Case study: Super motel 8:

*t was October 2006, and Dean Ismail, owner and general manager of the thirty-six-room Super 8 Motel in Guelph, Ontario, was managing the front desk of the-motel. He was working his usual Monday morning shift when the phone rang.

Dean answered the phone as usual by saying,'

"Thanks for calling the Super 8 Motel-

Guelph, Dean speaking. How may I direct your call?" The person on the other line replied, "Hi Dean, how are you?" It was Dean's uncle and RE/MAX real estate agent, Murrad Gillani. Murrad said, "Dean, I have a prospective client who is very interested in purchasing your motel. My client is offering $2.9 million for the property." Dean was surprised, as he had never considered the possibility of selling the motel. Dean immediately said "Murrad, it will be a big decision for my family and I to part with the property because it has been our livelihood for nearly twenty years." Murrad explained,

"Dean, you have only fourteen days to accept my client's offer or the offer will be with-drawn." Dean replied, "I will have to talk it over with my family, my lawyer, and my accountant and get back to you." Dean and his uncle ended the phone call, and Dean started to do some heavy thinking.

COMPANY BACKGROUND

Dean Ismail, an entrepreneur with little formal education, reminisced about his Super 8

Motel. "I sold my bicycle shop in Karachi, Pakistan, and moved to Canada in 1987 with my wife and two boys. When I arrived in Canada, I purchased the motel, now known as the Super 8 Motel; however, at the time of purchase the property was an independent motel called the Woodlawn Motel. The property had thirty guest rooms, a thirty-five-seat family restaurant, gas station, and convenient living quarters for a large family.

I purchased the property (land, building, furniture, fixtures, and equipment) in April 1987 for $1,000,000. Of the purchase price, 80 percent was assumed as a mortgage cosigned by my brother, Barakat, who already owned a few hotel properties of his own in Toronto, Ontario. The remaining 20 percent of the purchase price came from the sale of my bicycle shop, my savings, and private loans from other family members."

After nearly twenty years, the small, non-flagged, roadside motel that Dean and his wife Rose had purchased had grown into a multi-million dollar holding company called Woodlawn Hospitality Group (WHG) that consisted of two franchised properties with a third under construction. However, this growth didn't happen overnight. The following timeline shows highlights from the company expansion over the two decades:

1990 Completed extensive renovations to the family restaurant

1991 Completed extensive renovations to exterior of building, guest rooms, and lobby

1992 Purchased Super 8 Motel franchise

1995 Leased restaurant to an independent operator

1998 Completed a major expansion of the entire property Removed family living quarters Removed XL gas station

Added extensive landscaping around perimeter of property

Added six large interior corridor guest suites (including rooms with a

Whirlpool/Jacuzzi

Added large fifty-person meeting room

Added large lobby lounge, breakfast area, front desk, and general manager's office

Added handicap access to lobby

Added stucco to building and canopy with large signage

2000

2002

Leased restaurant to Samara apanese Restaurant (current lease)

Refinanced the Super 8 Motel to build a fifty-three-room Holiday Inn Express

Hotel & Suites in Guelph on land adjacent to the motel

2006

Refinanced the Holiday Inn Express to begin construction of a ninety-five-room Hampton Inn & Suites in Guelph on land two kilometers (five minutes' driving distance) west of the Super 8 Motel

SUPER 8 MOTEL BRAND OVERVIEW

Super 8 Motels, Inc., began in 1974 with one modest motel in Aberdeen, South Dakota, offering rooms for $8.88 per night. More than thirty years later, Super 8 was the world's largest budget hotel chain consistently offering guests clean rooms and friendly service at more than 2,000 motels across the United States, Canada, and China.

The company, which targets the economy-lodging segment, is a subsidiary of Wyndham Worldwide. For cost-conscious consumers traveling by car and looking for a dependable place to spend the night along the way, Super 8 is a national roadside lodging chain that provides convenient locations at a reasonable price. In response to chang-

ing consumer needs, the Super 8 brand has evolved from the basic accommodations of the 1970s to now offer a complimentary SuperStart continental breakfast, free high-speed Internet access, and various other amenities at all locations.

SUPER 8 MOTEL-_GUELPH SYNOPSIS

Location Analysis

The Super 8 Motel was located on the northwest side of Guelph and was in close proximity to the junction of Highway 6 (also known as the Hanlon Expressway) and Highway 7 (Exhibit 1). The motel had excellent visibility from Highway 6 and Highway 7, which was considered a high drive-by traffic area in Guelph. The property had 100 feet of frontage along Highway 7.

1.Analyze the market demand in the light of the anticipated additional room capacity in the Guelph market and estimate the impact this will have on the room revenue that the Super 8 Motel can generate each year between 2007 and 2017.

2.Revise the historic statement of operations between 2002 and 2006 for the Super 8 Motel to reflect the motels results on a stand-alone basis

3.Project eleven-year cash flow by the Super 8 Motel between 2007 and 2017

4.Place a value on the motel employing discounted cash flow analysis.

5.Estimate the value of the Super 8 Motel based on recent sales of similar properties.

6.Identify and assess the qualitative advantages and disadvantages of selling the Super 8 Motel.

7.Make a recommendation to Dean concerning whether he should sell the motel.