Amede Peninsular

Hotel, Resort, Casino

Amede Peninsular 2

Table of Contents Statement of Purpose............................................................................................................................2 Executive Summary .............................................................................................................................3

Project information.................................................................................................................3 Anticipated financial results ...................................................................................................3

Development Perspective .....................................................................................................................4 A physical description ............................................................................................................4 Development-cost estimates....................................................................................................4

Operational Perspective........................................................................................................................6 Description of hotel ................................................................................................................6 Location analysis....................................................................................................................6 Market-demand segmentation ................................................................................................6 Competitive environment .......................................................................................................7

Ownership and Management................................................................................................................9 Business format and structure.................................................................................................9 Operating performance...........................................................................................................9

Room Revenue..........................................................................................................9 Food and Beverages..................................................................................................11 Recreational Facilities...............................................................................................12

Basis for estimated costs.........................................................................................................13 Finance................................................................................................................................................15

Capitalization.........................................................................................................................15 Funding..................................................................................................................................15

Debt..........................................................................................................................15 Equity.......................................................................................................................16 Financial results .......................................................................................................17

Conclusion...........................................................................................................................................18

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Statement of Purpose The management of Amede Peninsular hotels Ltd. plans to undertake the completion of an ongoing hotel project. The original concept of the project was to develop an exclusive holiday resort on a 52-acre peninsular, partially surrounded by the "Urashi" river, a river flowing 150 miles into the Atlantic Ocean (fig. 1). The location is Oguta, a small town in Imo State, South Eastern Nigeria.

The concept of the project has now been expanded. Amede Peninsular hotels is to develop a world class Hotel, Resort and Casino complex, second to none in Africa. To achieve this goal, the overall land area of the complex has been increased to approximately 50 acres, includes a site over-looking the Oguta Lake (fig.2, 3) and another site located across the river Urashi (fig.4).

Fig. 1. Niger delta. River Urashi, flowing south to the Atlantic Ocean

The immediate objective of Amede Peninsular hotels is to raise debt and equity of approximately $12 million to complete the remaining 60 percent of the project. Preferably, the hotel will be affiliated to a major international hotel chain in order to ensure the highest quality management and adequate return on the investment.

Fig. 2. Amede Peninsular Ferry Boat crossing Oguta Lake

Fig. 3. Oguta Lake

Fig. 4. The banks of Urashi River

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Executive Summary Project information The plan is to develop a 300-room hotel with 3 double family chalets; 4 single family chalets; and 20 mini-apartments. Two restaurants with seating capacities of 120 and 100, two swimming pools (Fig.5) and an artificial beach overlooking the lake will be developed. Other sporting and recreational facilities will include 4 lighted tennis courts, waterfront concessions such as wind surfing, jet skiing and a boat club, and the Golf course, the largest golf course in West Africa, which the management of Amede Peninsular plans to purchase or lease from the Imo State Government in due course. The Casino complex is uniquely designed, overlooking the "Urashi River” and presenting a breathtaking scenery. A large glass wall creates a highly raised embankment on the river (Fig.6, 7). The casino will be a major source of revenue for the hotel. The plan also includes a 500-seat conference center which will take advantage of the overwhelming number of annual conferences, seminars and workshops frequently held in Nigeria by over 150 private and government owned organizations. The conference center will be equipped with state of the art audio and visual systems and will be capable of providing various services for conference delegates, including packaged tours and business services. Oguta Lake is drained by the river "Urashi" which flows into the Atlantic Ocean. This 150-mile stretch is completely navigable and offers a potential for scenic cruises along the river and possibly into the Ocean. The geography of southeastern Nigeria is unique as various tributaries feed the Ocean, forming a delta of which river "Urashi" is part of (Fig.1).

