Hotel Feasibility Study for Scott County, Virginia

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702 University City Boulevard • Blacksburg, Virginia 24061-0162 • 540.231.8324 • Fax: 540.231.8850

Hotel Feasibility Study for Scott County, Virginia

Prepared by: Chad R. Miller, Ph.D., Office of Economic Development Yeasun K. Chung, Ph.D. student, Department of Hospitality and Tourism

Management Eric J. Howard, Masters Student, HUD Community Development Fellow,

Department of Urban Affairs and Planning March 2007

Outreach & International Affairs Virginia Polytechnic Institute & State University

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This publication reports on the feasibility of establishing a hotel within Scott County. It is published by the Virginia Polytechnic Institute and State University Office of Economic Development. Statements, findings, conclusions, recommendations, and/or other data contained in this publication represent solely the findings and views of the author(s), and do not necessarily represent the views of Virginia Polytechnic Institute and State University, or any reference sources used or quoted by the study. Reference to research projects, programs, books, magazines, or newspaper articles does not imply an endorsement or recommendation by the authors, unless otherwise stated. All reproduction rights to this publication are reserved. Permission to reproduce this publication of parts herein should be obtained in writing from the publishing entity. All correspondence regarding this publication should be sent to:

Dr. Theodore Settle Virginia Tech

Office of Economic Development 702 University City Blvd. (Mail Code 0373)

Blacksburg, VA 24061 Phone: (540) 231-5278

Fax: (540) 231-8850 [email protected]

The Smith Travel Research data contained in this report is based upon independent surveys and research from sources considered reliable but no representation is made as to its completeness or accuracy. This information is in no way to be constructed as a recommendation by Smith Travel Research of any industry standard and is intended solely for the internal purposes of this study and should not be published in any manner unless authorized by Smith Travel Research. Copyright 2006 Smith Travel Research.

A Land Grant University – The Commonwealth Is Our Campus An Equal Opportunity/Affirmative Action Institution

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Forward This document was prepared in response to a request by the Scott County Economic Development Authority. The objective of this study is to determine the existing and potential market demand for the possible development of a new limited or full-service hotel in Scott County, Virginia. On the basis of our findings, we have estimated the annual net operating income for the lodging property’s first five years of operation in order to evaluate the value of the hotel investment that should be undertaken in Scott County. The scope of the study may be summarized as follows:

• Work with Scott County to identify a project study area within the County limits;

• Analysis of economic and demographic trends; • Analysis of historical, current, and future supply for hotel rooms in the

competitive market; • Analyze market area lodging demand by conducting a review of historical

operations, capture rates, and average rate achievement of competitive properties;

• Analysis of potential hotel sites; • Development of estimates of occupancy levels that might be obtained at the

proposed lodging facility; • Development of estimates of average daily room rates, and; • Development of statements of estimated annual operating results.

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Executive Summary This summary highlights the key findings of the feasibility study to evaluate the potential development of a new hotel in Scott County, Virginia. Based on our analysis of demand and supply under twelve different scenarios, a branded midscale hotel without food and beverage (F & B) would best serve the needs of Scott County (See Table 1). The investment costs are based on the lowest values presented in the literature because of the low property values in Scott County. A hotel having a restaurant could be feasible only with a particular size of hotel, 100 guestrooms. However, these recommendations are based on continued tourism development including the completion of the Daniel Boone Wilderness Road Interpretive and Exposition Center. Demand and operational performance are estimated under two scenarios: 1) on an as-is basis with no new demand generators and 2) the development of an exposition park with continued regional tourism development. Under each scenario, different size and facilities of midscale hotels are investigated. Under the second scenario, the proposed hotel appears to be feasible.

Table 1: Summary of Results Tourism

Development Limited/Full

Service Number of

Rooms Net Present

Value Investment Costs

60 -$569,060 $3,151,300 80 -$723,812 $4,188,400 100 -$965,907 $5,223,950

w/o F & B

120 -$1,178,266 $6,261,050 100 -$1,177,507 $5,515,500

Scenario 1

w/ F & B 120 -$1,432,055 $6,610,600

60 $216,022 $3,151,300 80 $275,909 $4,188,400 100 $325,046 $5,223,950

w/o F & B

120 $360,578 $6,261,050 100 $45,139 $5,515,500

Scenario 2

w/ F & B 120 -$567,887 $6,610,600

We looked at the historical performance of the lodging industry to understand the general conditions that affect a hotel’s profitability. Important observations from this historical information include the following:

1. The lodging industry has recovered to pre-September 11th levels in terms of occupancy and is expected to continue to grow mainly due to higher priced properties.

2. Small metro or town hotels are the slowest markets in the lodging industry. 3. Hotel guestroom supply is shrinking in the midscale with F & B market, while

midscale hotels without F & B have added more rooms in recent years.

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4. Both leisure and business travel is slowly increasing and Gen-Xers (26 to 40 year-old) are becoming a dominant market in leisure room nights.

5. 67% of travelers to, thru, or within Virginia have pleasure related trips, while business travel accounts for 14% of total trips. The median age of the travelers is over 35 years, and 41% of them spend nights in hotels or motels.

Geographic market area analysis considerations include:

1. Potential customers for the subject hotel come mainly from Virginia, Tennessee, and North Carolina.

2. Population growth of the target market has been higher than the average growth of United States, and is projected to grow annually by 1.2%.

3. Personal income as a measure of income level is expected to continue to grow and consumer confidence indexes indicate customer’s expectation of future income shows an increasing trend over the next five years by 1.77%-1.90%.

4. Gas price increases adversely affect the local lodging market, the feasibility calculations are based on a gradual increase in fuel prices for the projected time period.

5. Most attractions in and around Scott County are historical, cultural or natural places and these types of attractions have been experienced decreasing visitation rates.

6. Creation of new tourism attractions, such as the Daniel Boone Wilderness Road Interpretive and Exposition Center, will make Scott County a tourism destination that leads to the change in demand for lodging.

7. The route connecting Weber City with Tennessee is the busiest and 20,500 automobiles travel on US23, SR224, and US58 daily for business, tourism, and commercial purposes.

A competitor analysis was conducted to understand the past demand and occupancy trends in the competitive market (i.e., the hotels/motels within the study area), to investigate the subject hotel’s competencies, and to determine the right positioning in the market. The findings are as follows:

1. Approximately 70% of rooms in the Scott County area are provided by Kingsport and Bristol. Major segments are economy and midscale without food and beverage, and 60% are brand chains.

2. The average age of properties is over 20 years and reservation systems, loyalty programs, internet access, and brand identity are necessary products and services to effectively compete within the competitive market.

3. The average daily room rate for the period of 2001-2005 was $62.96 and its annual compound growth rate was 2.86%.

Analyzing all demand and supply drivers, the competitive market’s demand and occupancy were estimated under different scenarios. In 2007, assuming the subject hotel is developed, the occupancy of the competitive market ranges from 48 to 49% versus a national average of 63.1% in 2005 up from 61.3% in 2004. In general, it is expected that the occupancy of the subject hotel will be lower under the first scenario, mainly due to its location. However, the hotel is expected to have a competitive

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position under the scenario which includes the development of the exposition center, since its location is at the access points from the Tri-cities area and interstates. Nevertheless, the existing demand may not work to support a hotel unless other hospitality infrastructure, such restaurants and entertainment-related businesses, are developed in the study area. Therefore, continued regional tourism development is a crucial caveat of this study. (See Appendix F for recommendations) The national occupancy average was 63.1% in 2005 which was up from 61.3% in 2004, and is likely to remain at similar level over the next several years. Compared to the national level of occupancy, in this study it was found that the competitive market/study area's occupancy rate ranges from 48% to 52% under the existing tourism condition, and the occupancy under the tourism development scenario is expected not to meet 60% over the next five years (See Table 2). The subject hotel’s occupancy in the as is scenario would be lower than the occupancy of the competitive set, and an approximate 2-8% increase is expected as the exposition park is developed within the study area.

Table 2: Projections of Occupancy of U.S., Competitive Market, and Subject Hotel Competitive market vs. U.S. 2007 2008 2009 2010 2011

U.S. 63.30% 63.20% - - -

60 49.21% 49.97% 50.65% 51.19% 51.63%

80 48.87% 49.63% 50.31% 50.85% 51.28%

100 48.55% 49.30% 49.98% 50.51% 50.94% Scenario 1

120 48.22% 48.97% 49.64% 50.17% 50.60%

60 49.21% 56.36% 57.14% 57.75% 58.24%

80 48.87% 55.98% 56.75% 57.36% 57.85%

100 48.55% 55.61% 56.37% 56.97% 57.46%

Competitive Market

Scenario 2

120 48.22% 55.24% 56.00% 56.59% 57.08%

60 38.57% 41.01% 43.45% 42.96% 43.33%

80 38.31% 40.74% 43.16% 42.67% 43.04%

100 38.05% 40.46% 42.87% 42.39% 42.75%

w/ F&B

120 37.80% 40.19% 42.58% 42.11% 42.47%

100 41.87% 44.34% 46.80% 46.37% 46.76%

Scenario 1

w/o F & B 120 41.59% 44.05% 46.49% 46.06% 46.45%

60 38.57% 57.98% 60.90% 60.47% 60.99%

80 38.31% 57.59% 60.49% 60.07% 60.58%

100 38.05% 57.21% 60.08% 59.66% 60.18% w/

F&B

120 37.80% 56.83% 59.68% 59.27% 59.78%

100 41.87% 61.59% 64.52% 64.15% 64.70%

Subject Hotel

Scenario 2

w/o F & B 120 41.59% 61.18% 64.09% 63.72% 64.27%

In general, lower occupancy rates are expected of the subject hotel under the first scenario, mainly due to its location. However, the hotel is expected to have a competitive position under the scenario which includes the development of the

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exposition center, since its location is at the access points from the Tri-cities area and interstates. Nevertheless, the existing demand may not work to support a hotel unless other hospitality infrastructure, such restaurants and entertainment-related businesses, are developed in the subject area. Therefore, continued regional tourism development is a crucial caveat of this study. (See Appendix F for recommendations) Using the net present value (NPV) analysis valuation technique, it was determined that investing in the development of a 60 room, 80 room, 100 room, or 120 room midscale hotel without an in-house restaurant is feasible only under the second scenario - the development of an exposition center and continued tourism development. The investment in a hotel having a restaurant would be acceptable only if the size of the property is 100 rooms. The brand is a very critical factor to have a competitive position in lodging industry, and this study assumed the development of a branded hotel that operates under a franchising or franchising/management mixed contract. It should be noted that many franchisee have minimum room numbers (See the Appendix C).

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Table of Contents

Forward..................................................................................................................3 Executive Summary...............................................................................................4 Introduction to the Analysis .................................................................................9 Area Overview.......................................................................................................12 Industry Trends....................................................................................................13 Growth in the Lodging Industry..............................................................13

Business Travel and Leisure Travel.........................................................15 Tourism in Virginia..................................................................................17

Supply and Demand Analysis..............................................................................19 Market Source.........................................................................................19 Economic Factors....................................................................................19 Demographic Factors..............................................................................21 Demand Generators................................................................................22

Traffic Counts..........................................................................................27 Competitive Analysis..............................................................................30 Critical Success Factors..........................................................................33 Proposed Sites and Hotel Industry Segment......................................................35

Proposed Sites ........................................................................................35 Proposed Segment...................................................................................35 Proposed Facilities and Services.............................................................36

Financial Analysis................................................................................................37 Estimating Demand and Supply.............................................................37 Estimating Occupancy Levels and Average Daily Room Rates..............41 Allocating Area Demand to the Subject Hotel........................................43 Estimating Initial Investment Costs.......................................................50 Estimating Cost of Capital……………………………………………….……………51

Statement of Estimated Annual Operating Results............................................52 Basis of Assumptions...............................................................................52 Pro-Forma Financial Projections............................................................53

Definition of Terms…………………………………………………………………………………65 Making Investment Decisions with Net Present Value……………………………..…66 Appendix A: Properties of the Competitive Set ………..………………………………..73 Appendix B: Critical Success Factors…………………………………………………………75 Appendix C: Franchising Requirements…………………………………..…………….....77 Appendix D: Smith Travel Research...................................................................78 Appendix E: Interviews/Responses....................................................................81 Appendix F: Tourism Development Recommendations………………………………85 .

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Introduction to this Analysis The objective of this study is to determine the existing and potential market demand for the proposed development of a new limited or full-service hotel in Scott County, Virginia. On the basis of the study’s findings, it is possible to estimate the annual net operating income for the lodging property’s first five years of operations in order to evaluate the value of hotel investment in Scott County. The scope of the study is summarized as follows:

analysis of economic and demographic trends as they pertain to transient lodging demand;

analysis of historical, current, and future supply for hotel rooms in the competitive market;

analysis of the market area’s current lodging demand through conducting a review of historical operations, occupancy rates, and average room rate achievement of competitive properties;

estimate of the future lodging demand based on historical data, economic characteristics and market potential (the analysis of geographic market area and target market);

analysis of potential hotel sites; analysis of the potential hotel sector (i.e., luxury, upscale, midscale with F&B, midscale without F&B, economy);

analysis of types of guestrooms; analysis of critical success factors (CSFs) that are bundles of products and services that are necessary for a hotel to invest in if it expects to compete in the sector;

estimate of occupancy levels that might be obtained at the proposed lodging facility;

estimate of average daily room rates (ADR); development of the pro forma statement of estimated annual operating cash flows;

estimate of initial investment costs to build proposed lodging facilities; and estimate of the net present value.

Methodology This feasibility study employs both qualitative and quantitative methods. Interviews were conducted with local public officials, representatives of competitive hotels, and persons related to the local development process. Secondary data from Securities and Exchange Commissions (SEC) filings, federal/state/country/local government agencies, investment banks, Smith Travel Research, Bureau of Transportation Statistics, Virginia Transit Association (VTA), and other tourism/travel associations was utilized for the analysis.

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For the financial forecasting aspects of the feasibility study, estimating techniques include:

expected value calculations; scenario building; and regression analysis & other multivariate techniques

These techniques aid in the use of inductive and deductive reasoning to formulate cause-and-affect theories about the performance of future cash flows. Procedure We estimate operational performance for two scenarios: 1) on an as-is basis with no additional demand generators and 2) a development of an exposition center with continued regional tourism development. This hotel feasibility study follows the process presented in the Figure 1.

Figure 1: The Market Feasibility Process

Figure 1 shows how to conduct an environmental scan to project lodging demand and supply that will lead to a change in the cash flow of a hotel. This scanning process begins with the identification of key external value drivers from the remote and task environment. The remote environment consists of macro-level forces that originate external to a hotel and may have potential impacts on the hotel's ultimate financial performance. The task environment includes industry specific forces which have a more direct impact, and usually with a more immediate consequence, to a hotel than the remote environment. Once external value drivers are identified causal relationships between these external value drivers and demand/supply are examined in order to develop a quantitative model. The model produces cash flow projections

Remote

Environment Scanning

Task Environment Scanning

Lodging Consumer Trend

Market Area Business and

Tourism Analysis

Competitive Analysis

Lodging Demand

Lodging Supply

Projection Sales

Operating Expenses

Taxes Investment

Costs Discount rate

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that are analyzed with regards to their value creation, the investment cost and the risk associated with the investment. Finally, the practical recommendations for an investment are made based on a decision making criterion that the investment in a hotel creates wealth by earning more than their cost of using equity and debt capital.

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Area Overview Scott County is located within Appalachia in the southwestern part of Virginia. With 539 square miles and a population of 22,962 in 2005. Scott County is in the Kingsport-Bristol-Bristol, TN-VA Metropolitan Statistical Area (MSA) and borders the state of Tennessee. It is near the Tri-Cities area of Tennessee and 20 to 22 miles away from two Interstates (I-181 and I-81). Towns in this county include Gate City (population of 2,159), Weber City (1,333), Nickelsville (448), Dungannon (317), Clinchport (77), and Duffield (62). A map of the area is presented in Figure 2. The dominant sectors of the Scott County economy include manufacturing, education, health and social services, retail and trade, agriculture, and income transfers. Scott County area attractions are mostly cultural, historical, and natural places such as Natural Tunnel State Park, Carter Family Fold, and Daniel Boone Wilderness Road Interpretive and Exposition Center that is planned to develop in near future. The county currently has one middle tier independent hotel that is located in Duffield that has 98 rooms.

