Asia Pacific Region 4th Quarter 2002

Adjusting Historical Development Costs to The Job Seeker and Arrive at Realistic Current Replacement the Executive Search Costs Consultant

he Cost Approach to value Case Study One of the common misconceptions estimates market value by in the hospitality industry is that Let us consider the following case study computing the current cost of an executive search company will work T to arrive at our estimation of replacing a property and subtracting to find a job seeker a job. It does replacement cost for a fictitious any depreciation resulting from happen of course, but in the rare in Singapore that was constructed one or more of the following factors: circumstances when the job seeker just during 1997. physical deterioration, functional happens to match the specifications obsolescence and external (or economic) of a current search. This article will Brief Description of the Hotel obsolescence. The cost approach explain the role of the executive search provides a reliable estimate of value Table 1, below, summarises a brief consultant and focus on recruitment for newly constructed properties; description of the fictitious hotel used from a job seeker’s perspective, it is however, as buildings and other in this case study. not a comprehensive guide to finding forms of premises increase in age a job, but it will highlight some of the and begin to deteriorate, the resultant Table 1 Hotel Description and Historical key aspects of the process. loss in value becomes increasingly Development Cost difficult to quantify accurately. A job seeker is wise to advise a reputable Hotel Name: Sunset View Hotel, Singapore search firm of their career objectives; Our experience with active hotel Location: Orchard Road however they should have realistic purchasers indicates generally that Opening Date: 1997 expectations about what happens when active buyers of generally base Hotel Star-Grading: 5-Star a job seeker contacts the Executive their purchase decisions upon Number of Guestrooms: 350 Search firm. Most executive search economic factors, such as forecast net Total Meeting Space (m2): 3,000 consultants will listen to the job seeker’s income and return on investment. aspirations, they might offer to meet, Number of Food & Beverage Outlets: 8 However, the cost approach to value most will happily receive a resume Site Area (m2): 5,000 provides an estimate of the cost to and the kind ones will also offer some 2 enter the marketplace. Furthermore, Gross Floor Area (m ): 35,000 useful advice. Most times, the job the cost approach to value implies Number of Storeys: 12 seeker’s resume will be added to a that no prudent person is likely to Source: HVS International Estimates database and may be retrieved for pay more for a hotel property than future searches. In the past some firms the amount for which the site can have developed the habit of sending be acquired and the hotel of equal Historical Development Costs the resume of the job seeker to numerous desirability and utility, in comparison companies. Though these introductions to the existing hotels in the market Table 2, overleaf, sets forth the historical are unsolicited, the hope presumably place, can be constructed without undue development cost of the hotel in 1997 is that one of the companies may hire delay. values. the applicant and then pay a recruitment fee. In reality companies receiving Also in this Issue:. Table 2 illustrates that the development unsolicited resumes in such a way ¥ The Job Seeker and the for the hotel equates to US$ 99,000,000, usually bin them. Or in the event that Executive Search Consultant or approximately US$ 300,000 per they do have a suitable vacancy are ¥ Ecotel Ð Now in Delhi available guestroom in 1997 prices. unwilling to proceed, being unable ¥ Seychelles Ð An Overview to pay a recruitment fee for that ¥ Special Announcement ¥ Regional Watch - continued on page 2 - continued on page 4

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18522-HVS Journal 1 12/24/02, 9:49 AM Adjusting Historical Development Costs to Arrive at Realistic Current Replacement Costs. - continued from cover

Table 2 Historical Development Cost Table 3 Physical Deterioration The current age of the hotel is approximately four and half years, Cost Component Amount (US$) Estimated Hotel Life 60 years therefore according to the schedule set Land 10,000,000 Chronological Age of Hotel 4.5 years out in Table 4 we would normally Building Estimated Effective Age of Hotel 6.0 years estimate the depreciation of the Construction Contract 65,000,000 Percent to be Depreciated 10.0% Furniture, Fixtures, and Equipment Architectural and Engineering 250,000 by approximately 45%. However, Historical Building Cost (US$) 65,000,000 Insurance 50,000 considering the high annual Phsycial Deterioration (US$) 6,500,000 Permits 750,000 occupancies achieved at the hotel Taxes 50,000 Source: HVS International Estimates since opening we have adjusted the Furniture, Fixtures and Equipment depreciation percentage to 60%. (FF&E) 12,250,000 We consider this upward adjustment Soft Costs is appropriate and furthermore Legal Costs 150,000 Table 3 illustrates that the percentage represents more accurately the actual Financing Fees 100,000 of the estimated life of the hotel that effective age of the quality of the Interest During Construction 400,000 has been used is 10%. Therefore we Furniture, Fixtures, and Equipment at Pre-Opening Costs 250,000 have depreciated the historical the hotel. Table 5, below, sets out Working Capital 150,000 building cost by 10% to arrive at our our calculation for the depreciation of Professional Fees 750,000 ÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐÐ appropriate estimate of physical the Furniture, Fixtures, and Equipment Total Development Cost 90,150,000 deterioration deduction, namely at the hotel. Developers Profit @ 10% 9,015,000 US$ 6,500,000 Total Development Cost (Say) 99,000,000 Table 5 Furniture, Fixtures, and Equipment Development Cost Per Room 300,000 Furniture, Fixtures, and Equipment Depreciation Schedule

