Sale and Leaseback. Unlocking value for shareholders through Sale and Leaseback strategies. Analysis of the effects of the application of this strategy in the Spanish Hotel industry.

1. Sale and Leaseback
Unlocking Value
Christian Gomez Rudek

2. Table of Contents
 Introduction:
 What is it?
 Benefits for the Seller.
 Benefits for the Investor.
 Risks to be considered.
 Target Company.
 Lease Valuation.
 Scenarios & Results.
 Scenarios.
 Results.
 Conclusion.
 Financial Model.
 The Financial Model.
 Changes to the FM.
 Valuation Methodology.
 WACC Calculations.
Complementary materials:
Excel model: http://goo.gl/13Ckx0

3. Introduction

4. What is it?
 Commercial real estate transaction
 One party (Seller) sells its corporate real estate assets to
another party (The Investor)
 The seller then leases the property back form the investor
 Rental rate and lease term that is acceptable to the
investor (Investor’s IRR)

5. Advantages for the Seller:
 Reallocation of Capital
 Capital locked in RE does not create value. Unlocks 100% of
value. No LTV limit.
 Financing Tool
 Transfer of residual risk
 Risk of unwanted property transferred to third party.
 Improving the Balance Sheet
 Capital Gain (Loss). Repayment of Debt.
 Premium pricing
 13% premium, empirical data. Higher cash flows, absence of
tenant turnover. Higher credit. Lower Risk. Lower required IRR.
 Tax considerations
 Rent is100% deductible.

6. Advantages for the Investor:
 Steady performance
 Steady and Safe returns for investors.
 Behave similarly to a bond, but with a hedge against
inflation.
 Appreciation potential
 Investor can capture appreciation in RE asset.
 Lower management cost
 Single tenant property.
 Long term lease.
 No uncertainty on operating expenses and vacancy costs.

7. Risks to be considered:
 Increased scrutiny. Markets reaction
 Markets tend to react badly to S&LB transactions.
 Suggests that the company cannot find other source of
financing.
 Change in strategy
 New strategy might require ownership of asset.
 Changes in tax code and accounting rules
 Might mitigate incentives the company considered when it
entered the transaction.

8. Target Company

9. NH Hotels:
 The company selected to conduct our research is NH
Hoteles S.A.
 Its intrinsic characteristics make it an ideal candidate for
S&LB strategies.
 NH operates hotels under different models:




Owned Hotels.
Leased Hotels.
Management contracts.
Franchises.
 Owns 98% of Sotogrande. Real Estate company.

10. NH Hotels:
 Owned Hotels:
 23% of the rooms NH operates.
 82 Hotels.
 Market value between €1.400 – 1.600 millions.
 The value underpinning the business speaks to the potential
value that might be trapped in real estate.
 Heavily leveraged company:
 Problems not breaching covenants.
 Recent debt refinancing:
 €250 million in convertible bonds.
 €250 million in High Yield Bonds.
 €200 million in syndicated loan.

11. NH Hotels:
 Recent capital Increase:
 €234 million.
 HNA entered into the ownership base of the company.
 Recent Sale and Management Back:
 Grand Hotel Krasnapolsky in Amsterdam.
 €142 million cash inflow.
 Pursuing Asset light strategy.
 This speaks to the willingness of the company to free up the
capital invested in real estate.

12. NH Hotels:
 New 5 year Business Plan:
 Refurbishing plan.
 €200-220 million in the 2013-2016 period.
 Plan to reposition brand in order to become:
 The “top 2 choice” for city/business travellers.
 Best option for investors looking to sing a
management/franchise contract
 NH plans to finance this plan partly with sale of Assets.
 A S&LB strategy could help NH finance the repositioning
plan, pay down part debt, and give money back to their
investors.

13. Financial Model

14. The Financial Model:
 We built a full financial model of the company.
 Projected IS, BS and CFS.
 The model is created taking into account the recent
actions taken by the company:
 Debt refinancing.
 Capital Increase.
 Sale of Amsterdam Hotel.

15. Changes to the Financial Model:
 We introduce changes into the model in order to
account for S&LB strategies.
 Capital gains (losses) goes through the IS.
 We reduce fixed assets in the BS.
 We account for the cash inflow in the CFS.
 This feeds the cash account in the BS.
 We introduce the new lease payments in the IS.