Fig. 5. Olympic size pool

Fig. 6. Casino overlooking Urashi River

Fig. 7. Nightclub overlooking Urashi River

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Anticipated financial results The project requires 60 percent loan/equity venture capital in the amount of $11.7 million. The founders of Amede Peninsular will contribute the remaining 40% equity ($7.8 million), which will include already invested capital. The project will begin to realize profits from its first year of operation. The average yearly operating profit anticipated for the first five years will be $4.5 million. Operating margins are anticipated at an average level of 57% over the same period. Net present value, based on the initial cash outlay of $11.7 million and an 8.5% cost of capital, is $22.7 million, while the internal rate of return is expected to be 25%. The debt ($7.8 million) will be amortized over a five-year period, with annual interest and principal payments beginning at the end of the first year of operation. Dividend payments on the external equity contribution of 20% ($3.9 million) will be withheld for the initial 5-year period and reinvested into the operations of the hotel. The entire amount will then be amortized for an additional period of 5 years at the end of which full ownership would revert to the owners of Amede Peninsular.

Fig. 8. Oguta Lake

Fig. 9. East view of property

Fig. 10. West view of property

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Development Perspective

A physical description Amede Peninsular is located along the banks of Oguta Lake, offering lovely scenery. Part of the property is a peninsular; the river "Urashi" of which the lake flows into, almost covers the property in a semi circle as it continues its onward flow to the Atlantic Ocean. An additional piece of land has been acquired for future expansion. This land is located across the river "Urashi" and is accessible only by boat or ferry. It is a green forest area, and offers great potential for a wild life reserve. Most of the landscaping has already been completed. Palm trees, and a large variety of flowers adorn the entire area. The architectural plan is functional. It takes advantage of the large area of land, by ensuring that the building are well spaced out. The main hotel is the largest building in the complex. It is 4 stories high and will include a lobby area, elevator, 240 rooms (single, double and suites), one restaurant/ bar, Gym, and shops and office spaces. 2 smaller hotel buildings (Fig.11, 13) will contain one restaurant/bar, 60 rooms, meeting halls, and shop/office space. 4 single family, 3 double family and 20 mini-apartments

are spread around the complex with roads and footpaths connecting each building. Four fully lighted tennis courts are available for the guests. One of the two pools is olympic size. An artificial fishpond will be developed across the property, providing a connection from one side of the river to the other. The conference center will be located at the other end of the property across the pond. The Casino and Night Club area is uniquely designed to take advantage of the scenic view of the river. The building stands at the edge of the riverbank. The land level being higher than the water level provides an illusion that the structure is actually floating. The boat club is located at the bank of the lake. Speedboats, jet skis, wind surfs, para-sailing and scuba diving equipment will be available for renting. The lake is clear blue and safe for swimming. Local attractions will include traditional canoe racing, regattas and the famous "Oguta lake water dances".

Fig.11. 30 completed double rooms Fig.12. Double family suites Fig.13. Lobby, restaurant, 30 rooms,

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Finally, the Oguta Golf Course is also located at the bank of the lake. Guests at the hotels will have full access to the golf course until management concludes plans to lease or acquire it from the government.

Development-cost estimates Exhibit 1 below is a breakdown of the anticipated cost of the project. The total cost of completion is $19.5 million. Work on the project has already begun. The details of the state of completion of the project and its related costs, including various equipment and fittings already purchased by the owners, are not included in this proposal. They are however available for perusal upon request. For the purpose of clarity, the entire cost of completion in today’s dollars is provided. The project, approximately 40% completed, has consumed approximately $7 million. Exhibit 1

Development Cost Summary 300 Room Hotel Project Cost Item Total Cost Cost per Room Land 64,000 213 Cost of construction 11,677,000 38,923 Furniture and Equipment 1,928,000 6,427 Vehicles 1,082,000 3,607 Site Improvements 1,069,000 3,563 Consulting Fees 2,396,000 7,987 Pre-opening Expenses 656,000 2,187 Working Capital 694,000 2,313 Total (U.S.D) 19,566,000 65,220

Fig.14. Ultra-modern kitchen Fig.15. Kitchen view

Fig.16. Pool side bar

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Operational Perspective

Description of hotel The location of the site, the amenities offered and the targeted market shows that the hotel can effectively satisfy the needs of a wide range of people for business and pleasure.