Source: HVS International Estimates Generally the Furniture, Fixtures, Cost of Furniture, Fixtures and Equipment in a hotel are and Equipment 12,250,000 depreciated at a more rapid rate in Physical Deterioration comparison to the depreciation of Adjusted Depreciation 60% the hotel building, reflecting the Total Depreciation (Say) 7,350,000 As a hotel ages, the physical condition higher usage and wear-and-tear of of the hotel is likely to deteriorate. these items. For the purpose of this Source: HVS International Estimates Therefore, the prudent valuer in study we have assumed a depreciation assessing replacements costs in today’s rate of 10% per annum, which is inline values for existing hotels will make with current accepted accounting As illustrated in Table 5 we consider deductions from the historical costs for practices. that US$ 7,350,000 represents an deterioration. The amount of physical appropriate deduction for physical deterioration for the hotel can be Table 4, below, sets out the depreciation deterioration to the Furniture, Fixtures, quantified using the age-life method. schedule for the Furniture, Fixtures, and and Equipment at the hotel. Equipment at the hotel. The Building Functional Obsolescence The age-life method estimates the Table 4 Assumed Depreciation Schedule, Functional obsolescence results from Furniture, Fixtures, and Equipment amount of depreciation by calculating a defect in the structure, material or the percentage of the useful life of the design of the structure or layout of Year Annual Cumulative hotel in comparison to the amount of the building. In many instances the useful life that has been currently Depreciation Deprecation 1 10% 10% functional obsolescence can be utilised. For the purpose of this case overcome through redesign. 2 10% 20% study we have assumed that the However, when there are cases 3 10% 30% economic life of the hotel is 60 years. As of incurable functional obsolescence the hotel opened in 1997 the age of the 4 10% 40% the prudent valuer should make hotel is approximately four and a half 5 10% 50% an adjustment to the gross floor of years. However, as the hotel has 6 10% 60% the existing hotel to represent those achieved significantly high occupancy 7 10% 70% areas that contain incurable functional levels since opening, we consider the 8 10% 80% obsolescence. We consider the current physical deterioration at the 9 10% 90% items listed below represent areas hotel is higher than typically expected 10 10% 100% of incurable functional obsolescence at a hotel of this age. Therefore, as at the hotel: illustrated in Table 3, we have made an Source: HVS International Estimates • Excessive number of kitchens; upward adjustment to the effective age of the hotel.

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18522-HVS Journal 2 12/24/02, 9:49 AM Adjusting Historical Development Costs to Arrive at Realistic Current Replacement Costs. - continued from page 2

• Room service pantries on each hotel Table 7 Estimated Replacements Costs After construction costs have declined floor; Reduction for Obsolescence significantly in many markets in Asia • Ineffectively designed housekeeping compared to pre-crisis levels. Based on areas on each floor. Current Gross Floor Area (m2) 35,000 our recent research, we estimate that Original Development Cost 99,000,000 construction costs in for a hotel of this In order to account for functional Original Development Cost Per m2 (Say) 2,800 type in this location in 2002 are likely to obsolescence we have adjusted the gross Adjusted Gross Floor Area (m2) 32,500 be in the region of approximately 20% floor area (square metres) that we Revised Development Cost 91,000,000 less in comparison to 1997 costs. consider appropriate to build a similar Revised Development Cost Per Room 260,000 type of hotel, eliminating the We set out in Table 9, below, our unnecessary areas. Table 6, below, Source: HVS International Estimates conclusion of the replacement cost for summarises our adjusted gross floor the hotel in 2002 prices. area for the hotel. We have estimated the indicative Table 9 Conclusion of Value by the Cost Table 6 Adjusted Gross Floor Area replacement cost for the hotel, after Approach, 2002 Prices deduction for obsolescence, at Current Gross Floor Area (m2) 35,000 approximately US$ 91,000,000 or US$ US$ 2 Adjusted Gross Floor Area (m ) 32,500 260,000 per available room. Estimated Replacement Costs 77,150,000 Source: HVS International Estimates Replacement Costs in 2002 20% Estimate of the Replacement Cost Values Discount @ Revised Estimated Replacement 61,720,000 The final estimate of replacement cost Cost in 2002 Values We consider that a developer today is arrived at by deducting depreciation Say 62,000,000 would be likely to develop a similar resulting from one or more of the hotel, maintaining the same facilities, following factors, physical deterioration, Source: HVS International Estimates covering a gross floor area of 32,500 m+. functional obsolescence and external We have used this figure in our obsolescence from the hotels total construction cost estimate. construction cost. Table 8, below, sets We conclude that the replacement cost out this analysis. of the hotel in today’s market is in the External Obsolescence region of US$ 62,000,000 or External obsolescence is a defect in Table 8 Estimate of Value by the Cost approximately US$ 180,000 per available the hotel caused by forces outside, Approach guestroom. external to the hotel. For the purpose of this case study we have not Component US$ Conclusion Revised Total Development Cost1 91,000,000 considered any external obsolescence It should be considered that the Less Physcial Depreciation 6,500,000 that is likely to have affected the preceding analysis undertaken to arrive hotel. Less FF&E Depreciation 7,350,000 at the hotels replacement cost in today’s Estimated Replacement Cost 77,150,000 prices is one of the recognised valuation Estimate of Replacement Cost Estimated Replacement Cost 220,000 approaches used to arrive at an overall Considering Obsolescence Per Room estimate of value. Furthermore, from Table 7, summarises our estimate of Note: 1 After deduction for obsolescence this analysis we conclude that it is replacement cost for the hotel assuming unlikely that a prudent prospective functional obsolescence. As illustrated Source: HVS International Estimates purchaser of a hotel is will pay more for in Table 6, we consider that the gross a hotel than the amount for which the floor area should be marginally adjusted site can be acquired and the hotel of Replacement Costs in 2002 Values downwards to reflect those areas equal desirability and utility, in comparison to the existing hotels in the currently in the hotel that we consider Before finalising our estimate of market place, can be constructed represent incurable functional replacement costs for the hotel it is without undue delay. obsolescence. important to consider that, due to the 1997 regional economic downturn,