Figure 2: Map of Scott County, VA

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Industry Trends Growth in the Lodging Industry The lodging industry grossed $22.6 billion in pretax profits in 2005 (Smith Travel Research). Total industry revenue increased in 2005 to $122.7 billion from $113.7 billion in 2004. The industry has recovered to pre-September 11th levels in terms of occupancy. The average occupancy rate was 63.1% in 2005 up from 61.3% in 2004. The average room rate has increased 5.4% and revenue per available rooms (RevPAR) recorded the largest increase (8.45%) in the past ten years. This data is summarized in Table 3.

Table 3: U.S. Lodging Industry Performance. Occupancy % Change ADR % Change RevPar % Change

2000 63.30% 0.07% $85.23 5.40% $53.93 6.10% 2001 59.70% -5.69% $83.99 -1.45% $50.17 -6.97% 2002 59.00% -1.17% $82.74 -1.49% $48.82 -2.69% 2003 59.20% 0.34% $82.86 0.15% $49.04 0.45% 2004 61.30% 3.55% $86.26 4.10% $52.89 7.85% 2005 63.10% 2.94% $90.90 5.38% $57.36 8.45%

Source: Smith Travel Research Hotel Performance by Segment Luxury hotels and upper-upscale hotels experienced a higher growth of occupancy rate, average daily room rate (ADR), and revenue per available room (RevPAR) than any other sectors. The occupancy levels of the U.S. full service hotels were over 70 percent in 2005, while mid-price and economy hotels within the limited service category had the average of occupancy rate (63-65%) in 2005. The Economy hotel sector showed the lowest annual growth (4.3%) of occupancy rate in 2006. This data is presented in Figure 3.

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Figure 3: Hotel Performance Change (%) by Segment (2005-2006)

9.50%

15%

25.93%

8%

12.00%

21.18%

6.60%

8.70%

15.87%

4.30%

6%

10.56%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

Occ. Grow th

ADR Grow th

REVPAR Grow th

Economy M id-Price Upscale Luxury

Source: Smith Barney Research/ Smith Travel Research

Hotel Performance by Location Urban hotels had an occupancy increase of 9.8%, followed by airport and resort hotels. Urban and interstate hotels experienced the highest occupancy rate (70%-75%) in the lodging industry in 2005, while small metro or town hotels with food and beverage did not reach 60% occupancy. Although small town/metro hotels saw an increase of 3.7% in occupancy and 5.3% in ADR, they are in the slowest market in terms of the sales growth. This data is shown in Figure 4.

Figure 4: Hotel Performance Change (%) by Location (2005-2006)

9.80%

12.90%

23.96%

6.80%

10.70%

18.23%

9.10%

12.20%

22.41%

4.70%

5.60%

10.56%

7.50%

14.00%

22.55%

3.70%

5.30%

9.20%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

O cc. G row th

ADR G row th

REV PAR G row th

Small M etro/Town Resort Interstate Airport Suburban Urban

Source: Smith Barney Research/ Smith Travel Research

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U.S. Lodging Room Supply Industry room supply (rooms available) increased by 0.3% in 2005, slightly lower growth than the 0.6% increase in 2004, as shown in Table 4. The average compound growth rate is 1.26%. Lodging room supply was up 2.0% for 2005 compared to 2004 in the state of Virginia due to both the building and expansion of new rooms around the state. In 2005, midscale hotels with food and beverage benefited from the decrease in rooms available, while midscale without food and beverage is the fastest growing market segment in terms of room supply.

Table 4: Changes in US Room Supply 2001 2002 2003 2004 2005 Supply Change in US 2.4% 1.6% 1.4% 0.6% 0.3%

Construction activity has increased on a year-to-year basis since 2005. In the U.S. rooms under construction increased 12.0% to 111,456 rooms in 2006, and the active development pipeline increased 17.4% to 337,574 rooms. Industry wide, the number of rooms currently under construction is equal to 2.5% of the existing supply. The upscale and midscale without food and beverage hotel segments seem to lead the change, experiencing above average capacity increases, as rooms under construction as a percentage of existing supply are 6.2% and 4.5%, respectively. This information is presented in Table 5.

Table 5: Total Development Pipeline (2004-2006)

Rooms 2006 2005 2004 In construction 111456 89,866 91449 Final planning 17741 14578 13828 Planning 208377 167250 173512 Active development pipeline 337574 571694 278789 Pre-planning 63219 54752 108428 Total development pipeline 400793 326446 387217

Source: Smith Travel Research / Dodge Construction Pipeline

Business Travel and Leisure Travel The typical business room night is generated by employees in a professional or managerial position (50%), earning an average yearly household income of $81,100. Most guests spend $96 per room night and the average length of stay in a hotel is 2.17 nights. A further breakdown of business traveler length of shows that 39% of all business travelers spend one night, 24% spend two nights, and 37% spend three or more nights.

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The leisure room night is mostly generated by ages 35–54 (45%), earning an average yearly household income of $72,600. The typical leisure traveler travels by automobile (74%) and pays slightly lower price ($89) per night than business travelers. The average length of leisure travelers staying is 1.96 nights (45% spend one night, 28% spend two nights, and 27% spend three or more nights).

In 2005, leisure room nights surpassed business room nights as a percentage of total room nights and in absolute terms for the first time according to DK Shifflet & Associates/Travel Industry Association survey (TIA), as shown in Figure 5. Leisure travel accounted for 52% and business 48% of hotel guests for 2005, when domestic leisure person-trips increased by 2.9%, while business person-trips dropped by 0.6%. This trends continued in the first half 2006, showing 3.5% increase in leisure trips and 0.9% decrease in business trips. According to TIA’s outlook, leisure travel intentions are slowly improving (1-2% growth in 2007) and business travel’s growth should remain steady despite the advance of technological alternatives, such as teleconferencing. Thus, demand for both leisure and business travel is likely to grow slightly with slower growth from the business segment.

Figure 5: U.S. Domestic Room-Nights Volume: Business vs. Leisure

(1999-2006F/% of Hotel Room-Nights)

200

250

300

350

400

450

500

550

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006F

Business

Leisure

Source: D.K. Shifflet & Associates, Ltd.

The increase in leisure travel room-nights is attributed to the members of the population who are categorized in the Generation X and Baby Boomers categories. Gen-Xers (26 to 40 year-old) have started to appear as the dominant demand segment in US. Although Baby Boomers still comprise the largest market, a hotel which targets leisure travelers should notice that the Gen-Xers are most likely to produce future occupied room nights than the other demographic groups. This changing trend is shown in Figure 6.

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Figure 6: Millions of Leisure Room Nights

0

50

100

150

200

250

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005F

Gen X (1965-1980)

Boomers (1946-1964)

Silent Generation (1930-1945)

G.I. Generation (Pre 1930)

Tourism in Virginia The typical purpose of traveling more than 50 miles to, thru, or within Virginia is pleasure related (67%), while business travel makes up 14% of the total trips. Primary pleasure related trips include visits to see friends or relatives, vacation, entertainment, outdoor recreation, special events/festivals, reunions, or others as shown in Table 6.

Table 6: Primary purpose of trip

Visit friends or relatives 29.0%

Vacation 18.0%

Other pleasure related 9.8%

Other business related 8.4%

Family/friend event/reunion 7.6%

Entertainment/Outdoor recreation 5.1%

Conference/convention 4.4%

Special event/festival 4.2%

Seminar/training 1.6%

Other 11.9% Source: Virginia Tourism Corporation

In general, Virginia attracts older travelers. The majority of the visitors range from 35 years and older, as shown in Table 7. A marketing strategy would need to actively respond to these dominating age groups while realizing that longer term the Gen-X market is most likely to produce future occupied room nights.

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Table 7: Age Distribution of Visitors to VA

Age Percent of visitors by age

under 6 4.40%

6-12 6.30%

13-17 7.50%

18-24 4.10%

25-34 9.10%

35-44 14.50%

45-54 16.90%

55-64 16.80%

65 and over 20.40% Source: Virginia Tourism Corporation

About 80% of visitors to Virginia spend the night either in a hotel/motel (41.4%) or with friends and relatives (39%). Over 50% of travelers stay between two and six nights in Virginia. The average number of nights spent in Virginia is 2.62. A further breakdown of the number of night and where visitors stay in Virginia is presented in Figure 7.

Figure 7: Visitor Stays in Virginia

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Supply and Demand Analysis – Geographic Market Area Analysis Market Source According to visitor profiles at Natural Tunnel State Park, the major market sources are Virginia (about 39.91%) and Tennessee (19.51%) followed by Kentucky, North Carolina, Ohio, Florida, Pennsylvania, Indiana, Georgia, and West Virginia. This data is show in Table 8. The statewide (Virginia) distribution of market sources are: VA (21.20%), NC (13.40%), MD (8.70), PA (7.10%), NY (5.60%), NJ (4.80%), OH (3.80%), and FL (4.20%) as shown in Table 9. In both samples, Virginia and North Carolina are the major market sources, explaining 45% and 35% of total demand for Natural Tunnel State Park and for the total of attractions in Virginia.

Table 8: Travel Party Origin for

Natural Tunnel State Park

Table 9: Travel Party Origin for Virginia

Natural Tunnel State Park Virginia

State % of sales States % of tourists Virginia 39.91% Virginia 21.20% Tennessee 19.51% North Carolina 13.40% North Carolina 5.24% Maryland 8.70% Kentucky 4.91% Pennsylvania 7.10% Florida 3.58% New York 5.60% Indiana 3.06% New Jersey 4.80% Pennsylvania 3.00% Florida 4.20% Ohio 2.84% Ohio 3.80% Economic Factors The prevailing economic climate in a community has a significant impact on the market feasibility of a hotel operation. In this study, the economic and demographic factors that are used to forecast the future demand in the competitive set of the subject hotel in Scott County and travel trends in Scott County are the consumer price index, gas prices, personal income, per capita disposable income, eating and drinking place sales, population, population by age and income, consumer confidence index (CCI). These identified factors are used in the time series multivariate technique so rooms sold for the period of 2007-2011 are estimated in the competitive market set and in Scott County where the subject hotel would be located. Unemployment levels of Scott County and Kingsport-Bristol-Bristol MSA have been higher than the state averages in Virginia, Tennessee, and North Carolina. Unemployment in all areas that were investigated has been steadily decreasing, which will lead to an increasing trend in leisure travels and thus room demand. Unemployment information of the study area is presented in Table 10.

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Table 10: Unemployment

Scott County Kingsport-

Bristol-Bristol, TN-VA MSA

Virginia Feeder Market (VA-TN-NC) United States

1990 7.95 5.53 4.45 4.45 5.62 2001 4.59 4.64 3.22 3.22 4.74 2002 5.27 5.45 4.16 4.16 5.78 2003 5.45 5.83 4.08 4.08 6.00 2004 5.56 5.61 3.69 3.69 5.52 2005 5.18 5.26 3.47 3.47 5.06

Average for 2000-2005 5.21 5.36 3.72 3.72 5.42

Income related factors demonstrate an expectation for future room demand. Other related indices mentioned above are incorporated into the financial analysis. In this study personal income and the consumer confidence index have been included to explain the relationship of income/projected earnings on lodging demand. Consumer confidence index (CCI) presents optimistic or pessimistic consumers' expectation with respect to the future economy that directly affects tourism. Virginia, which is the primary source market of room nights to the subject area, has seen relatively high personal income change. The Virginia per capita disposable income has grown at the annual average of 5.2% and the feeder market (VA, TN, and NC) has had 4.32 % change in per capita disposable income (see Table 11).

Table 11: Personal Income

Year Scott Kingsport-

Bristol-Bristol, TN-VA (MSA)

Virginia Feeder Market United States

1990 283,682 4,331,368 127,129,323 323,755,940 4,861,936,000

2001 447,152 7,111,932 233,770,486 613,581,365 8,716,992,000

2002 453,736 7,300,912 240,533,600 628,391,263 8,872,871,000

2003 462,462 7,489,932 251,139,340 651,912,682 9,150,908,000

2004 494,070 7,894,437 270,521,697 696,828,570 9,717,173,000

2005 511,513 8,202,950 284,174,000 738,175,000 10,224,761,000

AGR for 2000-

2005 4.17% 3.72% 5.18% 4.65% 3.97%

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Demographic Factors Population Regional population, as will be discussed later, influences hotel room night demand. The population within 50, 100, and 200 mile radius from Scott County are 859,377, 2,088,575, and 10,864,484 in 2000 according the US Census. The population growth rate of Scott County has been steadily declining from 2000 to 2005 at an approximate annual rate of .32 percent. The population of the county is less prosperous than that of Virginia and the United States. The Kingsport-Bristol-Bristol MSA is also expected to have a lower population growth rate than the statewide and nationwide rates. The low population growth of the local area might lead to a shortage of labor and a low number of day trippers. On the other hand, the overnight travelers who mainly come from VA, TN, and NC are expected to grow continuously at 1.2% from 2007 to 2020 according to U.S. Census. This information is presented in Figure Table 12.

Table 12: Population Concentrations

Scott County

Kingsport-Bristol-Bristol, TN-VA MSA

Virginia Feeder Market (VA-TN-NC)

United States

1990 23,216 275,678 6,216,884 17,775,392 249,622,814 2000 23,375 298,484 7,104,078 20,885,559 282,193,477 2001 23,206 298,384 7,191,941 21,137,051 285,107,923 2002 23,071 298,908 7,286,061 21,389,128 287,984,799 2003 23,024 299,796 7,383,387 21,647,347 290,850,005 2004 22,982 299,983 7,481,332 21,915,098 293,656,842 2005 22,962 301,294 7,567,465 22,213,666 296,410,404

2006p* 22,951 301,781 7,644,514 22,492,654 298,217,215 2007p 22,955 302,491 7,736,166 22,765,271 300,912,947 2008p 22,962 303,147 7,827,657 23,038,525 303,597,646 2009p 22,973 303,752 7,919,021 23,312,446 306,272,395 2010p 23,400 304,302 8,010,245 23,586,920 308,935,581 2020p 23,398 307,178 8,917,395 26,407,354 335,804,546

AGR for

2000-2005 -0.32% 0.19% 1.31% 1.27% 1.01%

* Projections by U.S. Census Source: US. Census, Virginia Employment Commission, & Virginia Economic Development Partnership

Population growth is not a strong variable that drives lodging demand. However, in hotel feasibility studies it is often used as the lower limit of potential growth. Therefore, demand for rooms around Scott County is likely to grow by at least the population growth rate of its target market.

