Valuation of: Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ Prepared for
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Valuation of:
Holiday Inn Express, Llandarcy,
Neath, Swansea, SA10 6GZ
Prepared for
Morgan Stanley Bank N.A.
Valuation Date:
1 May 2019
1
Executive Summary
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath,
Valuation Date: 1 May 2019 Swansea, SA10 6GZ
TABLE OF CONTENTS
Executive Summary ........................................................................................ 1
Property Record .............................................................................................. 3
1. Location ........................................................................................................................... 3
2. Description & Accommodation ........................................................................................ 4
3. Structural Condition and Repair ...................................................................................... 6
4. Statutory Enquiries .......................................................................................................... 6
5. Tenure ............................................................................................................................. 7
6. Operational Structure ...................................................................................................... 8
7. Local Hotel Market Analysis............................................................................................ 8
8. Business Analysis ........................................................................................................... 9
9. C&W Trading Projections .............................................................................................. 12
10. Principal Valuation Considerations ............................................................................... 15
Appendix A: Maps and Plans ........................................................................ 18
2
Executive Summary
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath,
Valuation Date: 1 May 2019 Swansea, SA10 6GZ
EXECUTIVE SUMMARY
This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or
considered in isolation from the full report.
Property Summary
Location The hotel lies adjacent to the M4 motorway, 7.5 miles east of
Swansea and 2.3 miles west of Neath.
Description The hotel comprises 91 guest bedrooms with ancillary Great Room
and three meeting rooms.
The Property was constructed in approximately 2003.
Condition Good
Tenure Long leasehold
Operating Structure Owner operator
Trading Performance
Year 2017 2018 2019 (2+10) forecast
Occupancy 75.53% 75.44% 74.92%
ADR £57.64 £58.87 £59.38
RevPAR £43.54 £44.41 £44.49
Total Revenue £1,609,721 £1,643,175 £1,638,345
NOI (post FF&E)* £443,883 £496,328 £358,737
Profit Margin 27.6% 30.2% 21.9%
*2019 figures include the proposed ground rent payable.
C&W Trading Projections
Year Year 1 Year 2 Year 3
Occupancy 75.00% 75.00% 75.00%
ADR £59.50 £60.69 £61.90
RevPAR £44.63 £45.52 £46.43
Total Revenue £1,641,249 £1,674,074 £1,707,556
NOI (post FF&E and £351,154 £358,177 £365,341
ground rent)
Profit Margin 21.4% 21.4% 21.4%
Market Value and Yields
Valuation Date 1 May 2019
Market Value £3,300,000
Capitalisation Rate 10.75% Discount Rate 12.75%
1
Executive Summary
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath,
Valuation Date: 1 May 2019 Swansea, SA10 6GZ
Gross Initial Yield 10.75%
Capital expenditure None
deducted from gross
valuation
Loan security We consider the Property represents adequate security against a
loan over the proposed period.
Liquidity Reasonable subject to the comments in the property record and
the head report.
Key Investment / Market Considerations for Loan Security
Strengths / Opportunities
• Good connectivity to the M4 motorway;
• Good levels of hotel demand in local area, with relatively good corporate demand generators;
• Strong and stable management team.
• Relatively limited direct competition within the immediate locality.
Weaknesses / Risks
• Peripheral location on the outskirts of Swansea;
• Road noise from the M4 motorway, accentuated by lack of air conditioning in bedrooms;
• Poor customer feedback for adjacent Harvester restaurant, which is sometimes associated
with the hotel on web based customer reviews;
• Investment appetite for Swansea is likely to be more limited than for many of the other hotels
within the portfolio.
2
PROPERTY RECORD
Inspection
The Property was subject to an external inspection, from ground level and an internal inspection,
on 9 May 2019. The inspection was undertaken by Ian Thompson, MRICS.
1. Location
1.1. Location
General
Swansea is located on the south coast of Wales, within Swansea Bay, which opens on to the
Bristol Channel. Swansea lies approximately 40 miles west of Cardiff and 50 miles west of
Newport. Bristol is approximately 80 miles to the east, accessible via the Severn Bridge.
The hotel is reasonably well located within the context of the local market, lying directly adjacent
to Junction 43 of the M4 motorway. Swansea town centre is located approximately 6.5 miles to
the west, while the town of Neath lies approximately 2.3 miles to the east. Port Talbot is
approximately six miles south east of the hotel. Surrounding land uses include the M4 motorway
to the east, a David Lloyd leisure and fitness club to the south and a Harvester restaurant to the
west.
Swansea has a predominantly post-industrial service economy, with main employers including
3M, Bemis, 118 UK/Conduit, Admiral Group, Amazon and a number of public sector organisations
including the DVLA and HMRC. Public sector employment in Swansea is significantly above
average, at 11.1% of total employment compared to the average of 6.8% across Wales (ONS,
2016). According to the latest estimated in mid- 2017, Bath and North East Somerset count a
resident population of 245,480.
The hotel itself is located just within the border of Neath Port Talbot Council. This local authority
borders Swansea and has a population of 141,600 with a profile otherwise similar to Swansea in
terms of demography and employment.
Swansea also has a number of tourist attractions, with 4.59 million visitors in 2016 according to
the City and County of Swansea. Attractions include The Gower Peninsula, which received the
European designation of Area of Natural Beauty in 1956, and numerous beaches along the
coastline.