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18522-HVS Journal 3 12/24/02, 9:49 AM The Job Seeker and the Executive Search Consultant - continued from cover

particular vacancy as there is no budget be restored by feeling confident about objective is to demonstrate what a great allocation. the job search process. employee they will be and how they meet the job’s requirements. In an The Association of Executive Search A job seeker needs to tackle a job search interview the job seeker needs to show Consultants (AESC) has professional systematically; it is unlikely the right that they understand the job, can do the and ethical guidelines that state that a opportunity will present itself without job and in the way the company wants search consultant should not present a great deal of effort. The maxim of “The it done, and that they can be of great candidates to more than one client harder I work the luckier I get” is value to the company. The best simultaneously. Nor should they accept particularly true in job search. The job interviews are where the job seeker payment for assisting an individual seeker needs to define the target job in actually gets to demonstrate how they in securing employment. These terms of what they expect from it e.g. will do the job. Too often all that the guidelines are designed to ensure career growth, development, training, interview accomplishes is to enable the ethical behavior by search consultants compensation, prestige etc. With this job seeker to demonstrate how good and to avoid conflicts of interest with knowledge the types of companies they are at interviews, and then clients. Executive Search Companies are where this job exists becomes apparent. everyone is surprised when they don’t retained by client companies when they These companies can then be perform as well at the job. require assistance in recruiting a specific thoroughly researched and at the same type of new employee. Executive time the job seeker can to take a self The interview can be used to ask search firms do receive and encourage inventory of their own skills, questions about the company, but the enquiries from job seekers trying to competencies and short-comings. This job seeker should have completed this get hired, but their priority is their as an opportunity to refresh some skills in the research stage. The best time for client’s interest, not the job seeker’s. or learn new ones they may require in certain sensitive questions is after the the new job. job offer has been made, at this stage a From the job seeker’s perspective the relationship is beginning to form and a first rule of job seeking is to enter the Making contact with a potential sensitive question is less likely to sour game from a position of strength; simply employer might be best achieved the process. put it is easier to secure a job whilst through the introduction of someone already employed. The reason for this already in the company, or the job seeker Years ago a fable was told to illustrate is partly perception, coupled with the could consider making a direct the difference between “involvement” confidence and increased self efficacy approach to the company. As a rule it is and “commitment”; the story told the job seeker can derive from being best to contact the direct supervisor of of a chicken and a pig discussing employed. The job seeker knows that the job being sought; this person will be the preparation of the farmer’s they have the luxury to reject, or the decision maker, will know the needs traditional bacon and egg breakfast. negotiate a job offer which they can of the job, the status of any recruitment The chicken claimed she was “involved” benchmark against their current and whether there are future vacancies. in the breakfast; however the pig employment. These days with down was able to demonstrate how sizing and company re-structures, job Resumes can be used by employers, prior “committed” he was to the breakfast. seekers don’t always have the luxury of to meeting the candidate, to eliminate a The nature of the relationship retaining a job whilst engaged in a job candidate, thus resumes from a job between the involvement of an search. Unemployed job seekers are seekers perspective might be over-rated. executive search consultant and further tested as they need to present a Instead of the traditional resume the job the job seeker is somewhat similar; shining example of professional savvy seeker might demonstrate their it is the commitment shown by the and confidence, whilst they navigate the understanding of the job with a list of job seeker that will ultimately unfamiliar and threatening waters of the job requirements, expressed in terms determine the offers they receive. interviews and recruitment. All this at a of skills, competencies and major time when they may be feeling accountabilities. These will have been In addition to Executive search, vulnerable about facing an uncertain determined from the research and from HVS Executive Search offers a wide future. questions to the direct supervisor. range of staffing solutions including Against these can be listed the relevant compensation analysis and design, as well This feeling of uncertainty and and matching skills and experiences of as corporate governance consultaing. vulnerability can be a consequence of, the job seeker. HVS Executive Search offers the or compounded by, the loss of the world’s largest hospitality career website association with their previous Now for the interview, no one enjoys an www.hospitalitycareernet.com. employer. Some individuals derive a interview, not the job seeker or the great deal of their sense of self worth company representative, but from a job For further information regarding from the famous and prestigious brand seeker’s perspective an interview is a HVS Executive Search please contact they are associated with. This buying signal. When a company invests Mark Keith, Managing Director, dependency may leave them vulnerable the time and resources to interview a Tel: (852) 2791 5868, Fax: (852) 2792 when they are no longer associated with candidate they are indicating a 2358 the famous brand. Self confidence can willingness to hire. The job seeker’s

