Feasibility study of the Shades of Green Resort purchase price

Shades of Green

This project will explore a myriad of factors associated with the Shades of Green Resort in Orlando Florida. These factors include the type of business it is and financial information.

The primary purpose of this project is to provide a feasibility study that investigates the price an investor will pay to purchase the Shades of Green Resort in Orlando, Florida.

The Shades of Green Resort opened in 1994 and was formerly known as the Golf Resort, and The Disney Inn (The Shades of Green).

The previous resort was considered to be a Deluxe or Premium resort. The resort was leased by the U.S. government for use by military personnel on Rest and Relaxation in February of 1994 (The Shades of Green). On January 12th of 1996 it was purchased by the U.S. government. Today only U.S. military personnel are allowed to use the resort in conjunction with a 100-year leasing agreement between Disney and the U.S. Department of Defense (The Shades of Green). However the resort does feature a world-class golf course that is open to the general public.

The Shades of Green is located in between two golf courses in a wooded setting. The location also features deer and herons and is located on the Walt Disney World property and close to all of the major attraction parks, and directly across from the Polynesian Resort (The Shades of Green). The resort was reopened in 2004 after a two-year renovation. The resort now features 586 rooms (all non-smoking) (Shades of Green fact Sheet). All of the rooms are nearly 500 square feet in size and features two queen-size beds. The rooms also contains, a table with 2 chairs, a day bed, an armoire with a TV and VCR, a size closet with an electronic safe. The rooms sleep a maximum of five people (The Shades of Green). Nearly all of the rooms at the facility have balconies that provide a view of the golf course or swimming pool. In addition a portion of the rooms also have a view of the Magic Kingdom fireworks (The Shades of Green).

Type of business

The Shades of Green is a government managed resort and the only Armed Forces Recreation Center in the Continental United States. Armed forces recreation centers are "affordable Joint Service facilities operated by the U.S. Army Community and Family Support Center and located at ideal vacation destinations. AFRCs offer a full range of resort hotel opportunities for service members, their families, and other members of the Total Defense Force... The AFRCs are centrally-managed, U.S. Army Community and Family Support Center-operated facilities with a mission to provide rest, relaxation, recreation, and sustainment for Army personnel, their families, and other members of the total Defense Force (Armed Forces Recreation Center)." (Armed Forces Recreation Center)."

The purpose of these facilities is to provide military personnel with an affordable way to vacation with their families. The aim of these centers is also to promote the militaries stance on the importance of family and maintaining a healthy family life while serving and defending the country. The room rates are based on rank, pay grade, duty status, room size, and/or room location.

Customers

The Shades of Green in Orlando is essential to military personnel stationed in the United States. The resort was opened in response to decreasing overseas stationing, a desire to provide a tangible benefit to soldiers during a period of significant turbulence and a significant market demand. Military life has always been stressful, but in today's world, the need for wholesome recreational outlets is vital to our force preparedness.

Shades of Green is overwhelmingly popular with soldiers, sailors, airmen and Marines. More than 200,000 military family members will visit Shades of Green every year. The primary objective, which has been met, was to provide soldiers and their families, particularly junior soldiers with young children, with a wholesome, secure, quality vacation opportunity that would otherwise be unaffordable to them.

There are certain eligibility requirements involved in staying at the Shades of Green Resort. These requirements are as follows:

Armed forces Service members and families-this includes members on active duty, Cadets of service academies, Members of the commissioned corps, of the public heath service, commissioned corps of the national oceanic and atmospheric on active duty and Reserve components.

Honorably discharged veterans, Medal of honor recipients, Armed forces retirees and their families, Former Prisoners Of War, Families of current POW's, Widows of those that died while on active duty.

U.S. federal employees that are assigned outside of the United States. Military Personnel of foreign nations and their families.

Department of defense civilian workers, department of defense contract personnel, and non-department of defense personnel that work at military instillations.

Community leaders such as mayors, Guest of eligible individuals can reside at the resort but only if the eligible individuals are present.

II. Factual Summary:

a. Revenue and non- revenue asset of this resort

The revenue generating assets of this resort include lodging, restaurants, golfing, and a gift shop. The market for lodging at this facility and at other similar facilities in the region is high. Orlando is the number one tourist destination in the world and this facility is the nation's highest occupancy rate resort hotel. Likewise the restaurants that operate at the hotel serve as revenue generating assets. While the lodging units do contain mini-refrigerators and microwaves they do not have full kitchen so guests will have to purchase meals on sight or nearby. This is beneficial to the restaurants located on the resort because the guests are more likely to dine at the resort.

The golf course at the resort also provides revenue for the facility. Unlike the lodging and the other departments at the resort the golf courses are open to the public. This makes this particular asset extremely important to the resort. The market for this asset is also strong in this area but there is also a great deal of competition because there are many golf courses.