3
Site Boundary
The plan above is shown for indication purposes only and may not accord strictly with the title
plan.
2. Description & Accommodation
Summary
The hotel comprises 91 guest bedrooms with ancillary Great Room and three meeting rooms.
The Property was constructed in approximately 2003 and is arranged over ground, first and
second floor. The building is of brick construction underneath a pitched tiled roof.
4
Guestrooms
The following table summarises the Property's guestroom facilities, based on information provided
by Atlas Hotels.
Category Unit Count
Twin 25
Double 60
Accessible 6
Total 91
There are three room types – twin, accessible and double rooms (which can accommodate up to
three guests). There are 25 twin bedrooms and 60 double bedrooms. In addition, there are six
accessible bedrooms which have an interconnecting door. The style of the bedrooms is Fourth
Generation, having been refurbished in 2015. The bedrooms are not fitted with air conditioning
units.
Food & Beverage
The primary dining area is The Great Room, a seated open plan restaurant offering 60 covers. A
breakfast buffet servery lies adjacent to the Great Room. The bar and lobby area extend from the
Great Room adjoining the reception, and offer more casual soft seating. There is air conditioning
to the ground floor public areas.
5
Meeting Rooms
There are three meeting rooms, one of which is significantly larger with a capacity of 25 theatre
style, while the smaller two each have a capacity of 12. All meeting rooms have natural light.
Additional food and beverage packages are on offer alongside meeting room hire.
There is air conditioning to the meeting rooms.
Car Parking
There are approximately 130 car parking spaces, which are offered free of charge to guests. The
car park is shared with the adjacent Harvester restaurant.
Back of House Accommodation
There is appropriate storage provision and back of house accommodation. The staff room is able
to accommodate eight covers.
3. Structural Condition and Repair
The Property has been well maintained and was found to be in good condition. Following
construction in 2003, the hotel was further extended in 2006 with the addition of 18 bedrooms.
The hotel has undergone various refurbishments since construction; in 2012 The Great Room
and meeting rooms received a soft refurbishment, which included new fitted carpets and painting.
In 2015 the bedrooms were refurbished to Generation Four standards. This refurbishment
included the redecorating of wall coverings, the replacement of desk with a moveable work
surface and an iconic red chair, and the upscaling of the headboards to include charging sockets.
We have been provided with a schedule of the capital expenditure plan, which confirms the
following:
2018 2019 Forecast
£28,538 £51,378
3.1. Indication of Reinstatement Cost
Our informal guide to the Day One Cost is £7,800,000 (exclusive of VAT)
This guide figure envisages clearance and reinstatement using modern methods and materials,
which may not necessarily be appropriate or permitted. It does not reflect any additional costs
attributable to conservation area status or listed building status (or similar – for example proximity
to listed buildings)
You should not rely on this guide for any purpose before it has been confirmed by a formal
assessment carried out by a building surveyor or other person with sufficient current experience
of replacement costs.
4. Statutory Enquiries
We have been provided with an Argyll Environmental report dated 29 May 2019, which we have
had regard to in undertaking our valuation.
Ground Conditions
Potential liabilities have been identified under the relevant contaminated land legislation. We
recommend further investigation prior to drawdown of the loan. For further comments please refer
to the head report.
6
Flooding Risk
The property falls within Flood Zone 1, with a low probability of flooding.
Environmental Considerations
Please refer to head report.
Planning
The planning policy for the subject Property is determined by Neath Port Talbot Borough Council.
We are not aware of any outstanding or unimplemented planning applications.
Conservation Area and Listed Building Status
The Property is not listed and nor is it located within a conservation area.
Business Rates
Demise Description Rateable Values
Holiday Inn Express, Swansea Hotel & Premises 139,500
In Wales the Non-Domestic rating multiplier for the fiscal year 2019/2020 has been set at 52.6
pence in the pound.
5. Tenure
Title
We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November
2017 and based on this we summarise our understanding of the title below.
The Property is held freehold although the proposal is to sell the freehold interest and
simultaneously be granted a ground lease back. The terms of the ground lease are set out in the
head report.
Overview
Type of tenure Proposed long leasehold
Title no(s) Unknown
Lease Term 125 years
Rent £74,449 pa to be reviewed annually in line with the
RPI subject to a cap and collar of 0% and 5%.
Any material encumbrances or unduly None other than disclosed in the draft certificate.
onerous / unusual easements, restrictions,
outgoings or conditions?
Any title characteristics likely to have an None.
adverse impact on value, either now or over
the proposed loan term?
Full details of the proposed leasehold interest are detailed in the head report.
7
6. Operational Structure
Please refer to the head report for operational structure, franchise agreement and information
relating to the IHG/Holiday inn Express brand.
7. Local Hotel Market Analysis
7.1. Existing Market Supply
According to AM:PM Hotels, there are 37 hotels and 1,540 bedrooms in the area of Swansea, all
of which are located further than a mile away from the subject Property. The market is dominated
by the budget segment with 577 rooms, followed by four-star hotels with 525 rooms. This
compares to a national trend characterised by less than 30% of total rooms in the four-star
category and approximately 25% of total rooms in the budget sector. Of this supply, over 60% is
branded, with Ibis, Premier Inn, Travelodge and the subject in the budget sector.
