GR Hotels Essay Example

GR Hotels Essay Introduction. The study was prepared for GR Hotels Board of Directors reappraisal. It examines current chances to increase profitableness. Several options were examined and the most plausible solution proposed – Upgrade to upscale both hotels. This step will increase long term net incomes and better place in the nucleus concern. GR Hotels current mission and vision: Mission: Clean Comfortable suites ( what ) . good quality service ( how ) to concern and pleasance travelers ( who ) in Toronto and Montreal ( where ) at competitory monetary values ( how ) . Vision: GR Hotels are hotels of pick for travelers in Canadian metropoliss. Current Situation: GR Hotels fiscal state of affairs has been stable for the last 3 old ages. We have improved our profitableness. our liquidness remained stable and ability to pay our debt improved. ( Please refer to Appendix 1 ) . GR Hotel Montreal tenancy rate is 59 % with the gross available per room of $ 56. Midscale hotels in Montreal have 64 % tenancy rate and $ 59 gross available per room. GR Toronto public presentation prosodies are 64 % and $ 64 in comparing to airport hotels 70 % tenancy rate and $ 77 available gross per room. Please refer to Appendixs 1. 2 and 3 for elaborate current situational analysis. and GR Hotels public presentation against industry benchmarks. BUSINESS PROBLEM: How to increase per centum of concern travelers in the client mix and better tenancy rates. WHAT ARE THE MAJOR ALTERNATIVES? We will write a custom essay sample on GR Hotels specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on GR Hotels specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on GR Hotels specifically for you FOR ONLY $16.38 $13.9/page Hire Writer 1. Exert the land option: a. Construct a conference Centre B Purchase land and maintain for future degree Celsiuss Sell the land for a speedy net income 2. Upgrade one or both hotels to upscale position. 3. Attract more leisure travelers Preferences OF STAKEHOLDERS. Board: Persue new way: addition tenancy rate ; attract concern travelers. Stockholders: 15 % Tax return on any proposed investing. Bank: Operating net income of 11 % grosss per twelvemonth. CONSTRAINTS/TARGETS. Bank demands to maintain operating gross at certain degree ; funding available. KEY SUCCESS FACTORS Good Management squad Good Service – Special touches Cardinal online engagement Location Business travelers stay at upscale. luxury hotels KEY RISKS Rames moralss questionable Does non offer room service ; dry cleansing. internet entree ; internal control ( directing checks to former employee. no record of employment Mayd requested market value of the hotels on fiscal statements Worldwide events can earnestly impact demand in hotel industry. ( SARs. terrorist onslaughts. Competition from big trade names is turning STRATEGIC ALTERNATIVE 1 – BUILD A NEW CONFERENCE CENTRE ( Please refer to Appendix 4 for elaborate computations ) Under certain conditions the NPV of the undertaking can be positive. For illustration if we assume that the tenancy rate will increase to 70 % and the gross from the. conference Centre on norm remains at 7. 3 million the Net Present Value of Constructing a new conference Centre will be 3. 5 1000000s. However. if the tenancy rate remains at 65 % and the mean one-year gross from the new installation will be at 5. 5 million the NPV will be ( 2. 2 ) million. The new conference Centre can do GR complex really attractive to concern travelers since the event Centre and hotel are traveling to be in one topographic point. GR Hotels INC has cardinal online and telephone engagement system. great location. quality service and great Management squad. Our buying section will profit from economic system of graduated table and can do better trades with providers. However. GR Hotels does non offer room service dry cleansing. internet entree. It is a good value for the money hotel. yet with the completion turning from large trade names the undertaking can go hazardous. This undertaking can potentially sabotage our runing net incomes that can take to jobs with the bank and investors. B. Purchase land and maintain. GR Hotels win if it purchases land and keeps it at least for 2008. During last 2 old ages the commercial value of the land increased from $ 950. 000 to $ 1. 100. 000. Current fiscal prognosis provinces that Canadian economic system will diminish somewhat to 2. 