Question:
Discuss about the Investment Prospectus Of A Hotel.
This study aims to focus on the preparation of an investment prospectus of a hotel that is located in Sydney, Australia. The owners of the hotel are intending to raise capital for future development of the hotel over the next five years. This calls for the preparation of an investment prospectus with the aim to attract investment. The prospectus also aims to highlight the profitability of the venture and thus, convince the investors, that the hotel is a profitable investment opportunity. The hotel HOTS is located in the heart of the historic centre of Australia with access to all the wonderful sites at a walking distance from the hotel. The hotel is surrounded by cultural constructs like the Sydney Opera House, Sydney Harbour Bridge, Bondi Beach and Darling Harbour. The facilities related to infrastructure provided by the hotel can be listed down as a twenty four hour help service (front desk), roof garden, non-smoking rooms upon request, tight security measures, soundproof rooms, air conditioning. Other facilities in relation to the services provided by the hotel are a twenty-four hour WIFI service, breakfast in the room, sightseeing arrangements, availability of bikes for touring the city and other associated services (SELL 2016).
The hotel has a capacity of 150 rooms with the ability to accommodate a guest count of four hundred people. Each room in the hotel overlooks the Sydney Harbour Bridge which is its major attraction point. Tourists from all over the world visit Australia especially Sydney in order to visit the world’s largest steel arch bridge. The hotel with its exotic location, top the list of preferred stays of tourists visiting Australia. Not only international tourists but the residents of Australia also prefer this hotel as because the rents charged are reasonable and affordable by the mid income group. The location of the restaurant also adds to its unique selling point.
The hotel was founded in the year of 2012 with the foundation idea of gaining revenue through providing quality service to the customers. The hotel was at first started as a local restaurant at the same location as it is today. Since then this particular hotel has observed much restoration and renovation in order to meet the position that it is at today. The restaurant started out as a success and compelled the owners to think about expanding the business. A major trend that was noticed in the customers of the restaurant was that they praised both the food and the exotic location of the hotel. Most of the feedback received from the customers suggested the owners of the restaurant to consider conversion of the restaurant into a hotel so that the customers could enjoy the view of the harbour bridge not only while dinner but also from their room. Therefore, in the year of 2013 the restaurant observed a major renovation in order to become the five storeyed building that it is today (Bowie 2017).
The analysis of the financial performance by the hotel has been carried out next, in order to understand the current financial condition of business and the economic overview in which the hotel has been operating during the last five years.
|
Particulars |
2012 |
2013 |
2014 |
2015 |
2016 |
|
Net Income |
$ 231.12 |
$ 459.58 |
$ 629.10 |
$ 689.45 |
$ 720.15 |
|
Total Assets |
$ 2,093.59 |
$ 5,967.22 |
$ 7,198.38 |
$ 6,766.37 |
$ 7,225.39 |
|
Total Liabilities |
$ 1,893.00 |
$ 5,567.19 |
$ 6,999.40 |
$ 6,210.37 |
$ 6,985.11 |
|
Total Sales |
$ 1,000.25 |
$ 2,267.85 |
$ 2,024.38 |
$ 1,929.51 |
$ 1,875.86 |
|
Selling and Administrative expenses |
$ 14.20 |
$ 20.10 |
$ 22.12 |
$ 18.71 |
$ 25.55 |
|
Significant ratios (Efficiency ratio) |
|||||
|
Return on asset |
2.35 |
1.28 |
1.17 |
3.44 |
3.79 |
|
Liquidity ratio |
0.93 |
0.94 |
0.87 |
0.75 |
0.99 |
The above table summarizes the journey of the hotel in the past five years. The table lists the net income obtained by the hotel in the past five years. The net income as observed, is less in the year of 2012 in relation to all other years. The reason for low profit is much obvious in the first year. The year of 2012, being the year of foundation of the business, it can be assumed that the entity will take some time to gain acceleration and accrue estimated income. The net income for the following financial years become stable and shows a gradually increasing trend of profit (Srinivasan and Karmakar 2014).
The total assets for the financial years show a healthy figure. The case is similar for the total liabilities of the firm. The total sales of the firm amounted to $1,000.25 in the financial year of 2012 and then the firm accelerated its sales revenue by an amount of approximately $1267 million.
The selling and administrative expenses incurred by the firm also indicate that the firm has been expending an optimum amount in relation to expenses each year. However, the last financial year of 2016 show an unprecedented rise of $25.55 million. This indicates that the customer base of the hotel has expanded and the infrastructure required for supporting such an expansion is not available. The significant ratios that have been computed show the ability of the hotel to efficiently utilize the assets of the business. The liquidity ratio of the hotel also reveal that the liquidity position of the hotel is commendable and there is no concern regarding the debt position of business (Dogru 2017).
All these factors indicate that the hotel has been doing commendable business for the last five years. The venture had been started from scratch and has gone up to success. Now, due to increased customer pressure and visitations by more and more international customers, the owners are considering plans of expanding the hotel. Therefore, an investment prospectus has been prepared in order to invite investors for further capital required for expansion (KUMAR 2016).