Location analysis

Oguta is the lake-city town of Imo State, a state located in the southeastern region of the country, known as the Niger Delta. Owerri, with a population of 1.5 million, is the capital of Imo State and is only about 20 minutes drive from Oguta. Oguta is one hour from Port Harcourt, the capital of Rivers State. Port Harcourt is easily Nigeria's largest outlet both by air and sea, it has a large local and expatriate population (estimated at over 150,000). It is Nigeria's major oil producing area. (Nigeria is the largest producer of crude oil in Africa). Most of the Oil companies doing business in Nigeria have their headquarters in Port Harcourt. Oguta is also a few hours drive from Warri in Delta State. Warri is also a major oil producing area in Nigeria. Many oil refineries are located in Warri, and Port Harcourt, it has a large expatriate population employed in the oil industry.

Fig.17. Note location of Port Harcourt and Imo State

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Oguta is a 35 minute drive to Onitsha. Onitsha is a major commercial city in Nigeria. Onitsha traders are reputed as the most cash rich people in Nigeria The city if Enugu, the capital of Enugu State, another major city in Eastern Nigeria, with a population of about 5 million is one and a half hour’s drive from Oguta. Port Harcourt has an International Airport, while the airports in Owerri and Enugu cater to domestic flights. Both domestic airports are equipped to accommodate large Aircrafts. Port-Harcourt, Onitsha and Enugu are all accessible to Amede Peninsular by road.

Market-demand segmentation The amede Peninsular target market is divided into five categories:

• Expatriate Staff of Multinational Oil Companies: This group represents about 15% of expected occupancy, with an expected longer length of stay than other segments. They are expected mostly to occupy the single and double family chalets. The golf and boating facilities are also major attractions for this category.

• Foreign Residents: This is an important segment of the market. They

include diplomats, expatriate employees, and business people. Nigeria has a very large population of Indians and Middle Eastern residents, with a

Fig. 30. Premier Hotel, Port Harcourt Fig. 31. Air France, Port-Harcourt

International Airport Fig. 32. Port-Harcourt International Airport

Fig. 27. Night shot of Warri Fig. 28. City of Port-Harcourt Fig. 29. Hotel Presidential, Enugu

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large concentration in Port Harcourt. This category should constitute 15% of the expected occupancy. Their expected length of stay is an average of 4 days and the major attractions for this category are the casino, sports and boating facilities.

• Foreigners Visitors: This segment especially tourists, is expected to

increase substantiality as the hotel enters its 3rd year of operation. However, Nigeria presentlt attracts a large number of foreign business people, whose interests are mostly in the oil sector. This segment will constitute about 15%. The major attraction for this segment is the provision of a first class hotel of international standard. They can effectively combine a business trip with a vacation. No other hotel in Nigeria currently offers this service.

• Nigerian Indigenes: This represents 30% of expected occupancy. They

include Nigerian business people as well as those on vacation. They assure a steady all year round turnover, enjoying all the facilities.

• Government/Organizations: There is more than 150 government and

private organizations in Nigeria whose members are expected to occupy the facility. These, as well as International organizations are expected to hold their annual conferences, seminars and workshops. This is an important segment, it will constitute 25% of occupancy in the facility, and income will be derived from renting conference spaces, as well as rooms and other recreational facilities.

Competitive environment The following statement is taken from a telegraphic report (National Trade Data Bank) dated April 20, 1993 and prepared by the U.S. Embassy in Lagos.