2 % in 2008 and so bounce to 2. 9 % 2009. It is extremely improbable that the monetary value for land in the premier country – Downtown Montreal will diminish. In a twelvemonth we can revaluate this determination. c. Sell the land for a speedy net income. This option will better GR Hotels fiscal consequences. addition ROE. ROI and net income border. It will increase GR Hotels hard currency and liquidness. assisting to travel into new way. However. benefits are short term. The direction squad will profit from better wages and fillips for 2008. STRATEGIC ALTERNATIVE 2 – UPGRADE HOTELS TO UPSCALE ( Please refer to Appendix 5 ) This option has positive Net Present Value. GR Hotels Gross net income borders stands at 27 % good above required by bank 11 % to procure the support. GR Hotels has a dependable contractor Larson. His pricing is ever within the budget and all contracted undertakings were delivered on clip. It makes sense to upgrade both hotels since engagement and disposal grow 20 % irrespective the # of hotels upgraded. This option will better tenancy rate to 72 % in Montreal and 75 % in Toronto It is above industry norm for upscale hotels. In room and eating house service will convey extra incremental gross. Guests will pass extra 10 % . This option will hold a large impact on eating house forces. Recommendation: Based on qualitative and quantitative analyses it is recommended to continue with ascents of both hotels to upscale. This undertaking makes economic sense – positive NPV. it will run into the demand of concern travelers and turning figure of leisure travelers willing to pass more money for better adjustment. Execution February Manny Bluenose Prepares proposal for the bank to bespeak funding. Human Resources Manager prepares program to train/hire extra staff Mat Gleeson contacts 3 leasehold betterments contractors and obtains a elaborate estimation of the work demand to be done. Board meets and approves all the paperss. A newssheet to employees and meetings at each hotels are organized. March 1st. Start of the Hotel ascents. Start of the forces preparation. New eating house chef is hired. April 1st. Major redevelopments Complete. Internet and furniture ascents. April 15th – April 30th. Heavy price reductions and publicity of freshly renovated hotels. May 1st. Service begins at regular flow. Appendixs APPENDIX 1. CURRENT FINANCIAL SITUATION RATIO200720062005 Profitableness Gross Profit Margin % = ( $ 21. 993- $ 15. 967 ) / $ 21. 993= ( $ 21. 595- $ 15. 814 ) / $ 21. 595= $ 19. 798-15. 123 ) / $ 19. 798= Gross Margin/Net Sales27. 40 % 26. 80 % 23. 60 % Tax return on Equity= $ 971/ $ 1. 322= $ 834/ $ 1274= $ 603/ $ 1. 107= Net Income/Av. Equity73. 50 % 65. 50 % 54. 50 % Tax return on Assets= $ 971/ $ 11. 471= $ 834/ $ 11. 634= $ 603/ $ 11676= Net Income/Total Assets8. 50 % 7. 20 % 5. 20 % Operating net income ( $ 1. 618+ $ 586+ $ 430 ) / $ 21. 993= ( $ 1. 391+ $ 598+ $ 428 ) / $ 21. 595= ( $ 1. 005+ $ 610+ $ 418 ) / $ 19. 798= % of Revenues12. 00 % 11. 20 % 10. 30 % Liquid Current Ratio= $ 1553/ $ 1523= $ 1533/ $ 1463= $ 1333/ $ 1328= Curr Assets/Current Liabilities1. 021. 051. 00 Activity Asset Turnover $ 21. 993/ $ 11. 401= $ 21. 595/ $ 11634= $ 19. 798/11. 676= 1. 931. 861. 7 Coverage Timess Interest Earned ( $ 1618+ $ 586 ) / $ 586= ( $ 1391+ $ 598 ) / $ 598= ( $ 1. 005+ $ 610 ) = Income before revenue enhancements +I nterest/ Interest ( EBIT/Interest ) 3. 83. 332. 6 APPENDIX 2. GR HOTELS PERFORMANCE AGAINST INDUSTRY BENCHMARKS Average figure of RoomsAverage Occupancy RateAverage Daily Room Rate*Revenue per available Room** Mid-Scale Hotels14562 % $ 105 $ 65 GR Montreal28059 % $ 95 $ 56 Mid-Scale Hotels-Montreal15065 % $ 91 $ 59 Downtown Hotels18968 % $ 130 $ 88 GR Toronto29065 % $ 105 $ 68 Mid-Scale Hotels- Toronto15564 % $ 100 $ 64 Airport Hotels19570 % $ 110 $ 77 Upscale Hotels24073 % $ 160 $ 117 * Average day-to-day Room Rate=Accommodation Revenue per twenty-four hours divided by the entire figure of suites sold ** Revenue available per room= Average tenancy rate X Average day-to-day Room Rate APPENDIX 3. SWOT ANALYSIS INTERNAL ENVIRONMENT Strength: Good repute for Service. Skilled direction squad. Restaurants have providing experience. Good Hour policy. Excellent Location. Good relationships with a bank. Comparable tenancy rates. GR uses dependable contractors. Accurate budgeting. Option to buy land beside Montreal hotel. Central and on-line