Parker Hotel Appraisal Angela Drake Properties is planning to purchase the Parker Hotel, a 270-room property in the suburb of Abbottsville, a major metropolitan city. The acquisition price is $13,500,00 or approximately $50,000 per key, which is substantially below replacement cost. Replacement cost is reported to be approximately $125,000 per key. The present owners purchased the hotel, a few years ago for $18,000,000 and have spend $6 million upgrading the guest rooms, lobby, restaurant, meeting rooms and exterior. This equates to approximately $20,000 per room. The renovation won several design awards and is one of the best renovations in many years. Parker Corporation, a major hotel brand presently manages the hotel. Angela Drake Properties believes the fact since the hotel is managed by a brand, it means there should be significant management upside opportunities to reduce operating costs and increase profit margins. In preparation of the propose purchase of the property. Angela Drake Properties have drawn up the following five-year pro-forma to assist in their investment decision. At the end of year five, Angela Drake management believes they will be able to sell the property for $18.882,900. The sales price has been determined based on Year 5's cash flow and assuming a market cap rate of 12% Income and Expense Statement Year 3 Year 4 Year 5 Five-year Pro Forma Year 2 6,697,832 7,019,529 7,764,415 8,333,949 8,832,677 Year 1 Revenue Total departmental 2,531,300 2,613,622 2,799,253 2,917,063 3,021,245 expenses Departmental profit 4,166,532 4,405,907 4,965,162 5,416,886 5,811,432 Total undistributed operating expense 1,940,066 2,012,018 2,152,355 2,255,715 2,350,593 Gross operating profit 2,226,466 2,393,889 2,812,807 3,161,171 3,460,840 Total fixed expenses 823,324 842,396 875,424 903,453 929,911 Net operating income 1,403,142 1,551,493 1,937,383 | 2,257,718 | 2,530,928 Reserve for replacement 200,935 210,586 232,932 250,018 264,980 Cash flow from 1,202,207 1,340,907 1,704,451 2,007,700 2,265,948 operations