"Nigeria lacks quality hotels considering her population and the number of tourists and business people that visit Nigeria annually. More quality hotels are needed in major commercial centers such as Lagos, Kaduna, Port Harcourt, Warri, Aba, Onitsha and Kano …”

The same report goes on to state that the average yearly occupancy rate for five star hotels in Nigeria is over 85%. There are only four international standard hotels in the whole country. In Lagos there are, Lagos Sheraton and Eko L'Meridian. In Abuja, the new Federal Capital, they are the Nicon Nuga Hilton and the Abuja Sheraton. In the South, there are no Hotels of International standard at all. The few hotels do not offer the quality service and facilities Amede Peninsular plans to offer. The Nike Lake Hotel Enugu, though a four star hotel, lacks international hotel quality. In Port-Harcourt there is Presidential Hotel which is

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a far cry from it’s original five hotel status. Even the much smaller Concord Hotel in Owerri is better maintained. All these hotels mentioned above offer little competition to Amede Peninsular. In fact, it is expected that the occupancy rates of these hotels, which are presently as high as 90%, will reduce significantly with the completion and operation of Amede Peninsular.

Fig.33. North view of property

Fig.34. South view of property

Fig.35. West view of property

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Ownership and Management

Business format and structure Amede Peninsular Hotels is a private limited liability company registered under the laws of the Federal Republic of Nigeria. Presently, the company is 100 percent owned. Equity participation is anticipated to reduce ownership to 80%. An International hotel group or similar organization will manage the hotel upon completion. A management contract will either specify the percentage of operating profit to be received annually by the group or the group could hold some equity in the company. As equity participants they may also hold seats on the board. Overall the board of directors of Amede Peninsular will make corporate decisions. The expatriate management will undertake the training of personnel. Expatriate staff will include a general manager, operations manager, restaurant manager and two chefs. The management contract will stipulate remuneration and other operational details. The rest of the staff will be local.

Operating performance This section presents the revenue centers and estimated income to be derived from their various operations. For ease of understanding, all the financial data are presented on present values, in U.S.D instead of the local currency, Naira. It is expected that any variations as a result of inflation and interest rates will be proportionally reflected on revenue and costs. For this reason, the effects inflation and exchange rate fluctuation are not factored into the revenue projections. Exhibit 2 Room Income

Occupancy Rate

Year 1 80%

Year 2 85%

Year 3 90%

Year 4 90%

Year 5 90%

Single rooms 1 ,423 ,500 1 ,512 ,469 1 ,601 ,438 1 ,601 ,438 1 ,601 ,438 Double rooms 4 ,927 ,500 5 ,235 ,469 5 ,543 ,438 5 ,543 ,438 5 ,543 ,438 Suites 584 ,000 620 ,500 657 ,000 657 ,000 657 ,000 D . Fa mily chalets 78 ,840 83 ,768 88 ,695 88 ,695 88 ,695 S . Fa mily chalets 93 ,440 99 ,280 105 ,120 105 ,120 105 ,120 Mini-apartm ents 350 ,400 372 ,300 394 ,200 394 ,200 394 ,200

Total 7,457,680 7,923,785 8,389,890 8,389,890 8,389,890

Room Revenue

Single rooms: Daily rooms rates are estimated at $65 per night. Single rooms make up 25% of the total room occupancy. The total revenue for the first year of operation was therefore derived by using the following formula: 365 x 60 x .25 x .80 = $1,224,210 (Exhibit 2). The revenue increases with increases in the yearly occupancy rates.

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Double rooms: Daily room rates are estimated at $75 per night. Double rooms represent 75% of total room occupancy. It is also expected that majority of guests will check into double rooms. Total revenue for the first year of operation was derived using the followig formula: 365 x 75 x .75 x .80 = $4,237,650. Suites: There will be 10 executive suites. Daily rates are estimated at $200 per night. As shown in Exhibit 2, total revenue is estimated at $540,000 and $620,000 for the first and second years respectively. Chalets: There are 3 double family, and 4 single-family chalets. Daily rates are estimated at $90 for the double and $80 for the single family chalets. Estimated revenue for the first five years of operation is shown in Exhibit 2. Mini-apartments: These are the lowest range of accommodation available. They are small self-contained units with double beds. It is convenient for couples planning a long stay at the hotel. There are a total of 20 mini-apartments and daily rates are estimated at $60 per night.

