Real Estate Practicum Project V - … Development – Rio de Janeiro Abid Butt – Spring 2012 Page 3 Notice This report, drawings and analyses are intended for educational purposes

!"#$%&'$($%")*$+#&,-"&.$&/0+$-1"2&3104-%&

!!

!!!!!

!!!!!!!

,$0%&56#0#$&7108#-89*&71")"60%&:;-.&39##&<&=)1-+>&?@A?&

71"B$66"1&C6008&D$>;"%9>;$&71"B$66"1&E"%$*0+&,$8#"1&

& &

Hotel Development – Rio de Janeiro

Abid Butt – Spring 2012 Page 2

&&&E"+#$+#6&

&&&&

1. Executive Summary Page 4 2. Development Program Page 6 3. Site and Property Description Page 12 4. Market Analysis Page 19 5. Development Issues / Strategy Page 37 6. Project Management Plan Page 39 7. Project Schedule Page 40 8. Development & Construction Costs

Page 42 9. Financial Analysis Page 43 10. Conclusion and Recommendations

Page 53 11. Exhibits & References Page 57

&&& &



Notice

This report, drawings and analyses are intended for educational purposes only in conjunction with the author’s practicum concluding the Master of Science in Real Estate program of the Johns Hopkins University. While the studied project is real, non-public information has been somewhat altered to preserve propriety. The critique, results and recommendations are the sole opinions of the author. As such nothing herein should be relied upon or communicated beyond the auspices of this specific practicum.



Executive Summary &&&&&&&&&&&&&&&&&&&&&&&&&&&&

Brazil is experiencing a high growth and improved competitive rankings. It represents half of the Latin America’s economy which is larger than India and Russia. Brazil weathered the most recent financial crisis far better than other countries. Consumers (200 million) with increased purchasing power present a great opportunity and investors and businesses are anxious to invest in this market. Though forecasts vary, but the International Monetary fund has forecasted that Brazil will be the 5th largest economy by 2015. Rio de Janeiro, the capital city of the State of Rio de Janeiro is the second largest city in Brazil and third largest metropolitan area in South America. The combination of sea and mountains makes Rio one of the most beautiful cities in the world. In addition to the world renowned beaches, the city is home to several large corporations and presents a great combination of business and leisure activities. This city is aware of the importance of tourism to the economy. Events like Carnaval and New Year´s Eve attract multitudes of visitors each year. There is very little marketing of the city in international markets and the number of tourists is way below the city potential, when compared to other destinations. Some measures have been adopted to stimulate the industry, but the sector still relies much on private initiatives. Rio de Janeiro will host the first-ever Olympic Games in South America during August- September 2016. Twelve Brazilian cities will also host the 2014 World Cup Games. These two events will generate numerous trade and investment opportunities in several areas. This project is to evaluate a limited service hotel development, to be built in an area of 71,795 square feet (1.65 acres). The facilities provided include 255 rooms, laundry, parking, and a business center. The hotel also will have all the space necessary to support the operation.

&The official location of the land to be developed is on Avenida Ambassador Abelardo Bueno, Parish, Jacarepagua, Rio de Janeiro.&&



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

This analysis indicates a good level of market activity in Barra da Tijuca and good growth prospects. Given the outlook for the market, it is expected that the proposed project will reach an optimal level of operational performance. In addition, the hotel's cash flow will certainly be benefited by the hotel tax (property tax, and ITBI ISS) exemptions. By analyzing the operating performance of the hotel, planned deployment costs, and financing conditions of the enterprise, my view is that the hotel is viable. It is worth mentioning that the projections in this report took into account a strong demand due to the induced growth of Barra da Tijuca and its business areas. Finally, despite major efforts to identify new hotel supply in the future, there is the risk that new projects not included in this report will be implemented. However, the information currently available suggests that this risk is low. The proposed hotel will be operated by Accor under the Ibis brand. Accor is an international hotel operator in the market with a very strong reputation both nationally and internationally.

&&&&&&&&&&&&&&&



Development Program &

After conducting the preliminary highest and best Use analysis, it has been concluded that a select service hotel with a midscale hotel and an office space is the best option to maximize returns on investment at the selected site. According to the zoning restrictions, the proposed development is able to achieve the density necessary to make the use feasible. Through the following practicum report, a detailed market and feasibility study will be performed to test the above conclusion and ultimately make a decision whether or not to proceed with the proposed development.

!" #$%&'(')*+ ,-. //012303334" Development Cost 11053303336" 7'*(+ 89 68:$ ;! < 4= />?@" A%BC*$ 6%D E%$* F?G" A%BC*$ H%(I* ;! < @= /J201K20333

4%LC 8M $N* G9O*(8D 6%(LI(%$'89: ;EP=



&Hotel Project Outline&&&&&&&&&&&&&&&&&&&&&&&&&&

This project proposes to evaluate the development of a select service hotel with 255 rooms. The site is zoned for two hotels and an office building. The second hotel of midscale positioning will be built during the second phase of development and will share some of the facilities in the common area. The total number of rooms will be approximately 400 with 255 rooms in the select service model (Hotel I) and the remaining 145 rooms in the midscale hotel (Hotel II).

The buildings will be designed with three floors and maximize the density, positioning and visibility for the hotels.

GQD*L$*+ -D*9'9R @%$* S%9I%BT K3/JUB8D*B$T VTD* @*O*(8DW*9$ 8M % ('W'$*+ :*BO'L* N8$*(4I'($ !B*% >>0>52 #X M$ ;/"12 !LB*:=,IW&*B 8M E88W: K22Y88+ Z 4*O*B%R* Y%L'('$'*: E*:$%IB%9$ Z [8&&T 4%B!++'$'89%( #*BO'L*: [%I9+BT0 U%BC'9R %9+ 4I:'9*:: 6*9$*BU%BC'9R /\J #D%L*:

]8$*( UB8^*L$ -I$('9*



&&&&&&&&&&&&&



Description of Proposed Development &&&&&&&&&&&&&&&&&

The quality of the facilities has a direct influence on the hotel’s competitiveness, potential occupancy and daily average rate. The design and functionality also affects the operational efficiency and profitability of the hotel as a whole. The proposed hotel will be located within a business complex that will include a second hotel, attached to the proposed development, as well as a small office building. The proposed project is a limited service hotel with 255 rooms carrying Accor’s Ibis brand. There will be a separate entrance to the hotels and the office building, but the two hotels will eventually share some facilities. The architectural design will generate a positive perception and curb appeal for the project. Guest elevators near the entrance will be provided for vertical movement across the main structure of the building and in functional areas such as kitchens and other support services.



&&&&&&&&&&&&&

The lobby will be on the ground floor of the building. Also, located in the hotel's public are reception, restaurant and bar. It is important that the remaining spaces are designed to offer a sense of scale and integration with the outside. The hotel restaurant will be located on the ground floor and must meet the demands of the guests and the office tenants nearby. The restaurant will serve breakfast, lunch and dinner.

Lobby Illustration The hotel will offer standard rooms distributed on three floors to meet the requirements of the travelers. The rooms follow the pattern of the Ibis brand and will be between 172 and 193 ft!,



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

plus amenities like LCD TV, electronic safe, desk, internet access, air conditioning, and soundproof windows. The decor should follow current standards of the Ibis brand. It is important that the project create a decorative competitive advantage of the hotel, but the functionality and resilience of furniture and other equipment must be taken into account. Bathrooms should follow a standard configuration, with shower, granite or marble sink, and toilet. The finish should focus on functionality and hygiene. It is also important that the bathroom is large enough, allowing easy opening of doors and passageways. Special attention should be given to ventilation, to avoid moisture damage to the rooms and/or the bathrooms. The interior corridors should have width, height and lighting sufficient to provide a pleasant feeling to the movement of people. It also must be sized for the service operations, with adequate space for movement and accommodation of cleaning carts. Functional and support areas required for the proper functioning of a hotel project are; laundry, administrative offices, kitchen, staff locker rooms and storage areas. These spaces must have configuration and size suitable for efficient hotel operations. The construction and equipment will be installed in accordance with the standards accepted by Accor. The company will actively participate in the project definition and implementation to ensure that its quality requirements are met.

Typical Guestroom



Site & Property Description &&&&&&&&&&&&&&&&&&&&&&&&&&&&

The proposed project will be in the suburb of Barra da Tijuca. During the 1980s, this area experienced a population explosion, with virtually all the land along its boulevards occupied by large residential condominiums, parks, supermarkets, shopping malls, schools, hospitals and large office buildings. This area will host most of the venues during the 2016 Olympics including the Olympic Village.



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

The site is along the South side of Abelardo Bueno avenue. This avenue connects two major arteries in the Barra; Avenue Ayrton Senna – Pista Central to the East and Avenue Salvador Allende to the West. This site is in very close proximity to the Rio Centro the largest Convention Center in South America. Also, the future Olympic village is just a few miles away.



&&&&&&&&&&&&&

&&&&&&&&&&&&&&&&

East View

West View

North View



&&&&&&

&&&&

&&&&&&&&&

South View

The site is approximately 1.65 acres. To the East of the proposed construction site a second hotel as well as an office building is being considered.

&



Accessibility

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

Rio de Janeiro is linked to other important cities of the country by an extensive road network. The most important road is BR- 116, Presidente Dutra, that connects this city to Sao Paulo and from there to the south and the Mercosur countries. The BR-101, coast, passing through Rio de Janeiro and extends from the Rio Grande do Sul to Rio Grande do Norte. There is also the BR-40, which leads to Belo Horizonte and Brasilia, and Rio-Bahia, continuation of BR-116. The regional market is served by a variety of other local roads.

&

&Map of Regional Access Routes&

&From the federal highway, access to Barra da Tijuca is via local roads clearly marked. The proposed site can be easily accessed by one of the main neighborhood avenues that have connection with other major arteries such as Avenida Ayrton Senna and the Avenue of the Americas. Currently, access to Barra da Tijuca is made through the tunnels under the hills. The travel time to the international airport is 30 to 40 minutes. The site is located in the main axis of development of Barra da Tijuca. The terrain is flat and there are currently no buildings or natural obstacles that impede the visibility. It is expected that the proposed hotel will have adequate visibility from the road for a project of this magnitude.

&



Airport Access

&&&&&& Surrounding areas

&&&&&&&&&&&&&&&&&&&&&&&

This area is served by two major airports: Antonio Carlos Jobim International Airport - Galleon, on Governor's Island, and the Santos Dumont airport, in the city center, with domestic flights connecting Rio to several Brazilian cities, including Sao Paulo, Belo Horizonte and Brasilia. The 1.5 miles away from the project is Jacarepagua Airport, which currently receives small aircraft and helicopters. The international airport is approximately 15 miles from, the site and the trip can take between 35 and 50 minutes, depending on the time of travel and traffic volume.