The investment that has been planned by the owners pertains majorly to the sectors of rooms, food and beverage, conferencing and revenue. The owners are essentially considering developing a series of pent houses. The luxurious accommodation is being planned to overlook the Harbour Bridge, Sydney Opera House, Sydney heads, and gorgeous Sydney skyline. The owners also consider developing a conference room, keeping in mind, the requirement of the customers that visit the hotel. With the technological leap that currently the corporate industry has undergone, the need for conferencing has become imperative (Falk 2016).
The renovation regarding the food and beverage section that the management is considering is introduction of a lounge area that overlooks the harbour bridge. The food and beverage available here would essentially follow an entirely different theme than what is served at the diner.
The management has also considered increasing the number of rooms for accommodating an increased number of guests in the hotel. With the increased exposure, that Australia is gaining in the recent times, in the international market, more and more tourists have been visiting Australia. One of the recent assessments conducted by the management of the hotel had indicated the fact that pre bookings especially during the season of Christmas occupy all the rooms in the hotel making it difficult for the hotel to provide rooms to the customers who arrive without booking the rooms previously (Flaherty 2016).
The management is of the belief that all these improvisations will surely reap benefits in the future. The restructuring of the hotel would require enough funds, but the management provides much assurance to the potential investors that the process of restructuring would fetch redoubled benefits to them. The hotel already has received much acclamation in Sydney itself and already has topped the list of most preferred hotels in Sydney. But the owners now, are aiming to gain exposure in the Australian market and thus, the sated renovations have been proposed.
|
Investment prospectus |
||||
|
Particulars |
Rooms |
Conference room |
Lounge |
Contribution to revenue |
|
initial cost of construction |
25% |
12% |
33% |
23% |
|
5% |
11% |
3% |
3% |
|
|
cost of recruitment of staff |
10% |
3% |
10% |
8% |
|
cost of training |
2% |
2% |
3% |
2.30% |
|
Projections |
||||
|
Net Profit increase through the next five years |
12.23% |
|||
|
return on investment (proceeds of investment / cost) |
assumed to be a positive figure that would surely increase in the course of five years |
The above table shows all assumed figures that are estimated by the management of the hotel. The costs incurred in constructing or establishing the proposed structures and the operational expenses incurred during the execution of the assigned tasks have been shown in the investment prospectus. The cost incurred in recruitment of staff required in the expanded sectors of the hotel and the related costs incurred in training them for adopting to the culture and philosophy of the hotel, have also been shown in the investment prospectus. The respective percentages indicate the percentage they form of the total cost incurred. The revenue contributed by the different components of the total structure of the proposed renovation also has been shown. The management of the hotel has assumed the net profit to grow through the next five financial years by an estimated percentage of 12.23%. observing the increasing trend of net profit and keeping in mind the economic fluctuations that may arise in the future, the assumed figure has been arrived at. The return on investment too has been assumed to be satisfactory provided all the other financial components of business remain healthy. It also has to be noted that during the initial phase of renovation and restructuring, the normal working of business may be hampered at the hotel. This may affect the financial figures initially but with the improved and increased facilities and amenities that the hotel has been idealized to provide after the restructuring will surely result in a huge increase in the revenue incurred thus, offsetting the loss during the construction phase (Myles and Young 2014).
Conclusion
Thus, the finding that have been arrived at, is that the importance of an investment prospectus is huge, especially when a business is trying to collect funds for a particular reason. In this particular case study, the financial condition of the hotel seem to be stable and it has reached the exact juncture of expansion. The investment prospectus reveals that the investors, in all probabilities, would not be disappointed by investing in such a venture. Therefore, as it can be understood from the above discussion an investment prospectus is imperative in case of an investment proposal.
References
Bowie, D., 2017. Innovation and 19 th century hotel industry evolution. Tourism Management, 64, pp.314-323.
Dogru, T., 2017. C-corporation Hotels vs. Hotel-REITs: A Theoretical and Practical Comparison. Boston Hospitality Review, 5(1).
Falk, M., 2016. A gravity model of foreign direct investment in the hospitality industry. Tourism Management, 55, pp.225-237.
Flaherty, G.F., 2016. Hotel Mexico: dwelling on the’68 Movement. Univ of California Press.
Kumar, K., 2016. Determinants Of Growth And Challenges In Hotel Industry: A Study Of Budget And Luxury Segments Of Hotel Business In India. Clear
International Journal of Research in Commerce & Management, 7(7).
Myles, D. and Young, T., 2014. Growth Assets: High Yield, Securitisation and Retail Structured Products Are All Emerging in Europe’s Capital Markets Boom-Here Are the Challenges Facing the Instruments. Int’l Fin. L. Rev., 33, p.22.
SELL, M., 2016. the People.
Srinivasan, S. and Karmakar, A., 2014. Changing perception of students towards hotel management course while pursuing the course. International Journal of Informative & Futuristic Research, 1(9), pp.101-114.
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