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equity_analysis_capm_and_wacc

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					     ALEXANDRIA HOTEL PROPERTY
     LBO Equity Analysis using CAPM
3    TRANSACTION SOURCES & USES                                                                                                                                              COST OF DEBT AND EQUITY CALCULATIONS
                                                                     Debt
                                                                                                               Expected         WACC          EBITDA                              COST OF BANK DEBT CALCULATION                                          Equity Risk Premiums (1926-2006)
4                                                                   Capacity      Amount        % Capital
                                                                                                                Return         (Pre-Tax)      Multiple                                     (Floaring Rate)                                                         (CAPM Model)
     Sources:                                                     (EBITDA x)

5
                                                                                                                                                                              3M-LIBOR               Loan
     Bank Loan                                                       2.5x         50,000,000         40.5%         5.364%           2.17%              2.5x Snr Leverage     Assumptions            Spread          Initial All -In                       Decile       Mkt Cap $MM      Risk Prem.
6    Mezzanine Note                                                               30,000,000         24.3%         9.000%           2.18%              1.5x                     0.30%               4.00%               4.30%                              1              524,351            7.03%
7     Total Debt                                                     4.0x         80,000,000         64.7%                          4.35%              4.0x Total Leverage
8    Equity                                                                       43,600,000         35.3%         20.00%           7.06%              2.2x                   COST OF MEZZANINE NOTE CALCULATION                                           2               10,344            8.05%
9     Total Sources                                                              123,600,000        100.0%                         11.41%              6.2x                                  9.00%                                                         3                4,144            8.47%
10                                                                                                                                                                                                                                                         4                2,177            8.75%
                                                                  1st Year's                      % of
                                                                                                                                                                                     COST OF EQUITY CALCULATION
11   Uses:                                                         EBITDA         Amount          Total                           WACD = 6.727%
                                                                                                                                                                                          E (re) = rf - β . Pe + e
                                                                   Multiple                       Uses                                                                                                                                                     5                 1,328           9.03%
12   Purchase Price (EV - including Debt)                            6.0x        120,000,000         97.1%                                                                   6-year Treasury Note [ rf ]                      3.00%                        6                   840           9.18%
13                                                                                                                                                                           Beta for Publicly Traded Hotel [ β ]             1.538x                       7                   538           9.58%
14   Transaction Fees & Expenses                                    3.0%           3,600,000          2.9%                                                                   Equity Premium [ Pe ]                           11.05%                        8                   333           9.91%
15    Total Uses                                                                 123,600,000        100.0%                                                                   Firm Specific Risk Premium [e]                     0.0%                       9                   193          10.43%
16                                                                                                                                                                           Cost of Equity                                  20.00%                        10                   85          11.05%
17
18   DEBT ASSUMPTIONS & RETURN ANALYSIS
19   Bank Loan Information                                        Debt IRR         Terms         2010            2011           2012           2013             2014              2015               2016               2017                              2018            2019            2020          2021
20   Amount Outstanding (End of Year)                                             50,000,000    47,000,000     42,000,000      37,000,000     31,000,000       24,000,000       15,000,000                   -                          -                         -            -                -             -
21   Schedule Principal Payments                                                  7 years        3,000,000      5,000,000       5,000,000      6,000,000        7,000,000        9,000,000           15,000,000                         -                         -            -                -             -