7.2. Competitor Trading Analysis
Smith Travel Research (STR) is an independent research firm that is recognised by the hotel
industry as the standard source of reliable data, providing operating statistics on the local market
as a whole.
We have been provided STR data for the hotel and the following competitive set of hotels:
• The Dragon Hotel Swansea
• Mercure Swansea Hotel
• Holiday Inn Express Swansea East
• ibis Swansea
• Premier Inn Swansea City Centre
• Premier Inn Swansea North
• Travelodge Swansea Central Hotel
The direct competition to the subject hotel is relatively limited with few hotels located within the
same locality, given the hotels out of town location. Travelodge Swansea and Ibis are most likely
the most comparable in terms of their offering, but are located within Swansea town centre and
therefore target a different clientele.
8The table below sets out the hotels’ key performance indicators compared to the above
competitive set for the full years 2017 and 2018 and YTD March 2019*.
The hotel outperforms the competitive set in both occupancy and ADR and achieved an RGI of
116.2 in 2018. For the first three months of 2019, the hotel has increased its MPI and ARI rates.
7.3. Proposed Supply
There are currently 11 projects in the pipeline in Swansea, all in the three and four-star segments
and two unconfirmed. This would add just over 240 bedrooms to the market.
8. Business Analysis
Overview
The Holiday Inn Express is a purpose built limited service hotel, built in 2003. While the original
structure remains unmodified, there have been various refurbishments since, most significantly
in 2015 when the bedrooms were upgraded from Generation Two to Generation Four, in line with
Holiday Inn Express brand standards.
Swansea has a relatively healthy hotel market, supported both by the strong presence of business
in the area and the leisure and tourism industry. Following the decline of heavy industry, Swansea
has a predominantly post-industrial service economy, with main employers spread between the
service, manufacturing and public sectors. Businesses with a large presence in the area include
the DVLA, HMRC, Amazon, 3M and Admiral Group. Corporate business is a core component of
the Swansea hotel market.
In addition, Swansea has a prosperous leisure and tourism industry. Visitors are largely attracted
by the surrounding natural beauty; Swansea hosts over 30 Sites of Special Scientific Interest
(SSSI), while the Gower is designated an Area of Natural Beauty (AONB). The leisure and tourism
segments are particularly important to the hotel industry throughout the summer months, and
throughout the year on weekends, when the occupation rate of the corporate segment is
significantly lower.
Swansea also increasingly benefits from a strong events calendar, namely sporting and music
events. The Six Nations Rugby, hosted at the Principality Stadium in Cardiff, generates
consistently strong year-on-year business. Swansea, although located 40 miles west of the event,
is able to successfully capitalise on the overflow of visitors to Cardiff by offering a comparatively
lower rate. Swansea’s Liberty Stadium also hosts a number of events, although demand from the
football club has reduced since the team was relegated from the Premier League a couple of
years ago. The hotel experiences good levels of leisure occupancy predominantly through the
summer months and to a lesser extent throughout the remainder of the year due to events such
as those highlighted.
The hotel has moved away from low-rate leisure groups, and a focus on higher rate corporate
contracts including Scan Optics at 400 room nights per year (repeat business since 2003) and
Sterling Services at approximately 350 room nights per year. The agreed rate with Scan Optics
was previously £55 but currently stands at £65. Much of the corporate demand is transient rather
than contract led. Currently the segmentation comprises around 60% corporate and 40% leisure,
with corporate demand dominating on weekdays. The hotel achieved an occupancy rate of close
9to 90% during July and August 2017, as Swansea acts as the gateway to the Gower peninsula.
The hotel is now charging families a supplement.
To summarise, the hotel has shown resilience amidst a changing corporate base, and continues
to show strength in year-on-year growth on all key performance indicators. The hotel experiences
varying ratios of corporate to leisure segmentation, fluctuating throughout the year as would be
expected of a hotel in this location.
The hotel secures a good proportion of its business from IHG and also trying to convert as much
OTA business to direct. The hotel paid out around £1,500 in commission fees to booking.com last
year.
Trading Performance
The income and expense statements, illustrated in the table on the following page, were provided
by Atlas Hotels. The statements show the subject's operating history for the years ended
December 2016-2018, forecast for 2019 including 2 months actuals and trading projections for
2020, which includes the proposed ground rent.
10Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record
Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ
11Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath,
Valuation Date: 1 May 2019 Swansea, SA10 6GZ
9. C&W Trading Projections
Trading Projections
The following chart depicts our summary profit and loss projections showing the hotels income
and expenses for the five years commencing May 2019. The statements are expressed in inflated
terms for each year.
12Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record
Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ
13Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath,
Valuation Date: 1 May 2019 Swansea, SA10 6GZ
Commentary on C&W Projections
The hotel is a stabilised business with occupancy levels extremely consistent ranging between
74-77% with the full year forecast for 2019 showing a similar level. We have adopted an
occupancy of 75% in each year of our projections.
The hotel achieved an ADR of £58.87 in 2018, similar to the previous year, although management
are forecasting a 1% increase in the current year to £59.38. For the purpose of our assessment
we have adopted a year one ADR of £59.50 to reflect our starting date of May 2019. We have
assumed inflationary increases thereafter taking into account the stabilised nature of the
operation.