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Demand Generators Leisure Demand Demand generators are destinations that draw extensive traffic and/or visitors. Most of the demand generators in and around Scott County are historical, cultural, or natural places. These types of attractions typically experience a lower number of repeat travelers when compared to entertainment attractions, such as theme-parks. The nearby Bristol Motor Speedway is an exception to this trend, as its 10 to 15 events per year will attract repeat business and ensure room nights. Seasonality is an important factor when attempting to attract the leisure traveler. The months of November to March are slow periods for leisure demand and any future hotel should promote events and activities to maintain a more constant level of business during these months. This is also a timeframe that could be focused on marketing for meetings, conventions, and other business related demand. The followings are attractions of Scott County and mapped in Figure 8:

Bristol Motor Speedway Warriors Path State Park Wilderness Road Barter Theatre Jefferson National Forest The Netherland Inn Bush Mill Exchange Place Natural Tunnel State Park Bays Mountain Park Keith Memorial Park Appalachian Caverns Carter Fold Bristol Caverns Homeplace Mountain Farm Museum Museum of Ancient Brick War Memorial Museum of Mountain home Copper Creek Viaduct Johnson City Symphony The Wetlands Water Park Scott County Golf Course Highland Theatrical Company B. Carroll Reece Museum Cherokee Adventures Birthplace of Country Music Cultural

Heritage Center “The Crooked Road” Virginia’s Heritage Music Trail

Daniel Boone Wilderness Trail

The following hotel demand generators are being developed:

Daniel Boone Wilderness Road Interpretive and Exposition Center (planned) Performing Arts Center (planned)

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Figure 8: Tourism Attractions in/around Scott County, VA

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Daniel Boone Wilderness Road Interpretive and Exposition Center (planned) The Daniel Boone Wilderness Road Interpretive and Exposition Center is planned to be developed in the near future, and it will include a large historical research/library facility. This agricultural exposition center would provide another opportunity to explore the cultural heritage of the region, making Scott County a destination. Its facilities, buildings, and events will be similar to the Lewis and Clark Interpretive Center in Nebraska City, Henry/Stafford East Tennessee Agricultural Exposition Center, Camp Jordan Arena, Cowlitz County Expo Center, Georgia National Fairgrounds and Agricenter, Eastern Kentucky Exposition Center, Walters State Community College – Great Smokey Mountains Expo Center, Chicopee Agricultural Center. Based on a interview with the Lewis & Clark Interpretative Center, there is an average of 300 visitors per day in spring, summer, and fall, and as low as one or two visitors in winter. The major visitors to these centers are families in summer, and tour groups in spring and fall. These vistors come from all 50 states. The population in Nebraska is less then one quarter of Virginia’s population, so the Daniel Boone Center is expected to have more than 300 visitors a day during peak times. However, the estimation for future visitors will remain at a conservative position since Duffield, where the expo center will be located, is not as a big as Nebraska City where the Lewis and Clark Interpretative Center is located. Park Visitation Scott County’s primary attractions are Natural Tunnel State Park and the future Daniel Boone Visitors’ and Exposition Center. These are the attractions that will bring tourists into the subject area for overnight visits. Although US leisure travel has increased over time, the share of leisure travel parties reporting visits to historic sites and National/State parks reached a 10-year low in 2003. National/State parks are losing share among U.S. travelers, because of declining park budgets, maintenance problems, and park offerings remaining static while alternative destination activities expand according to D.K. Shifflet & Associates, Ltd, a leading travel research firm. National and State parks’ share of leisure visitation is down by 29% since 1994. Park activity participation, which peaked in 1995 at 9.0% of all leisure trips, has dropped to 6.4 % in 2003. The share of leisure travel parties visiting historic sites has declined even more than parks (-47%) since 1994. The decline in historic site visitation share reached a new low in 2003 when only 5.6% of all leisure travel parties included a visit to an historic site; this information is shown in Figure 9.

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Figure 9: Visits to Historic Sites and National/State Parks

9.00%

6.40%

10.60%

5.60%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1994 2003

National/State Park Visitation

Historical Site Visitation

Annual attendance to Natural Tunnel has not significantly changed over the last 15 years (with an average of 231,706 visitors), except in 1997 (See Figure 10). The likely trend of demand seems cyclical, showing a decrease in growth every two or three years. It also should be noted that the decreasing proportion of U.S. leisure travel parties visiting parks might result in stagnated growth of visitors to Natural Tunnel State park while the U.S. and target market’ population and income have been grown at approximately 1.3 % and 4.5%.

Figure 10: Total Attendance (1991-2005) : Natural Tunnel State Park

0

50,000

100,000

150,000

200,000

250,000

300,000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%Total Attendance

G row th Rate

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Festivals and events visitation

There are a variety of year-round festivals and events that could cause local demand (within 50 miles) for the subjective hotel and special events offered in Scott County are • March, May, and August Bristol Motor Speedway • May - September - Lighting of the Tunnel, Natural Tunnel State Park • May – September - Wild Cave Tours, Natural Tunnel State Park • June - 4th Weekend – Nickelsville Days • June - Seige at the Blockhouse – Natural Tunnel State Park • July - Mountain Treasures Festival – Dungannon • July - Mendota Heritage Festival • July - Tour de Possum Creek Bike Ride/Race – Yuma • July - Homeplace Highland Games – Weber City • July- Tour de Possum Creek Bike Ride/Race • July- Homeplace Golf Tournament – Gate City • August - 1st Weekend – Carter Family Music Festival – Hiltons • September - Labor Day Weekend – Duffield Daze – Duffield • September - Labor Day Weekend – Papa Joe Smiddy Festival • Natural Tunnel State Park • September - Native American Day at the Blockhouse • Natural Tunnel State Park • September - Scott County Fiddler’s Convention – Gate City • September - Mountain MusicFest, Natural Tunnel State Park • October - 1st Saturday – Bush Mill Days – Nickelsville • October - Frontier Harvest Celebration at the Blockhouse • Natural Tunnel State Park • October - Scott County Tobacco Festival – Weber City • November - 1st Saturday – Arts & Crafts Carousel – Gate City • December - Christmastide at the Blockhouse –Natural Tunnel State Park • December – Christmas Parade, Regional Horse Association Events - Nickelsville • Carter Fold and the Crooked Road: Virginia’s Heritage Music Trail • Driving, hiking and horseback riding trails • Other attractions visitation

Business and Other Demand There are five major employers in Scott County these include: Gilbert Lumber (Estimated Employment of 50-99)1, Joy Technologies Inc (100-299), Mining machinery (100-299), Tempur-Pedic Mattresses (100-299), and VFP Inc. Tempur Production (50-99). Holston Medical Group (HMG), a multi-specialty physician practice, will open its first medical records data center in Scott County as well. Tempur Pedic is located in

1 Parentheses show the number of employees.

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Scott County's Duffield Regional Industrial Park and has expanded its manufacturing facility in the Industrial Park. Increased activity within the Industrial Park generates business related room demand and the need for meeting facilities. Although we have considered the potential of business travels in this study, significant future business related travel increases are not figured into the calculations. Traffic Counts Determining market feasibility requires an estimate of the number of cars that pass through each potential location. In this study, traffic counts were used to determine which site is the most effective within the Scott County and examine the marketability of the site. As shown in Table 13 and Figure 11, the busiest route is US23 that connects SCL Weber City with Tennessee state line. Annual average daily traffic (AADT) on US 23 in Scott County in 2005 was 23,000 up from 21,000 in 2001.

Table 13: Historical Average Annual Daily Traffic Counts Route 2001 2002 2003 2004 2005

NCL Duffield - Lee County Line (US23) 10000 11000 10000 11000 10000

Lee County Line- WCL Duffield (US58) 4700 4700 4000 4000 4000

84-755-Wise County Line(SR72) 870 860 860 860 850

84-774-Russell County Line (SR65) 690 690 640 640 630

ECL Nickelsville-Russell County Line (SR77) 2500 2400 3700 3700 3600

84-696-Washington County Line (US58) 540 540 470 470 470

Tennesee State Line-84-907 (SR224) 8700 9000 8200 8200 8100

Tennessee State Line-SCL Weber City(US23) 21000 22000 23000 23000 23000

The entry and exit traffic of the county, as shown in Figure 12 includes the traffic volume of 7,008 in and out commuters and 3,578 live and work in Scott County. Based on the analysis of commuting traffic patterns, 5,535 people enter or exit the county through US23 (Tennessee State Line-SCL Weber City), SR224 (Tennessee State Line-84-907), and US58 (84-696-Washington County Line). Thus, approximately 20,500 automobiles enter and exit the Scott County through the three routes for other purposes, which could be commercial, tourism, business, etc.

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Figure 11: Average Annual Daily Traffic within Scott County (Traffic data provided by VDOT)

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Figure 12: Traffic Counts at Major Entrance and Exit Points in Scott County (Traffic data provided by VDOT)

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Competitive Analysis A competitive analysis is crucial to the market feasibility study because the local market potential for a given domain/segment must be shared among all of the competitors. Based on interviews and other research, visitors to the Scott County tend to stay in Kingsport (TN), Middleburg (KY), Big Stone Gap (VA), Norton (VA), and Bristol (TN). There are 38 hotels (offering 2,888 rooms) within approximately 20 miles from Natural Tunnel State Park, Duffield, or Gate City. Approximately 71% of rooms are offered by properties in areas southeast of Scott County and 60% are served by brand chains. The prevalent segments in the area are economy (47.13%) and midscale (46.12%). An upper upscale hotel that has 195 rooms (6.75%) exists in the competitive area and no luxury hotel exists. There are two midscale hotels having food and beverage outlets with a fair share of rooms (8.34% of total rooms available within the competitive market set). This information is summarized in Figure 13 and a map of the competitive area is presented in Figure 14. Average daily room rates vary with the segment where a property is located. Economy hotels have a range of room rates from $40 to $72, midscale hotels from $70 to $105, and a luxury hotel from $149 to $184.

Figure 13: Trends of the Various Market Segment within the Competitive Set

A detailed breakdown of the information regarding the distance from Duffield or Gate City, locations, property names, chain scale, and ADR and the number of rooms properties that will be competitors for the subject hotel in the future are in Appendix A.

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Figure 14: Hotels Considered to be apart of the Competitive Set

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Location: Proximity to sources of demand Most of the hotel competitors are located in Kingsport, and one hotel is in Scott County. Most hotels are more than 15 miles away from Duffield or the Natural Tunnel State Park in Scott County. This means that most travelers who visit Scott County have to drive more than 15 miles to stay in other hotels. This potential market should be captured by the subject hotel.

Financials The average daily room rate for the period of 2001-2005 was $62.96 and its annual compound growth rate was 2.86%. Occupancy dropped to 48.86 in 2003 and 48.68 in 2005. The annual compound average of occupancy change is - .67 %. Revenue per available room has increased since 2001 except 2003 (see Table 14). This is mainly because of the increase in average room rate, not the change in occupancy. The average room rate of most hotels in the subject area is between $45 and $57. The total room supply is 2,888 rooms in the area, and if 120 rooms are provided by a new hotel in Scott County its fair market share becomes approximately 4%. However, it should be noted that we include the part of Kingsport area that might not allow Scott County hotels to reach the fair market share.

Table 14: Historical Occupancy, Average Daily Room Rate, and Revenue per Available

Room Trends with in the Competitive Area.

Date Occupancy % Change ADR % Change RevPar % Change 2000 50.52 58.37 29.49 2001 50.75 0.46 59.80 2.44 30.35 2.91 2002 52.61 3.67 60.74 1.58 31.96 5.31 2003 48.86 -7.13 62.87 3.51 30.72 -3.87 2004 49.14 0.58 64.19 2.09 31.54 2.68 2005 48.68 -0.95 67.18 4.66 32.70 3.66

YTD 2006* 50.31 0.98 73.82 7.83 37.14 8.89 Average (2001-

2005) 50.01 -0.67 62.96 2.86 31.45 2.14

*2006 data is only for nine months and it should be lower than the current numbers due to the exclusion of sales in winter.

Facility: interior/exterior appearance and conditions

Food and beverage outlets: Food and beverage outlets are dependent on the established room rate. Few hotels have restaurants or bars on premise. Typically, a hotel is located in an area that has sufficient hospitality infrastructure outside the hotel and does need to generate its own restaurant.

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Figure 15: Changes in Reservation Types

Meeting facility: Most Midscale and upscale hotels provide meeting facilities whose capacity ranges from 35 to 2,000 persons. Business centers and meeting facilities seem to be necessary factors that hotels typically provide.

In-room amenities: Free wireless or high-speed internet has become a critical factor that most hotels must have to compete within the industry.

Recreation: A fitness facility, tennis court, or swimming pools are common recreation facilities that hotels typically have.

Age of facilities and amenities: The average age of hotels in the competitive set is 21 years.

Critical success factors The following critical success factors (CSF) that are common to all firms and are necessary to effectively compete in that industry domain or sector. The analysis of competitors and prior research in the lodging industry indicate that online reservation system, brand, and loyalty programs are necessary products and services that should be offered by the subject hotel to meet customers’ needs. Reservation system All hotel chains use both phone and internet based reservation system. Chains with a big parent company have their own reservation systems as well as partnerships with online-travel agencies. Figure 15 indicates a significant increase in the usage of online reservations through hotel brand websites and the decrease in the more traditional forms of reservation such as CRS (Computer Reservation System, usually done through travel agency) and GDS (Global Distribution System).

Loyalty program All branded chains have a loyalty program and reward levels that depend on a hotel scale. In 2002, 32 percent of guests consider the loyalty program an important factor in deciding on a hotel, and this trend is steadily growing in the tourism industry, with a market share of 34% in 2005). Brand recognition (Chains vs. Independent) Within the study area 59% of hotels are well-known brand chains whose parent companies are Marriott, Wyndham, Choice, Intercontinental, and Hilton. These hotel

Source: PricewaterhouseCoopers LLP

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chains provide 1702 out of the total 2888 rooms in the study area. Typically, branded chains have approximately 15% higher occupancy rates but have increased operating expenses due to royalty fees which is generally paid as a fixed percentage of gross sales. Detailed information about the age of facilities, meeting facilities, brand, and other critical success factors are presented in Appendix B.

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Proposed Sites and Hotel Industry Segment Proposed Sites

Based on traffic volume and proximity to attractions, interstates, and the Tri-cities area the best possible site for a hotel development is in the area between Gate City, Weber City, and the Tennessee State Line. The site is desirable to attract visitors to the Tri-cities area to stay in Scott County provided that the hospitality infrastructure, i.e. entertainment, restaurants, and retailing stores, is available to support the service for guest at the hotel. Approximately 20,000 cars, excluding county-in/out daily commuters, pass the area close to interstates I-181 and I-81. Proposed Segment

The lodging industry generally can be divided into four main segments: (1) luxury; (2) upscale, which also includes upper-upscale properties, (3) midscale, which is often further split into midscale with food and beverage and midscale without food and beverage; and (4) economy. Middle segment properties typically offer limited breakfast service, vending, selected business services, and recreational facilities (a pool or fitness equipment). We recommend the development of a midscale hotel without food and beverage with 60-120 guestrooms in this area or a midscale hotel with food and beverage with 100 guestrooms. The recommendations are based on the following reasons: The surplus of economy rooms The independent hotel, Travel Inn, in Scott County is an economy property that offers limited services and facilities. Nevertheless, its rates of $70 to $80 are near to the midscale range. Currently, its annual occupancy rate is about 15% that includes 30% for the peak months and 10% for the rest of a year. Its low existing demand implies a surplus of economy rooms (29,565 rooms a year). The recent industry trends also imply that economy hotels are unlikely to have strong performance in near future.

The needs for higher quality of services and products The higher quality of services and facilities than an economy property can generate induced demand for rooms, but with lower per room development costs and higher operating averages than luxury and upscale hotels. The lack of Eating establishments The midscale hotel without food and beverage historically outperformed the midscale with food and beverage. Nevertheless, it is generally desirable for hotels with food and beverage to be located in rural and small town areas, such as Scott County, as these places have a limited number of quality restaurants. Most midscale hotels without food and beverage tend to be located in areas with

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plentiful restaurants. If the proposed area can support dining opportunities, midscale without food and beverage should be preferable for two reasons: the low operating margin of restaurants and the unavailability of liquor. However, a survey shows that 12% of leisure travelers and 7% of business travelers value eating options as a key factor in selecting a hotel, and thus the subject hotel could have difficulties in deriving these customers from neighboring towns such as Kingsport, Bristol, Norton, and Big Stone Gap, where many dining establishments are available outside hotels. Currently, 8.34% of rooms within the competitive market are midscale properties offering food and beverage. Proposed Facilities and Services

The proposed hotel is based on the establishment of a branded midscale hotel. We developed different scenarios in order to compare performance of different types of hotel within the midscale hotel. The scenarios are set out in two criteria: the number of rooms and an in-house food and beverage outlet. In detail, the cases of 60, 80, 100, and 120 room hotel and full service and limited service hotel are investigated. The common facilities assumed are meeting rooms, a pool, fitness center, and guest laundry, and necessary in-room amenities are air conditioning, free high-speed Internet, and cable TV.