22   Interest Payment (Calc based on last Year's Outs)                             5.36%         2,150,000      2,256,000       2,226,000      2,331,000        1,953,000        1,512,000              945,000                         -                         -            -                -             -
23     Total Financing Payment                                       5.364%      (50,000,000)    5,150,000      7,256,000       7,226,000      8,331,000        8,953,000       10,512,000           15,945,000                         -                         -            -                -             -
24     LIBOR RATE                                                                      0.30%         0.30%          0.80%           1.30%          2.30%            2.30%            2.30%                2.30%                      2.30%                     2.30%        2.30%            2.30%         2.30%
25     LIBOR Rate Increase Assumptions                                                               0.00%          0.50%           0.50%          1.00%            0.00%            0.00%                0.00%                      0.00%                     0.00%        0.00%            0.00%         0.00%
26
27   Corporate Bond Information
28   Amount Outstanding                                                           30,000,000    30,000,000     30,000,000      30,000,000     30,000,000       30,000,000       30,000,000           30,000,000      30,000,000                         30,000,000            -
29   Schedule Principal Payments                                                  10 Years             -              -               -              -                -                -                    -               -                                  -       30,000,000
30   Interest Payment (Calc based on last Year's Outs)                             9.00%         2,700,000      2,700,000       2,700,000      2,700,000        2,700,000        2,700,000            2,700,000       2,700,000                          2,700,000      2,700,000                -             -
31     Total Financing Payment                                       9.000%      (30,000,000)    2,700,000      2,700,000       2,700,000      2,700,000        2,700,000        2,700,000            2,700,000       2,700,000                          2,700,000     32,700,000                -             -
32
33   Total Financing                                                                             7,850,000      9,956,000       9,926,000     11,031,000       11,653,000       13,212,000           18,645,000       2,700,000                          2,700,000     32,700,000                -             -
34   Total Debt Outstanding                                                                     77,000,000     72,000,000      67,000,000     61,000,000       54,000,000       45,000,000           30,000,000      30,000,000                         30,000,000            -                  -             -
35
36   CASH FLOW & EQUITY RETURN ANALYSIS
37   Company Projections                                          Operating      Entry Year       Year 1         Year 2         Year 3          Year 4          Year 5          Exit Year
38                                                                Assump.           2009           2010           2011           2012            2013            2014              2015              2016              2017                                2018           2019            2020           2021
39   Revenues                                                         5.00%    growth            40,000,000     42,000,000     44,100,000      46,305,000      48,620,250       51,051,263           53,603,826      56,284,017                          59,098,218     62,053,129      65,155,785     68,413,574
40   Cost of Revenues                                                 35.0%    % of Revenue     (14,000,000)   (14,700,000)   (15,435,000)    (16,206,750)    (17,017,088)     (17,867,942)         (18,761,339)    (19,699,406)                        (20,684,376)   (21,718,595)    (22,804,525)   (23,944,751)
41   Operating Costs                                                  15.0%    % of Revenue      (6,000,000)    (6,300,000)    (6,615,000)     (6,945,750)     (7,293,038)       (7,657,689)         (8,040,574)     (8,442,603)                         (8,864,733)    (9,307,969)     (9,773,368)   (10,262,036)
42    EBITDA                                                          50.0%                      20,000,000     21,000,000     22,050,000      23,152,500      24,310,125       25,525,631           26,801,913      28,142,008                          29,549,109     31,026,564      32,577,893     34,206,787
43   Less Depreciation                                                3.00%    % of Revenue      (1,200,000)    (1,260,000)    (1,323,000)     (1,389,150)     (1,458,608)       (1,531,538)         (1,608,115)     (1,688,521)                         (1,772,947)    (1,861,594)     (1,954,674)    (2,052,407)
44   Less Amortization of Fees                                            7    years               (514,286)      (514,286)      (514,286)       (514,286)       (514,286)         (514,286)
45   EBIT                                                                                        18,285,714     19,225,714     20,212,714      21,249,064      22,337,232       23,479,808           25,193,798      26,453,488                         27,776,162      29,164,970      30,623,219     32,154,380
46    Less Interest (Unlevered for DCF Analysis)                                                         -              -              -               -               -                -                   -               -                                  -               -               -              -
47   EBT                                                                                         18,285,714     19,225,714     20,212,714      21,249,064      22,337,232       23,479,808           25,193,798      26,453,488                         27,776,162      29,164,970      30,623,219     32,154,380
48    Less Taxes (adj out Interest Exp)                               36.0% % of EBT             (6,582,857)    (6,921,257)    (7,276,577)     (7,649,663)     (8,041,403)       (8,452,731)         (9,069,767)     (9,523,256)                        (9,999,418)    (10,499,389)    (11,024,359)   (11,575,577)
49    Plus Depreciation & Amortization                                                            1,714,286      1,774,286      1,837,286       1,903,436       1,972,893         2,045,824           1,608,115       1,688,521                          1,772,947       1,861,594       1,954,674      2,052,407