Fig. 24. Single-family chalets

Fig.25. 30 single rooms, shops

Fig.26. Mini apartments

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Exhibit 3 Income from Food and Beverages

Year 1 Year 2 Year 3 Year 4 Year 5

Breakfast

Buffet Single occupants 98 ,550 104 ,709 110 ,869 110 ,869 110 ,869 Double Occupants 591 ,300 628 ,256 665 ,213 665 ,213 665 ,213 Chalets and Suites 59 ,918 63 ,663 67 ,408 67 ,408 67 ,408

Room Service Single occupants 38 ,325 40 ,720 43 ,116 43 ,116 43 ,116 Double occupants 114 ,975 122 ,161 129 ,347 129 ,347 129 ,347 Chalets and Suites 34 ,952 37 ,137 39 ,321 39 ,321 39 ,321

Total 938,021 996,647 1,055,273 1,055,273 1,055,273

Buffet Restaurant Lunch 248 ,200 263 ,713 279 ,225 279 ,225 279 ,225 Dinner 262 ,800 279 ,225 295 ,650 295 ,650 295 ,650 Beverage 29 ,200 31 ,025 32 ,850 32 ,850 32 ,850

Total 540,200 573,963 607,725 607,725 607,725

Regular Restaurant Lunch 315 ,360 335 ,070 354 ,780 354 ,780 354 ,780 Dinner 332 ,880 353 ,685 374 ,490 374 ,490 374 ,490 Beverage 35 ,040 37 ,230 39 ,420 39 ,420 39 ,420

Total 683,280 725,985 768,690 768,690 768,690

Tropical Restaurant Lunch 175 ,200 186 ,150 197 ,100 197 ,100 197 ,100 Dinner 175 ,200 186 ,150 197 ,100 197 ,100 197 ,100 Beverage 35 ,040 37 ,230 39 ,420 39 ,420 39 ,420

Total 385,440 409,530 433,620 433,620 433,620

Cocktail Lounge 35 ,040 37 ,230 39 ,420 39 ,420 39 ,420 Pool B ar 21 ,900 23 ,269 24 ,638 24 ,638 24 ,638 B ar 29 ,200 31 ,025 32 ,850 32 ,850 32 ,850

Total 86,140 91,524 96,908 96,908 96,908

Grand Total 2,633,081 2,797,648 2,962,216 2,962,216 2,962,216

Food and Beverages

Exhibit 3 presents income to be derived from room service, restaurants, and bars. Like room income, these projections are based on the expected rates of occupancy. Breakfast: These projections are based on the estimation that 75% of the single room and double room occupancy guests will have buffet breakfasts, while the remaining 25% will prefer regular room service. Since the chalets are equipped with kitchenettes, it is expected that 40% of the guests will prefer to cook their own food. The hotel will charge approximately $6 for buffet and $7 for room service. Restaurants: The buffet restaurant seats 100 guests, while the regular, and tropical restaurants each seat 120 guests. Charges will be $7 and $8 for lunch and dinner

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respectively. For the regular restaurant it will be $9 and $10, while the tropical restaurant will charge $6 and $7 for lunch and dinner. Income from beverages is estimated at an average of $1 per seat. Bars and Lounges: The cocktail lounge seats 40, the pool bar seats 15 while the regular bar seats 20. Average beverage consumption is estimated at $5 per seat.

_____________________________________________________________________________________ Exhibit 4 Income from Facilities

Year 1 Year 2 Year 3 Year 4 Year 5

Casino 3 ,066 ,000 3 ,257 ,625 3 ,449 ,250 3 ,449 ,250 3 ,449 ,250

Night Club 468 ,000 468 ,000 468 ,000 702 ,000 702 ,000

Conference Center 567 ,000 1 ,134 ,000 1 ,512 ,000 2 ,268 ,000 2 ,268 ,000

Sports Facilities Sight seeing cruise 61 ,320 70 ,080 74 ,460 78 ,840 78 ,840 Speed boat renting 70 ,080 81 ,760 87 ,600 93 ,440 93 ,440 Jet ski renting 42 ,048 52 ,560 56 ,064 59 ,568 59 ,568