engagement. Stockholders willing to put extra million and common portions. Unqualified audits of Fiscal Statements. Recognized mid-scale trade name. Low staff turnover. Effective buying patterns. Good service- particular touches. Bank willing to refinance existing mortgages. Fiscal statement analysis shows betterment in profitableness and ability to run into duties. Failing: Net incomes have been paid out in dividends vs. reinvesting in GR hotels ; high labor cost. Gleeson/Rames do non acquire along ; Mayd bespeaking market value of the hotels recorded on the fiscal statements ; Rames moralss questionable ( free stay at the hotel ) Does non offer room service ; dry cleansing ; internet entree. Hotel public presentation studies include head office allotment ; internal control ( directing checks to former employee. no record of employment ) . Business travelers are looking for dry cleansing. room service and internet entree. EXTERNAL ENVIRONMENT Opportunities: Canadian touristry forecasted to turn 3-5 % . Points plan generate great concern ; demand for concern installations at airdrome hotels are turning ; concern travelers stays at upscale luxury hotels. Government touristry promotes stay at Canadian metropoliss. Montreal is a popular tourer and concern finish. Online engagement is turning in popularity. Leisure travellers have more dollars. Traveling to more upscale hotels. Demand turning for luxury hotels faster than mid-level. Menace: Competition from big trade names is turning. Government ordinances ( districting. nutrient. spirits. safety. revenue enhancements. Competitive industry in Canada. Numerous hotels near to Montreal GR hotel. Worldwide events can earnestly impact demand in hotel industry. ( SARs. terrorist onslaughts ) . APPENDIX 4. Net PRESENT VALUE ANALYSIS – BUILDING NEW CONFERENCE CENTRE ( 000s ) Occupancy rate Incremental hard currency Inflows from increased tenancy 65 % 70 % 65 % 70 % ( See computations below ) 583 1. 068 583 1. 068 Cash influx from the new conference Centre ( See computations below ) Revenues @ 5. 500 950 950 Grosss @ 7. 300 1. 850 1. 850 Entire Annual Cash Inflow 1. 533 2. 018 2. 433 2. 918 Income TaxTotal Annual Cash Inflow x 40 % 613 807 973 1. 167 After revenue enhancement Cash Inflows ( PMT ) 920 1. 211 1. 460 1. 751 Present Value of Annual Cash flows ( N=40 old ages. i/y=15 % ) 6. 110 8. 043 9. 697 11. 630 Capital Costss of Centre Construction ( See computations below ) ( 9. 000 ) ( 9. 000 ) ( 9. 000 ) ( 9. 000 ) CCA-tax shield Building ( See Calculations below ) 551 551 551 551 CCA-tax shield See computations below Furnishings and Equipment 321 321 321 321 Net PRESENT VALUE OF NEW CONFERENCE CENTRE ( 2. 018 ) ( 85 ) 1. 569 3. 501 INCREMENTAL REVENUE FROM INCREASED OCCUPANCY IN MONTREAL HOTEL ( 000s ) Occupancy Rate Average one-year revenue65 % 70 % Average day-to-day room rate x # of suites x ten Occupancy Rate x 365 Dayss $ 95x280x0. 65 ( 0. 70 ) x 365 Days 6. 311 6. 796 Less 2007 Room gross ( 5728 ) ( 5728 ) Incremental one-year gross 583 1. 068 INCREMENTAL REVENUE FROM THE CONFERENCE CENTRE ( 000s ) Annual gross before revenue enhancements 5. 5007. 300 Less variable costs at 50 % of gross ( 2750 ) ( 3. 650 ) for service bringing Head Office increased publicity ( 800 ) ( 800 ) Booking and disposal Fixed one-year operating costs ( 1. 000 ) ( 1. 000 ) Cash influx before taxes9501. 850 Financing NEEDED TO BUILD CONFERENCE CENTRE ( 000’ ) Cost of Land500 Constructing Construction7. 000 Furnishings and equipment1. 500 TOTAL FINANCING9000 CCA TAX SHIIELD: ( CxDxT/D+K ) ( 1+0. 5K ) / ( 1+K ) C Cost of the freshly acquired plus D Maximum CCA rate allowed T Corporate revenue enhancement rate K Discount Rate Building ( 7000x. 04X0. 4 ) Ten 1+0. 5*0. 15551 0. 04+0. 151+0. 15 Furnishings A ; ( 1500x. 2x. 4 ) Ten 1+0. 5*0. 15321 Equipment0. 2+0. 151+0. 15 APPENDIX 5 NET PRESENT VALUE — UPGRADE HOTELS MontrealToronto Entire Incremental one-year hard currency influxs 3. 984 4. 210 Income Tax ( 1. 594 ) ( 1. 684 ) After revenue enhancement hard currency influxs 2. 390 2. 526 PV of Annual Tax Flows ( 8 old ages. 15 % ) 10. 726 11. 337 One clip advertising Cost after revenue enhancement ( 150 ) ( 150 ) Lost Business during redevelopments ( 860 ) ( 1. 039 ) Capital Cost of Upgrades ( 2. 675 ) ( 2. 675 ) CCA Tax shield – Upgrades 517 517 CCA Tax shield Internet 20 20 CCA Tax shield Room Service 16 16 CCA Tax shield Business Centre 24