16. IS Before S&LB
Income Statement
Hitorical
Period
Projected Period
Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2009
Total Income
2010
2011 2012
1.218 1.335 1.428 1.312
2013
2014
2015
2016
2017
2018
2019 2020
2021 2022 2023
1.299 1.335 1.358 1.408 1.437 1.458 1.480 1.501 1.523 1.546 1.568
Total opex ex leases
-876
-917
-935
-936
-906
-913
-910
-921
-939
-948
-962
-976
-990 -1.005 -1.019
Management Profit
342
418
494
376
394
422
447
487
498
510
518
525
533
Non recurrent revenues
Leases and Property Rates
EBITDA
Asset impairment provision
Depreciation
EBIT
Total interest expence
Equity Method Profit (Loss)
EBT
Corporate Income Tax
Income before Minority Interest
Minority Interest
Net Income attributabole to parent company
541
549
0
0
0
-5
42
0
0
0
0
0
0
0
0
0
0
-272
-270
-291
-294
-288
-285
-274
-270
-275
-278
-282
-286
-291
-295
-300
70
148
202
77
147
137
174
216
223
232
236
239
242
246
249
-37
-9
-15
-268
0
0
0
0
0
0
0
0
0
0
0
-125
-123
-119
-116
-116
-125
-152
-178
-198
-211
-185
-159
-135
-117
-105
-92
15
68 -306
31
13
22
38
25
22
51
80
107
129
145
-37
-66
-60
-82
-46
-44
-42
-41
-39
-33
-23
-5
-5
-4
-4
-7
-2
-4
-4
-4
-4
-4
-4
-4
-4
-4
-4
-4
-4
-4
-135
-52
4
-392
-19
-36
-25
-6
-18
-16
24
70
98
120
136
20
5
6
56
5
9
6
2
5
4
-6
-18
-25
-30
-34
-115
-47
11
-337
-14
-27
-19
-5
-14
-12
18
53
74
90
102
-18
-6
4
-44
0
0
0
0
0
0
0
0
0
0
0
-97
-41
6
-293
-14
-27
-19
-5
-14
-12
18
53
74
90
102

17. IS After S&LB
Income Statement
Hitorical
Period
Projected Period
Pro forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2009
Total Income
2010
2011 2012
1.218 1.335 1.428 1.312
2013
2014
2015
2016
2017
2018
2019 2020
2021 2022 2023
1.299 1.335 1.358 1.408 1.437 1.458 1.480 1.501 1.523 1.546 1.568
Total opex ex leases
-876
-917
-935
-936
-906
-913
-910
-921
-939
-948
-962
-976
-990 -1.005 -1.019
Management Profit
342
418
494
376
394
422
447
487
498
510
518
525
533
Non recurrent revenues
Leases and Property Rates
EBITDA
Asset impairment provision
Depreciation
EBIT
Total interest expence
Equity Method Profit (Loss)
EBT
Corporate Income Tax
Income before Minority Interest
Minority Interest
Net Income attributabole to parent company
541
549
0
0
0
-5
42
-75
0
0
0
0
0
0
0
0
0
-272
-270
-291
-294
-288
-378
-369
-367
-374
-379
-385
-392
-398
-405
-411
70
148
202
77
147
-31
78
119
124
131
133
134
135
136
138
-37
-9
-15
-268
0
0
0
0
0
0
0
0
0
0
0
-125
-123
-119
-116
-116
-125
-13
-83
-103
-116
-90
-65
-41
-23
-10
-92
15
68 -306
31
-156
66
36
20
15
42
69
94
114
127
-37
-66
-60
-82
-46
-44
-42
-41
-39
-33
-23
-5
-5
-4
-4
-7
-2
-4
-4
-4
-4
-4
-4
-4
-4
-4
-4
-4
-4
-4
-135
-52
4
-392
-19
-204
19
-9
-23
-23
16
60
85
105
119
20
5
6
56
5
51
-5
2
6
6
-4
-15
-21
-26
-30
-115
-47
11
-337
-14
-153
14
-7
-17
-17
12
45
64
79
89
-18
-6
4
-44
0
0
0
0
0
0
0
0
0
0
0
-97
-41
6
-293
-14
-153
14
-7
-17
-17
12
45
64
79
89

18. BS Before S&LB
Year 0
2011 2012
Net Tangible Fixed Assets
Intangible Fixed
Assets
Financial Fixed
Assets
Non-Current Assets
Inventories
Trade Debtors
Other Debtors
Cash & Securities
Current Assets
Total Assets
Shareholders' Equity
Minoritie
s
Total Shareholders' Equity
Total Debt
Other non-current Liabilities
Total non-current Liabilities
Trade creditors
Other creditors
Total current Liabilities
Total Liabilities & Equity
Pro
Forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
2.116
1.876
1.746
1.774
228
194
178
163
1.767 1.705
147
131
1.595 1.408 1.234 1.084
116
102
102
102
959
852
757
102
102
102
321
392
392
392
392
392
392
392
392
392
392
392
392
2.665 2.462 2.317 2.329 2.306 2.229 2.103 1.902 1.728 1.579 1.453 1.346 1.251
116
194
11
91
413
106
187
29
41
363
107
186
29
209
531
107
192
29
114
442
107
194
29
72
402
107
198
29
107
441
108
201
29
93
430
108
202
29
16
355
108
204
29
0
341
108
205
29
146
488
108
207
29
337
680
108
108
208 210
29
29
526
715
871 1.062
3.077 2.825 2.847 2.771 2.708 2.670 2.533 2.258 2.068 2.067 2.134 2.217 2.313
1.139
841
1.061 1.034
1.015 1.010
997
985 1.003 1.056
1.129
1.219 1.321
205
159
159
159
159
159
159
159
159
159
159
159
159
1.344 1.000 1.220 1.193 1.174 1.169 1.156 1.144 1.162 1.215 1.288 1.378 1.480
1.057 1.036
365
353
891
353
845
353
804
353
763
353
635
353
369
353
159
353
102
353
93
353
84
353
75
353
1.422 1.389 1.244 1.198 1.157 1.116
988
722
512
455
446
437
428
236
76
261
176
208
176
204
176
202
176
209
176
213
176
216
176
219
176
221
176
224
176
226
176
229
176
311
437
384
380
378
385
389
392
394
397
400
402
405
3.077 2.825 2.847 2.771 2.708 2.670 2.533 2.258 2.068 2.067 2.134 2.217 2.313