Total 173 ,448 204 ,400 218 ,124 231 ,848 231 ,848

Grand Total 3,806,448 4,596,025 5,179,374 5,949,098 5,949,098

Recreational Facilities Casino: The hotel will contract the operation of the Casino to an independent company that specializes in casino and gambling. As this represents a major source of revenue, the arrangement will be for a 50% stake on the revenue derived from the Casino. The Casino will accommodate about 300 people, it is expected to attract hotel guests, Oguta locals and a large number of people from neighboring towns and cities. The projections are made on a conservative estimation that each patron will spend $10 on the average per visit on the various games and slot machines. With effective marketing the Casino will attract a full house especially over the weekends. Night Club: the hotel will manage the nightclub. The capacity will be for 300 persons, and it will be open two nights over the weekend. Gate charges and income from the sale of beverages is estimated at an average of $15 per person. Conference Center: conference delegates will be charged per head. The charge will be packaged to include room accommodation and breakfast. During the first year of operation, the hotel target will be to host at least one major conference per month. Each conference or seminar is expected to last an average of 3 days. The average number of delegates will be 150, and each will be charged $105 per day. In the second and third years, the number of conferences is expected to increase to 2 per month and then to 3 during the fourth and fifth years respectively. Average number of delegates is also expected to increase to 200. Sports Facilities: Income will be derived from sightseeing cruises on the lake and the river. Tours will include trips to the historic Gunboat owned by the Nigerian Army during the

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Nigeria, Biafra civil war which sank under mysterious circumstances. It is believed by many that the goddess of the lake sank the boat to save the Oguta people from attack by the “enemies”. The cruises will eventually extend to the Atlantic Ocean. The cruise boat will seat twenty people and will operate four tours per day, lasting one hour each. The charge will be $3 per person. Five Speedboats and four jet Skis will be available for rent on an hourly basis. Operating eight hours a day, average charges will be $10 for the boats and $4 for the jet skis. Projections are made on the estimate that capacity utilization will increase by 5% every year: 60% in the first year to 85% in the fifth year of operation. A summary of the above projections is presented in Exhibit 4.

Exhibit 5

Operation Costs

Year 1 Year 2 Year 3 Year 4 Year 5

Food $2 ,333 ,780 .80 $2 ,325 ,020 .80 $2 ,316 ,260 .80 $2 ,316 ,260 .80 $2 ,316 ,260 .80 Beverage 162 ,060 .00 172 ,188 .75 182 ,317 .50 182 ,317 .50 182 ,317 .50 Payroll 285 ,000 .00 285 ,000 .00 285 ,000 .00 285 ,000 .00 285 ,000 .00 Staff Insurance 1 ,140 .00 1 ,140 .00 1 ,140 .00 1 ,140 .00 1 ,140 .00 Bldg. / Vehc. Insurance 73 ,435 .00 73 ,435 .00 73 ,435 .00 73 ,435 .00 73 ,435 .00 Energy & utilities 318 ,385 .25 329 ,139 .78 338 ,347 .60 344 ,120 .53 344 ,120 .53 General m aintenance 1 ,389 ,720 .88 1 ,531 ,745 .84 1 ,653 ,147 .99 1 ,730 ,120 .39 1 ,730 ,120 .39 Advertise m ent 260 ,000 .00 364 ,000 .00 436 ,800 .00 524 ,160 .00 628 ,992 .00

Total 4,823,522 5,081,670 5,286,449 5,456,554 5,561,386

Basis for Estimated Costs

Food and Beverages: Food costs are estimated to decrease from 35% of the food revenue in the first year of operation, to 25% in the third year. Costs will be minimized as procuring efficiencies improve. Vegetable gardens and orchards owned by the hotel will also reduce the cost of food. Beverage costs will constitute 20% of total beverage revenue. Payroll and Staff Insurance: In addition to the four expatriate staff, local staff will include a financial officer, accountant, cashier, front desk manager, maintenance manager, receptionists and general staff. The relatively low costs presented in Exhibit 5 reflect the fact that the cost of labor is quite low in Nigeria. General staff salaries average about $600 per year, while management staff average about $3500 annually. Staff insurance represents 4% of total payroll expenses.

