Case: Americana (A)

Hotels represent a very different kind of Real Estate development than the other properties we have considered up to now. The include real property -- but like many other kinds of real estate – most of their profit comes from active operations rather than from sales or letting activities. Sometimes this is done by the owner -- sometimes by a professional operating company hired to undertake that function.

In this case, American -- an experienced hotel operator -- is deciding whether to lease a property in Jamaica, and how to operate that property. Americana already has a diverse mix of other hotels and adapts the operation of each property to the demands of its situation. Thus, it can consider a much wider range of options than most competitors who prefer to pursue a more limited mix of properties and operating approaches. But flexibility also has certain costs. As you prepare this case, please consider these issues:

• What is actually being offered to Americana if it leases this property? What are the property’s unique advantages? Disadvantages? Unknowns? What market(s) might it serve?
• What are the prime operations alternatives for Americana, if it decides to lease this property? Are they all identified in the case, or are there others that deserve serious consideration?
• What will be the key factors that determine which alternative would be best for the operator? How should Americana assess each of the serious alternatives against these criteria? How does an operator make money in this business?

NOTE: In the case, the two options appear to have the same profit. This is because the analysis of the Club option shown in the case is NOT intended as a true pro-forma. It is instead a "breakeven" analysis done to determine the levels occupancy needed to make the Club option profit equal to the expected profit from regular resort hotel operations. You need to correct it to your occupancy expectations -- in addition to making whatever other corrections to the pro-forma you consider appropriate.  If there is need for more information to make this decision -- for purposes of working on this case -- go ahead and "invent" a reasonable scenario.

Please participate to the discussion and polling on e-campus.

ASSIGNMENT: Please write a brief memo to management telling them what to do, backing your decision with analysis -- including a pro-forma/valuation spreadsheet. Please submit the above brief draft -- 1 double-spaced page maximum -- at the end of class.

Nine days after the class, please submit your final revision of this memo and pro-forma/valuation in e-campus.