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Financial Analysis Demand and supply are estimated based on reviewing the past, present, and future trend of demographics, economic factors, industry factors, traffic patterns, local demand generators, and competitors and their causal relationship with a hotel that will be located in Scott County. Demographic data indicates the relative size of the local and target market population and is useful in setting the lower limit of the number of guests. Economic factors are important in projecting both changes in travel behavior and price. Traffic pattern data are crucial in evaluating forecasted customer counts, as is the presence of demand generators. Competitive analysis helps determine the market share and predict price points against the competition. Estimating Demand and Supply

Leisure demand is the major source of room revenue for a hotel in Scott County, and this will have an additional increase once the Daniel Boone Wilderness Road Interpretive and Exposition Center is developed. Estimated existing demand within the market is 513,093 rooms a year, while supply is 1,054,120 rooms. In order to forecast future demand, we first reviewed the attractions in Scott County, such as Natural Tunnel State Park, Carter Family Fold, and the Daniel Boone Wilderness Road Interpretive and Exposition Center. Then we examined lodging industry trends and economy and demographics of the local and feeder markets and their inter-relationships with lodging performance. To measure statistically the influence of the different economic factors on rooms sold in the competitive market, regression analysis is used based on data from 1991 to 2005. The selection of factors is based on the existing empirical studies2 on lodging demand and our preliminary test using nationwide data. We identified four key economic value drivers - personal income (PI), unemployment (UNEMP), gas price (GAS), and consumer confidence index (CCI) that affect demand for rooms. We used personal income and unemployment as a proxy of income level and customer’s expenditure behavior. Consumer price index (CCI) presents optimistic or pessimistic consumers' expectation with respect to the future economy that directly affects tourism. We also consider the gas price as an important economic factor since interstate, suburban, and small town hotels are significantly influenced by gas price fluctuation in history. 2- Wicks, B, Uysal, M, and Kim, S. (1994). The Effect of Lodging Prices on Visitors' Demand: Everglades

National Park. Journal of Hospitality & Tourism Research, 17(2). 51 - 61 - Lazaro, N., Molto, M. L., & Sanchez, R. (2000). Unemployment and consumption patterns. Applied Economics, 32(3), 367. - Canina, L., Walsh, K., & Enz, C. A. (2003). The effects of gasoline-price changes on room demand: A study of branded hotels from 1988 through 2000. Cornell Hotel and Restaurant Administration Quarterly, 44(4), 29. - Canina, L., & Carvell, S. (2003). Lodging demand for urban hotels in major metropolitan markets. CHR Reports, 3(3), 5-24.

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The statistical results of income, gas price, and consumer confidence elasticity of demand for rooms are set out in Table 15. Elasticity measures the percentage change that will occur in rooms sold in response to a one percentage change in economics variable.

Table 15: Elasticity and Time lag

Economic value drivers Elasticity Time Lag3

Personal income .541 0

Unemployment -4.308 -1

Gas price -.252 0

Consumer Confidence index .180 0 Findings from the regression analysis are that:

• For every one percent increase in the personal income, the number of rooms sold increases by about .54%

• A one percent increase in unemployment rate leads to 4.3% fall in demand.

• A one percent increase in the gas price leads to .25% drop in rooms sold. • For a 1% increase in the consumer confidence, the number of rooms sold

grows by .18%. • Income, gas price, and consumer confidence have a coincident

relationship with demand for rooms while the movement of unemployment rate precedes the demand change by a year.

The following table is the estimation of changes in economic value drivers for the competitive market where the subject hotel will be located. The estimations of personal income and unemployment are derived from the subject hotel’s target market (VA, TN, & NC: 60% and Other States: 40%), while gas price and consumer confidence index are nationwide projections.

Table 16: Projections of % Changes in Economic Value Drivers

% Changes in Economic value

drivers 2007p 2008p 2009p 2010p 2011p

Personal income (PI) 3.77% 3.64% 3.51% 3.39% 3.28%

Unemployment (UNEMP)

.11% .13% .16% .20% .21%

Gas price (GAS) 2.0% 6.3% 5.8% 4.4% 3.7%

Consumer Confidence index

(CCI) 1.90% 1.87% 1.83% 1.80% 1.77%

3 Time lag is the length of time between cause and effect. A lag of -1 indicates that the change in the number of rooms sold is preceded by the change in an economic variable, by one year.

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Sources: Our estimation from data of Department of Commerce; Energy Information Administration; Bureau of Economic Analysis; Department of Labor, Bureau of Labor; the Conference Board. It should be noted that the percent change in the number of rooms sold by economic factors should be adjusted by the population growth of the geographic market and locations of hotels. The following equation shows the general form used to estimate the relationship between all environmental factors and hotel rooms sold. Rooms sold = f (Gas Price, Personal Income, Population, Consumer Price Confidence Index, Location, Population) The economic outlook is favorable and the target population growth indicates positive effects from the local economy on demand for rooms within the competitive market. However, we expect the demand growth of the market is lower than that is estimated from the regression analysis. This is because of the fact that the growth of occupancy or demand in the competitive market is lower than that of a resort or urban area. As shown in Figure 5, small metro/town and interstate hotels have experienced 3.7% and 4.5% occupancy growth, while resort and urban hotel have an annual growth rate of 7.5% and 9.8%. Scenario Two Demand and operational performance was estimated under two scenarios: as-is development and the creation of the exposition park. The future exposition park is expected to generate higher market share of the competitive set. This increase in market share is not only a result of Duffield, VA becoming a tourism destination, but is also a result of the proposed sites location between Gate City, Weber City, and the border of Tennessee has direct access to Kingsport and interstate I-81. Based on interviews of a similar park visitation and historical seasonal data in the area, we estimated expected additional nights travelers will spend in hotels because of the creation of a tourism destination. (Table 17). The months of June through August are expected to be busy, while December through February would be slow months. The seasonal demand should vary with the marketing efforts from the future exposition park.

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Table 17: Demand for Rooms with Increased Tourism Development

Month\Year 2008 2009 2010 2011 Avg January 4,149 4,238 4,316 4,387 4,272 February 4,116 4,204 4,282 4,352 4,238

March 5,646 5,767 5,874 5,970 5,814 April 5,838 5,964 6,074 6,173 6,012 May 5,947 6,076 6,187 6,289 6,125 June 6,691 6,836 6,961 7,075 6,891 July 7,680 7,845 7,990 8,121 7,909

August 7,056 7,208 7,341 7,461 7,266 September 5,661 5,783 5,890 5,986 5,830

October 6,540 6,681 6,804 6,915 6,735 November 4,846 4,950 5,042 5,124 4,991 December 4,231 4,322 4,402 4,474 4,357 Total Year 68,401 69,875 71,162 72,325 70,441

Based on the analysis of economics, demographics, and geographic tourism, it is possible to project the number of rooms sold in the competitive market under the two scenarios (Table 18). Without additional attractions, it is projected that 522,216 rooms will be sold during 2007 and the demand for rooms will grow at the annual average of 1.95%. The development of the exposition park will fuel an increase in demand for rooms from 2008 and the projected number of rooms sold in the study area will grow to 602,787, 615,775, 627,112, and 637,368 during 2008, 2009, 2010, and 2011 respectively.

Table 18: Projected Number of Rooms Sold (Demand)

in the Competitive Market Year 2007 2008 2009 2010 2011

Number of Rooms Sold 522,216 534,386 545,899 555,950 565,043

Scenario 1 Growth Rate 1.78% 2.33% 2.15% 1.84% 1.64%

Number of Rooms Sold 522,216 602,787 615,775 627,112 637,368

Scenario 2 Growth Rate 1.78% 15.43% 2.15% 1.84% 1.64%

The available rooms within the competitive market are 1,054,120 in 2006. The nationwide supply (or rooms available) has steadily increased at a moderate rate over last five years. Within the study market, two properties (117 rooms) opened in 2004 and 2006 and the annual compound average change in supply is 0.77%. The first year number of rooms sold is affected by the creation of the subject property, and then the annual growth rate of .77% is used for supply changes for the period of 2008 -2011.

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Table 19: Projected Number of Rooms Available (Supply) in the Competitive Market

Subject Hotel's

Number of Rooms

2007 2008 2009 2010 2011

Competitive Set 1,061,280 1,069,452 1,077,687 1,085,985 1,094,347

Subject Property

21,900 21,900 21,900 21,900 21,900 60

Fair Share 2.06% 2.05% 2.03% 2.02% 2.00%

Competitive Set 1,068,480 1,076,707 1,084,998 1,093,352 1,101,771

Subject Property

29,200 29,200 29,200 29,200 29,200 80

Fair Share 2.73% 2.71% 2.69% 2.67% 2.65%

Competitive Set 1,075,680 1,083,963 1,092,309 1,100,720 1,109,196

Subject Property

36,500 36,500 36,500 36,500 36,500 100

Fair Share 3.39% 3.37% 3.34% 3.32% 3.29%

Competitive Set 1,082,880 1,091,218 1,099,621 1,108,088 1,116,620

Subject Property

43,800 43,800 43,800 43,800 43,800 120

Fair Share 4.04% 4.01% 3.98% 3.95% 3.92%

Estimating Occupancy Levels and Average Daily Room Rates (ADR)

Occupancy levels that could be obtained at the proposed lodging facility for next five years are based on its fair share of projected demand and supply within the market. Historically, the occupancy rate has been between 48% and 51% (see Table 20). However a new hotel entering the existing market will lower the overall occupancy level if everything else is same.

Table 20: Historical Changes in Occupancy in the Competitive Market

Year 2001 2002 2003 2004 2005 2006 (Sep YTD)

Occupancy 50.75% 52.61% 48.86% 49.14% 48.68% 50.31%

% Change 0.46 3.67 -7.13 0.58 -0.95 0.98

Source: Smith Travel Research

Occupancy Rate (%) is rooms sold divided by rooms available. The market occupancy will be lower than current levels since the subject property will increase supply within the competitive market set. Based on the projected demand and supply, occupancy levels of the competitive set for next five years are presented in Table 21.

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Table 21: Expected Occupancy in the Competitive Market

Assumptions 2007 2008 2009 2010 2011

Tourism Development

# Rooms Market Occupancy Average

60 49.21% 49.97% 50.65% 51.19% 51.63% 80 48.87% 49.63% 50.31% 50.85% 51.28% 100 48.55% 49.30% 49.98% 50.51% 50.94%

Scenario 1

120 48.22% 48.97% 49.64% 50.17% 50.60% 60 49.21% 56.36% 57.14% 57.75% 58.24% 80 48.87% 55.98% 56.75% 57.36% 57.85% 100 48.55% 55.61% 56.37% 56.97% 57.46%

Scenario 2

120 48.22% 55.24% 56.00% 56.59% 57.08%

43

Allocate area demand to the subject hotel Subject hotel’s competitiveness In projecting the occupancy performance of the proposed subject property over the projection period, the penetration rate is utilized. The occupancy levels previously mentioned can be achieved by the subject property when all things are equal. However, different hotels have different levels of market penetration due to location, pricing, marketing, facilities, management, amenities, and other competitive characteristics. Market penetrations in excess of 100% indicate that a hotel possesses competitive advantages relative to the market, while competitive weaknesses are reflected in penetrations of less than 100%. The subject property is projected to penetrate the market below its fair market share (or the proportion as its share of rooms supply) given that it will be located further away from the primary market (Norton, Kingsport, and Bristol) and interstates when compared to its competitors. The existing property, Travel Inn, in Scott County had a very low market penetration rate of 34.06% (see Table 22) of fair share in 2005 possibly due to brand, location, lack of marketing dollars to reach the primary market, lack of sales tools, wrong room mix and amenities, or old facilities.

Table 22: Comparison of Occupancy of the Travel Inn and Competitive Set

Competitive Market Set Travel Inn

Total Rooms Available

Market Occupancy Total Rooms Sold Fair Share

Actual Occupancy Penetration Rate

1054120 48.68% 513,093 3.74% 16.50% 33.90%

Thus, the penetration rate for the subject hotel should fall between 34.06% and 100%, but closer to 100%, given the fact that it is a new property with better amenities. The potential site has high traffic volumes and the room price is competitive within midscale segment. Under the development of the exposition center, the property will experience a high penetration rate. Based on our analysis, the property is projected to achieve a market penetration rate of between 80-85% under scenario one without a new tourism or business related demand driver and over 100% under the second scenario having a new demand generator, the Daniel Boone Wilderness Road Interpretive and Exposition Center. The demand allocation (penetration4 and market share5) are constructed by analyzing the relative competitiveness of the subject hotel. Factors used to measure the subject hotel’s competitiveness and their weights in traveler’s hotel choice are based on a guest preference study6 conducted in 2003. The most decisive drivers in hotel selection are price, amenities, location, eating options, loyalty programs, customization, and

4 Penetration presents a specific hotel’s competitiveness in the study market. 5 Market share shows the portion of demand accommodated by a specific hotel 6 Watkins, E. (2003). How guests choose hotels, Lodging Hospitality. 59(2), 36.

44

office/technology options. (See Table 23). Price, hotel amenities and facilities, and location account for about 65% of a traveler’s choice of property. The subject hotel’s distinctive competency/strength would be its new amenities and facilities compared to the existing hotels that are more than 20 year on the average. Location (proximity to interstates, attractions, business, etc) is a value driver that reduces the property’s competitiveness, although we expect the relative competency of the hotel should be strengthened once the Daniel Boone Wilderness Road Interpretive and Exposition Center is developed. Loyalty programs are a critical success factor for the hotel to compete in today’s market and this is typically offered by a branded chain. Travelers also value eating options including free breakfast and an in-house restaurant (about 12% of leisure travelers and 7% of business travelers are influenced by these options). This means the hotel’s market share and penetration will be influenced by having food and beverage outlets. It is believed that the level of customization is various with the hotel’s stabilization, management, and promotion/marketing campaigns. Accordingly, the hotel’s market penetration in the worst case is expected to be 77% and 111% in the best case. Market penetrations in excess of 100% indicate that a hotel possesses competitive advantages relative to the market, while competitive weaknesses are reflected in penetrations of less than 100%. Table 23: Value Drivers of Hotel Selection and Subject Hotel’s Competitiveness Value Drivers of Hotel Selection Subject Hotel's Competitiveness

Leisure

Travelers Business Travelers

Travel Total Competitiveness Worst Case Best Case

Price 25% 18% 22.90% 0.75 17% 17%

Amenities 21% 21% 21.00% 1.5 32% 32%

Location 19% 25% 20.80% .25-1.25% 5% 26%

Eating Options

12% 7% 10.50% .5-1.25 5% 13%

Loyalty Programs 9% 15% 10.80% 1 11% 11%

Customization 8% 6% 7.40% 0-1.25 0% 11%

Office/Technology Option 6% 8% 6.60% 1 7% 7%

100% 100% 100% 77% 116%

*.25=very low .5=low, 7.5 = relatively low, 1=average, 1.25= relatively high, 1.5=high

In the penetration analysis, we do not include the effect of the area’s hospitality infrastructure of Scott County. Restaurants available around the hotel might not directly drive choice, but they are still important factors to attract more travelers and make them to return to the hotel. Scott County has very few restaurants compared to neighboring areas (Table 24), and this might negatively work for the subject hotel to meet the estimated market penetration (77%-111%) within the competitive market.