4 HVS International www.hvsinternational.com

18522-HVS Journal 4 12/24/02, 9:49 AM Ecotel – Now in Delhi

The Ecotel bouquet is an exclusive All aspects of the property’s design and above the requirements for an Ecotel group of inns, hotels and resorts functioning conform to the Ecotel code. certification and these are; that define the concept of Worthy of attention is the construction environmental responsibility within material used – down to the energy • The use of eco-friendly cement the hospitality industry. All certified efficient electrical fittings. that contains a substantially hotels must pass a multi-level lower content of fly ash as inspection by Hospitality Valuation Uppal’s Orchid provides the guest compared to normal cement; Services (HVS) International, the with a completely eco-friendly • The windows of guestrooms are international ECOTEL® accreditation atmosphere and is committed to the triple glazed and hermetically agency. The 5 globes awarded by HVS environment by reducing, reusing and sealed. This aids in the International are: energy efficiency, recycling nature resources. The hotel has conservation of air-conditioning water conservation, solid waste prepared itself to receive the highest energy; management, employee environmental number of globes that can be awarded • The paint used at Uppal’s Orchid education, and community involvement by HVS International. The hotel has to is also eco-friendly. The paint for and environment commitment. The comply with strict regulations and the exterior of the hotel is a water- code is stringently maintained, as is procedures laid down by HVS based paint with a negligible evident from the fact that there are International to achieve each of these content of Volatile Organic only three 5 Globe Ecotel Hotels in globes. Compounds (VOC) and the paint the 5-star category in the world. used for the interiors are Since the launch of Ecotel Certification Ecotels around the world are able to completely VOC free; in 1994 over 1,100 hotels from over 30 save on precious natural resources and, countries have applied for the as a result, reduce costs in the long run. • The hotel has zero garbage. certification. To date, less than 5% of For example, The Orchid Ecotel, Therefore everything in the hotel these applicants have passed the Mumbai, has been able to cut down is recycled. Any end product or certification inspection. operating expenses as a result of waste is composted in the on-site eco-friendly practices. The Uppal’s vermiculture zone. New Delhi now has its first Ecotel with Orchid also has many features that will the opening of Uppal’s Orchid — a 5- help reduce expenses, some of them The ECOTEL® certification’s foremost star deluxe business hotel. Uppal’s include; benefit is enhanced marketability. Orchid is the second 5-star Ecotel hotel This program can help the hotel get in India, the first being the Orchid in • Energy saving lamps that the most out of high-level environmental Mumbai. Hotel Rodas in Mumbai is the consume substantially less programs by marketing the hotel as a only other hotel in India with this energy while providing as much leader in the industry. ECOTEL® certified certification. light as ordinary bulbs; environmental programs have received worldwide media attention from the most • Flow restrictors and aerators desirable sources, including CNN, Uppal’s Orchid has been promoted used in taps of the hotel Time magazine and Conde Nast Traveler and developed by the Delhi based guestrooms, bathrooms and to name a few. Other benefits include Uppal Group (one of the leading cafeteria, which increase the force increased employee morale, which both real estate developers in Delhi), who of water while decreasing its improves guest service and decreases have entered into an agreement with flow, resulting in saving up to turnover, lower operating costs from Concept Hospitality Limited for the 50%; day-to-day management and operation energy, water and waste conservation • Advanced water saving “Geberit of the property. The hotel has an efforts, and improved relationships with concealed Cistern” that provides inventory of 84 rooms that include governments and communities. the guest 2 flushing options of deluxe rooms with private gardens, 7.5 litres and 3.5 litres as jacuzzis and private terraces. Apart from For more information on Ecotels, please compared to the conventional providing a business center and contact: cistern which uses 15-20 litres of conference facilities, the hotel also has Christopher J. Balfe water; a unique feature for the time pressed Divisional President executive: the ‘shower suite’, which • Energy saving “fuzzy logic” HVS - Eco Services provides comfortable freshening up minibars those save up to 40% 372 Willis Avenue facilities for guests who are in town energy as they sense the load and Mineola, New York 11501 only for a few hours. Other facilities cool accordingly; Telephone: 516-248-8828 Extn: 638 include two speciality restaurants, Facsimile: 516-742-3059 a swimming pool with a sunken bar In India, the Ecotel certified hotels have e-mail: [email protected] and a health club. certain features which are over and Website: www.ecotels.com

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18522-HVS Journal 5 12/24/02, 9:49 AM Ecotel – Now in Delhi - continued from page 5

Ecotels around the globe include:

• All the Hilton Hotels in Japan. • Bayman Bay Club, Honduras • La Paloma Lodge, Costa Rica • The Benjamin, New York, USA • Aguila de Osa Inn, Costa Rica • Capa Rios, Costa Rica • Regency at Gainey Ranch, • Arco Iris, Costa Rica • Marenco Biological Reserve, Costa Scottsdale, USA • Arenal Observatory Lodge, Costa Rica • Miraval, Tuscan, USA Rica • Rainbow Adventures Lodge, Costa • The Park Ridge at Valley Forge, USA • Bosque del Cabo Wilderness Camp, Rica • Turnberry Isle Resort and Club, Costa Rica • Rancho Leona, Costa Rica Aventure, USA • Casa Corcovada, Costa Rica • Rara Avis, Costa Rica • Costa de Cocos, Mexico • Drake Bay Wilderness Resort, Costa • Selva Verde Lodge, Costa Rica • Villas Maya, Mexico Rica • Tilawa Viento Surf Hotel, Costa Rica • Villa Castellanos, Guatemala • El Gavilan Lodge, Costa Rica • La Milpa, Belize • El Sapo Dorado Mountain Suites, • Maya Mountain Lodge, Belize Costa Rica • Mountain Equestrian Trails, Belize • Fonda Vela, Costa Rica

Seychelles – An Overview

Market Area largest proportion of accommodated this period, the most significant level of demand (approximately 85%). The key growth in the number of beds available The Republic of the Seychelles is located feeder markets for five-star hotels are occurred on the islands, with an 8% about 1,600km off the coast of East European based, namely, France, UK, compound annual average rate of Africa, in the western part of the Indian Germany, and Italy. We consider growth. Ocean. The country is made up of wholesale demand is likely to continue approximately 116 islands scattered over to dominate the market mix in the future There is currently no official hotel one million square kilometres of sea. as the Seychelles continues to be a classification system in the Seychelles, The Seychelles archipelago is divided popular destination for travellers from and the supply of internationally into two distinct collections: the Mahé key feeder markets in Europe. As the is limited. Table 11 sets group, of 43 granitic islands, with high majority of the current hotel supply in out hotels, which we consider to be hills and mountains and the outlying the Seychelles is unbranded there is equal in standard to international four/ islands, and the coralline group, relatively limited FIT demand, five-star hotels. It is our opinion that consisting of approximately 73 islands, however, we consider that as more guests who usually stay at international most of which are barely above sea level. internationally branded hotels are likely five-star hotels, will consider staying at The three main islands of the Seychelles to enter the market in the future more these hotels in the Seychelles. are Mahé, Praslin and La Digue. FIT demand is likely to be induced into the market. As illustrated in the table 10, the supply Hotel Demand of four- and five star hotels in the market As there is little commercial activity in Hotel Supply area is limited. Only five hotels, namely the Seychelles, hotel demand is almost the Plantation Club, Lemuria, Paradise There are currently 4,940 beds available exclusively leisure related. Recent Sun Hotel, Le Meridien and la Digue in the Seychelles, of which 2,900 are arrival data indicates that tourists Island Lodge, have 60 or more rooms, located on Mahé and 2,040 on other represent some 88% of the visitors the majority of supply can be islands. Between 1995 and 2001, total arriving at the Seychelles. For the five- characterised as small independently hotel supply increased at an star hotel market in the Seychelles operated hotels. approximate annual rate of 2.2%. During wholesale demand constituted the