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Utilities and Maintenance: General maintenance costs are estimated at 10% of total revenue. Energy and utilities i.e. power, gas water etc. have been estimated at 7.5% of total turnover costs for the first five years. Building and Vehicle Insurance: This is estimated at 5% of the value of the building construction, equipment, and vehicles. Advertisement: The initial expenditure of $260,000 in the first year of operation will represent local media coverage. This cost will increase by 40% in year two and by another 20% in year three. Exhibit 5

Exhibit 6 Projected Profit and Loss Statement

Year 1 Year 2 Year 3 Year 4 Year 5

Occupancy Rate 80% 85% 90% 90% 90%

Revenue 13,897,209 15,317,458 16,531,480 17,301,204 17,301,204 Costs Food 2 ,333 ,781 2 ,325 ,021 2 ,316 ,261 2 ,316 ,261 2 ,316 ,261 Beverage 162 ,060 172 ,189 182 ,318 182 ,318 182 ,318 Payroll 285 ,000 285 ,000 285 ,000 285 ,000 285 ,000 Staff Insurance 1 ,140 1 ,140 1 ,140 1 ,140 1 ,140 Building Insurance 73 ,435 73 ,435 73 ,435 73 ,435 73 ,435 Energy & utilities 318 ,385 329 ,140 338 ,348 344 ,121 344 ,121 General m aintenance 1 ,389 ,721 1 ,531 ,746 1 ,653 ,148 1 ,730 ,120 1 ,730 ,120 Advertisements 260 ,000 312000 374400 411840 411840

Total Costs 4,823,522 5,029,670 5,224,049 5,344,234 5,344,234

Gross Profit 9,073,687 10,287,788 11,307,431 11,956,970 11,956,970

Interest on loan: 10% 780 ,197 .00 652 ,402 .70 511 ,828 .96 357 ,197 .86 187 ,103 .64 Principal on loan 1 ,277 ,943 .03 1 ,405 ,737 .33 1 ,546 ,311 .07 1 ,700 ,942 .17 1 ,871 ,036 .39

Profit before tax 7,015,547 8,229,648 9,249,291 9,898,830 9,898,830

Tax1 0 0 0 0 0

Operating Income 7,015,547 8,229,648 9,249,291 9,898,830 9,898,830

Finance

Capitalization The proposed 40:60 debt equity ratio, a required annual equity yield of 15% and a fixed lending rate of 10% add up to a capitalization rate of 13%2. Based on the capitalization rate and a bottom line of $9.8m for the fifth year of operation the perceived value of the 300 room project is $76 million3. 1As an incentive for the tourism industry, the Federal Government grants a five-year tax break to qualified companies. 2 Formula: (debt ratio x Int. rate) + (equity ratio x annual equity yield)= Capitalization rate. 3 Operating income/capitalization rate = perceived value.

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Funding Debt

The main source of debt will be international investment banks, IFC (International Finance Corporation), and other international financial organizations including ADB (African Development Bank). As mentioned earlier the debt funding requirement is $7.8 million, for a term of five years at a maximum annual fixed rate of 10%. A major concern for lenders is political uncertainties, which affect the country’s financial stability. To lessen the concerns of potential lenders, the debt repayments will be made in U.S.D. The burden of foreign exchange fluctuations will be borne by the hotel management. The hotel will earn a substantial amount of foreign exchange from foreign tourists, and these earnings are expected to cover all or part of the debt service requirements. Exhibit 7 presents the loan amortization table. Exhibit 7 Loan Amortization

Loan Amount; $7 ,801 ,970 Annual Interest; 10 . % Term; 5 years

Beginning Ending Year Balance Interest Principal Balance

1 $7 ,801 ,970 .00 $780 ,197 .00 $1 ,277 ,943 .03 $6 ,524 ,026 .97 2 6 ,524 ,026 .97 652 ,402 .70 1 ,405 ,737 .33 5 ,118 ,289 .63 3 5 ,118 ,289 .63 511 ,828 .96 1 ,546 ,311 .07 3 ,571 ,978 .57 4 3 ,571 ,978 .57 357 ,197 .86 1 ,700 ,942 .17 1 ,871 ,036 .39 5 1 ,871 ,036 .39 187 ,103 .64 1 ,871 ,036 .39 0 .00