45

Table 24: Dining Establishments in the Competitive Market

Area

Scott County Hospitality Industry

Gate City Weber Duffield Kingsport Bristol Norton

Big Stone Gap

Food service 7 1 1 172 141 18 12 Full-service restaurants 3 1 66 50 4 4

Limited-service restaurants 4 - 1 86 71 14 7

Cafeterias, buffets, & grill buffets - - - 6 4 - 1

Snack & nonalcoholic beverage bars

- - - 7 7 - -

Food service contractors - - - 1 3 - -

Mobile food services - - - 1 - - -

Drinking places (alcoholic beverages) - - - 5 4 - -

Caterers - - - 2 - - Source: U.S. Census Bureau After judging subject hotel’s competitiveness, we estimated projected penetration, rooms sold, and occupancy rate for the property over next five years. Table 25-1 through Table 25-6 presents the hotel’s performance within the competitive market in the case of having 60, 80, 100, and 120 rooms as well as offering full services and limited services.

46

Table 25-1: Projected Occupancy in the Competitive Market Type: Midscale without food and beverage

Number of rooms: 60 rooms

2007 2008 2009 2010 2011 Competitive Set 522,216 534,386 545,899 555,950 565,043

Rooms sold Subject Property 8,446 8,981 9,515 9,409 9,490

Penetration Rate 78% 82% 86% 84% 84% Scenario 1

Occupancy Rate 38.57% 41.01% 43.45% 42.96% 43.33% Competitive Set 522,216 602,787 615,775 627,112 637,368



Occupancy Rate 38.57% 57.98% 60.90% 60.47% 60.99%



2007 2008 2009 2010 2011 Competitive Set 522,216 534,386 545,899 555,950 565,043






Occupancy Rate 38.31% 57.59% 60.49% 60.07% 60.58%

47



2007 2008 2009 2010 2011 Competitive Set 522,216 534,386 545,899 555,950 565,043






Occupancy Rate 38.05% 57.21% 60.08% 59.66% 60.18%



2007 2008 2009 2010 2011 Competitive Set 522,216 534,386 545,899 555,950 565,043






Occupancy Rate 37.80% 56.83% 59.68% 59.27% 59.78%

48

Table 25-5: Projected Occupancy in the Competitive Market Type: Midscale with food and beverage


2007 2008 2009 2010 2011 Competitive Set 522,216 534,386 545,899 555,950 565,043






Occupancy Rate 41.87% 61.59% 64.52% 64.15% 64.70%

Table 25-6: Projected Occupancy in the Competitive Market Type: Midscale with food and beverage


2007 2008 2009 2010 2011 Competitive Set 522,216 534,386 545,899 555,950 565,043






Occupancy Rate 41.59% 61.18% 64.09% 63.72% 64.27%

49

The ADR of the competitive market has grown at the compound annual growth rate of 3.69 percent since 2001. The weighted average of room rates of all competitors was $ 70, and that of midscale properties was $86. Average daily room rates (ADR) for the subject hotel should depend on its segment, the competitive market’s pricing structure, and the income level of the target market. Typically, a full service property has a higher ADR than a limited service one. U.S. midscale properties with food and beverage (full service) had $14 higher room rates than midscale without food and beverage in 2006. In the study market, we believe that an appropriate room rates in 2006 are $ 75 and $80 for limited and full service hotels, respectively. The rates are expected to increase 5 % for 2007. Future changes are expected to return to inflationary levels of about 3.0% in the following years listed in Table 26. Table 26: Future Changes in Average Daily Room Rates

2007 2008 2009 2010 2011

Midscale w/o F & B $79 $81 $84 $86 $89

Midscale w/ F & B $84 $87 $89 $92 $95

50

Estimating Initial Investment Costs Hotel construction cost of midscale hotels ranges between $40,000 to $335,000 per room. The high variance in costs are generally due to differences site acquisition costs, regulatory approvals, site characteristics, quality construction, density, building & zoning codes, and local labor. Hotel development costs of the subject hotel under different scenarios are presented in Table 27. This estimation is based on the current property values in Scott County from the Virginia Mass Appraisal Network (VamaNet), HVS International Hotel development cost survey, and franchising guidelines,. (See Appendix C & Hotel development cost survey per-room range of costs for 2003 – 2005: http://www.hotelnewsresource.com/pdf/hvs2095.pdf)

Table 27: Hotel Development Costs

Midscale Hotel Development Cost per Room

Building and

Site Improvements

Soft Costs

FF&E (furniture,

fixtures, and equipment)

Pre-Opening and Working

Capital Total

w/o F&B $43,600 $2,100 $5,200 $800 $51,700 w/ F&B $44,200 $3,200 $6,200 $1,000 $64,200

Source: Franchising Requirements & HVS International Hotel Development Cost Survey

Total development Costs

Type of Property Land Construction Cost

F & B # Rooms Building and Site Improvements Soft Costs

FF&E (furniture,

fixtures, and equipment)

Pre-Opening and Working

Capital

Franchising Initial Fees

Total Investment

Cost

60 $9,300 $2,616,000 $126,000 $312,000 $48,000 $40,000 $3,151,300

80 $12,400 $3,488,000 $168,000 $416,000 $64,000 $40,000 $4,188,400

100 $13,950 $4,360,000 $210,000 $520,000 $80,000 $40,000 $5,223,950 w/o F & B

120 $17,050 $5,232,000 $252,000 $624,000 $96,000 $40,000 $6,261,050

100 $15,500 $4,420,000 $320,000 $620,000 $100,000 $40,000 $5,515,500 w/ F & B

120 $18,600 $5,304,000 $384,000 $744,000 $120,000 $40,000 $6,610,600

51

Estimating Cost of Capital To finance the assets of the subject hotel, the cost of capital is determined. It is based on the Capital Asset Pricing Model that including the following assumptions: 1) The subject hotel’s overall cost of capital must reflect the required return on the hotel’s assets as a whole, 2) If a firm uses both debt and equity financing, the cost of capital must include the cost of each, weighted to proportion of each (debt and equity) in the hotel’s capital structure 3) The hotel must earn the cost of capital just to compensate investors for the use of their capital in a project The parameters for the cost of debt and capital are shown in Table 28.

Table 28: Cost of Debt and Capital

Cost of Capital for the Hotel Industry = 9.47 %

Equity Use : 73.72% Debt Use: 26.28%

Cost of Equity = 11.37% Cost of Debt = 6.39%

Equity Parameters Debt Parameters

Risk Free Rate (%) = 4.56% (as of 2006.12.08) Annual Average Return on Market (%) = 8.06

Annual Average Risk Free Rate (%) =5.01% Beta=0.82

Tax Rate =35%

Source: Reuters, Security Moody’s Investor Service, Federal Reserve Bank of St. Louis, Securities and Exchange Commissions

Cost of capital to finance the subject hotel partially depends on the proportion of debt capital and equity capital. In this study, it is assumed that the subject hotel follows the industry standard. This means that using more debt (that is generally cheaper than equity) for the hotel development, the total value of this hotel becomes higher than 9.47% of weighted average cost of capital. The results of a sensitivity analysis of the cost of capital are presented in Table 29. This information shows that the cost of capital changes against the amount of debt use in the investment. The change in the cost of capital will directly affect the value of the hotel, and thus an investment decision making might be changed. However, it should be noted that more debt capital is not always cheaper and leads to risks of a hotel defaulting on its debt obligations.

Table 29: Sensitivity Analysis of Cost of Capital

Equity 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Capital

Debt 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Cost of Capital 11.37% 10.65% 9.92% 9.20% 8.48% 7.76% 7.04% 6.32% 5.60% 4.87% 4.15%

52

Statement of Estimated Annual Operating Results Basis of Assumptions

On the basis of our evaluation of different size and service providing hotels in Scott County, VA and our findings relative to the market demand, we have prepared statements of estimated annual operating results for next five years under two major scenarios: 1) no additional demand driver and 2) a development of an exposition park. The results of these evaluations are presented in Tables 31-1 to 31-12. This estimation can only be achieved with effective marketing and management in the subject hotel and having critical success factors explained before. Each revenue and expenses item is estimated by using per cent change as of index of variability. The index of variability refers to a factor that controls the movement of the variable component. For instance, franchise fees are 5% of gross rooms’ revenue, and telecommunication expenses varies with telecommunications revenue.

Table 30: Index of Variability

Revenue and Expenses Category Index of variability

Revenue

Rooms Occupancy, ADR

Food Occupancy

Beverage Food Revenue

Other Food & Beverage Occupancy

Telecommunications Occupancy

Other Operated Departments Occupancy

Rentals & Other Income Occupancy

Expenses

Rooms Occupancy

Food & Beverage F & B Revenue

Telecommunications Telephone Revenue

Other Operated Depts & Rentals To other Operated Departments Revenue

Administrative & General Total Revenue

Marketing Total Revenue

Utility Costs Total Revenue

Property Operations & Maintenance Total Revenue

Franchise Fees (Royalty) Room Revenue

Management Fees Total Revenue

Property Taxes Total Revenue

Insurance Total Revenue

Reserve For Replacement Total Revenue

53

Table 31-1: Pro-Forma Financial Projections/ Scenario 1

Type of Property: 60 Rooms w/o Food and Beverage

Revenue 2007 2008 2009 2010 2011

Rooms $665,108 $728,511 $794,969 $809,673 $841,126

Food 0 0 0 0 0

Beverage 0 0 0 0 0

Other Food & Beverage 0 0 0 0 0

Telecommunications 2,774 3,039 3,316 3,377 3,508

Other Operated Departments 1,387 1,519 1,658 1,689 1,754

Rentals & Other Income 24,968 27,348 29,842 30,394 31,575

Total Revenue 694,237 760,417 829,785 845,133 877,964

Departmental Expenses

Rooms 176,254 193,056 210,667 214,563 222,898

Food & Beverage 0 0 0 0 0


Other Operated Depts & Rentals 12 14 15 15 16

Total Departmental Expenses 186,985 204,810 223,494 227,628 236,470

Total Departmental Profit 507,251 555,607 606,291 617,505 641,493

Undistributed Operating Expenses

Administrative & General 77,755 85,167 92,936 94,655 98,332

Marketing 35,406 38,781 42,319 43,102 44,776

Utility Costs 42,348 46,385 50,617 51,553 53,556

Property Operations & Maintenance 40,960 44,865 48,957 49,863 51,800

Total Undistributed Operating Expenses 196,469 215,198 234,829 239,173 248,464

Gross Operating Profit 310,782 340,409 371,462 378,333 393,030

Franchise Fees (Royalty) 29,930 32,783 35,774 36,435 37,851

Management Fees 19,439 21,292 23,234 23,664 24,583

Income Before Fixed Charges 261,414 286,334 312,454 318,234 330,596

Selected Fixed Charges

Property Taxes 24,993 27,375 29,872 30,425 31,607

Insurance 11,108 12,167 13,277 13,522 14,047

Reserve For Replacement 6,942 7,604 8,298 8,451 8,780

Net Operating Income $218,371 $239,188 $261,008 $265,835 $276,162

54



Revenue 2007 2008 2009 2010 2011

Rooms $880,835 $964,803 $1,052,816 $1,072,289 $1,113,944

Food 0 0 0 0 0

Beverage 0 0 0 0 0





Total Revenue 919,411 1,007,057 1,098,924 1,119,251 1,162,730


Rooms 233,421 255,673 278,996 284,157 295,195








Marketing 46,890 51,360 56,045 57,082 59,299

Utility Costs 56,084 61,430 67,034 68,274 70,927





Management Fees 25,744 28,198 30,770 31,339 32,556



Property Taxes 33,099 36,254 39,561 40,293 41,858

Insurance 14,711 16,113 17,583 17,908 18,604



55


Type of Property: 100 Rooms w/o Food and Beverage Revenue 2007 2008 2009 2010 2011

Rooms $1,093,674 $1,197,931 $1,307,211 $1,331,390 $1,383,110

Food 0 0 0 0 0

Beverage 0 0 0 0 0





Total Revenue 1,141,572 1,250,396 1,364,461 1,389,699 1,443,684


Rooms 289,824 317,452 346,411 352,818 366,524





Total Departmental Profit 834,101 913,614 996,958 1,015,398 1,054,843



Marketing 58,220 63,770 69,588 70,875 73,628

Utility Costs 69,636 76,274 83,232 84,772 88,065





Management Fees 31,964 35,011 38,205 38,912 40,423



Property Taxes 41,097 45,014 49,121 50,029 51,973

Insurance 18,265 20,006 21,831 22,235 23,099



56



Rooms $1,303,682 $1,427,960 $1,558,223 $1,587,045 $1,648,697

Food 0 0 0 0 0

Beverage 0 0 0 0 0





Total Revenue 1,360,778 1,490,498 1,626,467 1,656,551 1,720,903


Rooms 345,476 378,409 412,929 420,567 436,905





Total Departmental Profit 994,266 1,089,048 1,188,395 1,210,376 1,257,395



Marketing 69,400 76,015 82,950 84,484 87,766

Utility Costs 83,007 90,920 99,214 101,050 104,975





Management Fees 38,102 41,734 45,541 46,383 48,185



Property Taxes 48,988 53,658 58,553 59,636 61,952

Insurance 21,772 23,848 26,023 26,505 27,534



57


Type of Property: 100 Rooms w/ Food and Beverage

Revenue 2007 2008 2009 2010 2011

Rooms $1,283,802 $1,400,396 $1,522,374 $1,553,407 $1,613,752

Food 499,630 545,006 592,477 604,555 628,040

Beverage 0 0 0 0 0

Other Food & Beverage 67,215 73,319 79,705 81,330 84,490




Total Revenue 2,083,657 2,272,894 2,470,869 2,521,237 2,619,179


Rooms 371,019 404,715 439,966 448,935 466,374

Food & Beverage 515,828 562,676 611,686 624,155 648,402


Other Operated Depts & Rentals 2,760 3,011 3,273 3,340 3,470

Total Departmental Expenses 900,496 982,279 1,067,838 1,089,605 1,131,933

Total Departmental Profit 1,183,161 1,290,615 1,403,031 1,431,632 1,487,246



Marketing 139,605 152,284 165,548 168,923 175,485

Utility Costs 100,016 109,099 118,602 121,019 125,721





Management Fees 58,342 63,641 69,184 70,595 73,337



Property Taxes 75,012 81,824 88,951 90,765 94,290

Insurance 27,088 29,548 32,121 32,776 34,049



58


Type of Property: 120 Rooms w/ Food and Beverage Revenue 2007 2008 2009 2010 2011

Rooms $1,530,319 $1,669,302 $1,814,703 $1,851,695 $1,923,627

Food 595,569 649,659 706,246 720,642 748,637

Beverage 0 0 0 0 0





Total Revenue 2,483,764 2,709,339 2,945,329 3,005,368 3,122,117


Rooms 442,262 482,428 524,449 535,140 555,928

Food & Beverage 614,878 670,722 729,143 744,006 772,909



Total Departmental Expenses 1,073,411 1,170,897 1,272,886 1,298,833 1,349,288




Marketing 166,412 181,526 197,337 201,360 209,182

Utility Costs 119,221 130,048 141,376 144,258 149,862





Management Fees 69,545 75,861 82,469 84,150 87,419



Property Taxes 89,416 97,536 106,032 108,193 112,396

Insurance 32,289 35,221 38,289 39,070 40,588



59



Rooms $665,108 $1,030,017 $1,114,176 $1,139,666 $1,183,939

Food 0 0 0 0 0

Beverage 0 0 0 0 0





Total Revenue 694,237 1,075,127 1,162,972 1,189,579 1,235,790


Rooms 176,254 272,954 295,257 302,012 313,744








Marketing 35,406 54,831 59,312 60,669 63,025

Utility Costs 42,348 65,583 70,941 72,564 75,383





Management Fees 19,439 30,104 32,563 33,308 34,602



Property Taxes 24,993 38,705 41,867 42,825 44,488

Insurance 11,108 17,202 18,608 19,033 19,773



60



Rooms $880,835 $1,364,101 $1,475,557 $1,509,316 $1,567,948

Food 0 0 0 0 0

Beverage 0 0 0 0 0





Total Revenue 919,411 1,423,843 1,540,180 1,575,417 1,636,617


Rooms 233,421 361,487 391,023 399,969 415,506








Marketing 46,890 72,616 78,549 80,346 83,467

Utility Costs 56,084 86,854 93,951 96,100 99,834





Management Fees 25,744 39,868 43,125 44,112 45,825



Property Taxes 33,099 51,258 55,446 56,715 58,918

Insurance 14,711 22,781 24,643 25,207 26,186



61



Rooms $1,093,674 $1,693,713 $1,832,101 $1,874,016 $1,946,816

Food 0 0 0 0 0

Beverage 0 0 0 0 0





Total Revenue 1,141,572 1,767,891 1,912,339 1,956,090 2,032,078


Rooms 289,824 448,834 485,507 496,614 515,906








Marketing 58,220 90,162 97,529 99,761 103,636

Utility Costs 69,636 107,841 116,653 119,321 123,957





Management Fees 31,964 49,501 53,545 54,771 56,898



Property Taxes 41,097 63,644 68,844 70,419 73,155

Insurance 18,265 28,286 30,597 31,297 32,513



62



Rooms $1,303,682 $2,018,942 $2,183,903 $2,233,867 $2,320,646

Food 0 0 0 0 0

Beverage 0 0 0 0 0





Total Revenue 1,360,778 2,107,363 2,279,548 2,331,701 2,422,280


Rooms 345,476 535,020 578,734 591,975 614,971








Marketing 69,400 107,476 116,257 118,917 123,536

Utility Costs 83,007 128,549 139,052 142,234 147,759



Gross Operating Profit 609,166 943,383 1,020,463 1,043,810 1,084,359


Management Fees 38,102 59,006 63,827 65,288 67,824



Property Taxes 48,988 75,865 82,064 83,941 87,202

Insurance 21,772 33,718 36,473 37,307 38,756



63


Type of Property: 100 Rooms w/ Food and Beverage Revenue 2007 2008 2009 2010 2011