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18522-HVS Journal 6 12/24/02, 9:49 AM Seychelles – An Overview - continued from page 6

Table 10 International Four- Five-Star Standard Hotels

Hotel Opening Date 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Chateau de Feuille 1969 9 9999999999 Le Meridien Fisherman’s Cove 1974 62 62 62 62 62 62 62 62 62 62 62 La Digue Island Lodge 1977 60 60 60 60 60 60 60 60 60 60 60 Felicite Private lodge 1977 6 6666666666 Denis Island Resort 1 1978 25 25 25 25 25 25 25 25 25 25 25 La Reserve 1982 32 32 32 32 32 32 32 32 32 32 32 L’Archipel 1987 30 30 30 30 30 30 30 30 30 30 30 Silhouette Island Lodge 1988 12 12 12 12 12 12 12 12 12 12 12 The Plantation Club 1989 200 200 200 200 200 200 200 200 200 200 200 Desroches Island Resort 2 1990 20 20 20 20 20 20 20 20 20 20 20 Hotel Coco de Mer 1991 50 50 50 50 50 50 50 50 50 50 50 Paradise Sun Hotel 1992 80 80 80 80 80 80 80 80 80 80 80 Bird Island Lodge 1993 - - 24 24 24 24 24 24 24 24 24 L’ile au Cerf Private Lodge 3 1994 - - - - - 16 16 16 16 16 16 Fregate Island Private 1995 ------16 16 16 16 16 Cousine Island Resort 1996 ------4 4 4 4 Anonyme Island Resort 1998 ------7 7 7 7 Alphonse Island Resort 1999 ------30 30 30 Lemuria 2000 ------88 88 88 Banyan Tree 2001 ------37 Beachcomber St. Anne 2002 ------87 Total 586 586 610 610 610 626 642 653 771 771 808 Change Ð 0 24 0 0 16 16 11 118 0 37 % Change Ð 0% 4% 0% 0% 3% 3% 2% 18% 0% 5%

CAAG 4 1992-2002 3.3% CAAG 4 1997-02 5.2%

Notes: 1 Reopened in 1999 2 Closed for Renovations from April to November 2002 3 Reopening in 2002 4 Compound Annual Average Rate of Growth

Source: HVS International Research, 2002

Hotel Performance islands. Between 1995 and 2001 the Table 11, below, sets out the recent market wide occupancy for all hotels in operating performance of a sample of For the entire market in the Seychelles the market area was recorded at five-star hotels in the market area. The resort hotels located on outer islands between 52% and 60%. During the same hotels listed in the table are the more typically operate, on average, at higher period demand has increased by upscale hotels located in the market occupancy levels in comparison to approximately 2% per annum. area. hotels located on any of the three main

Table 11 Recent Operating Performance, Sample of Five-Star Hotels, Seychelles (US$)

Historic Performance 1999 Historic Performance 2000 Historic Performance 2001 CAAG1 1996-2001 Occ % ARR RevPAR Occ % ARR RevPAR Occ % ARR RevPAR Occ % ARR RevPAR

Sample of Five-Star Hotels1 70% 217 153 60% 351 211 73% 387 282 Ð Ð Ð

% Change (Demand/ARR/RevPAR) Ð Ð Ð 72% 62% 38% 21% 10% 33% 44% 34% 36% Note: 1 Sample includes Lemuria, Denis Island, Bird Island, Desroches Island, Alphonse Island, L’Archipel, Paradise Sun Hotel, Le Meridien Fisherman’s Cove 2 CAAG Ð Compounded Average Annual Rate of Growth

Source: HVS International Research & Estimates

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18522-HVS Journal 7 12/24/02, 9:49 AM Seychelles – An Overview

Between 1999 and 2001 demand contained island resorts achieve an ARR opportunities in the market, including increased significantly following the of between US$ 200 and US$ 400, and Four Seasons, Kerzner International, opening of the Lemuria and Alphonse the remaining resorts located on the Aman Resortsand . Island Resort; both hotels induced mainland achieve an ARR of on average demand into the market area. Despite US$ 250. We consider that the introduction of an increase in accommodated demand more branded and larger hotels is likely of approximately 72% from 1999 to Despite the increase in supply between to lead to increased levels of demand 2000, market-wide occupancy dropped 1999 and 2001, occupancy and ARR for hotel accommodation in the from 70% to 60%, largely due to the increased during this period, suggesting Seychelles. Whilst branded hotels have relatively low occupancy rate in the first that new supply was absorbed in the access to international sales offices and year of operation for the newly opened market area and that demand growth resources that can help promote the hotels. Following improved occupancy outpaced supply growth. Seychelles as a tourist destination, larger levels in the second year of operation hotels would allow tour operators at both new hotels market-wide New Supply higher allotments, which would occupancy levels recovered to 73% in translate into a higher volume of hotel Due to the quality of the destination, 2001. guests. We consider it likely that the recent high profile hotel openings, and future development of more increased promotion of the destination, The ARR for the competitive set rose international standard hotels will the Seychelles is becoming increasingly sharply in 2000 compared to 1999 levels positively impact the tourism industry of interest to hotel management from $217 to $351, or by approximately in the Seychelles. companies and investors. We are aware 62%. This was largely due to the opening of the following recent openings / new of the five-star deluxe Lemuria and supply expected to enter the competitive Conclusion Alphonse Island Resort, which achieved market: room rates significantly higher than the In light of the strong performance market average. From 2000 to 2001, the • Banyan Tree, 35 villas, Mahe, grand of the recently opened hotels in the ARR increased by an additional 10%, as opening October 2002; market, and the current lack of most hotels in the market area were able • Beachcomber, 87 villas, Sainte Anne supply of true international five-star to increase their wholesale rates. The Island, opening late 2002; hotels, we consider that the market area Banyan Tree and Lemuria Hotel achieve offers good long-term opportunities the highest ARR in the market area, in In addition several hotel management for hotel management companies and excess of US$ 500. Typically, the self- companies are rumoured to be seeking investors.