There is limited other revenue generated from the hotel with rooms revenue accounting for around
90% of the total. Accordingly, we have adopted a similar business mix within our projections and
similar levels of food and beverage and other revenue to that currently being achieved.
The format of the accounts is not strictly in accordance with the Uniform System of Accounts for
the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being
allocated to individual departments given the nature of the operation. As a result, it is more difficult
to undertake full benchmarking of the departmental expenses.
The departmental expenses have however been relatively consistent as a percentage of
departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had
regard to the actual expenses within our projections.
The miscellaneous expenses actually show a negative figure being the forecast cost savings
being implemented by management we have adopted these savings within our assessment.
The undistributed costs do not appear unreasonable based on other limited service hotels in the
market taking into account they do not include payroll costs. As a result, we have had regard to
current levels in preparing our assessment.
The majority of the sales and marketing expenses relate to the franchise sales and marketing
fees, which we have shown as a separate line item. We have allowed for increased sales and
marketing expenses to reflect that the hotel will be operated individually.
Property tax has regard to the hotels current rating assessment.
The accounts provided by management show the insurance charges within the administration
and general expenses. We have adopted the same approach for ease.
We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales
and marketing of 3% of rooms revenue, which we consider would be the likely level paying
assuming the hotel was sold on an individual basis.
We have deducted an amount of 2% of total revenue to provide the services provided centrally
by management such as sales and marketing and revenue management as opposed to making
a separate allocation to each department as these costs would need to be provided whether
through another management company or at hotel level.
We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year
of our projection period.
Our resultant net operating profit post FF&E reserve is £425,603, which compares to the forecast
for the current year of £433,186. The hotel is forecast to achieve a net operating profit margin of
26.4% for the current year compared to 30.2% last year. Our projected net operating profit margin
is 25.9%.
After the deduction of the proposed ground rent of £74,449 per annum our adjusted net operating
profit is £351,154, which is equivalent to a profit margin of 21.4%.
14Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath,
Valuation Date: 1 May 2019 Swansea, SA10 6GZ
10. Principal Valuation Considerations
Location / Situation and Competition
The Property is well located. The M4 motorway lies adjacent to the hotel, providing excellent
accessibility to the east and west. In addition, the A465, a main artery running north east to
Merthyr Tydfil and central Wales, lies just a few hundred metres from the hotel entrance.
Associated road noise is mitigated by a raised land bank to the north of the Property and
vegetation to the east, ensuring that the proximity to the roads is of benefit rather than detriment
to the business.
Building Design / Condition / Suitability
The hotel is in good condition having been well maintained over the years.
Tenure
The hotel will be held on long lease for a term of 125 years with a buy back option at year 60 for
£1.
There is limited comparable evidence of the sale of long leasehold as the structure is relatively
new within the hotel market. We would however expect there to be a narrower pool of purchasers
for the leasehold interest compared to the freehold interest, which will result in the interest
achieving a softer yield.
We consider the yield gap between a freehold interest and a ground lease interest will be
influenced by a number of factors including location, quality of the asset and rent cover. The yield
gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a
single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as
the hotel will lose some of its appeal and economies of being operated as part of a larger platform.
The proposed rent payable will be £74,449 per annum subject to annual increases in line with
RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI.
We consider the proposed rent to fall within an acceptable range of NOI based on other
transactions that have occurred in the market providing sufficient rent cover in the short term.
Business & Income Security
The hotel is a stable business and well established in its local market being one of the strongest
performing hotels. The hotel has produced relatively consistent levels of revenue and net
operating profit with the profit margin being achieved good.
Whilst the profitability of the hotel has been good there is potential for the current margins to be
eroded by the proposed ground rent in the event that earnings do not keep pace with RPI.
Asset Management Opportunities
There is limited scope for additional growth through specific asset management. The hotel is
stabilised.
Saleability
Current Sale Prospects
What is the estimated period it would take to sell the Property at 6-9 months
Market Value?
Purchaser demand is likely to be Good
15Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath,
Valuation Date: 1 May 2019 Swansea, SA10 6GZ
The market for hotels held on long ground leases such as that proposed has been largely untested
to date. Whilst this will result in a greater level of uncertainty in terms of purchaser appetite and
saleability, we are of the opinion that there would be fewer purchaser in the market than for the
equivalent freehold interest.
10.1. Market Value
Value Conclusion
In assessing the value of the hotel we have adopted a discounted cash flow (DCF) based on our
trading projections and rationale as set out above.
In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of
Holiday Inn Express hotels that have occurred generally as set out in our head report together
with other hotels in the surrounding area. There has been limited sales of hotels held on ground
leases and therefore we have made an appropriate adjustment to reflect the leasehold interest.
The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9.5%.
Unfortunately, there have been no recent single asset transactions to have traded in Swansea or
indeed Cardiff.
We consider that the hotel would achieve similar yields to the Holiday Inn Express hotels
referenced in the head report of Tamworth and Ramsgate, which sold for between £35,000 per
key and £62,000 per key.
The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9%.
Having regard to the comments above and the fundamentals of the Property including the location
of the hotel within the national and local context and quality of the asset, we are of the opinion
that the equivalent freehold interest would achieve a yield of 8.25%.
We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold
interest having regard to the location of the hotel and the level of rent payable as detailed in the
head report. Based on these factors, we have adopted a capitalisation rate of 10.75%. We have
adopted a discount rate of 12.75%.
