Income projections over a 10-year period have been estimated according to the following sources:
OPERATING MODEL / ADMINISTRATION
It is anticipated that the center will be operated in such a manner that any time an event is occurring in the building either a full-time staff member or their part time staff designee is present in the venue. This staff presence is essential to service the clients, ensure that the conference center’s policies and procedures are adhered to and that the center’s equipment and property are protected. Thus, the staff will frequently work nights and weekends when activities in the conference center will be in high demand. They will also be expected to keep regular office hours during the week taking care of the day to day business of scheduling, coordinating, marketing and billing. Recognizing this, in order to ensure a well-run operation, cross-training of staff members is critical in meeting the event demand and allowing for staff members to rotate nights and weekends off.
OPERATING MODEL / MARKETING
GENERAL MANAGER JOB DESCRIPTION
OPERATING MODEL / EVENT PROGRAMMING
It is anticipated that the primary focus of the conference center will be the host location for the following types of events:
While a certain level of business will be achieved simply because the venue is new, to achieve the financial results projected, the General Manager will need to take a proactive approach in securing and maintaining events for the venue. Certain conditions must be present in the facility’s operating policy as well. Among those conditions are:
OPERATING MODEL / FOOD & BEVERAGE
There are a variety of options available to accommodate the food and beverage needs of a venue such as the conference center:
PRO FORMA / BUDGET ASSUMPTIONS
The funding of a venue does not end when the resources are found for its construction. The venue’s operating budget most likely will require an annual subsidy and the venue will continue to require capital improvements, general maintenance and upkeep to continue to operate up to applicable industry standards and the competitive environment. While operating income can offset a good portion of this funding, it can’t be counted on solely.
In developing of the Pro Forma Budget for the conference center certain assumptions were made:
PRO FORMA BUDGET / RENTAL RATES
In order to establish the rental rates for the conference center, a review of regional venues rental rates was conducted. The rates included for comparison are the “published” rates for each of the venues. Venue staff can work with the client to adjust the venue’s rental costs to meet their specific event needs.
Incentive rate policies may be adopted as the rate sheet is finetuned. These incentives can reduce the overall cost of the venue to the client through provisions for multi-day discounts, reduced rates for setup and tear-down days, an “all in” rate for specific types of events such as wedding receptions and quinceañeras.
Some venues charge higher rental rates for smaller spaces, which can be due the aspects of specific business center, (e.g. distance from the city center, level of premises technical equipment, additional services and the overall image of the business center).
PRO FORMA BUDGET / RENTAL RATES
Many of the venues are offering “all inclusive” rates. These rates cover the costs of maintenance, set up, tear down and most facility equipment. The venue’s tables, chairs and some technical equipment may be charged separately depending on the event. Security staff (when alcohol is present) is generally the only staff time that is charged to a client.
Without having an architectural plan for a specific building, it is impossible to determine specific and precise Rental Rates. For this reason, the proposed rental rates are based purely and solely on room capacities.
PRO FORMA BUDGET / REVENUE PROJECTIONS
The Pro Forma Budget represents a relatively conservative approach to estimating expenses. Expenditures have been formulated for line items that our consultants deemed to be applicable to the operating budget for the facility. Actual expenses may be less based on the venue design, operational philosophy, and programming considerations.
Anticipating that a significant number of events will qualify for the non-profit rate or that rates for commercial events may be negotiated down to the non-profit rate to secure the business, the Pro Forma Budget is calculated using the non-profit rates and not the commercial rates. Events that add into the event mix at the commercial rate will have a positive impact on the projected event related revenues.
An expense budget was established taking into consideration venue management experience of our partners and opinions gathered from interviews with potential venue users. Detailed information is provided in the line item descriptions indicating what each budget line includes and how the budget figure was derived. By knowing the premise behind each budget line, the accuracy of each line item can be evaluated, and future planning sessions can adjust the calculations as needed to meet changes that occur as the venue moves closer to opening.