Rooms $1,283,802 $1,944,924 $2,098,643 $2,149,266 $2,232,758

Food 499,630 756,925 816,749 836,451 868,944

Beverage 0 0 0 0 0





Total Revenue 2,083,657 3,156,682 3,406,174 3,488,337 3,623,848


Rooms 371,019 562,083 606,508 621,138 645,267

Food & Beverage 515,828 781,466 843,230 863,570 897,117



Total Departmental Expenses 900,496 1,364,226 1,472,050 1,507,558 1,566,122




Marketing 139,605 211,498 228,214 233,719 242,798

Utility Costs 100,016 151,521 163,496 167,440 173,945



Gross Operating Profit 633,076 959,092 1,034,895 1,059,858 1,101,030


Management Fees 58,342 88,387 95,373 97,673 101,468



Property Taxes 75,012 113,641 122,622 125,580 130,459

Insurance 27,088 41,037 44,280 45,348 47,110



64



Revenue 2007 2008 2009 2010 2011

Rooms $1,530,319 $2,318,390 $2,501,627 $2,561,970 $2,661,495

Food 595,569 902,271 973,582 997,067 1,035,800

Beverage 0 242,763 261,950 268,269 278,691





Total Revenue 2,483,764 4,005,596 4,322,182 4,426,441 4,598,394


Rooms 442,262 670,015 722,970 740,409 769,172

Food & Beverage 614,878 1,152,438 1,243,522 1,273,518 1,322,990



Total Departmental Expenses 1,073,411 1,847,102 1,993,089 2,041,166 2,120,459




Marketing 166,412 268,375 289,586 296,572 308,092

Utility Costs 119,221 192,269 207,465 212,469 220,723


Total Undistributed Operating Expenses 655,714 1,057,477 1,141,056 1,168,580 1,213,976

Gross Operating Profit 754,640 1,101,017 1,188,037 1,216,695 1,263,959


Management Fees 69,545 112,157 121,021 123,940 128,755

Income Before Fixed Charges 616,230 884,533 954,443 977,466 1,015,437


Property Taxes 89,416 144,201 155,599 159,352 165,542

Insurance 32,289 52,073 56,188 57,544 59,779



65

Definitions of Terms

Revenues • Rooms Revenue - Revenues derived from the rental of sleeping rooms at the hotel, net of any rebates and

discounts. • Food Revenue - Revenues derived from the sale of food, including coffee, milk, tea, and soft drinks. • Beverage Revenue - Revenues derived from the sale of beverages, including beer, wine and liquors. • Other Food and Beverage Revenue - Revenues derived from other sources such as meeting room rentals,

cover or service charges, or revenues derived from the sale of goods or services made in connection with banquets, such as equipment rental, music, decorations and souvenirs. Also includes banquet service charges.

• Telecommunications Revenue - Revenues derived from guest-use of telephones in the hotel, including local and long distance calls, service charges, facsimile service, modem and commissions received from pay stations.

• Other Operated Departments Revenue - Revenues generated from garage and parking, golf and tennis, health club, swimming pool, barber/beauty shop, gift shop, newsstand, etc., when operated by the hotel. Excludes casinos.


• Rooms Departmental Expenses - include labor costs such as salaries and wages for front desk, housekeeping, reservations, bell staff, and laundry, plus employee benefits. Other operating expenses in the rooms department include linen, cleaning supplies, guest supplies, uniforms, central or franchise reservation fees, equipment leases, travel agent commissions and continental breakfast cost.

• Food Expense - include the cost of goods, labor and related benefits, and other operating expenses. Labor costs include departmental management, cooks and kitchen personnel, service staff, banquet staff. Other operating expenses include china, silverware, linens, restaurant and kitchen supplies, menus and printing, and special promotions. (Does not include continental breakfast costs. This is a Rooms Expense.)

• Beverage Expense - include the cost of goods sold, labor and related benefits, and other operating expenses. Labor costs include departmental management, lounge service staff, banquet bartender, bartenders and mini-bar staff. Other operating expenses include china, silverware, linens, and special promotions.

• Telecommunications Expense –includes costs of calls, labor cost of operators, and other related expenses, but excludes capital lease payments.


• Administrative and General (A&G) Expense - Included in this category are the payroll and related expenses for the general manager, human resources and training, security, clerical staff, controller, and accounting staff. Other A&G expenses include office supplies, computer services, accounting and legal fees, cash overages and shortages, bad debt expenses, travel insurance, credit card commissions, transportation (non-guest) and travel and entertainment.

• Marketing Expense - includes payroll and related expenses for the sales and marketing staff, direct sales expenses, advertising and promotion, travel expenses for the sales staff, and civic and community projects. Includes national advertising fee or assessment paid to Franchise Company plus cost of frequent guest stay programs.

• Utility Costs - include electricity, fuel (oil, gas, and coal), purchased steam, and water. Includes central plant and energy management systems.

• Property Operations and Maintenance - includes payroll and related expenses for maintenance personnel, cost of maintenance supplies, cost of repairs and maintenance of the building, furniture and equipment, the grounds, and the removal of waste.

• Franchise Fee - Includes only the royalty fees charged by franchise companies. Other fees or assessments should be in Marketing or Rooms Other Expenses.

• Management Fees - Fees charged by management organizations for management services or supervision. Includes both base and incentive fees.

Fixed Charges

• Property Taxes - Typically include taxes on real estate, business and occupation, personal property, utilities, and other municipal taxes.

• Insurance - Cost of insuring the hotel building and contents against fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, or other perils. Includes all insurance except workers’ compensation.

• Depreciation and Amortization - Deductions on the building, leaseholds and leasehold improvements, furnishings and equipment, and assets held under capital leases.

• Reserve for Capital Replacement - Amount set aside for replacement of furniture, fixtures, and equipment Source: Smith Travel Research

66

Making Investment Decisions with Net Present Value

Using the industry average of cost of capital, we prepared the projections of annual operating cash flows and its net present value in order to evaluate the proposed investment in developing a midscale hotel in Scott County, VA, (see Table 32). The following table presents the summary of valuations. Tables 33-1 through 33-12 give a further break down for each of these scenarios.

Table 32: Net Present Value

Tourism

Development Limited/Full

Service Number of

Rooms NPV Investment Costs

60 -$569,060 $3,151,300 80 -$723,812 $4,188,400

100 -$965,907 $5,223,950 w/o F & B

120 -$1,178,266 $6,261,050 100 -$1177507 $5,515,500

Scenario 1

w/ F & B 120 -$1,432,055 $6,610,600 60 $216,022 $3,151,300 80 $275,909 $4,188,400

100 $325,046 $5,223,950 w/o F & B

120 $360,578 $6,261,050 100 $45,139 $5,515,500

Scenario 2

w/ F & B 120 -$567,887 $6,610,600

The results indicate that the hotel development in the county is acceptable only under the

second scenario-a development of tourism. Any sized hotel without food and beverage

will creates value that is caused by a new destination in the County. A 100 room hotel is

possible to invest with the option of F & B outlet. Additionally, net present values for

both scenarios might be positive if more debt is used to finance the hotel development.

It should be noted that this value can be achieved based on assumptions such as the

improvement of hospitality infrastructure and effective marketing and management. A

reserve for replacement is included in the operating expenses. Depreciation has been

computed using the straight-line method. A summary of the ranges of estimated useful

lives upon which depreciation rates are based follows:

Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 30 years

Furniture, fixtures and equipment (FF & E) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 years

67

Table 33 -1: Estimated Annual Operating Cash Flows and Net Present Value/ Scenario 1 Type of Property: 60 Rooms w/o Food and Beverage

Table 33-2: Estimated Annual Operating Cash Flows and Net Present Value/ Scenario 1 Type of Property: 80 Rooms w/o Food and Beverage

S1_WO80 2007 2008 2009 2010 2011

Earning before Taxes, Depreciation, and Amortization $322,298 $353,022 $385,226 $392,352 $407,593

less Change in Depreciation and Amortization 162,489 162,489 162,489 162,489 162,489

equals - Change in Earnings before Taxes 159,809 190,533 222,737 229,863 245,104

less Change in Taxes 89,032 102,941 117,519 120,745 127,645

equals - Change in Net Income 70,777 87,593 105,218 109,118 117,460

plus Change in Depreciation and Amortization 162,489 162,489 162,489 162,489 162,489

equals - Change in Cash Flow from Operations 233,266 250,082 267,707 271,607 279,948

Salvage or Terminal Value 3,822,589

Present Value of Cash Flows @ 9.47% of discount rate 213,087 208,685 204,068 189,130 178,075

Net Present Value -$723,812

S1_WO60 2007 2008 2009 2010 2011











68


Table 33 -4: Estimated Annual Operating Cash Flows and Net Present Value/ Scenario 1


S1_WO120 2007 2008 2009 2010 2011










Net Present Value -$1,178,266

S1_WO100 2007 2008 2009 2010 2011











69

Table 33 -5: Estimated Annual Operating Cash Flows and Net Present Value/ Scenario 1 Type of Property: 100 Rooms w/ Food and Beverage

Table 33 -6: Estimated Annual Operating Cash Flows and Net Present Value/ Scenario 1 Type of Property: 120 Rooms w/ Food and Beverage

S1_W120 2007 2008 2009 2010 2011











S1_W100 2007 2008 2009 2010 2011











70



S2_WO80 2007 2008 2009 2010 2011










Net Present Value $275,909

S2_WO60 2007 2008 2009 2010 2011











71



\

S2_WO120 2007 2008 2009 2010 2011











S2_WO100 2007 2008 2009 2010 2011











72

Table 33-11: Estimated Annual Operating Cash Flows and Net Present Value/ Scenario 2 Type of Property: 100 Rooms w/ Food and Beverage

Table 33-12: Estimated Annual Operating Cash Flows and Net Present Value/ Scenario 2


S2_W120 2007 2008 2009 2010 2011











S2_W100 2007 2008 2009 2010 2011











73

Appendix A: Properties (Competitors) of the Competitive Set

Driving Distance 7from (miles)

Circle Distance8 from (miles)

Property Name City State

Gate City Duffield Gate City Duffield

Chain Scale ADR $ Rooms #

Americas Best Inn (formerly Econo Lodge) Kingsport TN 11.8 miles 28.3 6.74 20.16 Indep Lower - 48

Benham School House Inn Benham KY - 34 - 16.08 Indep Upper 65-89 30

Best Western Colonial Inn Kingsport TN 17.9 34.5 11.19 23.73 Mid w/ F&B 74 48

Bristol Lodging Bristol TN 27 43.5 17.62 31.76 Indep Upper 59-75 172

Comfort Inn Big Stone Gap Big Stone Gap VA 28.2 12.1 18.5 10.16 Mid w/o F&B 78-150 61

Comfort Inn Kingsport Kingsport TN 10.3 28.7 6.9 20.39 Mid w/o F&B 69-83 122

Comfort Inn Kingsport South Kingsport TN 19.4 35.9 11.72 24.31 Mid w/o F&B - 60

Convenient Inn Pennington Gap VA 32 16.6 - 11.83 Indep Lower 40 40

Country Inn Motel Big Stone Gap VA 29.6 13.4 19.41 10.41 Indep Lower 43 42

Cumberland Motel Cumberland KY - 35.7 - 19.99 Indep Lower - 35

Days Inn Bristol Parkway Bristol TN 29.6 46.1 17.96 32.1 Economy 56 63

Days Inn Downtown Kingsport Kingsport TN 7.1 23.6 4.88 17.33 Economy 65-70 65

Days Inn Norton Norton VA 21.71 18.9 Economy 57 58

Econo Lodge Church Hill Church Hill TN 19.7 36.2 14.23 14.5 Economy 50 32

Greenwood Motel Kingsport TN 13.2 29.7 7.59 20.48 Indep Lower - 24

Hampton Inn Bristol Bristol TN 27.5 44 17.83 31.98 Mid w/o F&B 85-100 90

Hampton Inn Kingsport Kingsport TN 12.5 29 9.03 20.38 Mid w/o F&B 94-130 115

Holiday Inn Express Hotel & Suites Kingsport Meadowview

Kingsport TN 13 29.5 8.88 20.47 Mid w/o F&B - 79

Jameson Inn Johnson City Johnson City TN 24.8 - 19.73 31.99 Economy 62-72 59

Jameson Inn Kingsport Kingsport TN 13.4 31.9 8.88 20.47 Mid w/o F&B 79-103 55

Jefferson Motel Norton VA 28.5 21.2 22.2 19.54 Indep Lower - 70

Jonesville Motor Lodge Jonesville VA - 22.4 - 18.11 Indep Lower - 20

Kingsport Inn Kingsport TN 7.2 24.2 6.75 20.16 Indep Middle 48 156

7 Source: GoogleMap and MapPoint 8 Source: Smith Travel Research

74

Kingsport Inn(called Microtel Inn Kingsport) Kingsport TN 11.8 28.8 4.7 17.24 Indep Lower - 87

Knights Inn Bristol Bristol VA 27.4 - 20.34 - Economy 49 38

La Quinta Inns Kingsport Tri Cities Airport Kingsport TN 24.8 40 11.89 25.73 Mid w/o F&B 75-86 118

Marriott Conference Center Meadowview Conference Resort

Kingsport TN 11.5 28.5 8.56 19.79 Upper Upscale 149-184 195

Model City Motel Kingsport TN 14 30.5 7.82 20.97 Indep Lower - 25

Plaza Motel Cumberland KY - 44 - 20.33 Indep Lower - 100

Ramada Inn Kingsport Kingsport TN 12.2 28.7 7.17 20.66 Mid w/ F&B 69-79 193

Red Carpet Inn Kingsport Kingsport TN 23.2 - 11.9 25.74 Economy 47 39

Scottish Inn Bristol Bristol TN 38 - 20.81 - Economy 52 34

Sleep Inn & Suites Kingsport Kingsport TN 23 39.6 13.17 26.15 Mid w/o F&B 68-105 70

Super 8 Kingsport (called Super 8 Kingsport I-81)

Kingsport TN 19.1 35.6 11.98 24.57 Economy - 52

Super 8 Norton Norton VA 24.8 21.71 18.9 Economy 55 56

The Inn @ Norton (called Holiday Inn Norton Wise County)