&Barra da Tijuca is generally bounded by Avenue Sernambetiba, Abelardo Bueno, Salvador Alende, Souza Filho. Its main axes of movement are Sernambetiba Avenue, Avenue of the Americas and Avenida Ayrton Sena. It is a new neighborhood, with high human development index and is characterized by urbanization planned by the architect Lucio Costa, with wide avenues and large open spaces. Due to the distance from the center of Rio and the South Zone (intensified by heavy traffic), the Barra has developed a momentum of its own, almost independent of the rest of the city. It is currently the region with the greatest potential for development in Rio de Janeiro, which is why it has attracted a large number of businesses and residents and presented a significant growth over recent years.

&



&&&&&& Site Survey

&&&

The avenue Ambassador Abelardo Bueno has some residential condominiums, the hospital Sara, HSBC Arena, an Olympic swimming center and some shopping centers. This area still has large pieces of empty land, many of which are intended for residential deployment, business centers / commercial areas, and a large shopping mall in front of the proposed site (Shopping Metropolitan). The Abelardo Bueno also allows easy access the following plants: Rio Centro, Projac, Olympic village and other facilities used in the Pan American Games.

Issues related to size, topography, accessibility, visibility and availability of basic services of the land have been reviewed. In general, the site is suitable for hotel use. Soil Conditions A review of soil and geology survey reports of the site showed no extraordinary conditions in soil. No soil contamination, presence of hazardous, toxic or harmful materials has been found. Flooding Areas The site is not located near or in any flood zones. Zoning The region's zoning regulations permit the deployment of a hotel project. All relevant permits for construction and operation of a hotel will be obtained.



Market Analysis Economic Analysis of the city of Rio de Janeiro

The Rio de Janeiro is located in southeastern Brazil, with an area of approximately 16.9 square mile distributed in ninety two municipalities. The state, in addition to being the 2nd most important economic center of the country, has a coastline of 40 miles long, which attracts numerous visitors. With 6.18 million inhabitants, this important Brazilian economic center presents the second highest Gross Domestic Product (GDP) of the country according to IBGE (Brazilian Institute of Geography and Statistics) figures. The tourism sector is the foremost engine of the city’s economy; IBGE’s statistics point out that this sector represented approximately 67% of Rio´s GDP in 2007. In this scenario, the tourism industry had an outstanding performance: about 2.5 million tourists visited the city over the summer of 2007, having an average disbursement of more than US$1.8 billion, as estimated by Riotur (Rio de Janeiro’s Government Agency serving as local tourism authority responsible to promote the city’s tourism). Its figures show that in 2007 Rio de Janeiro received almost 6 million tourists. The average disbursement of a foreign tourist at this time was US$90 per day, while Brazilian tourists spent about US$56 per day. The state of Rio de Janeiro contributes approximately 11% of the national GDP (IBGE/2007) to the national economy. The service sector represents 62.1% of the economic activities of the state, with other notable industries being telecommunications, information technology, real estate and tourism. The industrial production, with 37.5% representation of the state's GDP, is also very important to the region, especially in the sectors of metallurgy, pharmaceutical, petrochemical, mining and petroleum refining. The largest companies in the oil sector in Brazil are based in Rio de Janeiro, such as Petrobras, Shell, Esso and Ipiranga. Agriculture and farming represents only 0.4% of the state’s GDP, with the production of vegetables in the highlands and the northern state. For tourism, the capital of Rio de Janeiro is the main destination of foreign tourists traveling to Brazil for pleasure, since it offers a diversity of attractions, cultural and natural history, besides being the scene of major festivals and events throughout the year.



The population of the city of Rio de Janeiro, in the last two decades, has been growing at a slower rate (0.68%) compared to the national average (1.49%). The growth of local GDP (3.4%) also did not follow the level of national growth (5.3%) over the past five years. Despite this history, there is strong potential for accelerated economic growth in the city for the next few years. First, the recent discoveries of oil wells, of the presalt layer in the Campos Basin, contribute significantly to the development of the economy of Rio de Janeiro. Also, there has been a boom in construction industry, with the creation of numerous new residential and commercial areas in Rio, during the last five years. This sector has grown as a result of the increase in average income of the population and resulting increase in consumption. The new hotel demand generators are concentrated in Barra da Tijuca, following the robust pace of economic growth. The immediate surrounding areas of the proposed hotel will continue significant growth with events like the World Cup in 2014 and the 2016 Olympic Games. This area will be the base for major sporting complexes and the Olympic Village which will also generate additional hotel demand. Water and mountains constitute the bases of the exuberant geography of Rio de Janeiro. Besides the famous Brazilian beaches, such as Copacabana and Ipanema, the main touristic sights of Rio are Pão de Açucar (The Sugar Loaf Hill), Corcovado - Cristo Redentor (the Christ Redeemer) and Maracanã (the largest Soccer Stadium in the world.



Rio Hospitality Market History:

&&&&&&&&&&&&&&&&&&&&&&&&&&&

Even though Rio de Janeiro is well known by its tourist attractions, the city has consolidated its position as Brazil’s second most important economic center (after São Paulo). Brazilian Hotel Industry Association (ABIH/RJ) reports that the business travel was Rio’s main segment in 2008, representing more than 55% of the travel activity, while the participation of the leisure segment was 31.4%.

&Rio has one airport operating domestic flights (Santos-Dumont) and one International Airport (Galeão). From 2005 to 2009, the passenger flow of Rio´s International Airport has increased by an average of 5.58% per year, receiving more than 10.7 million passengers in 2009 (from January to November).

The growth of national passenger flow during the year of 2009 can also be attributed to the increase of the purchasing power of “Brazilian C-Class” that has formed a new mass of consumers, now able to afford tourist products. Several international and national events, such as fairs, shows, conventions, congresses and exhibitions hosted by the city, happen in Rio Centro, Latin America’s largest convention center, with an available area of over 570,000 m!, according to Rio Convention & Visitors Bureau.

&



Hotel Market Overview:

&&&

&&&&&&&&&&&&&&&&&&&&&

The hotels located in the city of Rio de Janeiro have been developed over the past 80 years, primarily in the central region, then in the Flamengo and Botafogo area, later in the South (Copacabana and Ipanema), and now, in Barra Tijuca, the main area of current expansion. Hotels in Barra were slowly emerging in the 1980's and expanded rapidly after 2000, fueled by the growth of the region. About 11% of the total supply of city focuses on the Barra da Tijuca, with a predominance of hotels in the midscale segment. This is as a result of businesses established due to the existence of several corporate headquarters in the area and its proximity to the Rio Centro. Currently, economic indicators of the hotel developments have a good level of performance. According to the Guia 4 Rodas (2010 edition), the state of Rio de Janeiro has the second highest number of hotels, most of which are targeted towards the high numbers of leisure tourists who visit Rio de Janeiro for its nearby beaches. However, there are also many hotels located in the state’s more mountainous regions. Rio has 107 hotels of five different categories (from one to five stars) with a total of 13,526 rooms.

Though, Copacabana and Ipanema (South zone) are still important destinations that host over 50% of Rio’s hotel supply, Rio de Janeiro’s hotel room supply has been following the development of the city. The city is currently growing westwards, where the area of Barra da Tijuca has been experiencing an expressive development, especially when it comes to new high standard residential and commercial zones.



&&&&&&&&&&&&&&& Hotel Industry Performance Analysis:

&&&&&&&&&&&&

Various national and international hotel brands have presence in Rio de Janeiro, such as Sofitel and Ibis (Accor Hospitality), JW Marriott (Marriott), Sheraton (Starwood Hotels & Resorts Worldwide), InterContinental (IHG – InterContinental Hotels Group), Caesar Park (Posadas), Golden Tulip, Pestana (Pestana Hotels & Resorts), Fasano, Copacabana Palace (Orient-Express), Windsor (Windsor Hotéis), Transamérica (Hotéis Transamérica), among others. The chart bellow illustrates the evolution of the occupancy rate and the average daily rate (ADR) of Rio de Janeiro market between 2005 and 2009. During this period, the ADR has increased by an average of 12.6% per year and the Occupancy Rate has presented an average annual growth rate of 3.87%.



&&&&&&& Seasonality and Patterns of Demand &&&&National Hospitality and Tourism Outlook:

&&&&&&&&&&&&

From 2005 to 2009, Rio de Janeiro´s RevPar (Revenue per Available Room) has risen by an average of 16.5% per year.

&&Due to the strong presence of the three main market segments (business, leisure and conventions), Rio does not experience seasonality, with strong hotel demand throughout the year. The busiest periods tend to be those with strong presence of three segments (such as the second half, which covers the northern summer), and holidays like New Year, Carnival and other events. Forecast Investments: As one of the host cities of the 2014 World Cup and as the city that will also host the 2016 Olympic Games, Rio de Janeiro will receive a wide range of infrastructure investments. According to the government of Rio de Janeiro State, until 2016, the amount designated to improve the city’s infrastructure will reach approximately US$13.1 billion. These resources will come from public and private initiatives. Among the mentioned investments those which stand out are:



Future Hospitality Forecast:

&&&&&&&&&&

&&&&&&&&&

Regarding the investments forecasted for Rio’s hotel industry, it is important to bring up the information bellow:

Hotel Nacional, with 510 rooms, located in São Conrado neighborhood, stopped operating in 1995 and was recently sold. This hotel will probably restart operations by 2013 after its complete refurbishment;

Former Le Méridien hotel, located in Copacabana with 540 rooms, has recently started operations after a total refurbishment, as part of the Windsor Hotel Group.

The famous and historic Hotel Gloria is expected to reopen after a complete refurbishment at the end of 2012. This 231 room hotel will compete with Copacabana Palace in the luxury segment. The hotel belongs to Brazilian billionaire, Eike Batista (oil & gas sector);

São Francisco Hotel has reopened its 207 room property located in Downtown Rio;

Comfort Suites Copacabana, a 120 room hotel, is expected to open in mid 2012.

A new hotel is under construction at Barra da Tijuca, and it will be managed by Accor and branded as Novotel. It’s a 186 room hotel and its opening is expected for mid in 2012.

