1. Hospitality Management Strategies ©2005 Pearson Education, Inc. By R.A. Nykiel Upper Saddle River, N.J. 07458 Financial Strategy Options Chapter 5

2. Hospitality Management Strategies ©2005 Pearson Education, Inc. By R.A. Nykiel Upper Saddle River, N.J. 07458 HMS - Strategy Selection ROI = return on invested capital Cash generated strategies Franchising Management contracts

3. Hospitality Management Strategies ©2005 Pearson Education, Inc. By R.A. Nykiel Upper Saddle River, N.J. 07458 HSM - ROIC Formula Current ROIC = Average ROIC is a function of: remaining mortgage balances per year life of the investment average of “X” years profit Profit Current Investment $

4. Hospitality Management Strategies ©2005 Pearson Education, Inc. By R.A. Nykiel Upper Saddle River, N.J. 07458 HMS - Return on Invested Capital (% / $) High 1. Management contracts 2. Roll-over asset 3. Room addition 4. Franchises 5. Management contract with limited equity Low

5. Hospitality Management Strategies ©2005 Pearson Education, Inc. By R.A. Nykiel Upper Saddle River, N.J. 07458 HMS - Return on Invested Capital (% / $) (continued) High 6. Buy out of negative leases 7. Acquisitions 8. Joint-venture with more than 50% + management contracts 9. Joint-venture with less than 50% + management contracts 10. Ownership (new construction) Low

6. Hospitality Management Strategies ©2005 Pearson Education, Inc. By R.A. Nykiel Upper Saddle River, N.J. 07458 HMS - Fastest Method to Improve Return on Investment Capital Roll-over of asset Management contracts Room addition Buy-out of negative leases Buy-in to joint with a management contract

7. Hospitality Management Strategies ©2005 Pearson Education, Inc. By R.A. Nykiel Upper Saddle River, N.J. 07458 HMS - Slowest Methods to Improve Return on Investment Capital New construction/ownership New construction/joint-venture Acquisitions/solo

8. Hospitality Management Strategies ©2005 Pearson Education, Inc. By R.A. Nykiel Upper Saddle River, N.J. 07458 HMS - Cash Generation (% / $) Greatest/Fastest 1. Roll-over of asset 2. Ownership (established) 3. Acquisition 4. Joint-venture 50% + management contract 5. Joint-venture 49% or less + management contract 6. Management contract 7. Franchise Least/Slowest