The gift shop is also a revenue generating asset as visitors are likely to buy Disney memorabilia. In addition, the gift shop also has items such as toiletries that people quite often forget to pack. The store is able to generate significant profits.

Define the dominant market position of this resort

This particular resort is definitely in the dominant market position because of the customers that it serves. This is the only facility in the continental United States that provides Military personnel with discounted rates at a world-class resort. As a result this hotel has the highest occupancy rates in the world. In addition, as many men and women in the military come home from deployment, they will be seeking R&R at this type of resort. In addition, the location of the resort is ideal for families and appealing to many.

Define all cost areas

The main cost areas for the resort in the past have been energy cost. The cost associated with this was such a problem in the past that the government embarked upon a project to improve guest comfort, achieve government energy efficiency mandates, improve cash flow/reduce operating cost, provide self-sufficiency in facility operations, offset of capital expenditures for aging infrastructure, and plan and prepare for future growth (Armed Forces Recreational Center Uses Federal Government ESPC to Achieve Goals).

Twelve major attractions within 1 hr radius of the Resort.

Disneyworld- A amusement park with rides, entertainment, food and beverages.

MGM Studios- Features rides and exhibits associated with movies and other media produced by MGM studios.

Universal Studios- Features rides and exhibits associated with movies and other media produced by Universal studios.

Sea World- Park featuring aquatic animals featuring shows, exhibits and some rides.

Kennedy Space Center- Museum dedicated to American Space exploration which features exhibits.

Cypress Gardens- Features gardens with exotic plant life and an amusement park which features a water park.

Magic Kingdom Park- features Splash Mountain and other popular attractions.

Epcot-Epcot is an imaginative park with interactive exhibits such as Mission Space.

Disney's Animal Kingdom- features a safari of rare and exotic animals.

Orlando Museum of Art-features tours and an interactive gallery

Gatorland- theme park and wildlife preserve.

Shopping Facilities- there are many shopping facilities located near the resort including the Orlando Mall which features many high-end stores.

In addition the resort can purchase discounted tickets to attractions. There is also a free shuttle bus service runs from the hotel to Disney's Transportation and Ticket Center, From this location guests can catch free transportation to any of Disney's parks (Shades of Green Fact Sheet).

Describe (briefly) all activities at the resort include special events

The resort has two swimming pools and a plethora of activities for children. The resort also has a weight room. In addition, the resort has a children's pool and playground, a video arcade room, exercise room, pool table, nature walk, two lighted tennis courts, access to five championship Disney golf courses (Shades of Green on Walt Disneyworld Resort). This includes two golf courses and a 9-hole executive course which are adjacent to the resort (Shades of Green on Walt Disneyworld Resort). The resort also provides day care services.

There are also seasonal activities that are arranged by the resort's staff. "such as Easter-Egg hunts (Easter), Snowman building competitions bobsleigh and ice skating (Christmas), and other similar activities especially for guests' children to help keep them occupied while parents relax at the resort (The Shades of Green)." The resort also has Oktoberfest activities

Describe types of Food and beverage outlets

The resort has five main food and beverage outlets which include the garden Gallery Restaurant, Eagles Lounge, Express Cafe, Maginos and the Sports Bar and Grill. The Garden Gallery Restaurant boasts affordable family meals. The Eagles Lounge is designed to provide snacks and beverages. The express cafe provides coffee and pastries. Finally, Maginos is an Italian Restaurant with expensive wine menus. As you can see in the area of food and beverages there is something to suit every taste and price range (The Shades of Green).

Description of rooms for rent and pricing (taken from Shades of Green Fact Sheet)

Occupancy broken down by room rates

According to the House Armed Services Committee

Congress has twice advocated expansion of the Shades of Green AFRC, based on the demonstrated demand for rooms vs. The available supply. The Shades of Green AFRC, with an aggregate occupancy rate of 98.7%, has now surpassed the Army's Hale Koa Hotel as the nation's highest occupancy rate resort hotel.

A commercial sector market survey conducted in 1998 verified the market demand to support an expansion of the facility's services, to include 300 additional guestrooms, ballroom and meeting room facilities, and other improvements. The project will take approximately 24 months to complete and will be built using NAF at a cost of approximately $69.2 million. Again, no appropriated funds will be expended in the construction and operation of this project (House Arms Services Committee)."

Average daily rate and rooms revenue

Shades of Green has an annual unaccommodated room night demand equal to 80% of its total room capacity (House Arms Services Committee).

