,000 850,000 850,000 850,000 850,000Construction 3,331,400 3,331,400 3,331,400 3,331,400 3,331,400 3,331,400 3,331,400Fittings & installations 835,000 835,000 835,000 835,000 1,252,500 1,252,500 1,252,500Furniture 60,000 60,000 60,000 60,000 90,000 90,000 90,000Computers & office equip 25,000 25,000 25,000 35,000 35,000 35,000 45,000Accumulated Depreciation 177,785 355,570 533,355 713,140 937,675 1,157,210 1,378,745Net Fixed Assets 4,923,615 4,745,830 4,568,045 4,398,260 4,621,225 4,401,690 4,190,155Total Assets 5,226,061 5,294,827 5,368,560 5,447,030 5,519,841 5,592,865 5,665,504Accounts payable 55,115 58,031 59,959 61,360 61,360 61,360 61,360Expenses payables 11,172 11,590 11,939 12,252 12,321 12,390 12,459 Total Liabilities 66,287 69,620 71,898 73,612 73,681 73,750 73,819Invested Capital 5,101,400 5,101,400 5,101,400 5,101,400 5,101,400 5,101,400 5,101,400Retained Earnings 58,375 123,807 195,263 272,017 344,760 417,716 490,285Shareholders Equity 5,159,775 5,225,207 5,296,663 5,373,417 5,446,160 5,519,116 5,591,685Total Liab. & Shrholders Equity 5,226,061 5,294,827 5,368,560 5,447,030 5,519,841 5,592,865 5,665,504

Stat. Of Retained Earnings Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Begin. Retained Earnings - 58,375 123,807 195,263 272,017 344,760 417,716 Net income 583,748 654,325 714,555 767,547 727,427 729,554 725,689 Dividends Paid 525,373 588,892 643,100 690,792 654,685 656,599 653,121

Ending Retained Earnings 58,375 123,807 195,263 272,017 344,760 417,716 490,285 The company is expected to start distributing dividends of $525,373 in year 1. In year 7, the company will be able to distribute dividends of $653,121.



6.5 Projected Cash Flows The following table shows the projected cash flows of the apartment hotel.

APARTMENT HOTELSTATEMENT OF CASH FLOWS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Net income 583,748 654,325 714,555 767,547 727,427 729,554 725,689 Adjustments to reconcile net incometo cash provided by operating activitiesDepreciation 177,785 177,785 177,785 179,785 224,535 219,535 221,535 Changes in Working Capital (208,459) (16,329) (13,483) (11,964) 68 69 70 Total Adjustments (30,674) 161,456 164,302 167,821 224,603 219,604 221,605 Cash provided by operating activities 553,074 815,781 878,857 935,368 952,031 949,158 947,294

Cash Flow from Investing ActivitiesCapital expendituresInvestment in fixed assets (5,101,400) - - (10,000) (447,500) - (10,000) Net cash used in investing activities (5,101,400) - - (10,000) (447,500) - (10,000)

Cash flow from financing activitiesNet injection by owners 5,101,400 Net borrowings & repayments of loansDividends distributed (525,373) (588,892) (643,100) (690,792) (654,685) (656,599) (653,121) Cash provided by financing activities 4,576,027 (588,892) (643,100) (690,792) (654,685) (656,599) (653,121)

Cash at beginning of year - 27,701 254,589 490,347 724,923 574,769 867,328 Changes in cash 27,701 226,888 235,758 234,576 (150,154) 292,559 284,174 Cash at end of year 27,701 254,589 490,347 724,923 574,769 867,328 1,151,502 The projected cash flows show the initial net investment in fixed assets. It also shows the net invested capital by the owners. The distributed dividends are shown starting in year 1. 6.6 Ratio analysis Ratio Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Current Ratio 4.56 7.89 11.13 14.25 12.20 16.15 19.99Return on Average Assets 11.2% 12.4% 13.4% 14.2% 13.3% 13.1% 12.9%Total Assets Turnover: Sales / total assets 28% 30% 31% 32% 32% 31% 31%

Gross Profit Margin (Bungalows) 79% 80% 82% 83% 82% 82% 82%Gross Profit Margin F&B 59% 59% 59% 59% 59% 59% 59%Net Profit Margin 40% 42% 43% 44% 42% 42% 41%

Return On Average Equity=ROE 11% 13% 14% 14% 13% 13% 13%Return on Investment = ROI 12% 14% 16% 17% 16% 17% 17% The following table shows the main financial ratios for the apartment hotel. The current ratio is equal to current assets divided by current liabilities. This ratio shows satisfactory levels in all years. The return on average assets grows over the years as the net income of the apartment hotel increases. The total assets turnover improves from 28% to 31% by year 7, mainly due to the increase in sales over the years.