Special Announcement

New HVS Executive Search Office has opened in Hong Kong.

The World’s leading retained executive search firm specialising in the hospitality industry, HVS Executive Search has been in the past years established search capabilities in London, New Delhi, and Hong Kong in order to better serve its international clientale. In addition to executive search HVS Executive Search offers a wide range of staffing solutions including compensation analysis and design, as well as corporate governance consulting. HVS Executive Search offers the world’s largest hospitality career website www.hospitalitycareernet.com and a web-based assessment tool designed for hospitality emplyees www.2020skills.com. For further information regarding HVS Executive Search please contact Mark Keith, Managing Director, Tel : (852) 2791 5865, Fax : (852) 2792 2358.

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18522-HVS Journal 8 12/24/02, 9:49 AM Regional Watch

Five-Star Hotel Market* YE 2001 YTD NOVEMBER 2002 Difference Occ % ARR (US$) RevPAR Occ % ARR (US$) RevPAR Occ % 1 ARR 2 RevPAR 2 1 Beijing 61% 84 51 66% 82 57 5% -2% 10% 2 Shanghai 66% 115 76 71% 118 84 5% 3% 10% 3 Seoul 75% 159 119 75% 170 128 0% 7% 7% 4 Hong Kong 64% 206 132 69% 210 145 5% 2% 10% 5 Bali 70% 92 64 55% 85 47 -15% -8% -27% 6 Jakarta 30% 80 24 33% 72 24 3% -10% -1% 7 Kuala Lumpur 65% 57 37 68% 57 39 3% 0% 5% 8 Bangkok 61% 110 68 69% 120 83 8% 9% 23% 9 Phuket 65% 138 90 60% 130 78 -5% -6% -13% 10 Singapore 70% 119 83 70% 112 78 0% -6% -6% 11 Taipei 74% 113 84 70% 111 78 -4% -2% -7% 12 Manila 55% 69 38 55% 65 36 0% -6% -6% 13 Tokyo 75% 192 144 75% 190 143 0% -1% -1%

Financial Year 2001-2002 YTD (01 April 2002 Ð 31 Oct 2002) Difference Occ % ADR (US$) RevPAR Occ % ADR (US$) RevPAR Occ % 1 ARR 2 RevPAR 2 14 New Delhi 53% 105 56 54% 88 48 1% -16% -15% 15 Mumbai 49% 118 58 53% 98 52 4% -17% -10% 16 Bangalore 63% 96 60 68% 87 59 5% -9% -2% 17 Goa 49% 75 37 47% 53 25 -2% -29% -32%

Notes: 1 Percentage Point Change 2 Percentage Change * HVS sample of hotels

Source: HVS International Research, 2002

Transactions Asia 4th Quarter 2002 Estimated Transaction Price Local Currency US$ No. of Transaction Hotel Location Rating Rooms Date Total Per Room Total Per Room Buyer Seller The Westin Sydney, Five-Star 416 May-02 160,000,000 385,000 84,211,000 202,400 GIC Reaj Estate Grocon Sydney Australia (Singapore) ANA Grand Sydney, Five-Star 570 Jul-02 206,500,000 362,000 108,684,000 190,700 GIC Reaj Estate ALL Nippon Airway Co. Harbour Australia (Singapore) Hotel Sydney, Three-Star 166 Sep-02 22,700,000 137,000 11,947,000 72,000 Estate of Bete IPOH Ltd World Square Australia Schwartz Centaur Juhu Mumbai, Three-Star 366 Mar-02 1,520,000,000 4,153,000 31,300,000 85,500 ITDC2 Tulip Hotels & Resorts. India Centaur Mumbai, Three-Star 288 Mar-02 830,000,000 2,882,000 17,100,000 59,400 ITDC2 Batra Hospitality Pvt Ltd Airport1 India Kanishka1 New Delhi, Three-Star 317 Jun-02 959,500,000 3,027,000 19,800,000 62,500 ITDC2 Eros Group India Ranjit1/3 New Delhi, One-Star 138 Jun-02 350,000,000 2,536,000 7,200,000 52,200 ITDC2 Reliance Industries3 India The Regent Mumbai, Five-Star 468 Sep-02 4,500,000,000 9,615,000 92,700,000 198,100 Lokhandwala Indian Hotels India Hotels Centaur Airport Mumbai, Three-Star 288 Oct-02 1,150,000,000 3,993,000 23,700,000 82,300 ITDC2 Sahara Group (Sahara) India 1 Estimated Bid Price - The New Owners have to invest substantial amounts to renovate/refurbish the properties 2 Indian Tourism Development Corporation 3 Hotel Ranjit would cease to function as a hotel and would be used as commercial office space for the Reliance Group