Norton VA 23.9 21.04 18.02 Indep Middle 80 119

Travel Inn Duffield VA 16.1 0.7 13.7 0.73 Indep Middle 49 108

West Side Inn Kingsport TN 8.6 25.2 5.15 17.36 Indep Lower 39-48 110

75

Appendix B: Critical Success Factors

Property Name Location Age of

hotel Restaurant

Meeting Facilities Reservation System Loyalty Program Amenities Brand Recognition

Bar BF On premise Phone Online (Own

system)

Online (Travel Agency)

Onsite In room Chain Parent Company

Days Inn Bristol Parkway Bristol 28 X X O O O O Trip Rewards O Standard Days Inn Wyndham Worldwide

Days Inn Downtown Kingsport Kingsport 34 X X O O O O TripRewards O Internet Days Inn

Wyndham Worldwide

Days Inn Norton Norton 7 X X O O O O TripRewards O Internet Days Inn Wyndham Worldwide

Econo Lodge Church Hill Church Hill X O O x O O O EA$Y CHOICE

stamps X Internet Econo Lodge Choice Hotels Intl

Jameson Inn Johnson City Johnson City 9 X X O O X O X O Standard Jameson Inn Kitchin

Hospitality LLC

Jameson Inn Kingsport Kingsport 6 X X O O X O X O Standard Jameson Inn Kitchin

Hospitality LLC

Knights Inn Bristol Bristol 2 X X O X O X X Standard Knights Inn Wyndham Worldwide

Red Carpet Inn Kingsport Kingsport 27 X X X O X O X X Standard Red Carpet Inn -

Scottish Inn Bristol Bristol 16 X X X O X O X X Standard Scottish Inn -

Super 8 Kingsport Kingsport 17 X X X O X O X O Below

Standard Super 8 Wyndham Worldwide

Super 8 Norton Norton 16 X X X O X O X O Standard Super 8 Wyndham Worldwide

Americas Best Inn (formerly Econo Lodge)

Kingsport 34 x X X O X X America's Best Traveler Program O Standard - -

Convenient Inn Pennington

Gap X X X O X O X X Standard - -

Country Inn Motel Big Stone

Gap 37 X X X O X O X X Standard - -

Cumberland Motel Cumberland 38 X O X O X X Standard - -

Greenwood Motel Kingsport 58 X X X X O X O X - Below

standard - -

Jefferson Motel Norton X X X O X O X X Standard - -

Jonesville Motor Lodge Jonesville 26 X X O X O X X Standard - - Kingsport Inn(called

Microtel Inn Kingsport) Kingsport 45 X X O X O X X Standard - -

Model City Motel Kingsport X X O X O X X Standard - -

Plaza Motel Cumberland 23 X X O X O X X Standard - -

West Side Inn Kingsport 44 X X X X O X O X O Below

standard - -

76

Kingsport Inn Kingsport 13 X X O X O X O Standard - -

The Inn @ Norton Norton 21 X X O X O X O Standard - -

Travel Inn Duffield 24 O X O X X X X Below

standard - -

Benham School House Inn Benham 9 X X O X O X O Standard - -

Bristol Lodging Bristol 32 O X O X X Standard - -

Best Western Colonial Inn Kingsport 11 O O O X O Standard Best Western Best Western International

Ramada Inn Kingsport Kingsport 33 O O O O O O O TripRewards O Below

standard Ramada

Wyndham Worldwide

Comfort Inn Big Stone Gap Big Stone

Gap 7 X O O O O O Choice

Privileges O Internet Comfort Inn Choice Hotels Intl

Comfort Inn Kingsport Kingsport 20 X O O O O Choice

Privileges O Internet Comfort Inn Choice Hotels Intl

Comfort Inn Kingsport South

Kingsport 11 x X X X O O O Choice

Privileges Internet Comfort Inn Choice Hotels Intl

Hampton Inn Bristol Bristol 10 O O O O O O O HHonors Rewards O Internet Hampton Inn

Hilton Hotels Corp

Hampton Inn Kingsport Kingsport 8 O O O O O O O HHonors Rewards O Internet Hampton Inn

Hilton Hotels Corp

Holiday Inn Express Hotel & Suites Kingsport

Meadowview Kingsport 0 X O X O O O X O Internet

Holiday Inn Express Hotel

InterContinental Hotels Group

La Quinta Inns Kingsport Tri Cities Airport

Kingsport 15 X O X O O O O X O Standard La Quinta Inns La Quinta Inns Inc

Sleep Inn & Suites Kingsport

Kingsport 7 X X X O O O X O Above

standard Sleep Inn Choice Hotels Intl

Marriott Conference Center Meadowview Conference

Resort Kingsport 10 O O O O O 0 O

Marriott Hotel Reward O

Above standard

Marriott Conference

Center Marriott Corp

Note: O=Available, X=Not Available

77

Appendix C: Franchising Requirements of Branded Midscale Chains

Segment Brand Parent company Minimum # rooms

Construction cost per room

Initial fee ** Royalty Marketing fee Reservations fee

Best Western Best Western International NA $65,000 w/FF&E $42,250 for 100 rooms $3,761 for 100 rooms

$28,653 for 100 rooms

$14,600 for 100 rooms

Clarion Hotels/Suites/Resorts Choice Hotels International 100 $45,000-$70,000 $40,000 minimum 4.25% 2% 1.25%

Holiday Inn Hotels & Resorts InterContinental Hotels Group

100 $51,000 $50,000 minimum 5% 2.50% NA

Howard Johnson International Cendant Hotel Group NA $28,513-$82,763 $35,000 minimum 4% 2% 2.50%

Park Plaza Carlson Cos. Varies Varies $40,000 minimum 5% 2% 1.50%

Quality Inn/Inn & Suites Choice Hotels International Inn: 50; $30,000-$50,000 $35,000 minimum 4% 2.10% 1.75%

Ramada Worldwide Cendant Hotel Group NA $28,802-$82,803 $35,000 minimum 4% 4.50% Included

Midscale w/F&B

Red Lion Hotels WestCoast Hospitality Corp. 100 NA $25,000 minimum 4% 4% Included

AmeriHost Franchise Systems Cendant Hotel Group NA $29,425-$56,675 $35,000 minimum 4%-5% 3.50% Included

Baymont Inns & Suites La Quinta Corp. NA $42,000-$53,000 $35,000 4% 2.50% 2%

Candlewood Suites InterContinental Hotels Group

80 $38,000 $50,000 minimum 5% 2.50% NA

ClubHouse Hotel & Suites Clubhouse LLC 60 $58,000-$93,000 $30,000 with discounts 3%-4% 0 Varies

ClubHouse Inn/Inn & Suites Clubhouse LLC 60 $41,000-$73,000 $30,000 with discounts 3%-4% 0 Varies

ClubHouse Resort & Conference Center

Clubhouse LLC 60 $58,000-$93,000 $30,000 with discounts 3%-4% 0 Varies

Comfort Inn Choice Hotels International 50 $32,000-$42,000 $50,000 minimum 5.25% 2.10% 1.75%

Comfort Suites Choice Hotels International 60 $34,000-$45,000 $50,000 minimum 5.25% 2.10% 1.75%

Country Inns & Suites by Carlson

Carlson Cos. Varies $25,000-$35,000 $40,000 minimum 4.50% 2.50% 1.25%

Fairfield Inn by Marriott Marriott International 80 NA $40,000 minimum 4.50% 2.50% 1%

GrandStay Residential Suites GrandStay Hospitality LLC 53 $63,000 $35,000 $3.75 per occupied room

Included 7% w/5-day cap

Hampton Inn/Inn & Suites Hilton Hotels Corp. 52 NA $50,000 minimum 5% 4% Included

Holiday Inn Express InterContinental Hotels Group

65 $52,000 $50,000 minimum 5% 3% NA

InnSuites Hotels and Suites InnSuites Hospitality Trust NA NA $20,000 3% 1% $7 per reservation

La Quinta Inns/Inns & Suites La Quinta Corp. NA $45,000-$61,000 $40,000-$45,000 4% 2.50% 2%

MainStay Suites Choice Hotels International 55 $35,000-$60,000 $30,000 minimum 4.50% 2.50% Included

Sleep Inn/Inn & Suites Choice Hotels International 70 $25,000-$37,500 $40,000 minimum 4.50% 2.10% 1.75%

TownePlace Suites by Marriott Marriott International 80 NA $40,000 minimum 5% 1.50% 1%

Midscale w/o F&B

Wingate Inns International Cendant Hotel Group Yes $58,095-$61,683 $35,000 minimum 4.50% 4% Included

78

Appendix D: Smith Travel Research

Smith Travel ResearchCustom HOST Report

2005 Limited-Service: Selected Properties

Job #: 6612 Occupancy: 68.4%Props: 15 ADR: $53.35Rooms: 1,549 RevPAR: $36.48

Ratio to Sales 1 Amount Per Available Room Amount Per Occupied Room

Night

REVENUE %

Rooms 95.9 % $13,352 $530.0 0 00.0 0 00.0 0 00.4 50 00.2 27 03.6 505 20.0 0 0

100.0 % $13,934 $56

DEPARTMENTAL EXPENSES 26.5 % $3,541 $140.0 0 0

386.4 194 10.9 131 1

27.7 % $3,866 $15

DEPARTMENTAL PROFITS73.5 % $9,811 $390.0 0 0

-286.0 -144 -199.1 401 272.3 % $10,068 $40

UNDISTRIBUTED OPERATING EXPENSES11.2 % $1,560 $65.1 708 36.1 852 35.9 821 3

28.3 % $3,941 $16

GROSS OPERATING PROFIT 44.0 % $6,127 $252.5 354 12.8 397 2

INCOME BEFORE FIXED CHARGES 38.6 % $5,376 $21

SELECTED FIXED CHARGES3.6 % $498 $21.6 224 11.0 143 1

32.4 % $4,511 $18

SUPPLEMENTAL PAYROLL ANALYSIS 3

17.6 % $2,338 $9

252.4 268 15.2 755 31.5 235 12.8 401 2

25.6 % $3,560 $14

1 Rooms, F&B, and Telecommunications expense ratios to sales for departmental expenses and profits are based on their respective departmental revenues. All other expenses are based on total revenue. 2 Other Fixed Charges include Depreciation and Amortization, Interest, Rent, and Equipment Leases3 Payroll and Costs of Sales are included in expenses. Amounts shown here are for additional detail only. Not all HOST participants provide detailed data on payroll and F&B costs; therefore, the following supplemental analyses provide the ratios for only these hotels in the samples that reported detailed information. Consequently, the amounts may not tie to the departmental figures provided.

NOTE: Totals may not add due to rounding.

Rooms

Franchise Fees (Royalty)Management Fees

Property TaxesInsuranceReserve For Capital Replacement

SERVICE & OTHER FIXED CHARGES 2

FoodBeverage

TOTAL PAYROLL & RELATED EXPENSES

$$

Administrative & General

AMOUNT AVAILABLE FOR DEBT

Other Operated Departments

Administrative & GeneralMarketingUtility CostsProperty Operation & Maintenance

TOTAL UNDISTRIBUTED OPERATING EXPENSES

Telecommunications

Rentals & Other IncomeCancellation Fee

Rooms

TOTAL REVENUE

MarketingProperty Operations & Maintenance

Other Operated Depts & Rentals TOTAL DEPARTMENTAL EXPENSES

RoomsFood & BeverageTelecommunicationsOther Operated Depts & Rentals

TOTAL DEPARTMENTAL PROFITS

Total Food and Beverage

Other Food & Beverage

Food & BeverageTelecommunications

TelecommunicationsOther Operated Departments

79

Tab 2 - Data by MeasureKingsport, TN Area Selected PropertiesJob Number: 119267 Staff: SS Created: November 17, 2006

January February March April May June July August September October November December Total Year Sep YTD2000 35.3 41.4 48.6 48.4 49.2 61.3 70.3 61.0 54.1 60.1 42.6 33.9 50.5 52.32001 36.3 39.1 50.9 51.8 53.2 59.7 67.6 62.8 50.7 54.9 44.1 37.1 50.8 52.62002 37.2 39.4 49.5 60.0 56.0 62.9 66.1 63.6 51.6 59.9 43.7 40.5 52.6 54.12003 37.8 40.0 49.5 49.5 46.3 58.7 65.5 61.4 48.1 55.7 38.3 34.8 48.9 50.82004 35.4 38.2 49.0 50.7 52.2 59.5 64.2 56.6 49.7 52.4 43.7 37.6 49.1 50.72005 36.3 38.7 43.7 53.3 49.4 56.1 64.4 58.0 47.8 55.9 45.6 34.3 48.7 49.82006 32.4 38.6 48.1 48.8 51.0 57.5 63.8 60.8 49.8 50.3Avg 35.8 39.3 48.4 51.8 51.0 59.4 65.9 60.6 50.2 56.5 43.0 36.3 50.1 51.5



January February March April May June July August September October November December Total Year Sep YTD2000 57,691 52,108 57,691 55,830 57,691 55,830 57,691 57,691 55,830 57,691 57,480 59,396 682,620 508,0532001 59,396 53,648 59,396 57,480 59,396 57,480 59,396 59,396 57,480 59,396 57,480 59,396 699,340 523,0682002 59,396 53,648 59,396 57,480 59,396 57,480 59,396 59,396 57,480 59,396 57,480 59,396 699,340 523,0682003 59,396 53,648 59,396 57,480 59,396 57,480 59,396 59,396 57,480 59,396 57,480 59,396 699,340 523,0682004 59,396 53,648 59,396 57,480 59,396 57,330 59,241 59,241 57,330 60,233 58,290 60,233 701,214 522,4582005 60,233 54,404 60,233 58,290 60,233 58,290 60,233 60,233 58,290 60,233 58,290 60,233 709,195 530,4392006 60,233 54,404 62,682 60,660 62,682 60,660 62,682 62,682 60,660 547,345Avg 59,392 53,644 59,741 57,814 59,741 57,793 59,719 59,719 57,793 59,391 57,750 59,675 698,508 525,357

January February March April May June July August September October November December Total Year Sep YTD2000 20,393 21,590 28,051 27,013 28,370 34,206 40,549 35,180 30,209 34,690 24,494 20,109 344,854 265,5612001 21,533 20,964 30,207 29,749 31,601 34,339 40,146 37,280 29,132 32,580 25,370 22,032 354,933 274,9512002 22,124 21,137 29,396 34,481 33,236 36,148 39,252 37,761 29,661 35,574 25,139 24,036 367,945 283,1962003 22,459 21,439 29,386 28,462 27,489 33,715 38,896 36,451 27,633 33,065 22,036 20,662 341,693 265,9302004 21,014 20,515 29,128 29,158 30,988 34,102 38,017 33,514 28,494 31,569 25,448 22,648 344,595 264,9302005 21,863 21,037 26,303 31,074 29,762 32,722 38,763 34,920 27,840 33,679 26,575 20,663 345,201 264,2842006 19,490 21,018 30,134 29,578 31,985 34,897 39,984 38,110 30,192 275,388Avg 21,268 21,100 28,944 29,931 30,490 34,304 39,372 36,174 29,023 33,526 24,844 21,692 349,870 270,606

January February March April May June July August September October November December Total Year Sep YTD2000 1,113,302 1,184,211 1,847,963 1,514,135 1,602,960 1,986,986 2,345,594 2,407,518 1,770,858 1,979,286 1,335,831 1,040,824 20,129,468 15,773,5272001 1,178,078 1,164,798 2,158,627 1,724,400 1,832,715 2,011,439 2,341,600 2,639,043 1,688,323 1,876,501 1,422,109 1,185,794 21,223,427 16,739,0232002 1,228,732 1,199,359 2,100,734 2,051,651 1,927,768 2,121,632 2,345,757 2,766,337 1,718,234 2,132,976 1,450,843 1,305,874 22,349,897 17,460,2042003 1,242,514 1,210,510 2,269,305 1,732,374 1,639,038 2,002,219 2,406,580 2,799,272 1,660,343 2,039,414 1,302,277 1,180,000 21,483,846 16,962,1552004 1,244,194 1,194,251 2,377,010 1,769,775 1,869,600 2,104,961 2,335,834 2,662,647 1,747,183 1,951,417 1,521,676 1,340,940 22,119,488 17,305,4552005 1,298,125 1,271,983 1,855,445 2,477,680 1,886,146 2,103,508 2,497,995 2,935,214 1,767,727 2,180,398 1,675,746 1,240,859 23,190,826 18,093,8232006 1,307,503 1,355,517 2,691,957 2,079,844 2,185,896 2,396,411 2,799,155 3,451,078 2,062,987 20,330,348Avg 1,230,350 1,225,804 2,185,863 1,907,123 1,849,160 2,103,879 2,438,931 2,808,730 1,773,665 2,026,665 1,451,414 1,215,715 21,749,492 17,523,505

Demand

Revenue ($)

No representation is made as to the completeness or accuracy of the information in this report. The information is in no way to be construed as a recommendation by Smith Travel Research of any industry standard and is intended solely for the internal purposes of your company. It should not be published in any manner unless authorized by Smith Travel Research. A blank row indicates insufficient data. Copyright © 2006 Smith Travel Research, Inc. All rights reserved.

