Hotel Economics

The Hotel

The Hilton Rockville & Executive Meeting Center is located 10 miles northwest of Washington, DC, in the heart of Maryland's Technology corridor. Located on Rockville Pike, amidst major office complexes, retail centers and restaurants, the hotel is adjacent to the Twinbrook Metro Station. The meeting center is a state-of-the-art facility and has been one of the leading conference centers in the area for years. Accommodations include:

* 315 spacious guestrooms and suites (king or double queen size beds).

* IACC - certified Conference Center (International Association of Conference Centers).

* 20,000 square feet of meeting space.

* Business Center

* High speed internet in access in all guest room and meeting rooms (wireless and wired).

* Open lobby and atrium.

* Several onsite dinning options, including Room Service, Fine Dining and Lounge.

* Indoor/Outdoor pool, spa and fitness center.

The Competition

Competition comes from several locations, and includes: The Hyatt Regency Bethesda, Bethesda North Marriott Hotel & Conference Center, Doubletree Hotel Bethesda & Executive Meeting Center, The Sheraton Rockville and The Bolger Center. All of these hotels/conference centers offer similar amenities and accommodations, making it difficult to differentiate based on product alone, service standards and pricing are the keys to gaining a competitive advantage.

Local Market Update

The Hilton Rockville has experienced a complete transformation in 2007, undergoing both a brand change (from Doubletree to Hilton) and renovations ($20M started in 2006) of the entire facility. Hotel performance in 2007 reflects the significant structural and cosmetic upgrades, as occupancy and revenues have declined from prior years. Occupancy has declined from 70% in 2005 to 55% in 2007; likewise revenues have declined from $20M in 2005 to approximately $15M in 2007.

The market has had a modest 1.5% Revpar (Revenue per Available Room) growth over last year. Additionally, as the hotel was changing to a more upscale brand in 2007, the market increased in size by 9.7%, with the addition of the Sheraton Rockville (155 units) and the Doubletree Bethesda (269 units). 2008 will offer significant challenges to the hotel as two major clients (Lockheed Martin & FDA), will be moving into their own meeting facilities and the Marriott Bethesda North's 225 room expansion will be nearing completion.

Continued softening in the DC convention sector is expected in 2008 as the Gaylord National Resort & Convention Center (GNRCC) is expected to open in early 2008. GNRCC offers 2,000 guest rooms and 470,000 sq. feet of Meeting, Convention, Exhibit and Ballroom space.

Speculative development has outpaced current demand this year as determined by Staubachâ„-. The trend is set to continue, with speculative projects such as Tower OaksІ and Opus CenterÑ- under construction.

According to PKF Consulting4, hotel performance in Washington, DC remains strong compared to last year in the first half of 2007. Occupancy rates were up 2.5 points to 79.6% and ADR (Average Daily Rate = Room revenue/Occupied rooms) increased 4.1% to $212. However, in Maryland (entire state) the overall occupancy decreased .6 points to 68.7%, while the rate increased 6.9% to $124.52. Northern Virginia increased occupancy to 76.8% and ADR by 3.6% to $144.45.

The Mission Statement

"To establish the Hilton Rockville as the premier place to meet in Montgomery County, repositioning the hotel will present an ongoing process as the hotel's image in the market will be transformed to a first-class hotel, meeting and event venue. Reaching out to past, present and future guests will be paramount in an effort to regain the customer loyalty that the hotel experienced in the past. The support of the brand (Hilton) will also be leveraged in targeting new business opportunities on four primary levels: EMC Meetings, Leisure Packages, Individual Business Travel and Social Catering to include wedding receptions & mitzvahs."

SWOT Analysis

Opportunities

IV I

Distance to DC City Center Newly renovated and re-brand to Hilton

Guest Rooms facing Atrium Adjacent to Twinbrook Metro Station

Executive Meeting Center

Large and tastefully decorated Guest rooms

Weakness Strenghts

Doubletree Bethesda (Hilton Family) Marriott Bethesda North expansion

Marriott Bethesda North expansion Potential customers lack of knowledge

Marriott Regional Sales Team of EMC features

EMC competitive set increasing

III II

Threats

What's Next

As the Director of Finance for the hotel, you are preparing for the annual Budget review with the owners. Based on pro-forma financial statements that the owners provided, you know their expectations for 2008 are aggressive:

* Revenue increase from $15M to $24.5M.

* Occupancy increase from 54% to 70%

* ADR increase from $176 to $198.

You're reviewing the Mission Statement and the SWOT Analysis, which were prepared by the General Manager and Director of Sales & Marketing and have the following questions:

1. Describe the laws of supply and demand and interpret how it applies to what is happening in the DC metro area.

Answer: Simply stated as Quantity increases Price decreases. What we see happening in the DC metro area is that supply is increasing substantially, while demand is remaining relatively flat, thus creating a surplus in supply. Eventually, seller's (hotels/conf. centers) will have to lower prices in order to return