Our valuation is the net figure that would appear in a sale and purchase agreement with any
purchaser’s costs being paid in addition to the figure reported. We have not made any explicit
deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our
capitalisation rate.
In summary, in arriving at our opinion of value we have adopted the following:
Market Value
Gross Initial Yield 10.75%
Capitalisation Rate 10.75%
Discount Rate 12.75%
Market Value £3,300,000
Capital value Per Bedroom £36,264
10.2. Market Rent
Our opinion of the Market Rent of the Property on the basis set out in the head report is £180,000
per annum.
16Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath,
Valuation Date: 1 May 2019 Swansea, SA10 6GZ
10.3. Market Value with Vacant Possession
For the purpose of our valuation with vacant possession we have adopted our trading assessment
as set out above. In arriving at our opinion of value on this basis, we have adopted our Market
Value.
17Appendix A: Maps and Plans
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath,
Valuation Date: 1 May 2019 Swansea, SA10 6GZ
APPENDIX A: MAPS AND PLANS
18Holiday Inn Express, Llandarcy, Neath,
Swansea, SA10 6GZ
Ordnance Survey © Crown Copyright 2017. All rights reserved.
Licence number 100022432. Plotted Scale - 1:700000
This plan is published for convenience of identification.
Any site boundaries shown are indicative only and
should be checked against Title Deeds.Holiday Inn Express, Llandarcy, Neath,
Swansea, SA10 6GZ
Ordnance Survey © Crown Copyright 2017. All rights reserved.
Licence number 100022432. Plotted Scale - 1:7500
This plan is published for convenience of identification.
Any site boundaries shown are indicative only and
should be checked against Title Deeds.Holiday Inn Express, Llandarcy, Neath,
Swansea, SA10 6GZ
Shelter
M4
M4
Mast
Dra
in
0m 25m 50m 75m
Ordnance Survey © Crown Copyright 2017. All rights reserved. Licence number 100022432. Plotted Scale - 1:1250
This plan is published for convenience of identification.
Any site boundaries shown are indicative only and
should be checked against Title Deeds.About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop and live. The firm's 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for our clients. Cushman & Wakefield is among the largest commercial real estate services firms, with core services of agency leasing, asset services, capital markets, facility services, global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. © Cushman & Wakefield 2017
Valuation of:
Holiday Inn Express, Frankland
Road, Blagrove, Swindon, SN5
8UD
Prepared for
Morgan Stanley Bank N.A.
Valuation Date:
1 May 2019
1Executive Summary
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
TABLE OF CONTENTS
Executive Summary ........................................................................................ 3
Property Record .............................................................................................. 5
1. Location ........................................................................................................................... 5
2. Description & Accommodation ........................................................................................ 6
3. Structural Condition and Repair ...................................................................................... 8
4. Statutory Enquiries .......................................................................................................... 9
5. Tenure ............................................................................................................................. 9
6. Operational Structure .................................................................................................... 10
7. Local Hotel Market Analysis.......................................................................................... 10
8. Business Analysis ......................................................................................................... 11
9. C&W Trading Projections .............................................................................................. 14
10. Principal Valuation Considerations ............................................................................... 17
Appendix A: Maps and Plans ........................................................................ 20
2Executive Summary
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
EXECUTIVE SUMMARY
This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or
considered in isolation from the full report.
Property Summary
Location The hotel is well located within close proximity to the M4, allowing
excellent accessibility. Swindon town centre is approximately four
miles north of the Property.
Description The hotel comprises 121 bedrooms with Great Room and four
meeting rooms.
Condition Good
Tenure Long leasehold
Operating Structure Owner operator
Trading Performance
Year 2017 2018 2019 (2+10) forecast
Occupancy 76.32% 79.20% 80.12%
ADR £62.66 £61.55 £63.82
RevPAR £47.82 £48.75 £51.14
Total Revenue £2,457,880 £2,500,688 £2,625,387
NOI (post FF&E)* £868,941 £874,612 £785,047
Profit Margin 35.4% 35.0% 29.9%
*2019 figures include the proposed ground rent payable.
C&W Trading Projections
Year Year 1 Year 2 Year 3
Occupancy 80.00% 80.00% 80.00%
ADR £64.00 £65.28 £66.59
RevPAR £51.20 £52.22 £53.27
Total Revenue £2,630,748 £2,683,363 £2,737,030
NOI (post FF&E and £720,965 £735,384 £750,092
ground rent)
Profit Margin 27.4% 27.4% 27.4%
Market Value and Yields
Valuation Date 1 May 2019
Market Value £7,000,000
Capitalisation Rate 10.25% Discount Rate 12.25%
3Executive Summary
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
Gross Initial Yield 10.25%
Capital expenditure None
deducted from gross
valuation
Loan security We consider the Property represents adequate security against a
loan over the proposed period.
Liquidity Reasonable subject to the comments in the property record and
the head report.
Key Investment / Market Considerations for Loan Security
Strengths / Opportunities
• Accessible location adjacent to the M4;
• Strong hotel demand in local area.
Weaknesses / Risks
• Located outside of the town centre, some distance from Swindon train station.
• Large telegraph mast located on site.
4Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
PROPERTY RECORD
Inspection
The Property was subject to an external inspection, from ground level and an internal inspection,
on 9 May 2019. The inspection was undertaken by Ian Thompson.
1. Location
1.1. Location
General
The Holiday Inn Express Swindon West is located on the north side of junction 15 of the M4
motorway, approximately four miles to the west of Swindon town centre.
According to the latest estimated in mid- 2017, Swindon count a resident population of 220,363
(ONS,2017). Major businesses in Swindon include Honda, Dolby Labs and Zurich, while
Nationwide, W H Smith and Intel are amongst those with headquarters in the town.
The hotel has excellent visibility from the motorway in both directions. Access is via the A3102
Great Western Way. Vehicular traffic leaving the motorway cannot turn right towards the hotel
and so must travel 100 metres east along the A3102 before doubling back at the roundabout
junction of the A3102 and the B534 Whitehill Way.
There are a number of occupiers clustered around the motorway junction, including Johnson
Matthey Fuel Cells, a Volkswagen dealership, Hilton Hotel and Arval UK. Just to the north is
Windmill Hill Business Park, where there is a variety of tenant occupiers.
We consider the location to be good and although it is not in the town centre, this is probably an
advantage given that Swindon does not have a particularly attractive central area.
5Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
Site Boundary
The plan above is shown for indication purposes only and may not accord strictly with the title
plan which we have reviewed.
2. Description & Accommodation
Summary
The hotel comprises 121 bedrooms with Great Room and four meeting rooms.
The Property was constructed in approximately 2001 and comprises ground and three upper
floors of brick construction underneath a pitched tiled roof. The fenestration comprises UPVC
framed double glazed units.
6Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
Guestrooms
The following table summarises the Property's guestroom facilities, based on information provided
by Atlas Hotels.
Category Unit Count
Twin 27
Double 88
Accessible 6
Total 121
There are three room types, namely twin, accessible and double rooms. All rooms were
refurbished from mid-2016 until around October 2016, to fourth generation, the current brand
standard. As such, they present well.
Typical room facilities include tea and coffee making facilities, land line telephone, desk, flat
screen TV, internet access and bathroom.
All guest bedrooms are served by air conditioning.
Food & Beverage
The primary dining area is The Great Room, a large open plan restaurant offering 70 covers. A
breakfast buffet servery lies adjacent to the Great Room. The bar and lobby area extend from the
Great Room to reception and offer more casual soft seating.
The Great Room is relatively large for a Holiday Inn Express and we are advised that the hotel
has a strong food & beverage business, with a 70% midweek capture rate. This success is likely
due to the out of town location of the hotel, with limited alternative dining choices for guests.
7Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
Meeting Rooms
There are four meeting rooms, all of which are located on the ground floor and benefit from natural
light. We are advised by the General Manager that the day delegate rate for these rooms is
approximately £200, which does not include any food or beverages. This can be added at the
extra expense of £7 per person.
Car Parking
There are approximately 100 car parking spaces, which are offered free of charge to guests. The
hotel has a longstanding agreement with the neighbouring Volkswagen Garage, who hire
approximately 5-10 car parking spaces from the hotel.
Back of House Accommodation
There is appropriate storage and back of house accommodation. The staff room is able to
accommodate 6-8 covers.
3. Structural Condition and Repair
The Property has been well maintained and was found to be in good condition. There have been
no additions to the structure since construction.
The hotel has undergone numerous refurbishments since opening. In 2006 The Great Room and
public areas received a soft refurbishment and remain in good condition. The bedrooms were
refurbished from a Generation Two to Generation Four standard at the end of 2016. This
refurbishment most notably included the redecorating of wall coverings, the replacement of the
desk with a moveable work surface and an iconic red chair, and the upscaling of the headboards
to include charging sockets.
We have been provided with a schedule of the capital expenditure plan, which confirms the
following:
2018 2019 Forecast
£18,004 £39,754
3.1. Indication of Reinstatement Cost
Our informal guide to the Day One Cost is £10,300,000 (exclusive of VAT)
This guide figure envisages clearance and reinstatement using modern methods and materials,
which may not necessarily be appropriate or permitted. It does not reflect any additional costs
8Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
attributable to conservation area status or listed building status (or similar – for example proximity
to listed buildings)
You should not rely on this guide for any purpose before it has been confirmed by a formal
assessment carried out by a building surveyor or other person with sufficient current experience
of replacement costs.
4. Statutory Enquiries
We have been provided with an Argyll Environmental report dated 29 May 2019, which we have
had regard to in undertaking our valuation.
Ground Conditions
Please refer to head report.
Flooding Risk
The property falls within Flood Zone 1, with a low probability of flooding.
Environmental Considerations
Please refer to head report.
Planning
The planning policy for the subject Property is determined by Swindon Borough Council.
We are not aware of any outstanding or unimplemented planning applications.
Conservation Area and Listed Building Status
The Property is not listed and nor is it located within a conservation area.
Business Rates
Demise Description Rateable Values
Holiday inn Express,
Hotel & Premises £108,360
Swindon
In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 50.4
pence.
5. Tenure
Title
We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November
2017 and based on this we summarise our understanding of the title below.
The Property is held freehold (Title Number: WT195205) although the proposal is to sell the
freehold interest and simultaneously be granted a ground lease back. The terms of the ground
lease are set out in the head report.