Source: HVS International Research, 2002

9 HVS International www.hvsinternational.com

18522-HVS Journal 9 12/24/02, 9:49 AM Regional Watch - continued from page 9

Hotel Opening and Rebranding, Asia 4th Quarter 2002 Opening Type of No.of Date Hotel City Country Rating Brand/Management Development Rooms June Four Seasons at Marunouchi Tokyo Japan 5-star Four Seasons Hotels New-build 57 June JW Marriott Surabaya Surabaya Indonesia 5-star JW, Marriott Re-branded 418 June Radisson Hotel Jalandhar Jalandhar India 4-star Radisson, Carlson Hotels New-build 104

July Formula 1 Numazu Numazu Japan 1-star Formula 1, Accor New-build 92 July The Andaman Langkawi Malaysia 5-star General Hotel Management Re-branded 188 July Udaivilas Udaipur India 5-star Oberoi Hotels New-build 87 July Alila Ubud Bali Indonesia 5-star Alila Hotels Re-branded 56 July Alila Manggis Bali Indonesia 5-star Alila Hotels Re-branded 54

August Renaissance Tianjin Tianjin China 5-star Renaissance, Marriott New-build 275 August Fuzhou Fuzhou China 4-star Ramada, Marriott New-build 323 August Hyatt Regency Kolkata India 5-star Hyatt International New-build 235 August Vanyavilas Ranthambhore India 5-star Oberoi Hotels New-build 25

September Westin Shanghai China 5-star Westin, New-build 301 September Koshien Osaka Japan 4-star Novotel, Accor Re-branded 200 September Hebei China 4-star Crowne Plaza, Six Continents New-build 238

October Novotel Xin Hua Wuhan China 4-star Novotel, Accor New-build 303 October Silom Bangkok Thailand 5-star Sofitel, Accor Re-branded 454

November Hyatt Regency Mumbai India 5-star Hyatt International New-build 408 November Hotel JAL City Miyazaki Miyazaki Japan 4-star JAL, New-build 213 November Dusit Inya Lake Yangon Myanmar 4-star Dustin Hotels Re-branded 211 November Comfort Hotel Osaka Shinsaibashi Osaka Japan 3-star Comfort, Choice Hotels New-build 198 November Uppal’s Orchid New Delhi India 5-star Concept Hospitality Management New-build 84

December Novotel Coralia Magic Lagoon Phang-nga Thailand 4-star Novotel, Accor New-build 200 December Conrad Hotel Bangkok Thailand 5-star Conrad, Hilton New-build 400 December Sheraton Krabi Resorts Krabi Thailand 5-star Sheraton, Starwood New-build 246 December Renaissance Beijing Beijing China 5-star Renaissance, Marriott New-build 212 December Putrajaya Shangri-La Putrajaya Malaysia 5-star Shangri-La New-build 119 December Putrajaya Marriott Hotel Putrajaya Malaysia 5-star Marriott New-build 488 December Grand Inter-Continental Mumbai India 5-star Inter-continental, Six Continents New-build 400 December Radisson Goa India 5-star Carlson New-build 110

Source: HVS International Research, 2002

10 HVS International www.hvsinternational.com

18522-HVS Journal 10 12/24/02, 9:49 AM HVS International

Since 1980, HVS International, the leading global hospitality consulting organisation, has provided financial and valuation consulting services for over 20,000 hotels in more than 75 countries. Its professional staff of more than 250 industry specialists offers a wide range of services, including market feasibility studies, valuations, operator searches and hotel brokerage and investment services. Through its divisions, HVS supplies unique hotel consulting expertise. HVS International is the industry’s primary source of hotel sales information. Its databases contain information on more than 10,000 hotel transactions. HVS is also the most comprehensive source of hotel compensation data.

HVS Offices: • Singapore • New Delhi • Hong Kong • London • Boulder For further details, please contact: • Madrid • San Francisco • Miami • Vancouver • Toronto Erik van Keulen • Sao Paulo • Buenos Aires • New York • Dallas • Chicago 100 Beach Rd, Shaw Towers #28-10/13 Singapore 189702 • Washington Tel: (65) 6293 4415 Fax: (65) 6293 5426 [email protected] HVS Divisions: Manav Thadani C-67, Anand Niketan, 2nd Floor • Consulting Services • Valuation Services • Eco Services • Gaming New Delhi, India 110021 Tel: 91-11-2410-1005 Fax: 91-11-2410-1066 Services • Executive Search Services • Food & Beverage Services [email protected] • Consulting Services • HVS Convention, Sports & Mark Keith Entertainment Facilities Consulting • HVScompass Interior Design 183 Jade Villa Nagu Liu, • Hospitality Investment Services • HVS Capital Corp • Asset Chuk Yeung Road Saikung, Hong Kong Management & Operational Advisory Services • HVS/The Ference Tel: 852-2791-5868 Fax: 852-2792-2358 Group • HVS Technology Strategies [email protected]

HOTEL BROKERAGE & INVESTMENT SERVICES HVS International and DTZ Debenham Tie Leung (SEA) jointly provide hotel brokerage services. Our joint experience in hotel markets and our agency expertise provide buyers and sellers with great insight when conducting hotel transactions in Southeast Asia. DTZ is one of the world’s largest property advisory firms and brings together 6,500 staff operating from over 120 offices in 31 countries worldwide.

• Sales • Hotel Acquisition • Investments • Lease Contract • Land Acquisition & Sales • Management Contract & Operator Searches

For further details, please contact: For further details, please contact: Erik van Keulen Low Fatt Onn 100 Beach Rd, Shaw Towers #28-10/13 100 Beach Rd, #35-00 Shaw Towers Singapore 189702 Singapore 189702 Tel: (65) 6293 4415 Fax: (65) 6293 5426 Tel: (65) 6293 3228 Fax: (65) 6293 1633 / 6298 9328 [email protected] [email protected]

In Strategic Alliance Southeast Asia Offices: Singapore, Kuala Lumpur, Bangkok and Jakarta

11 HVS International www.hvsinternational.com

18522-HVS Journal 11 12/24/02, 9:49 AM To subscribe to all HVS publication, please fill out the form below and mail it to HVS International, 100 Beach Rd, #28-10/13 Shaw Towers, Singapore 189702 or fax it to +65 6293-5426.