Brazil is ranked 5th in the Americas and 45th overall in the 2009 World Travel and Tourism Index. The Travel & Tourism Competitiveness Index (TTCI) has been developed within the context of the World Economic Forum’s Industry Partnership Program for the Aviation, Travel and Tourism sector. The TTCI aims to measure the factors and policies that make it attractive to develop the travel & tourism sector in different countries. Brazil has seen an improvement in ranking by four places since 2008. The country is ranked 2nd out of all countries for its natural resources and 14th for its cultural resources, with many world heritage sites, and the most diverse fauna in the world. The increased focus on environmental sustainability has achieved 33rd place for Brazil. However, the ground transport network remains underdeveloped, with the quality of roads, ports, and railroads ranked 110th, 123rd, and 86th, respectively. Safety and security continues to be of serious concern, ranked 130th overall, just behind South Africa and Russia. The country also suffers greatly from a lack of price competitiveness (91st), attributable in part to high ticket taxes and airport charges in



&&&&&&& Changes in Supply:

&&&&&&&&&&&&&&&&&&&

the country, as well as high prices and high taxation. Further, the overall policy environment is not particularly conducive to the development of the sector (ranked 95th), with discouraging rules on FDI and as well as time required for starting a new business.

National Supply Outlook: Brazil has increasingly attracted the attention of investors from all over the world after its economy proved resilient to the 2008/2009 global economic crisis and recorded positive growth in 2010. This growth has acted as a major magnet to international tourists, which led to positive growth in arrivals in 2010 and more dynamic domestic tourism. This is only likely to increase as the country prepares to host global sporting events such as the 2014 FIFA World Cup and the 2016 Olympic Games. Within the real estate space, Brazil’s lodging sector particularly interests international investors. According to a recent Ernst & Young survey, about half of the respondents who have committed funds to Brazil say their primary focus is on hotels because domestic demand for rooms is increasing across Brazil and across many lodging segments. For investors, it is an open-ended question whether to invest in developing new hotels as opposed to existing ones. Considering that Brazil will host the FIFA World Cup in 2014 and the Summer Olympic Games in 2016, the hotel industry faces a shortage of 62,000 rooms, according to Ernst & Young research. As a result the investors might take development as a preferred path. But, as with any overseas transaction, you need to have a deep understanding of the market and be attuned to the risks. Ernst & Young’s survey indicates that investors in Brazil’s hotel industry should expect returns of about 20% to 25%.



&&Economic Outlook:

&&&&&&&&&&&&&&&

&

As a result of rising personal incomes, consumers have more disposable income to spend on leisure travel and lodging. Furthermore, Brazil’s vibrant economy is driving business growth, and companies are increasing travel budgets. The strong increase in demand, along with the Real rising against the US dollar, has restored the pricing power of hotel operators. Revenue per available room (RevPar), which decreased 8.4% in 2009 to US$59 (a smaller decline than in the US market, which decreased 16.7% in 2009), increased 34.5% through September 2010 and is poised to maintain its robust performance through year-end. Hotels in Brazil increased in value by 9% in 2010. This stronger growth compared to 2009 was largely derived from a booming local economy and the ongoing rise of Brazil’s middle class. Overall, a more dynamic domestic travel and tourism industry, coupled with growing inbound traffic, helped boost the occupancy rates in 2010. Such strong demand meant that hotels were able to avoid discounting and, instead, adopted higher daily rates. Majority of the investors (80%) surveyed expect hotel values to continue to increase in Latin America, specifically Brazil.

Current value perception of hotels in Brazil



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

To help, Brazil’s Ministry of Tourism and the Brazilian Development Bank (BNDES), is providing a US$581m line of credit for property upgrades and new construction, through the Pro-Copa Turismo program. The Brazilian economy is expected to have experienced real growth of 4% in 2011. This is lower than the 5.5% real growth witnessed in 2010. Commodity exporting will record positive real growth in 2011 thanks to a robust demand for commodities, favorable prices and easy access to international finance. Strong commodity demand in emerging countries in Asia, particularly China, will be especially important for Brazil. The relatively strong performance of the Brazilian economy is producing a surge in capital into the country. An increase in long-term capital inflows is certainly desirable, but policy makers must guard against the dangers of hyperinflation, unjustified currency appreciation and the heightened risk of a boom-and-bust economic cycle. Easy access to finance is set to boost travel and tourism activity in Brazil, particularly as middle class consumers are now more economically active and spending ever larger amounts of their discretionary income on travel. A stronger Brazilian economy is expected to have a positive impact on tourism expenditure, particularly as favorable exchange rates boost outbound travel and the rising middle class drives domestic tourism over the next few years. Bright spots on the horizon are the 2014 FIFA World Cup and the 2016 Olympic Games, both of which will foster growth in travel and tourism in Brazil, over the forecast period. The goal for Brazilian tourism authorities is to register an increase of 500,000 inbound tourists during the 2014 World Cup and 15% increase during the Olympic Games. Across lodging types, investors are equally interested in developing leisure-oriented resorts and urban business hotels. Limitations facing investors are:

Compared with other major lodging markets, Brazil’s ADR remains low despite recent increases.

There’s a lack of suitable land for development in the largest cities and prime secondary markets.



Hotel Demand Indicators:

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

Tourism places 3rd in Brazil’s overall exports, behind soy and iron ore. Brazil is increasingly committed to improving its tourism industry. In particular, the country’s infrastructure, which is way behind by international standards, is being upgraded as a priority. The greatest impetus for development is Brazil’s hosting of both the 2014 FIFA World Cup and the 2016 Olympic Games. The World Tourism Organization (UNWTO) has ranked Brazil 95th out of 130 countries for ground transport infrastructure. With the positive outlook for Rio de Janeiro and the holding of the World Cup and the Olympics, there should be a lot of new development projects. In addition, over the past two years, several international hotel operators intensified their efforts to expand in Brazil and are certainly interested in Rio de Janeiro. Due to the availability of land, Barra da Tijuca is the region with the greatest potential for increased supply in Rio de Janeiro. Although there are several factors that could lead to the supply growth, there are several constraints that may limit significant growth; not all available sites are ideal for hotel development, and the high land prices make the hotel development unattractive. Currently, there are only two projects in Barra da Tijuca; the Novotel Barra and the Hyatt Hotel, with some certainty of completion and neither hotel will be a direct competitor to the proposed project. The main project under consideration with strong potential to compete is the other hotel on the same site as the proposed project. As the first South American city to host the Olympic Games and famous for its natural and beautiful landscapes, the Marvelous City, as Brazilians call it, is sure to make the 2016 games sensational. Tourists will be afforded the inaugural chance to enjoy the games with the beauty of Rio serving as the background and offering innumerable tourist opportunities. Olympic Games following the World Cup in 2014 mean a huge infrastructure legacy with direct positive impact to tourism. It also creates a tremendous advertisement campaign that will change the image of Brazil for years to come. Tourist arrivals are forecasted at a steady increase. By 2015, air travel is expected to reach almost 7.0m, road travel to 2.6m, and sea arrivals to grow to 283,000 visitors.



Travel Policy:

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

Brazil requires passports to be carried by the vast majority of inbound arrivals. The exceptions are nationals from the other Mercosur member countries—Argentina, Uruguay and Paraguay—as well as those from Mercosur associate members Chile, Bolivia, Peru, Venezuela and Colombia. All arrivals from these countries can enter Brazil with only their national identity cards. Brazil bases its immigration policy on reciprocity, requiring visas from citizens of countries which also require them from Brazilians. Examples of this are the US, Canada, many European countries and Mexico. Future legislation is expected to favor higher tourism flow, inbound and outbound, as travel and tourism still represents enormous growth potential in value. As a result of this visa requirement and proximity, the largest numbers of inbound visitors to Brazil are from other countries in Latin America, especially Argentina. In 2012, about 3.2m tourists are forecast to come from other countries in the region. European visitor numbers are expected to supply more than 2.7m in 2012 – with the largest number of European tourists coming from Portugal, Italy, Germany, France and Spain. The gap between arrivals from Latin America and Europe – standing at 43% and 36% of arrivals respectively – will close over the next few years. The US represents about 14% of tourist arrivals, a proportion that has been steady over the last 10 years, and is expected to remain at approximately the same level through to 2015.

In 2001, tourist expenditure in Brazil totaled only US$1.8m, but in 2011 this figure is estimated at US$6.7m, reflecting the substantial growth in the industry’s size and importance.

With the FIFA World Cup due to be held in Brazil in 2014 and the Summer Olympics coming to Rio in 2016, Brazil has recently been one of the most aggressive countries in opening up its skies and deregulating aviation throughout the Americas. This is largely a response to the fact that Brazil is lagging behind growth in air arrivals, in comparison with the regional average. Air arrivals in Latin America increased by 12% during the past few years, whereas air arrivals in Brazil declined by 4% over the course of the same period. While other factors such as the collapse of former national carrier, Varig, in 2006 contributed to this slump in air arrivals, the tighter regulation of international air travel also held growth back. In 2010, Brazil began to aggressively sign open skies agreements. The civil aviation authority signed twelve new agreements at the International



&&&&Key Demand Generators

&&&&&&&

&

&&&&&&&&&&&&&

Civil Aviation Organization (ICAO) meeting in Jamaica in June 2010 in order to expand airlift, especially with Middle Easters and Asia-Pacific countries. Brazil also announced that it was working with the European Commission to develop an open skies agreement with the EU in 2010. The following describes the main generators of demand for this market: Leisure tourism is an important generator of demand for Rio de Janeiro. Supported by the natural beauty, the historical and cultural attractions, such as museums, palaces, churches, theaters, and the nightlife attract tourists from all over the world. There is an extensive supply of tourist attractions to include the internationally known symbols, such as Corcovado and Christ the Redeemer, Sugar Loaf and the Botanical Garden and Carnival. Despite its wide range of shopping, entertainment and beautiful beaches, Barra da Tijuca, is not part of the main tourist routes of the city. Nevertheless, the leisure facilities of the Barra and its landscape generate a small but significant demand for lodging in the region. The private companies established in the region represent the most important sources of demand for the Barra area. The total area of offices of this region and the level of occupancy of retail space is directly related to the demand for lodging in the business segment, as companies with offices in the area attract business travelers. The existence of two major convention spaces in the city of Rio de Janeiro - Rio Center and Convention Center Sul América (River New City), and large convention centers in some hotels (such as Windsor Barra, Sheraton, InterContinental and Sofitel) represents a strong role of conventions in generating demand for lodging. The Rio Convention Center is an important generator of demand due to the proximity from the proposed hotel (4.5 miles). Opened in 1977, the convention center occupies a total area of 6.1m sq ft 570,000 square meters), distributed over two outdoor areas, four exhibition halls and auditoriums with mezzanines and a pavilion dedicated to conferences and



&&&&&&&&&&&&&&&&&&&&&&& Demand Factors:

&

conventions with modular spaces to suit different types of events. Also available for maximum flexibility are; sixteen modular meeting rooms with a capacity for 270 people, VIP lounge, industrial kitchen, medical stations, parking for over 7000 vehicles, a helipad, and a large tropical garden with lake. The Rio Centro has been the scene of important events of international scale, such as the Pan American Games Rio 2007, the United Nations Conference for Environment and Development, and the 17th World Petroleum Congress Rio - Oil & Gas.

