Tysons Corner Case

1) What do you forecast the projects financial condition to be over the next four years?

* We forecast TCM to continue generating negative cash flow due to the following reasons:

* Topline growth will be flat. At least 6 new hotel openings within a 5-8 mile raidus of TCM will increase hotel room supply. Aggregate demand for TCM is projected remain relatively flat in 1989. In addition, office buildings continue to be built yet occupanies for them are down (a higher occupancy rate for office buildings will positively impact demand for TCM’s hotel rooms since it creates more corporate business traffic opportunities). Overall, supply is projected to exceed demand, creating downward pressure on TCM’s average daily rate. While we can improve food and beverage and banquet revenue, rooms generate the majority (~60%+) of revenue. Given this, we have modeled in an overall annual revenue growth of ~1% from 1989-1992 in our base case. We also do not anticipate major changes in the profitability structure of each revenue line-item going forward (a negligible annual increase ranging from 0.1-0.4%).

* Expenses will be increase. As the hotel building ages, expenses will continue to increase. Repairs and maintenance, in addition to capital renovation allowance, will increase. Advertising and sales will increase as TCM will need to allocate more resources to increasing brand awareness and marketing efforts to attract business in an increasingly competitive market. On-site management will at best remain flat as TCM finds more efficient ways of managing the premise. Any minimal increase in on-site management has a large impact on overall expense growth since this line-item has historically been the greatest expense in absolute dollars. TCM’s competitive advantage resides in the Marriott reputation for attention to customer service and needs to continue providing high-quality customer service. While the growth of annual utility expenses (heat, light, power)...