HVS International Journal Asian Hotel Valuation Index Regional Hotel Value Watch HVS E-Newsletter

Name : Title Company Name : Address :

Type of Business: Management Company / Finance / Developer / Hotel Owner or Others Tel. No : Fax No Email Address:

OFFICES ABOUT THE AUTHORS:

Erik van Keulen, MHM, Managing Director Kiran Andicot has recently joined HVS Singapore* Miami HVS International Singapore, joined HVS International’s New Delhi office as a Consulting 100 Beach Road 8925 SW 148th Street International in 1996 and has since worked on and Valuation Analyst. Kiran has seven years #28-10/13 Shaw Tower Ste. 216 hospitality related projects around the world experience in the hospitality industry. He has Miami, FL 33176 including Asia, Europe, Africa and the Middle East, worked as Accommodations Manager with the Singapore 189702 Prior to joining HVS International in 1996, Erik Taj Group of Hotels, based at Taj Exotica in Goa. 65-6293-4415 305-378-0404 gained operational hotel experience with Marriott Prior to the Taj, Kiran has worked with the 65-6293-5426 fax 305-378-4484 fax International, Accor and . Through his Oberoi Group of Hotels in different management monthly column, Erik is a regular contributor to positions. His experience includes working at New Delhi Denver Hotel Asia Pacific, Asia’s leading hotel trade The Oberoi in Bangalore, The Trident in Cochin C-67, Anand Niketan, 2nd Floor 2229 Broadway magazine. [email protected] and Rajvilas in Jaipur. Kiran holds a Post New Delhi, India 110021 Boulder, CO 80302 Graduate Diploma from the Oberoi Centre for Learning and Development (OCLD) in Delhi and 91-11-2410-1005 303-443-3933 Phil Golding is a Senior Associate and Project 303-443-4186 fax Manager with HVS International Singapore. Phil a Diploma in Hotel Management from the 91-11-2410-1066 fax joined HVS London in 1999, after gaining hotel National Council for Hotel Management and Dallas consulting experience and graduating from the Catering Technology. Hong Kong Suite 101 Savoy Group’s management-training programme. [email protected] 183 Jade Villa 2601 Sagebrush Drive Phil is a member of the HCIMA and BAHA. Phil has Nagu Liu, Chuk Yeung Road conducted numerous hotel feasibility studies and Flower Mound, TX 75028 Ada Bjordahl joined HVS International Saikung, Hong Kong valuations throughout the Europe, Southeast Asia, Singapore as an Associate in January 2002, 972-410-2002 852-2791-5868 and Australia. [email protected] after having worked for HVS in London since 972-899-1022 fax February 2001. During her time in London, 852-2792-2358 fax Ada conducted numerous hotel feasibility Vancouver Hubert Viriot is an Associate with HVS International London Singapore, specialising in hotel valuation and studies and valuations in Europe and the Middle 4235 Prospect Road consulting. A graduate of the Glion Hotel School East. Ada graduated from Ecole Hôtelière de 14 Hallam Street N. Vancouver, British Columbia (1998) in Switzerland, Hubert joined HVS Lausanne in Switzerland in 2001, after gaining London, U.K. W1W 6JG Canada V7N 3L6 International in March 2001, after gaining operating hotel experience throughout Europe and Mexico. [email protected] 44-20-7878-7700 604-988-9743 experience throughout Asia with the Peninsula Group, Hyatt International and Accor. 44-20-7436-3386 fax 604-988-4625 fax [email protected] Manav Thadani joined HVS International’s New Spain Toronto York office as a Consultant and Valuation Madrid 2120 Queen Street East Mark Keith is Managing Director of HVS Executive Analyst in September 1995. Prior to joining P de la Casellana, 93-2 Search in Hong Kong and oversees search HVS, he gained six years of operational Ste. 202, Toronto, Ontario experience in various hotels in Madrid, Spain 28046 assignments throughout South East Asia, Australia Canada M4E 1E2 and the Pacific. Mr Keith has over twenty five years as well as completing his undergraduate and New York 416-686-2260 of experience in international human resource graduate education at New York University. 416-686-2264 fax management and prior to joining HVS he headed He moved to the London office in early 1997 372 Willis Avenue up the human resource function for a luxury hotel from where he planned the opening of HVS Mineola, NY 11501 São Paulo group in Hong Kong. Mr Keith is a recognised International’s first Asian representative office 516-248-8828 Av. Brig. Faria Lima, 1912cj. 7F authority on recruitment and selection, in India. He was appointed Associate Director 516-742-3059 fax 01452-001 São Paulo/SP, Brasil psychometric assessment, international (India) in mid-1997 and the office in New Delhi was established in September of 1997. In 2000, 55-11-3034-1091 compensation, training and development and San Francisco cross-cultural management. For the past twenty he was promoted as Managing Director of the 55-11-3034-6364 fax 116 New Montgomery Street years he has lived in Hong Kong, working within HVS International New Delhi office. Buenos Aires Asia and the USA. He has a Master of Science [email protected] Ste. 620 degree from the University of Leicester and has also San Francisco, CA 94105 Reconquista 1056 - 10û Piso lived and worked in Africa, Europe and the Middle 415-896-0868 (1003) - Buenos Aires, Argentina East. [email protected] 415-896-0516 fax 54-11-4515-1461 54-11-4515-1462 fax Reprint Permission required for any article appearing in this publication * Strategic DTZ Debenham Tie Leung Alliance Offices: Singapore, Kuala Lumpur, Jakarta and Bangkok

18522-HVS Journal 12 12/24/02, 9:49 AM