Overview
Type of tenure Proposed long leasehold
9Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
Overview
Title no(s) Unknown
Lease Term 125 years
Rent £131,192 pa to be reviewed annually in line with the
RPI subject to a cap and collar of 0% and 5%.
Any material encumbrances or unduly None other than disclosed in the draft certificate.
onerous / unusual easements, restrictions,
outgoings or conditions?
Any title characteristics likely to have an None.
adverse impact on value, either now or over
the proposed loan term?
Full details of the proposed leasehold interest are detailed in the head report.
6. Operational Structure
Please refer to the head report for operational structure, franchise agreement and information
relating to the IHG/Holiday inn Express brand.
7. Local Hotel Market Analysis
7.1. Existing Market Supply
According to AM:PM Hotels, there are 56 hotels and 2,545 rooms in Swindon, two of which, a
Doubletree and a Premier Inn, are located less than a mile from the subject Property. The market
is dominated by the three-star segment with 970 rooms, followed by budget and four-star hotels.
This compares to a national trend characterised by less than 30% of total rooms in the four-star
category and approximately 25% of total rooms in the budget sector. Of this pipeline, over 75%
is branded, with Holiday Inn Express, Travelodge and Premier Inn accounting for most of the
budget sector.
10Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
7.2. Competitor Trading Analysis
Smith Travel Research (STR) is an independent research firm that is recognised by the hotel
industry as the standard source of reliable data, providing operating statistics on the local market
as a whole.
We have been provided STR data for the hotel and the following competitive set of hotels:
• Village Hotel Swindon
• Campanile Swindon
• Holiday Inn Swindon
• DoubleTree By Hilton Hotel Swindon
• Holiday Inn Express Swindon West
• Holiday Inn Express Swindon City Centre
• Travelodge Swindon Central Hotel
• Jurys Inn Swindon
The Premier Inn Swindon West and DoubleTree by Hilton are located within close proximity. The
Campanile Swindon is located in the town centre while the Holiday Inn Swindon is similarly
located on the fringes of the town centre, albeit not within such close proximity to the M4.
The table below sets out the hotels’ key performance indicators compared to the above
competitive set for the full years 2017 and 2018 and YTD March 2019*.
The hotel has performed lower than that within the competitors set in terms of ADR, however, has
outperformed with regards to occupancy levels and achieved an RGI of 103.7 in 2018. For the
first three months of 2019, the hotel has increased its MPI and ARI has rates.
7.3. Proposed Supply
There are 12 projects in the pipeline in Swindon, five of which are currently in construction and
due to open in 2019. The ibis Budget Swindon will comprise 73 rooms and is due to open in 2019,
approximately three miles from the subject, and an independent budget hotel of 180 rooms, North
star Oasis Leisure, is in its final planning and should be located by the ibis Budget.
8. Business Analysis
Overview
Holiday Inn Express Swindon is a purpose built limited service hotel constructed in 2001. The
original structure remains unchanged, although the hotel benefited from refurbishment of the
public areas in 2006 and of the bedrooms in late 2016. This refurbishment upgraded the rooms
from Generation two to Generation four standard, such that it complies with the latest Holiday Inn
Express brand standards.
Swindon benefits from its location at the nexus between Reading, Bristol, London and Cardiff.
The construction of the M4 in the 1970s brought with it significant interest from businesses looking
11Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
to capitalise on the strategic location. Honda, Dolby Labs and Zurich all have a presence in the
area, while Nationwide, W H Smith and Intel are amongst those with headquarters in the town.
The strong presence of businesses in the area coupled with the location, particularly in relation
to a number of regional airports, drives strong demand for hotels. Moreover, the location of the
hotel on the edge of the town acts as a further benefit, allowing ease of access by car.
Swindon does not have a particularly strong leisure business, and correspondingly the hotel
largely focusses on the corporate sector. However, the location of the hotel on the periphery of
Swindon allows the hotel to attract guests visiting neighbouring attractions, such as Bath
Christmas Market approximately 40 miles to the south west. The summer months are more
heavily represented by this leisure business that uses Swindon as a base, while the remainder of
the year is dominated by the corporate segment.
The hotel holds a healthy variety of corporate contracts and is not over reliant on any one contract.
Main accounts that provide more than 200 room nights per year include UK training venue
provider Develop and Nationwide. The corporate rate for key clients like Nationwide is around
£70 - £75. On Tuesday and Wednesday nights, the rate can increase to as much as £140. BP
had previously taken around 150 room nights per year, but this contract has been lost due to
relocation. This demonstrates spreading of risk by hotel management, mitigating against the
fragility that would otherwise ensue following the loss of large business accounts.
The corporate / leisure split is around 65% in favour of corporate. Approximately 35% of bookings
are made through Online Travel Agencies (OTAs). ADR growth has in part been aided by the
extensive soft refurbishment in 2016. As a result, the occupancy rate has remained static,
although demand appears to be on an upward trajectory. The balance achieved between
corporate and leisure occupancy mitigates against seasonality, although Q1 remains the weakest
across all segments. May and June tend to be the busiest months, even though the corporate
segmentation starts to decrease, leading into the summer months. Significant annual events
which draw custom to the locality include the Fairford Air Festival and the Bath Christmas Market.
In terms of setting the rate, hotel management tend to be about £10 lower than the Holiday Inn at
Junction 15.