&&In general, the local accommodation market is heavily based on tourism and business events and has a secondary flow of tourists from the leisure segment. With the growth of national and local economy, we expect great economic activity in Barra da Tijuca, which should generate significant demand for lodging. Furthermore, the hosting of the 2014 World Cup and 2016 Olympic Games should generate more investments and advertising, contributing to the vitality of the hotel market in the region. Various factors contributing to the lodging demand are:

Leave entitlement varies in Brazil from state to state and city to city. Each city and each state have their own public holidays, normally as a commemoration of the city’s founding or in honor of the city’s Patron Saint or some other important local historical event.

Brazilians in full-time employment normally have one



&&&&&&&&&&&&&&&&&&&&&&&&&&&&

month of paid holiday per year in addition to public holidays.

Many Brazilian companies cease operations between Christmas and New Year and give these days off to their employees. This can be taken from their entitlement, or if the employee has already taken their holiday, the company will then give the employee an unpaid holiday.

Another common practice in Brazilian companies occurs when a public holiday falls on a Tuesday or Thursday. The companies will often make a bridge and let the employee stay at home on the Monday or Friday immediately preceding or following the holiday. In Brazil a holiday always falls on the day it is supposed to, which is different from in some other countries, whereby many public holidays which fall on weekends are shifted to the nearest Monday.

The number of holidays taken by Brazilian workers continued to rise in 2010. Overall, the economic crisis did not stop Brazilians from travelling and enjoying their holidays after working for a full year, which is the legal requirement in Brazil to be entitled to holidays.

In 2010, the proportion of holidays taken by females continued to escalate as more women joined the workforce and started leading more independent lifestyles. Overall, women are expected to become a major economic force in Brazil as their economic independence drives consumption of travel and tourism products. According to CVC, a leading travel retailer in Brazil, women are the key decision makers during the purchasing process, accounting for the bulk of purchases in its stores.

Brazil is going through an important structural change which is impacting consumer behavior significantly and the overall consumption of travel and tourism products and services. The prevalence of youngsters in its population pyramid and the rapid growth seen in the older population are clear drivers of future growth.

It is forecast that the number of Brazilians over the age of 60 will expand to 30 million by 2020, and 60 million by 2050. Brazil’s population is forecast by the Brazilian Institute of Geography and Statistics (IBGE) to grow by 43% to 260 million by 2050, but the rate of growth has slowed since the 1970s. Aside from having a great deal



Office market

of leisure time on their hands, even during the low season, older consumers tend to have higher spending power compared with younger consumers.

There is a never-before-seen positive confidence among both younger and older consumer in Brazil as well as an interest in exploring domestic destinations, more and better access to credit and a wealthy and expanding middle class which is beginning to include, for the first time, luxury and premium products in its lifestyles.

Corporate offices are among the most reliable indicators of demand for lodging, as companies that occupy such offices generate demand for the business travel segment. Barra da Tijuca is the third largest office market in the area with the greatest potential for growth due to availability of land. With the recent upturn in the economy the total vacancy rate in Rio has decreased. During the first half of 2010, a record delivery of new office spaces lead to a slight increase in vacancy rates. Although there is an increase in vacancies, the level of the current market remains healthy compared to the historical average of the last 10 years. In addition, data from ADEMI (Association of Business Executives Real Estate Market) indicates the existence of more than 4.1m sq ft of office space in Barra da Tijuca area.



Competitive Hotels

Tropical Barra The Tropical Barra is an independent hotel, with 102 rooms. Opened in 2004, it primarily serves the leisure segment. All rooms are equipped with air conditioning, refrigerator, telephone, cable TV, free internet access, hairdryer, and safe with electronic locks. There is also a restaurant, lobby bar and a fitness center and four meeting rooms.

Casa del Mar Opened in 2001, Casa del Mar has 68 rooms. It offers high speed internet, fitness center, pool, laundry and shuttle to the beach. It also has a meeting room, with capacity for 25 people.



& &&&&&&&&&

Praia Linda Opened in 1986, Praia Linda Beach Hotel is located in Barra da Tijuca, with 63 rooms. Amenities include; laundry services, 24 hour room service and broadband internet in business center. It has two meeting rooms for up to 80 people in auditorium format.

!"#$ !"#% !"#& !"#' !"#(4I:'9*:: 1>? 1J? 1>? 11? 1>?_B8ID /5? />? /5? /1? /5?[*':IB* /J? /5? /J? /F? /J?

V8$%( /33? /33? /33? /33? /33?

)*+,-./01.+2,0 3,45,60.07*6 897/



Development Issues / Strategy&&&&&&&&&&&&& & &&&&&&&&&

Brazil is one of the four BRIC countries (Brazil, Russia, India, China) projected to dominate the global economy by 2050. Its population is rising by about two million people a year. Part of Brazil’s increase in spend is because of the mass urbanization of the country which has an emerging middle class that can spend more on its homes, product and services. This has caused a huge housing deficit and an increasing demand for better infrastructure. This domestic demand coupled with the World Cup and Olympic Games, construction projects and engineering organizations related to the construction industry are extremely busy with heavy workloads. This could result in the construction schedules slipping with projects experiencing delays. Critical issues for foreign investors to consider are:

Labor and employment laws – A very detailed code (CLT), relatively generous to employees, leads to high employment costs with combination of basic benefits and social contributions associated with payroll.

“Stifling” red tape and bureaucracy – Local jurisdictions require a lengthy paperwork trail to complete. The World Bank’s “Doing Business Index” ranks Brazil a low 129th out of 183 countries for overall ease of doing business.

Complex tax system – Multiple layers of taxation is practiced in the country leading to additional paperwork and expense.

Complex laws and endless bureaucracy has contributed to corruption in the country that adds to the difficulties in doing business. For construction / development projects, confirming clear land titles is difficult and presents a challenge. Brazil is starting to take a lead role in sustainable development practices and green initiatives. The understanding of environmental practices and implementation is critical in development projects. A number of challenges to hotel development exist including; addition to oversupply, high interest rates, real-estate focus on residential and office space, recently changed but still complicated zoning laws and lack of financing (despite the new line of credit).



Though no investment can be made without risk, major risks of this project can be mitigated through additional due diligence, appropriate oversight during construction, increased oversight through stabilization and during the holding period. Fundamental risks include:

Construction costs may actually exceed budget or amounts may be required sooner or later than what is projected;

Construction may not be completed on time and required inspections could fail leading to delayed income;

Neighborhood growth and symbiotic amenities may be delayed;

Not achieving the projected revenue per available rooms (RevPAR) as a result of the market dynamics.

Oversupply of lodging establishments



Project Management Plan&&&&&

&&&

&&&&

&&&&

&&&&&&&

In order to ensure successful achievement of the development objectives, it is important to assemble a team of professionals capable of performing to the highest standard. The following outlines the critical team members necessary to realize overall goals. The development team for the hotel will include: Jones Lang LaSalle has a worldwide presence and is one of the respected project management team in Brazil. This organization provides seasoned professionals, proven best practices, process controls and global experience to address real estate project management needs. The expertise in the group include; interior build-out, move management, commercial real estate operations, occupancy planning, engineering, architecture and construction. VOA is passionate about the business of design. Their practice is built upon strong values, innovative design, and a great team of people. This organization provides a platform for architects and designers to express design creativity. VOA is deeply committed to the communities they serve and to designing sustainable spaces that stand the test of time and are environmentally responsible. Racional was founded in 1971 as engineering and construction company not only is involved in construction project but also provides a critical analysis of projects from pre-construction phase to the final walk through. The current footprint of various projects includes logistics parks, shopping malls, commercial buildings etc.

&

Accor is one of the largest hotel companies in the world with several different brands to attract different segments. With more than 4,100 hotels in ninety countries, Accor presents a distribution network to drive RevPAR. Accor has operated hotels in Brazil for a while and has the largest presence in the country. Ibis, the worldwide economy hotel brand of the Accor group, offers consistent quality accommodation and services, for the best local value.



Project Schedule

Construction scheduling is one of the key elements during the development of construction projects. “The first step is always the hardest”, while appropriate for many things in life, it certainly is true for any hospitality construction project. The steps taken, or not taken, during the initial planning stages of a project will significantly impact short-term effectiveness and long-term viability of the project. With all the factors of pre-construction planning, there are two key elements that will have a major impact on a project’s overall success - cost and schedule management. Improper or insufficient schedule management that delays the opening of a new facility has far reaching consequences: loss of revenue, missed promotional opportunities, negative impact to the customer’s brand and potential litigation. Some of the design work will begin immediately for the proposed project. We anticipate that the total project will take about fifteen months to complete. The hotel will commence operations in January 2014