PRO FORMA BUDGET / DEBT SERVICE
Without knowing the land costs, site development costs and actual building costs, determining the debt service of the conference center at this point in the process is an unknown. Until these variables are defined, it is not possible to calculate if there will be debt service that must be a part of the annual operating expenses or if construction fundraising would pay for the venue. Therefore, no debt service has been included in the annual operating budget pro forma.
PRO FORMA BUDGET / CAPITAL REPLACEMENT FUND
Capital needs will be minimal during the first year of operation since most of the equipment and operating systems will be under warranty. We see that it would be strongly recommended to establish a capital replacement fund with a goal to build adequate reserves that meet future capital needs. The Pro Forma Budget reflects an annual allocation of $25,000 into the capital replacement fund.
PRO FORMA BUDGET / PRE-OPENING EXPENSES
Prior to breaking ground, the conference center will incur certain expenses prior to the venue opening for business and generating revenue. Many regional and state organizations book their events several years in advance. Therefore, staff will need to be hired at least two years prior to the opening to ensure that the booking calendar is full when the venue opens. A Pre-Opening Expense Pro Forma should be developed as a part of the approval of this project. Expenses related to the following items should be factored in:
Communications – telephone, cell phones, internet, etc.
Travel/Conferences – as a part of the sales process, a representative of the conference center should attend appropriate conferences and client sales calls.
Supplies – office supplies, computer, printer, copy machine.
Marketing materials – collateral pieces will need to be developed highlighting the new venue to be available for distribution through a variety of opportunities; speaking engagements, mail and via e-mail.
Advertising/Promotions – ads will need to be placed in publications and promotional items may be needed to further highlight the new venue to prospective clients and community members who will be attending events.
Website development – to create excitement for the new venue within the community, the website should be developed as soon as possible highlighting construction updates and booked events.
Construction webcam – to keep the community informed of the construction progress and to raise awareness of the venue, a construction webcam should be installed overlooking the site.
PRO FORMA BUDGET / LINE ITEM SPECIFICATIONS
For prudent fiscal operation and responsibility, the conference center staff must play a key role in the detailed management of the facility’s financials. Annual budgets will be prepared for approval by the governing entity by the conference center staff. Monthly financial reports must be prepared to indicate how actual performance is measuring up to budget, with the capability of reviewing the current month’s financial performance against budget and against previous years. The following provides the staffing detail that is part of the Pro-Forma Budget:
VENUE RENT: Category represents solely those monies collected from daily rentals of the facility.
REIMBURSED EXPENSES: Rental of equipment such as sound systems, tables, chairs, and/or any building-owned items not included in the base rental fee.
REIMBURSED WAGES REVENUE: This item is shown as revenue because it represents the proceeds from reimbursed labor plus a 15% upcharge added to all labor costs that are charged back to clients.
GROSS CONCESSIONS REVENUE: This revenue category represents the gross revenues from food sales (not catering).
GROSS CATERING REVENUE: This revenue category represents the gross revenues from catering sales.
PRO FORMA BUDGET / EXPENSE SPECIFICATIONS
FULL TIME STAFF LABOR: Full time staff salaries.
PART-TIME EVENT LABOR: Line item to cover part-time labor charged to an event. PART-TIME NON-EVENT LABOR: Represents payroll for all part-time staff that cannot be billed back to an event.
TAXES & BENEFITS: Taxes and benefits that include FICA, FUTA, SUTA, and Workman’s Comp, health, dental, disability, 401K, and payroll processing cost.
PART-TIME FOOD & BEVERAGE LABOR: Line item to cover part-time food and beverage labor, offset through food and beverage revenues.
POSTAGE / SHIPPING: Expenses for United States Postal mail, overnight and two-day delivery services, common carrier shipping and postage meter expenses.
OFFICE SUPPLIES: Expenses related to repair of office machines and the purchase of office supplies.
RESERVES: A fund dedicated to future capital projects and other approved uses.
PRINTING / COPIERS: Lease expense on copy and fax machines; out-sourced printing for business cards, stationery, envelopes, labels, forms, and other large copy projects.