The profitability margins are satisfactory over the years. The return on average equity is around 13.1%. The return on investment is also around an average of 15.5%. These are considered acceptable levels for an apartment hotel project. The internal rate of return is 16.6% and the payback period, which is the period necessary to pay back the investment, is 6 years and 6 months. 6.7 Break-even analysis The following table shows the annual revenue levels needed for the apartment hotel to break even. Thus, total revenues of $520,194 in year 1 are a minimum level of revenues for the apartment hotel. APARTMENT HOTEL

BREAK-EVEN ANALYSIS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Total Revenues 1,464,206 1,575,850 1,668,065 1,749,912 1,749,912 1,749,912 1,749,912Total Variable Costs 399,005 421,300 436,680 448,372 448,372 448,372 448,372Total Fixed Costs 378,438 384,757 390,731 398,545 445,744 443,242 447,789

Break-even revenues 520,194 525,156 529,295 535,840 599,300 595,935 602,049 6.8 Sensitivity analysis A worst-case scenario is taken by assuming that the average occupancy rate is at 35.71% instead of 45.71%. In this case, the apartment hotel has a profitability of $616,493 annually. The internal rate of return is 14.4%. The payback period is 7 years and 2 months. A best case scenario is developed by considering an increase in occupancy rate from 45.71% to 50.71% as an average throughout the years. In this case, the apartment hotel has a profitability of $742,363 annually. The internal rate of return is 17.7%. The payback period is 6 years and 2 months.

Worst-case Most likely Best-case7-yrs average occupany rate 35.71% 45.71% 50.71%

Average net income 616,493 700,407 742,363 Average net profit margin 39.76% 41.83% 42.75%Internal rate of return 14.43% 16.61% 17.66%Payback period in years 7 years 2 months 6 years 6 months 6 years 2 months These results show the viability of the project, especially if it is well managed providing quality at affordable prices. Of course, the general improvement of the situation in Lebanon and particularly in the south and the Jezzine region will further enhance the results to be achieved by the apartment hotel project.



7 Recommendations and key success factors In order to achieve satisfactory results, there are some key success factors that should be highlighted:

The apartment hotel should focus on quality services implying courteous staff, impeccable cleanliness of the rooms, restaurants, and other public areas. The food should be of high quality and well presented for weddings and special events. The main idea is to offer quality at affordable and competitive prices.

The apartment hotel should strive to build a loyal clientele, which will be coming back time after time. This will ensure the long term sustainability of the business.

It should develop a well-targeted marketing strategy including advertising activities, promotional packages and discounts, special deals with companies, or NGOs for group reservations, contacts with key persons and tour agents in countries with high concentration of Jezzine people, etc..

Marketing the banquets facilities is very important for the apartment hotel, especially that weddings and other banquets generally constitute about 60% to 70% of food and beverage revenues in most hotels. This important revenue generator should be given special attention and should be diligently marketed in the region.

Most importantly, the management should provide intensive training to its staff on quality services, mainly emphasizing courtesy, discreetness, and promptness in serving guests, while giving a high priority on client satisfaction, which is key to the success of the apartment hotel.

8 Economic Impact Evaluation Besides the business benefits and satisfactory performance that the apartment hotel is expected to deliver, it will also reshape and positively influence the economic and social environment of Jezzine by offering 13 full time job opportunities and 7 part-timers as well as lifting the standards of the area and enhancing the tourism potential of Jezzine. Most importantly, it will help prevent this group of people from emigrating by opening new career-opportunities to them. On the other hand, it will play an important and positive role in the community by lifting the standards of the whole area. It will add animation and new activities to the neighborhood, thereby attracting visitors and tourists, which in turn will highly contribute to the revenues of the region. Besides its expected business performance, the apartment hotel will be seen as an organization that is contributing to enhance the social good of Jezzine.

Documents

APARTMENT HOTEL Hotel-Jezzine.pdf · LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International Jezzine - Feasibility Study – Apartment Hotel 3 2 Project description