ID Task Name Duration Start Finish

1 Hotel Development - Rio de Janeiro 447 days Tue 4/24/12 Wed 1/8/142 Due Dilligence Studies 15 days Tue 5/1/12 Mon 5/21/123 Environmental 15 days Tue 5/1/12 Mon 5/21/124 Geotechnical 15 days Tue 5/1/12 Mon 5/21/125 Traffic enginnering 10 days Tue 5/1/12 Mon 5/14/126 Civil Design Survey 27 days Tue 4/24/12 Wed 5/30/127 Boudry and Topography Survey 10 days Tue 4/24/12 Mon 5/7/128 Conceptual Site and Utility Plan 20 days Tue 5/1/12 Mon 5/28/129 Final Engineering Design 22 days Tue 5/1/12 Wed 5/30/1210 Zoning and Approvals 26 days Tue 5/1/12 Tue 6/5/1211 Preliminary Plan 20 days Wed 5/9/12 Tue 6/5/1212 Detailed Site Plan 23 days Tue 5/1/12 Thu 5/31/1213 Record Plat 25 days Tue 5/1/12 Mon 6/4/1214 Design 86 days Tue 5/1/12 Tue 8/28/1215 Architecture - SD 30 days Tue 5/1/12 Mon 6/11/1216 Architecture - DD 45 days Tue 6/12/12 Mon 8/13/1217 Architecture - CD 45 days Wed 6/27/12 Tue 8/28/1218 Civil - Site Plan 56 days Tue 6/12/12 Tue 8/28/1219 Permit 60 days Wed 8/29/12 Tue 11/20/1220 Building Permit 60 days Wed 8/29/12 Tue 11/20/1221 Site Permit 45 days Wed 8/29/12 Tue 10/30/1222 General Conditions 10 days Wed 11/21/12 Tue 12/4/1223 Receive notice to proceed and sign contract 3 days Wed 11/21/12 Fri 11/23/1224 Submit bond and insurance documents 10 days Wed 11/21/12 Tue 12/4/1225 Mobilize on Site 33 days Wed 12/5/12 Fri 1/18/1326 Install temporary power 2 days Wed 12/5/12 Thu 12/6/1227 Install temporary water service 2 days Wed 12/5/12 Thu 12/6/1228 Set up site office 33 days Wed 12/5/12 Fri 1/18/1329 Set line and grade benchmarks 3 days Wed 12/5/12 Fri 12/7/1230 Prepare site - lay down yard and temporary fencing 22 days Wed 12/5/12 Thu 1/3/1331 Site Grading and Utilities 75 days Mon 1/21/13 Fri 5/3/1332 Clear and grub site 10 days Mon 1/21/13 Fri 2/1/1333 Mass grading 5 wks Mon 2/4/13 Fri 3/8/1334 Install storm water pond 2 wks Mon 3/11/13 Fri 3/22/1335 Trench and install storm lines and structures 4 wks Mon 3/11/13 Fri 4/5/1336 Trench and install sanitary 3 wks Mon 3/11/13 Fri 3/29/1337 Trench and install duct bank 8 wks Mon 3/11/13 Fri 5/3/1338 Trench and install water 3 wks Mon 3/11/13 Fri 3/29/1339 Foundations 30 days Mon 5/6/13 Fri 6/14/1340 Excavate foundations 2 wks Mon 5/6/13 Fri 5/17/1341 Form column piers and spread foundations 4 days Mon 5/6/13 Thu 5/9/1342 Set reinforcing and anchor bolts 4 days Mon 5/6/13 Thu 5/9/1343 Pour column piers and foundations 5 days Mon 5/6/13 Fri 5/10/1344 Cure piers and foundations 30 days Mon 5/6/13 Fri 6/14/1345 Strip wall forms 1 day Mon 5/6/13 Mon 5/6/1346 Strip column piers and foundation forms 3 days Mon 5/6/13 Wed 5/8/1347 Vertical Construction 140 days Thu 5/9/13 Wed 11/20/1348 Build super structure 14.8 wks Thu 5/9/13 Tue 8/20/1349 Roof 3 wks Wed 8/21/13 Tue 9/10/1350 Enclose skin 8 wks Wed 8/21/13 Tue 10/15/1351 Plumbing 25 days Wed 8/21/13 Tue 9/24/1352 Rough-in plumbing in drywall walls 4 wks Wed 8/21/13 Tue 9/17/1353 Tie-in fire line riser and set valves 2 wks Wed 8/21/13 Tue 9/3/1354 Set plumbing fixtures and trim 3 wks Wed 8/21/13 Tue 9/10/1355 Flush, test, and clean piping and fixtures 2 wks Wed 9/11/13 Tue 9/24/1356 Electrical 20 days Wed 8/21/13 Tue 9/17/1357 Rough-in electrical in drywall walls 4 wks Wed 8/21/13 Tue 9/17/1358 Install and terminate electrical devices 3 wks Wed 8/21/13 Tue 9/10/1359 Make electrical terminations for HVAC equipment 2 days Wed 8/21/13 Thu 8/22/1360 Install light fixtures - test and clean 2 wks Wed 8/21/13 Tue 9/3/1361 Heating and Ventilating - AC 20 days Wed 9/11/13 Tue 10/8/1362 Set equipment 2 wks Wed 9/18/13 Tue 10/1/1363 Set HVAC and test and balance system 4 wks Wed 9/11/13 Tue 10/8/1364 Building Finishes 56 days Wed 9/4/13 Wed 11/20/1365 Install millwork and wood trim 3 wks Wed 9/4/13 Tue 9/24/1366 Paint walls and woodwork 3 wks Wed 9/25/13 Tue 10/15/1367 Install building carpet 3 wks Wed 10/16/13 Tue 11/5/1368 Install hardware and accessories 3 wks Wed 10/16/13 Tue 11/5/1369 Complete interior and exterior sod and plantings 3 wks Thu 10/10/13 Wed 10/30/1370 Pave, curb, and stripe parking lot 3 wks Thu 10/31/13 Wed 11/20/1371 Final Clean-up and Occupancy 15 days Thu 11/21/13 Wed 12/11/1372 Install hard flooring in common areas 1 wk Thu 11/21/13 Wed 11/27/1373 Clean floors 1 wk Thu 11/28/13 Wed 12/4/1374 Remove debris from building and do final clean-up 1 wk Thu 12/5/13 Wed 12/11/1375 Complete Final Inspections 20 days Thu 12/12/13 Wed 1/8/1476 Perform architect's inspection 2 days Thu 12/12/13 Fri 12/13/1377 Perform local building agency inspection 2 days Mon 12/16/13 Tue 12/17/1378 Perform Fire Marshal's inspection 2 days Wed 12/18/13 Thu 12/19/1379 Complete punch list items from all inspections 2 wks Fri 12/20/13 Thu 1/2/1480 Obtain certificate of occupancy 2 days Fri 1/3/14 Mon 1/6/1481 Issue final completion documents including warranties 1 day Fri 1/3/14 Fri 1/3/1482 Issue final request for payment 2 days Tue 1/7/14 Wed 1/8/14

Electric Contractor

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan FebMarch April May June July August September October November December January February March April May June July August September October November December January February

Task

Split

Progress

Milestone

Summary

Project Summary

External Tasks

External Milestone

Deadline

Page 1

Project: Commercial ConstructionDate: Sat 3/24/12



Development & Construction Costs

The costs of this project were estimated according to the facilities and finishes outlined. The following table presents the estimated construction cost of the Ibis. Included in the development costs, is an estimate of land acquisition and the anticipated construction cost of the projected structure. Accor will be involved in the verification of these costs based on their standards. R$ in ,000

& Our analysis assumes that the hotel will be continuously maintained and periodically updated after its opening, in order to maintain the physical plant and level of competitiveness. The costs of renovations and upgrades will be covered by the reserve fund for replacement, whereas the maintenance will be done through the hotel operations.

&&&&&

:.;5,60 )<*= 2012 2013 2014 201586><.07*6 ?.0, .,66 7.99% 5.93% 6.15% 6.30%

:,+7*@ 0.42 1.5 2.5 3.5

A:B CDCEF

G*6/0+H-07*6 !"#$% \10\F\ >02/2 K/0F/> /30225 \50F5/

!"! #!$%&'() >0K>> K303// 50351*+",+(-- K3? 22? K2? 3?

F.6@ "!#&% KJ0/JK K/01>2 \0152 K20\>3!"! #!$%&'() K/033J \0/\F

*+",+(-- F>? /\? 3? 3?

))IJ KLJD3 '#"% 10\>2 10523 10523!"! #!$%&'() 10\>2

*+",+(-- 3? /33? 3? 3?

M*+2764 G.N70.< $#(% 2/3 221 221!"! #!$%&'() 2/3

*+",+(-- 3? /33? 3? 3?

:+, DN,+.07*6.< )#'% /0K>/ /0\F1 /0\F1

!"! #!$%&'() /0K>/*+",+(-- 3? /33? 3? 3?

'OP'O# K50/53 \J0J3J /30225 (%P#&$$QR%S %'R%S #%R!S "R"S #""R"S



Financial Analysis &&&&&&&&&&&& &&&&&&&&&&&&&&&&

Projection of Occupancy and Average Daily Rate The average daily rate and occupancy level achieved by a hotel are important indicators of financial performance of a hotel, as well as its market value. These two variables determine the rooms revenue, and help with the revenue estimates of other departments (such as food & beverage, telephone, etc.), since they vary according to the number of guests in the hotel. Likewise, the expense levels are also variable according to the hotel occupancy. The occupancy of the hotel can sometimes be manipulated by changing the rates - lower rates can attract more demand. Analysis of Penetration Index The market share of the proposed development and its occupancy levels are based on estimated competitive position in this market and the penetration index. Penetration index is the indicator that shows how much the hotel is above or below its optimal market share, with 100% being the ideal level. The penetration rate of a hotel is calculated by dividing the actual market share with the optimal share of that hotel. Projection of Occupancy Rate As the balance between supply and demand in the competitive market is quite dynamic, there is a circular relationship between the penetration rates of each hotel and the market. The performance of a new hotel, individually, has a direct effect on the performance of other hotels in a market, and therefore also affects the penetration rates of competitive hotels for each market segment. The same is true when the performance of an existing hotel has large variations, both positive or negative. The projections of penetration, demand and occupancy for the proposed development have been widely considered for these adjustments in market share among competitors. The market penetration of the proposed development should be above the general average, because of competitive prices, quality and operated with an internationally recognized brand particularly, in the Brazilian market. In addition, the hotel's location makes it an attractive choice for visitors from events held in Rio Centro.



All figures in this analysis are in Reais (R $).

&&&&&&&&&&&&& &&&&&&&&&&&&&&&

Analysis of Average Daily Rate One of the most important considerations to estimate the value of a hotel project is its forecast of average daily rate potential. The average daily rate can be calculated by dividing the total rooms revenue by total rooms sold during the same period. Although the analysis of average daily rate (ADR) has been developed after the projection of the occupancy, both statistics are highly correlated; in fact, one cannot project the occupancy without specific assumptions in relation to the average daily rate. This relationship is best illustrated by the Revenue per Available Room (RevPAR). This measure represents the revenue generated by each housing unit available from a hotel, whether it was occupied or not. Changes in Average Daily Rate The average daily rate projection is not necessarily directly related to the inflation rates. It is mainly a factor of balance between supply and demand for lodging. The ability of a hotel to increase its rates depends on a number of factors, including the following:

The dynamic relationship between supply and demand is one factor that determines the level of occupancy and average daily rate of a hotel. Strong markets where the demand for lodging is increasing more than the supply are usually characterized by growth of daily rates above inflation. On the other hand, markets with excess supply or demand in decline typically show the opposite trend.

Inflationary pressures affect the average daily rate in that it increases operating costs of the hotel and erodes profit margins, putting pressure on operators to increase rate. This step is only effective in markets where the relationship between supply and demand is fairly balanced.

Improving the Competitive Standard: When a new hotel enters a mature market, its rates may be set above the market average as a result of the superior quality found in a newly opened hotel. When this happens, other competitors may follow suit and increase the rate, according to the new rate perception of market. However, when the additional supply has a significant



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

impact on the average occupancy rate of the market, we observe the opposite phenomenon, with the average daily rate falling due to a period of imbalance and price wars.