DUES & SUBSCRIPTIONS: Industry trade magazines, journals or publications as well as local, regional, and national newspapers and periodicals. Also participation in professional organizations and associations.
LICENSES/PERMITS: Relates to various licenses and permits such as a liquor license
EMPLOYEE TRAINING: Expenses related to tuition, registration, enrollment fees for industry-related and safety continuing education training of staff members.
PROFESSIONAL SERVICES-LEGAL / AUDIT: Audit fees, payroll processing, attorney’s fees, legal retainers, data processing, ASCAP, BMI, SESAC, and other annualized contract services provided to the facility.
UNIFORMS: Cost of purchasing uniforms for full-time, part-time staff, and/or contract labor.
ADVERTISING / MARKETING: Annual awareness and marketing campaign for the facility.
TRAVEL: Costs of business-related travel to professional meetings, expenses related to travel and incidental expenses to solicit events or promote the facility at industry events and client visits.
BANKING FEES: A normal cost of doing business.
TOOLS & SMALL EQUIPMENT: Tools and small equipment needed in the operations/technical areas.
TELEPHONE, CELL PHONES, RADIOS: Regular (land based) and cellular (mobile) telephone, long distance and related services, internet and server fees.
UTILITIES: Projected expenses for gas, electric, water and garbage service.
SERVICE AGREEMENTS: Service agreements for regular monitoring and maintenance of venue equipment and systems.
MEXICAN GAMBLING INDUSTRY
With casinos having been banned for many years, it is only recently that Mexico has been a playground for gambling. That said, Mexico has always been a top market for the Las Vegas gambling industry, ranking fourth on the list of preferred gambling destinations.
With the advent of new facilities and permits in the works, over 35 gaming sites are expected to open within 50 miles of the Mexico/US border. Casinos will also soon be opening in the beachfront resort cities of Acapulco, Puerto Vallarta, and Cancun. Border towns, such as Tijuana and Ciudad Juarez will soon have more casinos and facilities are also expected to open in the Mexico City area.
It is speculated that with the legalization of gambling in Mexico, resorts worth over $500 million would open in Acapulco and Mazatlan as potential casinos. Many gambling companies of Las Vegas are keen to open casinos in the prospective market of Mexico.
ESTIMATED FLOOR AREA
Casino facilities integrated with MilCoin Network’s resorts are anticipated to be a significant revenue driver. The following comprises the space required for a casino operation:
We have projected 1,000,000 guests in Year 1 spending an average $50 and have further assumed that the casino will be managed by the hotel operator under the same terms as the hotel (a management fee of 4% of gross sales).
Casinos typically generate a yield of between 12% and 15%. Taking the lower figure and allowing for the management fee gives a profit to the project of 8% of sales – $4 million in Year 1 rising to $7 million by Year 5.
A casino in a resort incentivizes a longer visitor length of stay. The following comprises MilCoin Network’s estimated 5-year projections for an operating casino integrated with its resort properties:
Room Revenues are dependent upon two main factors: Room Occupancy and ADR. The ADR is based on rates currently in the Costalegre markets, as well as potential competition, without taking into consideration seasonal variations.
For Room Occupancy, as a starting point we relied on the studies that have been conducted by the government where the average current Occupancy Rate is just above 50%, and adjusted for the special considerations relating to the properties’ proximity and relationship to the on-site operating film studio that is part of the resort. While there is huge pressure on the occupancy of hotels in Costalegre, which will likely decrease due to the inventories of hotels that will be released on the market shortly, we have taken our occupancy rate from the first year at the same rate as the current market in 5 star hotels category, but then increasing that rate gradually in conjunction with the maturing of our film production facilities so that we stabilize in the range of over 90% for all the hotel categories.
As we expect our film production to be well on its way in the 3rd year, we increased our occupancy from 50 to 70 to over 90% in the 6th year and beyond, to take into consideration the additional rooms that will be occupied by the film crews and related individuals.
These revenues are generated through the use of telephones in the hotels including long distance calls, services charges and facsimile services. Telephone revenues are rather insignificant in today’s age and only equates to 0.11% of total revenues in our assumptions.