The hotel tends to generate around 30 to 35 covers per night within the Great room, mostly used
by their corporate guests with a meal allowance.
Trading Performance
The income and expense statements, illustrated in the table on the following page, were provided
by Atlas Hotels. The statements show the subject's operating history for the years ended
December 2016-2018, forecast for 2019 including 2 months actuals and trading projections for
2020, which includes the proposed ground rent.
12Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record
Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Frankland Road, Blagrove, Swindon, SN5 8UD
13Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
9. C&W Trading Projections
Trading Projections
The following chart depicts our summary profit and loss projections showing the hotels income
and expenses for the five years commencing May 2019. The statements are expressed in inflated
terms for each year.
14Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record
Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Frankland Road, Blagrove, Swindon, SN5 8UD
15Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
Commentary on C&W Projections
The hotel is a stabilised business with occupancy levels extremely consistent ranging between
75-80% with the full year forecast for 2019 showing a similar level. We have adopted an
occupancy of 80% in each year of our projections.
The hotel achieved an ADR of £61.55 in 2018, similar to the previous year, although management
are forecasting a 4% increase in the current year to £63.82. For the purpose of our assessment
we have adopted a year one ADR of £64 to reflect our starting date of May 2019. We have
assumed inflationary increases thereafter taking into account the stabilised nature of the
operation.
There is limited other revenue generated from the hotel with rooms revenue accounting for around
86% of the total. Accordingly, we have adopted a similar business mix within our projections and
similar levels of food and beverage and other revenue to that currently being achieved.
The format of the accounts is not strictly in accordance with the Uniform System of Accounts for
the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being
allocated to individual departments given the nature of the operation. As a result, it is more difficult
to undertake full benchmarking of the departmental expenses.
The departmental expenses have however been relatively consistent as a percentage of
departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had
regard to the actual expenses within our projections.
The miscellaneous expenses actually show a negative figure being the forecast cost savings
being implemented by management we have adopted these savings within our assessment.
The undistributed costs do not appear unreasonable based on other limited service hotels in the
market taking into account they do not include payroll costs. As a result, we have had regard to
current levels in preparing our assessment.
The majority of the sales and marketing expenses relate to the franchise sales and marketing
fees, which we have shown as a separate line item. We have allowed for increased sales and
marketing expenses to reflect that the hotel will be operated individually.
Property tax has regard to the hotels current rating assessment.
The accounts provided by management show the insurance charges within the administration
and general expenses. We have adopted the same approach for ease.
We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales
and marketing of 3% of rooms revenue, which we consider would be the likely level paying
assuming the hotel was sold on an individual basis.
We have deducted an amount of 2% of total revenue to provide the services provided centrally
by management such as sales and marketing and revenue management as opposed to making
a separate allocation to each department as these costs would need to be provided whether
through another management company or at hotel level.
We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year
of our projection period.
Our resultant net operating profit post FF&E reserve is £852,157, which compares to the forecast
for the current year of £916,238. The hotel is forecast to achieve a net operating profit margin of
34.9% for the current year compared to 35.0% last year. Our projected net operating profit margin
is 32.4%.
After the deduction of the proposed ground rent of £131,192 per annum our adjusted net operating
profit is £720,965, which is equivalent to a profit margin of 27.4%.
16Property Record
Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road,
Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD
10. Principal Valuation Considerations
Location / Situation and Competition
The hotel is well located within close proximity to the M4, allowing excellent accessibility. Swindon
town centre is easily accessible by car approximately four miles north of the Property. While a
town centre location would allow for improved rail connectivity and proximity to business and
amenities, the location of the hotel benefits from the unparalleled access to the M4 and associated
business.
From an investment perspective Swindon would be viewed as a secondary hotel market.
Building Design / Condition / Suitability
The hotel is in good condition having been well maintained over the years and recently
refurbished. The design of the building is functional and fit for purpose.
Tenure
The hotel will be held on long lease for a term of 125 years with a buy back option at year 60 for
£1.
There is limited comparable evidence of the sale of long leasehold as the structure is relatively
new within the hotel market. We would however expect there to be a narrower pool of purchasers
for the leasehold interest compared to the freehold interest, which will result in the interest
achieving a softer yield.
We consider the yield gap between a freehold interest and a ground lease interest will be
influenced by a number of factors including location, quality of the asset and rent cover. The yield
gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a
single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as
the hotel will lose some of its appeal and economies of being operated as part of a larger platform.
The proposed rent payable will be £131,192 per annum subject to annual increases in line with
RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI.
We consider the proposed rent to fall within an acceptable range of NOI based on other
transactions that have occurred in the market providing sufficient rent cover in the short term.
Business & Income Security
The hotel is a stable business and well established in its local market being one of the strongest
performing hotels. The hotel has produced relatively consistent levels of revenue and net
operating profit with the profit margin being achieved good.
Whilst the profitability of the hotel has been good there is potential for the current margins to be
eroded by the proposed ground rent in the event that earnings do not keep pace with RPI.
Asset Management Opportunities
There is limited scope for additional growth through specific asset management. The hotel is
essentially at a stabilised trading position.
Saleability
Current Sale Prospects
What is the estimated period it would take to sell the Property at 6-9 months
Market Value?
Purchaser demand is likely to be Good
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