Occupancy (%)

ADR ($)

RevPAR ($)

Supply

80

Tab 3 - Percent Change from Previous Year - Detail by MeasureKingsport, TN Area Selected PropertiesJob Number: 119267 Staff: SS Created: November 17, 2006

January February March April May June July August September October November December Total Year Sep YTD2001 2.6 -5.7 4.6 7.0 8.2 -2.5 -3.8 2.9 -6.3 -8.8 3.6 9.6 0.5 0.62002 2.7 0.8 -2.7 15.9 5.2 5.3 -2.2 1.3 1.8 9.2 -0.9 9.1 3.7 3.02003 1.5 1.4 0.0 -17.5 -17.3 -6.7 -0.9 -3.5 -6.8 -7.1 -12.3 -14.0 -7.1 -6.12004 -6.4 -4.3 -0.9 2.4 12.7 1.4 -2.0 -7.8 3.4 -5.9 13.9 8.1 0.6 -0.32005 2.6 1.1 -11.0 5.1 -5.3 -5.6 0.3 2.5 -3.9 6.7 4.4 -8.8 -1.0 -1.72006 -10.9 -0.1 10.1 -8.5 3.3 2.5 -0.9 4.9 4.2 1.0Avg -1.3 -1.1 0.0 0.7 1.1 -0.9 -1.6 0.1 -1.3 -1.2 1.7 0.8 -0.7 -0.6

January February March April May June July August September October November December Total Year Sep YTD2001 0.2 1.3 8.5 3.4 2.6 0.8 0.8 3.4 -1.1 0.9 2.8 4.0 2.4 2.52002 1.5 2.1 0.0 2.6 0.0 0.2 2.5 3.5 0.0 4.1 3.0 0.9 1.6 1.32003 -0.4 -0.5 8.1 2.3 2.8 1.2 3.5 4.8 3.7 2.9 2.4 5.1 3.5 3.52004 7.0 3.1 5.7 -0.3 1.2 3.9 -0.7 3.5 2.1 0.2 1.2 3.7 2.1 2.42005 0.3 3.9 -13.6 31.4 5.0 4.1 4.9 5.8 3.6 4.7 5.5 1.4 4.7 4.82006 13.0 6.7 26.6 -11.8 7.8 6.8 8.6 7.7 7.6 7.8Avg 3.6 2.8 5.9 4.6 3.2 2.8 3.3 4.8 2.7 2.6 3.0 3.0 2.9 3.7

January February March April May June July August September October November December Total Year Sep YTD2001 2.8 -4.5 13.5 10.6 11.1 -1.7 -3.0 6.5 -7.4 -7.9 6.5 13.9 2.9 3.12002 4.3 3.0 -2.7 19.0 5.2 5.5 0.2 4.8 1.8 13.7 2.0 10.1 5.3 4.32003 1.1 0.9 8.0 -15.6 -15.0 -5.6 2.6 1.2 -3.4 -4.4 -10.2 -9.6 -3.9 -2.92004 0.1 -1.3 4.7 2.2 14.1 5.4 -2.7 -4.6 5.5 -5.6 15.2 12.1 2.7 2.12005 2.9 5.0 -23.0 38.1 -0.5 -1.7 5.2 8.4 -0.5 11.7 10.1 -7.5 3.7 3.02006 0.7 6.6 39.4 -19.3 11.4 9.5 7.7 13.0 12.1 8.9Avg 2.0 1.6 6.7 5.8 4.4 1.9 1.7 4.9 1.4 1.5 4.7 3.8 2.1 3.1

January February March April May June July August September October November December Total Year Sep YTD2001 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 0.0 0.0 2.4 3.02002 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02003 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02004 0.0 0.0 0.0 0.0 0.0 -0.3 -0.3 -0.3 -0.3 1.4 1.4 1.4 0.3 -0.12005 1.4 1.4 1.4 1.4 1.4 1.7 1.7 1.7 1.7 0.0 0.0 0.0 1.1 1.52006 0.0 0.0 4.1 4.1 4.1 4.1 4.1 4.1 4.1 3.2Avg 0.7 0.7 1.4 1.4 1.4 1.4 1.4 1.4 1.4 0.9 0.3 0.3 0.8 1.3

January February March April May June July August September October November December Total Year Sep YTD2001 5.6 -2.9 7.7 10.1 11.4 0.4 -1.0 6.0 -3.6 -6.1 3.6 9.6 2.9 3.52002 2.7 0.8 -2.7 15.9 5.2 5.3 -2.2 1.3 1.8 9.2 -0.9 9.1 3.7 3.02003 1.5 1.4 0.0 -17.5 -17.3 -6.7 -0.9 -3.5 -6.8 -7.1 -12.3 -14.0 -7.1 -6.12004 -6.4 -4.3 -0.9 2.4 12.7 1.1 -2.3 -8.1 3.1 -4.5 15.5 9.6 0.8 -0.42005 4.0 2.5 -9.7 6.6 -4.0 -4.0 2.0 4.2 -2.3 6.7 4.4 -8.8 0.2 -0.22006 -10.9 -0.1 14.6 -4.8 7.5 6.6 3.1 9.1 8.4 4.2Avg -0.6 -0.4 1.5 2.1 2.6 0.5 -0.2 1.5 0.1 -0.4 2.1 1.1 0.1 0.7

January February March April May June July August September October November December Total Year Sep YTD2001 5.8 -1.6 16.8 13.9 14.3 1.2 -0.2 9.6 -4.7 -5.2 6.5 13.9 5.4 6.12002 4.3 3.0 -2.7 19.0 5.2 5.5 0.2 4.8 1.8 13.7 2.0 10.1 5.3 4.32003 1.1 0.9 8.0 -15.6 -15.0 -5.6 2.6 1.2 -3.4 -4.4 -10.2 -9.6 -3.9 -2.92004 0.1 -1.3 4.7 2.2 14.1 5.1 -2.9 -4.9 5.2 -4.3 16.8 13.6 3.0 2.02005 4.3 6.5 -21.9 40.0 0.9 -0.1 6.9 10.2 1.2 11.7 10.1 -7.5 4.8 4.62006 0.7 6.6 45.1 -16.1 15.9 13.9 12.1 17.6 16.7 12.4Avg 2.7 2.4 8.3 7.2 5.9 3.3 3.1 6.4 2.8 2.3 5.0 4.1 2.9 4.4

Demand

Revenue

No representation is made as to the completeness or accuracy of the information in this report. The information is in no way to be construed as a recommendation by Smith Travel Research of any industry standard and is intended solely for the internal purposes of your company. It should not be published in any manner unless authorized by Smith Travel Research. A blank row indicates insufficient data. Copyright © 2006 Smith Travel Research, Inc. All rights reserved.

Occupancy

ADR

RevPAR

Supply

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Appendix E: Interview Questions and Responses Bob McConnell, Daniel Boone Wilderness Trail Association

Do you have any regular count of visitors that use the trail (log books, trail counts, etc…)?

o There is a registry at Natural Tunnel State Park and a registry at the Block House (which is open 2 days a week)

What do you think are the major tourism draws to the county? o The Bristol Raceway o Annual Block House Events

2nd weekend in June September, Native American Day October, Harvest Celebration December, Christmas Event

o Passing through to Cumberland Gap o Regional Horse Association Events o Carter Fold

What are the changes in visits to the Daniel Boone Wilderness Trail for the

different seasons, months, weekend, and holiday periods? Does the number of visitors vary with different kinds of holidays?

o No winter Sports/Activities o Busy in April to August, Oct. o July is the Kingsport Fun Fest which includes the Tour de Possum Creek

Race, Civil War Reenactments, and the Highland Games

Where do most visitors tend to stay? o Kingsport o Middlesburg, KY o Big Stone Gap (on there way to the Southwest Virginia Museum)

How long do visitors tend to stay?

o For a few days if touring the area o Typically 1.5 days if just for the trail

What portion of visitors are repeat visitors to the trail?

o About half, but that trend is increasing

Is there anything planned for in the future that might increase the demand for hotel rooms?

o The VTC is developing a driving tour that would run from Winchester to Cumberland Gap (alternative to I-81)

Room Rates?

o 60-80 Dollars a Night

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What is the main method of transport used to get here by visitors? o Automobile o There used to be bus tours run through the Ramada in Duffield o Private Tour Companies have requested information on such group

packages (the tour company was from Canada, the group of people where from Ireland)

Other Comments:

Hotel Amenities: Should be a in a nice setting with a lodge type feel, scenic vistas. Would like to see an event/conference area for 300-400 people (to hold Rotary Club Functions) and possibly a nice restaurant.

Type of Visitors: Retirees and Families. Information on the Daniel Boone Interpretive Center/Expo Center: Over 6 million

dollars has been allocated will include a large historical research/library facility; will function as an agricultural expo center. The interpretative center is being based off the design for the Lewis and Clark Interpretive Center in Nebraska City.

Rita Forrester, Carter Fold

How many people come to the Carter Family Traditional Music Festival, and how many of those visitors were from outside the area?

o The festival is two days long with about 1200 to 1500 people in attendance, and ½ to 1/3 of those are from out of town.

Do you have any regular count of visitors to Carter Fold and which areas they are

coming from? o There is a guest book in the museum

Is there anything that is planned in the future that may increase the demand for

tourism or new hotel rooms? o No plans to expand the facilities o They do have a working arrangement with the Barter Theater to host some

of there musical performances on Saturday nights

What do you think are the major tourism draws to the county? o Relating to music: The Barter Theater, the Clinch Mountain MusicFest, The

Crooked Road Music Trail, and the Galax Old Fiddler’s Convention

What changes in visitation rates do you see from the seasons and holidays? o The Summer is Busy, April – December o Holidays: large turnouts for the 4th of July and Thanksgiving o Used by large groups for family reunions and church groups in the summer

Where do most visitors tend to stay?

o Kingsport o Bristol o “We need to get a hotel”

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How long do most visitors stay? o There has been in increase in the length of stay o Weekend Stays

What is the main method of transportation used by visitors?

o Automobile Rental Car o There has been an increase in visitors from California and International

locations

What do you think the rate should be per night for this area? o The Hampton Inn in Kingsport charges about 100 dollars a night

Dan Odom, Scott County Chamber of Commerce

Are there any local group meetings/activities that could use a hotel/lodging facility?

o Consultants that come into town for the business in the industrial park in Duffield

Tempur-Pedic Are there any local group meetings/activities that could use a meeting facility?

o Maybe some of the local business, there is no place to hold gatherings (Christmas Parties, etc…) 100-120 people

o The chamber of commerce could use a place to hold there meetings 20-40 people.

o Maybe a nice restaurant for company dinners…. What are the Major corporations in Scott County that might have business

meetings and training programs? o The manufacturing firms in Duffield

David Redwine, Scott County Board of Supervisors

What are the attractions to the area, other then Natural Tunnel State Park o Athletic Events (high school playoffs) o Outdoor activities, hunting and fishing o Appalachian Culture o The leaves changing color/scenic views

What type of visitors do you see in Scott County? o Besides Tourists: Weekly Sales people for the area businesses

(suppliers/sales associates) Festivals/Events:

o Fun Fest (includes Tour De Posseum Creek): about 1000 people attend, with about 200 from out of town

o Homeplace Events usually just local people, the Highland games may have people from out of town

o Bristol Races: the 2 big races and smaller truck races Other information:

Outdoor recreation should be promoted more (Holston River has been voted one of the best spots for fishing in the South East)

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Liquor Drinks: Beer and Wine only sold in restaurants, liquor can be bought at the ABC stores, prevents chain restaurants (Applebee’s, Texas Road House) from being established in the area

Other events/activities: Horse Shows, Cattle and Sheep Sales (in Abingdon)

Jim Whiten, Ramada What Happened to the Ramada in Kingsport?

Ramada took the franchise, because the building was not meeting the contractual standards

o Ramada Interested in coming back to VA o Duffield was hit hard when coal industry went under in the area

What do you think are possible Demand Generators: o Schools: College at Mountain Empire Medical Center, Penn-Virginia o Holston Medical Group o Tourism, just beginning Cumberland Gap area

Other Information o Any hotel should work with the Motor Coach Industry, set tours fix tours o Will the Daniel Boone Expo Center offer food service? o A good Ramada, has to have so many rooms:

Ramada Mart- 24hour convince market (upscale) 80-100 rooms, land under option to expand

Best site would be the old rail road depot HWY23, will be I-26 or HWY21 Lewis & Clark Interpretative Center

Average 300 visitors per day in spring, summer, fall months As low as 1 -2 in winter time Summer is most families Spring/Fall has a lot of tour groups Visitors from all 50 states and 35 different countries “You will probable get more on the Eastern Sea Board”

Brian Cregger, Bank of Marion, VA

What type of information would you need to aid in financing a new hotel development in Scott County?

o Just our standard underwriting guidelines: A solid business plan that includes

• The amount of future income that the owner feels will be generated

• Room Rates • Vacancy Rates • Expenditures

o We would probably finance about 80% of the total costs o Need to have at least 3 years of structured finical statements

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Appendix F: Tourism Development Recommendations

Scott County Recommendations (Next Steps) The following is list of recommendations for Scott County to follow to further the development of its tourism industry. Draw in restaurants and other supporting industries to support the development of hotels: The development of restaurants and other supporting industries will help to retain visitors to the area. According to Stephen Rushmore in his report How to Perform and Economic Feasibility Study of a Proposed Hotel/Motel, restaurants must be situated around the hotel site because an “insufficient number of restaurants forces people to move into neighboring metropolitan areas.” This movement detracts from the possibility of sustaining a hotel. Develop a comprehensive tourism development strategy with strong community involvement: The county should be engaged in a community tourism planning process. This process, as outlined by Peter and Ann Murphy in Strategic Management for Tourism Communities: Bridging the Gaps, includes developing a vision, mission statement, and a series of goals and objectives. The visioning process should be undertaken publicly and should address issues regarding what the community can really expect from tourism development (i.e. what kinds of jobs will be created, how much traffic will be produced, how tourism could impact community character, etc…). A mission statement should then be created to define the roles of each agency and/or organization involved. Then a series of goals relating to issues uncovered in the visioning process should be created, and objectives that may be used to quantify the progress towards each of these goals should be developed and carried out. Develop plans in collaboration with other organizations: Tourism development should be looked at in a regional context. These development plans should be done in concert with surrounding municipalities so that similar demand drivers are not created adjacent to each other. Also, working at a regional scale allows the pooling of resources. A comprehensive tourism plan (including hotel attraction) should be implemented for Scott County and the Tri-Cities Area, and should include regional organizations, such as TVA, in the planning process.

Documents

Hotel Feasibility Study for Scott County, Virginia