valuation of Hotels for investors
David Harper
2008
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EG i Books
A division of Reed Business information Estates Gazette 1 Procter Street, London wciv 6EU
Contents
Acknowledgements Dedication Table of Cases 1 Things to Consider When Buying a Hotel and How to Avoid Potential Pitfalls Introduction Initial considerations when first thinking about buying a hotel The various types of hotels that can be purchased Grading of hotels Finding the right property Affordability Finance Reviewing the existing business The importance of due diligence Summary Understanding the Trading Potential of the Hotel Introduction The inspection The local hotel market Analysis of the accounts The interview Brand names Independent analysis of the information Summary Other Enquiries Required to Assess the Value of the Hotel Introduction Title and tenure Statutory enquiries Statutory enforcers — operating licences Summary vii viii ix 1 1 1 4 10 10 11 12 12 12 13 15 15 16 22 27 37 41 41 41 43 43 43 45 46 49
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Valuation of Hotels for Investors
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Fundamental Principles Behind the Hotel Investment Market Introduction What is an investment? Who are the buyers and why are they buying? What types of hotel investments are available? Valuation methodology Summary The Purpose of the Valuation and Statutory Guidance Introduction Introduction to the Red Book Purposes for valuation Disposal/purchase — transaction advice on capital values Capital value — secured lending purposes Capital value — company accounts purposes Capital value and calculations of worth — internal company purposes/strategic advice Rental levels — transactional advice Annual valuation — for taxation purposes Valuations for depreciation in company accounts Summary Methodology for Capital Valuations Introduction 1. The comparison method 2. The investment method 3. The profits method 4. The residual method 5. The contractors method Hotel valuation methodology The profits method (and the investment method) The comparison method — comparable evidence and prices per bedroom Check methods, and determining factors in the purchase of hotels Valuations in exceptional circumstances Summary Yield Selection and Valuation Multipliers Introduction Vacant possession properties Yield selection for investments The key terms for each type of investment Other methodologies for assessing the appropriate yield Problems with comparable evidence Summary The Treatment of Capital Expenditure What is capital expenditure?
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Contents
Timing of capital expenditure Summary 9 Methodology for Assessing Market Rent Introduction Comparable method Profits method Rental levels as a percentage of total investment Rents per meter or square foot Summary
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10 Methodology for Calculating Rateable Values in the UK Introduction What are rates? Assessing the taxation liability of a hotel Transitional relief Method of assessing rateable value Summary 11 Site Values and How They are Determined Introduction Basic methodology Summary 12 Valuation with Special Assumptions for Secured Lending Purposes Introduction Summary 13 IFRS 15 Apportionments Introduction What is depreciation? Summary 14 Concluding Summary Glossary Index