Our forecast on the food income varies for the different hotel categories, increasing with the higher category rate. We expect that the higher the hotel category, the more the food consumption including breakfast, lunch and dinner. A detailed analysis was made, taking into consideration occupancy rate as well as double occupancy.
We took the beverage income as 45% of the food income total as is customary in the industry.
RENTAL & OTHER INCOME
Revenues in this category are derived from the sales of laundry, vending machine commissions and other guest charges. It accounts for approximately 2% of total revenues which is consistent with similar lodging facilities.
These expenses include those associated with the operation of the hotel’s room department including the front office and housekeeping payroll, discounts, refunds, cable TV expenses, laundry and cleaning supplies. They account for 22.3% of Room Revenue.
FOOD & BEVERAGE EXPENSE
Expenses consist of items associated with the operation of the hotel food and beverage facilities. Sales and payroll comprise a substantial portion. China, glassware and linen, operation supplies and uniforms also contribute to the costs incurred. This expenses accounts for 73.7 % of both food and beverage revenues.
The telephone expense accounts for 106.8% of telephone revenue. The figure drops down to 100%. Telephone expenses typically outweigh revenues for smaller hotels. In order to remain competitive, more hotels are providing internet connections and local call free services.
These expenses relate to costs of supplies and maintenance of laundry equipment. This expense account for 66.2% of both Rental and Other income.
These expenses include the salaries and wages of all the administrative personnel not directly associated with a particular department. Miscellaneous items related to the operation and management of the facility are also included here. This accounts for 7.7% of total revenues.
Typical hotel management fees are between 2 and 4%. We have provided for top quality management services for our hotels; therefore, the higher end of this range is appropriate to budget.
OPERATIONS & MAINTENANCE
This expense includes payroll for the engineering staff, routine preventative maintenance costs and repairs. This accounts for 3% to 10% which increases each year in order to keep up as the property ages.
This expense consists of water, electricity, gas and trash collection costs relating to operating the facility. This expenses accounts for 4% of total gross revenue.
An annual budget is made to plan for all marketing expenditures. This accounts for 10% of total revenues in the early years diminishing to a more standard rate of 4.35%.
This expense includes the cost of insuring the building and its contents against damage or destruction from fi re, weather, and other hazards, and accounts for 1.3% of total revenues.
RENT & LEASES
The rent and leases expense is associated with costs incurred to rent equipment that supports the hotel’s daily operations. Such capital leases are typically for data processing equipment, telephone equipment and other major items and accounts for 1.3% of total revenues.
Cost Indications are based on calculated estimates of the buildings and spaces presented within and scheduled within Phase 1 of the master-plan design concept.
There will be 1000 above ground parking spaces.
Rates used are based on: the prevailing 2016 rates of published, construction industry pricing comparison source data-bases adjusted in line with published international construction price comparison indices, and regional adjustment to reflect the likely prevailing local market conditions in Costalegre.
We are planning to attract a local Quantity Surveyor (QS) with specifically local prevailing market data to work with the teams during next development stages. It will help to further refine the costs to reflect and exploit local best value procurement opportunities.
Cost Indications assume a traditional procurement process and (s) i.e. iterative process = brief > design > tender >construct, and letting to single or multiple main contractors, under lump sum contract(s).
Professional Fees are based on a local team model.
A Contingency of 10% has been allowed across all the construction works at this stage (see Summary)
Quoted Unit Rates Include: Contractors’ profit and overheads
Quoted Unit Rates Exclude: Inflation / Deflation beyond Q4 2015.
Site Preliminaries (which are expressed separately)
Prevailing taxes and duties levied in Mexico
Fees including Architects, Structural Engineer, MEP Consultants, Health & Safety Consultants, Quantity Surveyors, Project Managers (which are expressed separately)
FF&E (Furniture, Fixtures & Equipment) - Assumed to be part of an operator-funded, post-completion overlay except in the Casino, Film Studios, Hotels, and Staff Accommodation