Specific Property Improvements: changes that make the hotel more or less attractive to the demand may have a considerable effect on the average daily rate. An expansion, renovation, repositioning of facilities and the introduction of additional services may justify increments of above-average rate of inflation. Similarly, the failure of maintaining the quality can press down the average daily rate.

When determining the average rates for projections, changes that may occur before the stabilization of the occupancy are usually caused by factors specific to the property. After a hotel achieves a stabilized occupancy, it is expected that the daily rates will continue to grow near inflation during the remainder of the projection period. The average daily rates of the primary competitive market were R$252.68 in 2009. The research and analysis indicates that the average daily rate increase in the market is consistently higher than inflation. With the opening of new hotels, and increased competition, we expect a decrease in growth of the average daily rate in 2013. In 2014 and 2016, there should be a significant increase in average daily rate arising from the high demand caused from World Cup and the Olympics. In the years following the events, the average daily rate will return to a level slightly above the achieved rate prior to the event. It is expected that the proposed hotel will adjust rates in line with market fluctuations. The rate penetration index for the proposed development is expected to reach 74.8% for the stabilized period. Operating Projections This section will cover a forecast of revenue and expenditure for the proposed development. It is important to outline the assumptions that were taken into account for these projections:

The basic program of the project, its design and its location.



&&&&&&&&&&&&&&&&&&&&&&&&&Revenues

&&&&

Recommended strategic market positioning Proposed minimum facilities and services. Factors of product differentiation. An appropriate brand and / or operational

management authority. Stabilized year 2017, presents the figure for anticipated operating results for all the remaining economic life of the hotel. Thus, estimates of revenue and expenses disregard any abnormal relationship between supply and demand, as well as unforeseen conditions that may cause changes in non-recurring cash flow. The period of 10 years reflects the typical duration of retention of a large investment property. Analysis of Fixed and Variable Components This analysis uses a model of fixed and variable components to project levels of income and expenses of a hotel. It is based on the assumption that revenues and expenses at the hotel have a portion that is fixed and another that varies directly with the hotel occupancy. A projection can then be developed by taking a known level of revenue or expense and to calculate fixed and variable components. The discussion of revenues and expenditures is based on the results presented by fixed and variable costs. This forecast of revenue and expenditure approach is completed in accordance with the Uniform System of Accounts for the lodging industry. Projection of Revenues and Expenses The following description provides the basis for the estimates of revenue and expense. It is anticipated that the project needs five years to reach a stabilized level of operation. Each item of revenue and expense was projected based on assessments of comparable hotels performance. Rooms Revenue Room revenue is determined by two variables: occupancy and average daily rate. The proposed development is projected to stabilize its occupancy around 75%, with a average daily rate of R$293.



&&&&&&&&&&&&&&&&&&&&&&&Expenses

&&&&&&

Food and Beverage Revenue The food and beverage revenue includes all revenues generated by sales in restaurants (including breakfast), bars, room service, mini bar, and banquets. Besides being a source of revenue for the hotel, these areas are also services that assist in the sale of guest rooms. With the exception of properties with facilities that attract local residents, in-house guests typically represent a substantial portion of the food and beverage revenues in a hotel. In the case of the proposed project, the food and beverage facilities include a restaurant and a lobby bar. A food and beverage revenue projection of R$36.40 per occupied room has been considered in the stabilized year. The food and beverage revenues were estimated based on average consumption per guest at other Ibis hotels located in Rio de Janeiro. Telephone Revenue The telephone revenue is generated by guests who make local and long distance calls from their hotel rooms. With the increasing use of mobile phones and other means of wireless communication, telephone revenues tend to be relatively low. Minors Operating Departments Revenue Revenues from other departments are derived from sources other than the lodging and food and beverages. Revenues from other departments under the project are expected to stabilize for R$3.43 per room occupied by 2017. This revenue includes amounts related to rental of conference rooms, laundry, parking, internet cards and income from other services offered to hotel guests

Rooms Department Expenses The room expenses are composed of; employee wages and benefits which represent a substantial portion of expenses. Although the payroll varies with the occupancy, some component is fixed. The minimum staff at reception, cleaning of public areas and other supervisors has to be maintained constantly. Commissions and reservation fees are usually calculated based on the rooms revenue, and thus fluctuate with the changes in occupancy and average daily rate.



&&&&&&&

&&&&&!&&&&&&&&&&&&&&&

The projected expenditure for the rooms department is10.0% in the first year, and stabilizing at 11.5% in 2017. These estimates for the proposed hotel were determined from data of hotels of similar standard. Food & Beverage Department Expenditure Food & beverages expenses consists of elements necessary for the operation of restaurants, bars and banquet operations in a hotel. The costs associated with sales of food and employee payroll have a direct correlation to the revenues generates in these respective area. Items such as china, linen and uniforms fluctuate less in relation to volume. These projections take into account a cost of 68.6% of the F&B department in 2017. The F&B expenditure was determined from comparisons with similar hotels. Telephone Department Expense Most of the expense in this department is the actual cost of local and long distance telephone calls charged by telephone companies providing such services and equipment lease. With the decrease of telephone use and corresponding revenues, in many cases, this department now operates at a loss. Minor Operating Department Cost Expense in other smaller departments is linked to other revenue, and depends on the nature of the specific service. For example, if the hotel operates its own gift shop, both revenue and expenses will be higher. The hotel will be responsible for the costs of goods sold, wages, and other expenses.

General and Administrative Expenses Administrative and general expenses include the salaries of all administrative staff that is not directly related to a specific department. Expenses related to the management and operation of the property is also placed in this category. Many of the expenses in this department are relatively fixed. The exceptions can be credit card commissions, and provision for doubtful accounts. In contrast, wages and benefits in this department hardly change with the changes in total revenue.



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

Based on historical data for comparable hotels, administrative expenses were maintained at levels consistent with the expected performance and operational requirements. We project that the administrative costs of this venture to stabilize at an annual expense of R$18.02 per available room in 2017. Sales and Marketing Expenses Expenses in this department consist of all costs associated with advertising, sales and promotion to attract and retain customers. Marketing can be used to create an image, develop customer awareness and encourage clients to the various services in a hotel. Marketing expenses are determined from the management agreement between the operators who will manage the hotel. For this study, it was considered that this expense should stabilize at around R$4.06 per available room in stabilized year 2017. Repairs and Maintenance Expenses The cost of operation and maintenance of the property is another category of expenditure tightly controlled by the hotel management. Except for immediate repairs required to keep the hotel operating and to prevent damage (e.g. pipelines, heating systems and other electrical items), most of the maintenance can be scheduled over a period of time. The age of a hotel has great influence on the required level of maintenance. A new or recently renovated property is protected, however, as this property ages, maintenance costs rise. A well organized preventive maintenance system usually helps reduce deterioration of the hotel, but in general, maintenance costs rise annually, regardless of trends in hotel occupancy. The quality of initial construction may also have a direct impact on future maintenance requirements. The construction methods and use of building materials of high quality usually reduces the need for maintenance expenses. Maintenance costs are set at levels that allow the maintenance of an asset and operational needs expected in a hotel. Spending in this category is projected at R$13.96 annually for each available room, or about 5.5% of total revenues in the stabilized year in 2017.



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

Utilities Expense The consumption of utilities in a hotel takes several forms, such as water, heating, air conditioning, lighting, gas and other energy needs of the hotel. The most common sources of these costs in a hotel are electricity, natural gas and fuel oil. This category also includes the costs of water and sewage. The total cost of energy depends on the source and amount of fuel used. The power source tends to be more expensive, followed by fuel oil, and, finally, natural gas. All hotels consume a considerable amount of electricity with several properties supplementing their consumption to more economical sources of energy such as gas and oil. The changes in utility spending result from the changes in hotel occupancy. Utility spending was projected to be at R$13.96 per available room from the stabilized year in 2017. Management Fees Management fees have typically been structured as a combination of a basic fee, calculated as a percentage of total revenues, and an incentive fee calculated as a percentage of net profits. While the basic fees typically range from 1% to 5% of total revenues, incentive fees are negotiated on a case by case basis and are often calculated as a percentage of net profits, and sometimes tied to a specific return on investment. Property Insurance and Taxes The building insurance is important to secure the hotel, furnishings and equipment from damage or destruction by fire, leaks, explosions, falling objects and other risks. The insurance rates are based on many factors, including the design and structure of construction, fire detection and extinguishing systems, geographic location and history of similar incidents in the region. Since the taxes on the property are a major source of revenue for local governments, for cash flow projection of the proposed hotel, the property tax incentives (Tax on Urban Land and Property) and ITBI (Tax on Transfer of Real Estate) was considered. This project is expected to benefit from the exemption of these taxes by virtue of promotional programs,



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

developed by the city to attract investments prior to 2014 World Cup and 2016 Olympics. Reserve Fund Furniture, fixtures and equipment are essential for the operation of a hotel. In this category all expenses related to property that are capitalized and not expensed, are included. The furniture, the fixtures and the equipment of a hotel are exposed to frequent use and should be replaced periodically. The life of these items is determined by its quality, durability and frequency of use. The regular exchange of these items is essential to maintain the quality, image and revenue potential of a hotel project. As capitalized costs are not included in operating expenses, but still affect the cash flow of investment, a forecast of revenue and expenditure of the project should also include appropriately calculated replacement reserve fund. The operators and investors of hotels typically use replacement reserves ranging from 4% to 5% of total revenue. Based on our assessments of comparable projects, it is estimated that the reserves for this kind of hotel should be 5.0% of total net revenues, to allow an adequate and regular replacement of items. In the first year of operation of the hotel, is a planned phasing of this rate as the need for repairs and reinvestments are smaller. Financial Analysis The proposed project will be evaluated based on the method of capitalization of the discounted cash flow. This approach assumes that the value of a property is indicated by the economic benefits generated by the business during its operation. These benefits can be measured as the present value of future benefits to be generated. The future benefits of hotels are represented by earnings before interest payments and depreciation, including the profit resulting from an eventual sale of the property. These future benefits can be converted to an indication of value through a capitalization process of the discounted cash flow. Using this approach to valuation, the proposed development was assessed based on analysis of market conditions, competitors' current and future developments and



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

comparables. Then a forecast of revenue and expenses for a period of 10 years was developed. Based on revenue and expense projections a cash flow for ten years was prepared. This analysis includes operating profits of the hotel during the period, plus the residual value, which represents the profits that we could generate after the tenth years of operation. To calculate the residual value, it is assumed that the hotel will be sold at the end of the tenth year of operation. The sale value is calculated by dividing the expected profit for the 11th year of operation with a terminal rate, based on market benchmarks and the characteristics of the property. The sale value is net of transaction costs and the value of remaining mortgage debt. The remaining amount is added to the profits of the 10th year of operation to compose the tenth year cash flow analysis. To calculate the value of the property on the date of opening, the cash flow of 10 years was discounted using an appropriate analysis of the financing structure of the enterprise. Internationally, the discount rate used to discount the equity of hotel projects is defined based on transaction data of hotels. In Brazil, there are few transactions which are rarely published, so it becomes impossible to calculate the discount rate used. However, there are two relevant sources of information on the discount rate required by hotel investors in the Brazilian market: data on purchase and sales of flats and apartments for condo-hotels, and discount rates considered acceptable by clients of major banks.