Total Resort revenue and estimated Net Operating Income

AFRCs are self-sustaining and funded by nonappropriated fund (NAF) revenues generated internally from operations (Armed Forces Recreation Center). Revenues from AFRCs are always reinvested to maintain and improve the physical plant in addition to providing the greatest possible value for AFRC guests (Armed Forces Recreation Center). According to the Army Morale, Welfare, and Recreation Financial Management Plan,

NAF are funds generated by MWR and family programs (through sales, fees, income from concessions, or charges at local installations) or received through revenue-sharing agreements with the Army and Air Force Exchange Service (AAFES). Additional funds may be generated by public-private ventures. NAF are separate and distinct from monies appropriated by Congress; however, they are entitled to the same protection as funds of the U.S. Treasury. Chapter 3, Section II, of AR 215-1 provides for individual fiduciary responsibility for properly using NAF and preventing waste or loss... At the local level, each installation MWR director is responsible for programming and managing his or her installation's MWR NAF through a NAF instrumentality (NAFI) (Armed Forces Recreation Center)."

Initially the Shades of Green Resort struggled to stay afloat an audit from 1996 explained that although the hotel had a high occupancy rate it had a difficult time generating revenue. The audit asserts that "AFRC-Orlando was 92% occupied, the first 4 months of operations (February through May 1994) had an actual net loss of about $535,000 after depreciation and about $397,000 before depreciation on revenues of about $5 million. For the first 12 months of operations, we estimate a net loss of about $1.6 million. In addition, AFRC-Orlando operations were insolvent (liabilities exceed assets) by about $2.4 million (Department of Defense Office of Inspector General - Audit Armed Forces Recreation Center - Orlando)."

Although these statistics may look problematic, losses in the first year of business are not uncommon for the hotel industry. In the years since this audit, the hotel has been able to generate more revenue. However it is important to keep in mind that the facility was closed during 2002 and 2003 and only reopened in 2004, therefore financial information is scarce concerning the current condition of the hotel. The information that does exist contains combined information concerning nonapproriated fund facilities. The research asserts that Fiscal year 2000 was the most successful nonappropriated fund (NAF) financial operating year in recent history. MWR Operations produced $117.3 million; a $27.7 million or 31% increase over the $89.6 million earned in FY 99. Operating results were 11% of revenue substantially exceeding the minimum standard of eight percent established by the MWR BOD. This result exceeds any percentage earned in recent history."

The MRW's 2004 Annual report provides very little financial information about the Shades of Green Resort. It does however state that the resort was used by those displaced by the many hurricanes that effected the region. It also provides the combined financial status of the AFRCs generated total revenue of $123.4M and NIBD of $19.4M in FY04, an increase from FY03 revenue of $106.3M and NIBD of $16.2M. Improved performance was primarily attributed to the reopened Shades of Green® after a two-year hiatus to construct a 299-room expansion and improved performances at the Hale Koa Hotel® and Dragon Hill Lodge®. Collective AFRC occupancy was 94.1% of 600,000 room-nights available for sale in FY04. Expansion of the Shades of Green® and construction of the Edelweiss Lodge and Resort increased total room inventory from 1,769 guestrooms to 2,135 (Annual Report 2004).

What is the Cap rate of this resort?

Because the government groups nonappropriated fund (NAF) facilities together when reporting the operating income, it is impossible to know the capitalization rate for the facility.

III. Recommendations

IV. Based on the Study, what is the amount that an investor would offer for this Resort? Why The research has found that the occupancy rate of this hotel has the highest occupancy rate of any hotel in the United States. This is an essential component in determining the amount of money that an investor would offer for this resort. In, addition the resort has undergone a $94 million renovation and expansion which added more revenue generating assets to the resort's property (Armed Forces Recreation Centers Expand in Florida, Germany).

Additionally the resort is attractive to service members because of its location and its proximity to Disneyworld and so many other attractions. The resort provides top notch lodging and discounted prices on accommodations and attractions. In addition, as the only such resort in the continental United States it offers low prices to military personnel who are in need of R&R. All of these things are essential to determining how much an investor would pay to purchase the resort.

Another important facet in determining how much investors would be wiling to pay one must investigate how much similar properties in the region have sold for and the value of the assets located on the property. As was mentioned earlier the facility was renovated for nearly $100 million. Properties located in that area that have been sold in recent years contained fewer rooms than this resort and did not have the same amenities and were not located on the Grounds of Disneyworld. One such hotel is the Hampton Inn which has 170 rooms. According to the Orlando Business Journal, Equity Inns Purchased the Hampton in for $23 million. If we take this purchase price and consider the fact that the Shades of Green Resort is more than triple the size of this resort, is on the grounds of Disney world and features a golf course, and is newly renovated one could assume that an investment of between $250 million and $350 million would not be unlikely given the capacity to generate revenue. In addition, it should also be noted that if the government did not currently own this property and it was instead owned by private investors it would have the capacity to generate more revenue because they would not be offering such discounted prices (i.e. room rates would be significantly higher).