Equity

It is expected that the lender will also contribute all or most of the 20% equity requirement. The amount required is $3.9 million. The other source of equity is an international hotel chain, which will also play a part in the management of the hotel. The advantage of this arrangement is that it will ensure the profitability of the project. Dividend payments will be withheld for the first five years of operation after which it will be paid to the shareholders as contracted. Exhibit 8 provides a schedule for the dividend payments. Exhibit 7 Dividend returns

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Year 1 Year 2 Year 3 Year 4 Year 5

Operating Incom e 7 ,015 ,547 8 ,229 ,648 9 ,249 ,291 9 ,898 ,830 9 ,898 ,830 Dividend earned 1 ,403 ,109 1 ,645 ,930 1 ,849 ,858 1 ,979 ,766 1 ,979 ,766 Accrued dividend 1 ,403 ,109 3 ,049 ,039 4 ,898 ,897 6 ,878 ,663 8 ,858 ,429

Financial results

The favorable anticipated financial results are high operating margins as a result of the low cost of labor. The five-year tax break is an incentive offered by the Nigerian government to the tourist industry. Although the payment of taxes will begin after the fifth year of operation, it will not affect the level of operating income since by then, it is expected that all debt payment obligations would have been fulfilled. The last factor is the high rate of occupancy, which presently exists in the Nigerian hotel industry. Exhibit 8 is a five-year cash flow statement for Amede Peninsular hotels. Based on the initial cash outlay of $11.2 million, the pay back period is 1.3 years. The profitability index is positive at 2.82, while the internal rate of return is 25%. The net present value of the project discounted at 10% is $22.7 million. Exhibit 8 Cash Flow Statement

Net Cash Discount Present Discount Present

flow at 10% Value at 8.5% Value

Inflow year 1 $7 ,015 ,546 .84 0 .91 $6 ,377 ,769 .85 1 .01 $6 ,465 ,941 .79 Inflow year 2 8 ,229 ,648 .15 0 .83 6 ,801 ,362 .11 1 .03 6 ,990 ,718 .13 Inflow year 3 9 ,249 ,290 .98 0 .75 6 ,949 ,129 .21 1 .04 7 ,241 ,344 .81 Inflow year 4 9 ,898 ,829 .65 0 .68 6 ,761 ,033 .84 1 .06 7 ,142 ,740 .92 Inflow year 5 9 ,898 ,829 .65 0 .62 6 ,146 ,394 .40 1 .07 6 ,583 ,171 .36

Present Value of Cash flows 33 ,035 ,689 .43 34 ,423 ,917 .01

Investment Initial Cash Outlay 11 ,702 ,955 .00 11 ,702 ,955 .00

Net Present Value $21 ,332 ,734 .43

$22 ,720 ,962 .01

Profitability Index 2 .82 2 .94

Internal Rate of Return 25% 25%

Amede Peninsular 20

Conclusion The concerns of the prospective investor about the viability of this project may be the uncertainty of the Nigerian economy. The investor may be concerned about fluctuations in foreign exchange and interest rates, as well as high inflation rates. The hotel industry is one of the few industries that is almost completely immune from the effects of inflation, as increase in costs are immediately reflected by increases in revenue. Despite high inflation rates, the overall rate of occupancy of Nigerian hotels has remained high. The hotel will earn substantial foreign exchange from its operation as mentioned earlier. Tourism is a high priority area for the Government and the hotel will enjoy both government patronage and support. Finally, the success of the hotel is dependent on excellent management which is a major objective. The market demographics are positive. Strong demand exists, and competition is low. The goal of the founders of Amede Peninsular Hotels is to develop the finest Hotel-Resort and Casino complex in Africa.