Conclusion & Recommendations&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

Rio de Janeiro, the capital city of the State of Rio de Janeiro is the second largest city in Brazil and third largest metropolitan area in South America. It is the main gateway to Brazil. The combination of sea and mountains makes Rio one of the most beautiful cities in the world. In addition to the world renowned beaches, the city is home to several large corporations and presents a great combination of business and leisure activities. This city is aware of the importance of tourism to the economy. Events like Carnaval and New Year´s Eve attract multitudes of visitors each year. There is very little marketing of the city in international markets and the number of tourists is way below the city potential, when compared to other destinations. Some measures have been adopted to stimulate the industry, but the sector still relies much on private initiatives. Rio de Janeiro will be the first city to host the Olympic Games in South America during August- September 2016. World Cup Games will also be he held twelve Brazilian cities in 2014. These two events will generate numerous trade and investment opportunities in several areas.

Brazil’s tourism industry is booming. TAM, the largest airline, which speaks for nearly half of the civil aviation sector, said in February that it is looking for its business to grow by 15% to18% in 2011. The latest statistics published by the government suggest that this forecast could be conservative: air movements in the month of April 2011 were 32% higher than they had been in the same month of 2010. TAM is looking to increase its fleet by 34 planes. As of mid-2011, it is in the process of taking a 31% stake in a smaller rival, TRIP, for US$250mn as it seeks to maintain its market position relative to arch-rival Gol. Meanwhile, investment is also surging in Brazil’s hotel sector. International hotel chains are also indicating they plan to increase expenditure on new properties in Brazil. Hotel chain Starwood has announced it will be opening new hotels in Brazil. The Windsor group has also announced it will open five new hotels in the next five years for an expenditure of R$260m. The Bristol Group has said that it plans to double its present number of 16 hotels in Brazil with a total hotel investment of up to R$1bn. Hyatt also intends to operate 50 hotels in Brazil in the next 10 years. In December 2010 the company announced it



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

had purchased a waterfront property in Rio de Janeiro to build a 408-room hotel. In March 2011, Brazil Hospitality Group (BHG) - a leading local hotel owner - extended its presence with the purchase of Brascan Imobiliaria Hotelaria e Turismo: as a result, the company owns the InterContinental Hotel in Rio de Janeiro and various other prime properties. In mid-2011, the key driver of the growth of the industry is the rise in incomes and household wealth that is taking place across much of South America, and not just Brazil. A large number of households now have the ability to travel for the first time (or more than they used to). A secondary driver is the growing perception on the part of carriers from distant parts of the world - such as Singapore Airlines and Emirates - that Brazil represents an increasingly important opportunity. Meantime, many European airlines are also looking to start - or to increase - services to Brazil, and not just to Sao Paulo and Rio de Janeiro. International flights into cities such as Porto Alegre and Fortaleza are also increasing.

It is true that the Brazilian economy has improved considerably in recent years and that its outlook is very positive. In relative terms, however, it continues to be much smaller than that of the major world economic powers. Brazil's GDP is a bit over 10% of that of the United States, and the Brazilian hotel industry, given the specific characteristics of the country, does not exceed 5% of the U.S. hotel industry.

Challenges aside, Brazil still represents a great opportunity for investment. For one thing, the emerging country was the first of the major developing markets to emerge from the global recession, showing GDP growth as early as the third quarter of 2009, and real estate has shown appreciation despite the short-term trepidation of the economic meltdown. As a result, the big three rating agencies have given Brazil their stamp of approval with an investment grade rating. Through the preceding analyses performed in conjunction with this practicum, many factors were considered whether to proceed with the development of Ibis Hotel in Barra. The site was chosen due to its proximity to the demand generators. The Barra corridor is a thriving community that will continue to develop in conjunction with availability of land and companies establishing their offices in the area.



&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

After conducting the demand and supply analysis for the Barra market, we felt comfortable in the fact that the growing population and a strong employment workforce will provide stability through the development and operations of Ibis hotel. Assumptions were made for the occupancy and average rates based on the market research performed. The growing economy, demand for leisure and business related travel domestically and internationally, makes hotel investment in Rio de Janeiro a very attractive proposition. The financial analysis prepared for the Hotel Ibis project indicates a healthy return with overall IRR of 14.5%. Therefore, it is recommended to proceed with the proposed Ibis Hotel development project. &&&&&



References

& &&&&&&&&&&&&&&&&&&&&&&&&&&&

“Brazil Tourism Report Q2 2011.” www.salisonline.org. N.p., 29 Mar.

2011. Web. 17 Nov. 2011. <http://www.salisonline.org/market-

reserch/brazil-tourism-report-q2-2011>.

Canteras, Diogo. “Hotel Investing in Brazil.” HVS. HVS, n.d. Web. 20

Nov. 2011. <http://www.hvs.com>.

Freitag, Jan. “An Overview of The Americas.” 2011. PDF file.

Hood, Steve. “South American and Peru Hotel Industry Overview.”

Smith Travel Research Inc. 3 Oct. 2011. PDF file.

“How Rio’s 2016 Olympic Games will Benefit Brazilian Tourism.”

Traveldailynews.com. Travel Daily News, 8 Oct. 2009. Web. 19

Oct. 2011. <http://www.traveldailynews.com>.

“International Tourism; Number of Arrivals in Brazil.”

Tradingeconomics.com/brazil/international-tourism-number-

of-arrivals-wb-data. N.p., n.d. Web. 18 Oct. 2011.

Iribarne, Graciana, et al. “2010-2011 South America Market

Overview.” HVS. HVS, Sept. 2011. Web. 12 Dec. 2011.

<http://hvs.com>.

“Lodging Industry in Numbers 2011.” Jones Lang LaSalle Hotels. Jones

Lang LaSalle, n.d. Web. 11 Dec. 2011. <http://www.jllhs.com>.

Neto, Jose. “GHN Market Report Rio de Janeiro.”

GlobalHotelNetwork.com. N.p., 2010. Web. 18 Nov. 2011.

<http://www.globalhotelnetwork.com>.

Slob, Bart, and Joseph Wilde. “Tourism and Sustainability in Brazil.”

Somo (Oct. 2006): 30-52. Pdf file.



“Top Thoughts for 2011.” Ernst Young. Ernst Young, 2011. Web. 10

Dec. 2011. <http://ey.com>.

“Travel Accmmodation - Brazil.” Euromonitor International.

Euromonitor, Mar. 2011. Web. 17 Jan. 2012.

<http://www.euromonitor.com/>.

“Travel and Tourism in Brazil.” Euromonitor International. Euromonitor,

Mar. 2011. Web. 15 Jan. 2012.

<http://www.euromonitor.com/>.

Wharton, Stephanie. “Investors Eye Development in Thriving Brazil.”

Hotel News Now. Hotel News Now, 12 Sept. 2011. Web. 25

Nov. 2011. <http://www.hotelnewsnow.com>.

“A World of Possibility: Brazil Hotel Investment Opportunities.”

www.ey.com. Ernst & Youg, n.d. Web. 18 Nov. 2011.

<http://www.ey.com>.

&&&&&&&&&&



Appendix Table of Content

&

Financial Schedules Drawings Presentation Slides

&











Total Price BRL

Purchase Price172,212

Equity 72,212DebtPre Operational Costs 1,386Working Capital 556

Sub Total 74,153

Contingency 619Debt Assumption Costs

Due Diligence 258Transfer Taxes2

Legal Costs 430FF&E Reserve

Bank Tax (0.38%) 274Total 75,735

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

EBITDA 5,279 9,091 12,863 11,392 11,962 12,560 13,188 13,847

Hotel Cash Flow 4,928 8,292 11,584 10,211 10,721 11,258 11,820 12,411FF&E Recapture 1,436Working Capital Recapture (inflated) 556Residual cap rate 8.0% 12.5X 155,143Selling Costs 1.0% (1,551)Capital Gain Taxes 2 (Entity = 1, Asset = 2) (32,572)Debt

Total Cash Flow (29,878) (34,678) (6,606) 7,296 9,720 8,726 9,130 9,555 8,792 133,109 IRR 14.5%

Construction 2012 2013 2014 2015 Bank Total Term Grace Period Rate Type % Lev IRRTotal 7,515 21,817 10,559 15.7%Debt 6,012 17,453 8,447 BNDES 12 B4opening 10.50% Pymt 80%Equity 1,503 4,363 2,112

FF&E + HEOS 2012 2013 2014 2015 Bank Total Term Grace Period Rate Type % LevTotal 6,950Debt 5,560 BNDES 12 B4opening 8.50% Pymt 80%Equity 1,390

TOTAL 2012 2013 2014 2015 TOTAL %Total 7,515 28,767 10,559 46,842 100%Debt 6,012 23,014 8,447 37,473 80%Equity 1,503 5,753 2,112 9,368 20%

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 142012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Construction

initial (6,012) (6,012) (6,012) (5,644) (5,237) (4,787) (4,290) (3,741) (3,135) (2,464) (1,723) (905)Interest (631) (631) (631) (593) (550) (503) (450) (393) (329) (259) (181) (95)Amortization (368) (407) (450) (497) (549) (607) (670) (741) (819) (905)Payment (631) (631) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000)

final (6,012) (6,012) (5,644) (5,237) (4,787) (4,290) (3,741) (3,135) (2,464) (1,723) (905) (0)

initial (17,453) (17,453) (16,537) (15,524) (14,404) (13,167) (11,801) (10,290) (8,621) (6,777) (4,740) (2,488)Interest (1,833) (1,833) (1,736) (1,630) (1,512) (1,383) (1,239) (1,080) (905) (712) (498) (261)Amortization (917) (1,013) (1,119) (1,237) (1,367) (1,510) (1,669) (1,844) (2,038) (2,252) (2,488)Payment (1,833) (2,749) (2,749) (2,749) (2,749) (2,749) (2,749) (2,749) (2,749) (2,749) (2,749) (2,749)

final (17,453) (16,537) (15,524) (14,404) (13,167) (11,801) (10,290) (8,621) (6,777) (4,740) (2,488) (0)

initial (8,447) (8,064) (7,641) (7,173) (6,655) (6,084) (5,452) (4,755) (3,983) (3,131) (2,190) (1,150)Interest (887) (847) (802) (753) (699) (639) (572) (499) (418) (329) (230) (121)Amortization (383) (424) (468) (517) (571) (631) (698) (771) (852) (941) (1,040) (1,150)Payment (1,270) (1,270) (1,270) (1,270) (1,270) (1,270) (1,270) (1,270) (1,270) (1,270) (1,270) (1,270)

final (8,064) (7,641) (7,173) (6,655) (6,084) (5,452) (4,755) (3,983) (3,131) (2,190) (1,150) 0

initialInterestAmortizationPayment

final

FF&E, HEOS

initial (5,560) (5,560) (5,220) (4,843) (4,427) (3,968) (3,460) (2,899) (2,279) (1,594) (837)Interest (584) (584) (548) (509) (465) (417) (363) (304) (239) (167) (88)Amortization (341) (376) (416) (460) (508) (561) (620) (685) (757) (837)Payment (584) (924) (924) (924) (924) (924) (924) (924) (924) (924) (924)

final (5,560) (5,220) (4,843) (4,427) (3,968) (3,460) (2,899) (2,279) (1,594) (837) (0)