50    Less Working Capital                                            1.00% % of Revenue           (400,000)      (420,000)      (441,000)       (463,050)       (486,203)         (510,513)           (536,038)       (562,840)                          (590,982)       (620,531)       (651,558)      (684,136)
51    Less Capex                                                      3.00% % of Revenue         (1,200,000)    (1,260,000)    (1,323,000)     (1,389,150)     (1,458,608)       (1,531,538)         (1,608,115)     (1,688,521)                        (1,772,947)     (1,861,594)     (1,954,674)    (2,052,407)
52   Cash Flow Before Financing (CFBF)                                                           11,817,143     12,398,743     13,009,423      13,650,637      14,323,912       15,030,850           15,587,992      16,367,392                         17,185,762      18,045,050      18,947,302     19,894,667
53
54   Less Financing ( P + I )                                                                    (7,850,000)    (9,956,000)     (9,926,000)   (11,031,000)    (11,653,000)     (13,212,000)         (18,645,000)     (2,700,000)                        (2,700,000)    (32,700,000)            -             -
55   Equity Cash Flows                                                                            3,967,143      2,442,743       3,083,423      2,619,637       2,670,912        1,818,850           (3,057,008)     13,667,392                         14,485,762     (14,654,950)     18,947,302    19,894,667
56
57   Terminal Value
58    EBITDA Multiple Method (initial purchase multiple)           Growth           6.0x                                                                                       153,153,788
                                                                                                                                                                                                       Based on Next Year's CF
59    Perpetuity Method (using WACC + growth)                       3.50%         11.41%                                                                                       197,085,333
60   Average Terminal Value                                                                                                                                                    175,119,560                          SCENARIO TABLE
61   Debt Outstanding                                                                                                                                                           45,000,000                                                                                            EBITDA Purchase Multiples
62   Equity Value (TV - Debt)                                                                                                                                                  130,119,560                                                       IRR=    24.6%           5.5x             6.0x         6.5x           7.0x
63                                                                                                                                                                                                                                                       5.00%          31.78%           24.59%      19.61%          15.93%




                                                                                                                                                                                                                          Revenue Growth Rates
64   Equity Cash Flows                                                           (43,600,000)    3,967,143      2,442,743       3,083,423      2,619,637        2,670,912      131,938,410                                                               5.50%          32.69%           25.45%      20.42%          16.72%
65                                                                                                  x              x               x              x                x                x                                                                    6.00%          34.48%           27.14%      22.03%          18.26%
66                     $ 1 PV Table (Expected Equity Rate)                            20.00%     0.8333333      0.6944444       0.5787037      0.4822531        0.4018776       0.3348980                                                                6.50%          37.11%           29.61%      24.38%          20.52%
67                         PV Table (Expected Equity Rate)                        53,309,304     3,305,952      1,696,349       1,784,388      1,263,328        1,073,379       44,185,907                                                               7.00%          40.49%           32.80%      27.42%          23.43%
68                                                                                                                                                                                                                                                       7.50%          44.57%           36.64%      31.08%          26.94%
69                                          Initial Investment                   (43,600,000)                                 Equity Return Scenarios Given Different EBITDA Multiples                                                                   8.00%          49.29%           41.08%      35.31%          31.01%
70                                                       NPV=                      9,709,304                                     5.5x           6.0x            6.5x          7.0x                                                                       8.50%          54.60%           46.08%      40.08%          35.59%
71                                                                                                                                                                                                                                                       9.00%          60.47%           51.59%      45.33%          40.64%
72                                                         IRR=                    24.6%                                        31.8%          24.6%            19.6%            15.9%                                                                   9.50%          60.08%           52.03%      46.24%          41.83%

				
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