TOTALinitial (6,012) (29,026) (37,473) (35,464) (33,244) (30,791) (28,081) (25,086) (21,776) (18,119) (14,078) (9,612) (4,678) (1,150)Interest (631) (3,048) (3,935) (3,724) (3,491) (3,233) (2,948) (2,634) (2,286) (1,902) (1,478) (1,009) (491) (121)Amortization (2,009) (2,220) (2,453) (2,711) (2,995) (3,310) (3,657) (4,041) (4,465) (4,934) (3,528) (1,150)Payment (631) (3,048) (5,944) (5,944) (5,944) (5,944) (5,944) (5,944) (5,944) (5,944) (5,944) (5,944) (4,020) (1,270)

Final (6,012) (29,026) (35,464) (33,244) (30,791) (28,081) (25,086) (21,776) (18,119) (14,078) (9,612) (4,678) (1,150) 0

SummaryNumber of Rooms 255 255 255 255 255 255 255 255 255 255 255 255Annual Available Rooms 54,825 93,075 93,075 93,075 93,075 93,075 93,075 93,075 93,075 93,075 93,075 93,075Occupied Rooms 36,185 65,153 74,460 69,806Occupancy 66% 70% 80% 75% 75% 75% 75% 75% 75% 75% 75% 75%Average Rate (w/o ISS) R$ 236 R$ 260 R$ 297 R$ 293 R$ 308 R$ 323 R$ 339 R$ 356 R$ 374 R$ 393 R$ 412 R$ 433

Change from Previous Year n.a. 10% 15% -1% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%RevPAR R$ 156 R$ 182 R$ 238 R$ 220 R$ 231 R$ 242 R$ 254 R$ 267 R$ 280 R$ 294 R$ 309 R$ 325

Change from Previous Year n.a. 17% 31% -8% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

P&L R$ ('000)Departmental RevenuesRooms 8,537 73% 16,909 85% 22,126 86% 20,446 87% 21,468 87% 22,542 87% 23,669 87% 24,852 87% 26,095 87% 27,400 87% 28,770 87% 30,208 87%Event Rooms 398 3% 393 2% 415 2% 399 2% 419 2% 440 2% 462 2% 485 2% 509 2% 535 2% 561 2% 590 2%Other Income 237 2% 230 1% 264 1% 240 1% 252 1% 265 1% 278 1% 292 1% 306 1% 322 1% 338 1% 355 1%Restaurant 2,517 22% 2,443 12% 2,785 11% 2,541 11% 2,668 11% 2,801 11% 2,942 11% 3,089 11% 3,243 11% 3,405 11% 3,575 11% 3,754 11%Sub Total F&B 2,517 22% 2,443 12% 2,785 11% 2,541 11% 2,668 11% 2,801 11% 2,942 11% 3,089 11% 3,243 11% 3,405 11% 3,575 11% 3,754 11%

Total Revenue 11,689 TRUE 19,975 TRUE 25,590 TRUE 23,626 TRUE 24,807 TRUE 26,048 TRUE 27,350 TRUE 28,718 TRUE 30,153 TRUE 31,661 TRUE 33,244 TRUE 34,906 TRUE

Change from Previous Year n.a. 71% 28% -8% 5% 5% 5% 5% 5% 5% 5% 5%Departmental ProfitsRooms 7,683 90.0% 14,710 87.0% 20,090 90.8% 18,095 88.5% 18,999 88.5% 19,949 88.5% 20,947 88.5% 21,994 88.5% 23,094 88.5% 24,249 88.5% 25,461 88.5% 26,734 88.5%Event Rooms 199 50.0% 177 45.0% 208 50.0% 180 45.0% 189 45.0% 198 45.0% 208 45.0% 218 45.0% 229 45.0% 241 45.0% 253 45.0% 265 45.0%Other Income 119 50.0% 81 35.0% 91 34.5% 78 32.7% 82 32.7% 87 32.7% 91 32.7% 95 32.7% 100 32.7% 105 32.7% 110 32.7% 116 32.7%Restaurant 1,259 50.0% 977 40.0% 941 33.8% 798 31.4% 838 31.4% 880 31.4% 924 31.4% 970 31.4% 1,018 31.4% 1,069 31.4% 1,123 31.4% 1,179 31.4%Sub Total F&B 1,259 50.0% 977 40.0% 941 33.8% 798 31.4% 838 31.4% 880 31.4% 924 31.4% 970 31.4% 1,018 31.4% 1,069 31.4% 1,123 31.4% 1,179 31.4%Total Departmental Profits 9,259 79.2% 15,945 79.8% 21,330 83.4% 19,151 81.1% 20,108 81.1% 21,114 22,169 23,278 24,442 25,664 26,947 28,294

Change from Previous Year n.a. 72.2% 33.8% -10.2% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Undistributed Operating ExpensesAdministrative & General 1,052 9.0% 1,598 8.0% 1,817 7.1% 1,677 7.1% 1,761 7.1% 1,849 7.1% 1,942 7.1% 2,039 7.1% 2,141 7.1% 2,248 7.1% 2,360 7.1% 2,478 7.1%Credit Card Commissions 117 1.0% 200 1.0% 256 1.0% 236 1.0% 248 1.0% 260 1.0% 274 1.0% 287 1.0% 302 1.0% 317 1.0% 332 1.0% 349 1.0%Utilities 701 6.0% 1,198 6.0% 1,407 5.5% 1,299 5.5% 1,364 5.5% 1,433 5.5% 1,504 5.5% 1,579 5.5% 1,658 5.5% 1,741 5.5% 1,828 5.5% 1,920 5.5%Repairs & Maintenance 701 6.0% 1,198 6.0% 1,407 5.5% 1,299 5.5% 1,364 5.5% 1,433 5.5% 1,504 5.5% 1,579 5.5% 1,658 5.5% 1,741 5.5% 1,828 5.5% 1,920 5.5%Sales & Marketing 117 1.0% 320 1.6% 409 1.6% 378 1.6% 397 0.0% 417 0.0% 438 0.0% 459 0.0% 482 0.0% 507 0.0% 532 0.0% 559 0.0%Base Fee (% of TR) 210 1.8% 360 1.8% 461 1.8% 425 1.8% 447 1.8% 469 1.8% 492 1.8% 517 1.8% 543 1.8% 570 1.8% 598 1.8% 628 1.8%Fee 02 (% of RR) 128 1.5% 254 1.5% 332 1.5% 307 1.5% 322 1.5% 338 1.5% 355 1.5% 373 1.5% 391 1.5% 411 1.5% 432 1.5% 453 1.5%Fee 03 (% of RR) 154 1.8% 304 1.8% 398 1.8% 368 1.8% 386 1.8% 406 1.8% 426 1.8% 447 1.8% 470 1.8% 493 1.8% 518 1.8% 544 1.8%Fee 04 (% of RR) 128 1.5% 254 1.5% 332 1.5% 307 1.5% 322 1.5% 338 1.5% 355 1.5% 373 1.5% 391 1.5% 411 1.5% 432 1.5% 453 1.5%Total Undistributed Operating Expenses 3,309 28.3% 5,685 28% 6,820 27% 6,297 27% 6,612 27% 6,943 27% 7,290 27% 7,654 27% 8,037 27% 8,439 27% 8,861 27% 9,304 27%

Change from Previous Year n.a. 71.8% 20.0% -7.7% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

House Profit (GOP) 5,951 50.9% 10,260 51.4% 14,511 56.7% 12,853 54.4% 13,496 54.4% 14,171 54.4% 14,879 54.4% 15,623 54.4% 16,405 54.4% 17,225 54.4% 18,086 54.4% 18,990 54.4%Fixed ChargesTotal Fixed Charges 368 3.2% 839 4.2% 1,331 5.2% 1,229 5.2% 1,290 5.2% 1,354 5.2% 1,422 5.2% 1,493 5.2% 1,568 5.2% 1,646 5.2% 1,729 5.2% 1,815 5.2%Net Operating Income 5,582 47.8% 9,421 47.2% 13,180 51.5% 11,625 49.2% 12,206 49.2% 12,816 49.2% 13,457 49.2% 14,130 49.2% 14,837 49.2% 15,578 49.2% 16,357 49.2% 17,175 49.2%

IMF (OP = 1, Other = 2) 655 11.0% 1,129 11.0% 1,596 11.0% 1,414 11.0% 1,485 11.0% 1,559 11.0% 1,637 11.0% 1,719 11.0% 1,804 11.0% 1,895 11.0% 1,989 11.0% 2,089 11.0%Hotel Cash Flow 4,928 42.2% 8,292 41.5% 11,584 45.3% 10,211 43.2% 10,721 43.2% 11,258 43.2% 11,820 43.2% 12,411 43.2% 13,032 43.2% 13,684 43.2% 14,368 43.2% 15,086 43.2%EBITDA 5,279 45.2% 9,091 45.5% 12,863 50.3% 11,392 48.2% 11,962 48.2% 12,560 48.2% 13,188 48.2% 13,847 48.2% 14,540 48.2% 15,267 48.2% 16,030 48.2% 16,832 48.2%Change from Previous Year n.a. 72.2% 41.5% -11.4% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

2014 2015 2016 2017 2018 20252019 2020 2021 2022 2023 2024

2024 20252022 20232020 20212018 20192016 20172014 2015

Documents

Real Estate Practicum Project V - … Development – Rio de Janeiro Abid Butt – Spring 2012 Page 3 Notice This report, drawings and analyses are intended for educational purposes