19. BS After S&LB
Year 0
2011 2012
Net Tangible Fixed Assets
Intangible Fixed
Assets
Financial Fixed
Assets
Non-Current Assets
Inventories
Trade Debtors
Other Debtors
Cash & Securities
Current Assets
Total Assets
Shareholders' Equity
Minoritie
s
Total Shareholders' Equity
Total Debt
Other non-current Liabilities
Total non-current Liabilities
Trade creditors
Other creditors
Total current Liabilities
Total Liabilities & Equity
Pro
Forma Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
2.116
1.876
1.746
154
286
319
303
211
131
76
45
33
32
228
194
178
163
147
131
116
102
102
102
102
102
102
321
392
392
2.665 2.462 2.317
392
709
392
826
392
843
392
811
392
705
392
625
392
571
392
540
392
527
392
527
116
194
11
91
413
106
187
29
41
363
107
107
107
107
108
108
108
108
108
108
108
186
192
194
198
201
202
204
205
207
208 210
29
29
29
29
29
29
29
29
29
29
29
209 1.608 1.460 1.397 1.285 1.110 944 1.036 1.123 1.206 1.288
531 1.936 1.790 1.732 1.623 1.449 1.285 1.378 1.466 1.552 1.635
3.077 2.825 2.847 2.645 2.615 2.575 2.434 2.154 1.910 1.949 2.006 2.079 2.162
1.139
841
1.061
908
922
915
898
881
893
938
1.002 1.080 1.170
205
159
159
159
159
159
159
159
159
159
159
159
159
1.344 1.000 1.220 1.067 1.081 1.074 1.057 1.040 1.052 1.096 1.160 1.239 1.329
1.057 1.036
365
353
891
353
845
353
804
353
763
353
635
353
369
353
111
353
102
353
93
353
84
353
75
353
1.422 1.389 1.244 1.198 1.157 1.116
988
722
464
455
446
437
428
236
76
261
176
208
176
204
176
202
176
209
176
213
176
216
176
219
176
221
176
224
176
226
176
229
176
311
437
384
380
378
385
389
392
394
397
400
402
405
3.077 2.825 2.847 2.645 2.615 2.575 2.434 2.154 1.910 1.949 2.006 2.079 2.162

20. CFS Before S&LB
Pro Forma
2013
Year 1
2014
Year 2
2015
Year 3
2016
Year 4
2017
Year 5
2018
Year 6
2019
Year 7
2020
Year 8
2021
(14)
116
-----
(27)
125
-----
(19)
152
-----
(5)
178
-----
(14)
198
-----
(12)
211
-----
18
185
-----
53
159
-----
74
135
-----
90
117
-----
102
105
-----
0
(1)
---
(6)
(0)
---
(2)
(0)
---
(4)
(0)
---
(3)
(0)
---
(1)
(0)
---
(1)
(0)
---
(1)
(0)
---
(2)
(0)
---
(2)
(0)
---
(2)
(0)
---
Inc. / (Dec.) in Trade Creditors
Inc. / (Dec.) in Accrued Liabilities
Inc. / (Dec.) in Other Creditors
(53)
-----
(3)
-----
(3)
-----
7
-----
4
-----
3
-----
3
-----
3
-----
3
-----
3
-----
3
-----
(Inc.) / Dec. in Net Working Capital
(53)
(9)
(5)
3
2
1
1
1
1
1
1
Cash Flow from Operating Activities
49
88
128
176
186
200
204
213
210
208
208
Investing Activities
Capital Expenditures
Other Investing Activities
Cash Flow from Investing Activities
(71)
100
(137)
---
(129)
---
(100)
---
(72)
---
(10)
---
(10)
---
(10)
---
(10)
---
(10)
---
(10)
---
(137) (129) (100)
(72)
(10)
(10)
(10)
(10)
(10)
(10)
Operating Activities
Net Income
Plus: Depreciation
Plus: Amortization
Plus: Amortization of Financing Fees
Changes in Working Capital Items
(Inc.) / Dec. in Accounts Receivable
(Inc.) / Dec. in Inventories
(Inc.) / Dec. in Prepaid and Other Current Assets
30
Year 9 Year 10
2022
2023
Financing Activities
Debt repaid in 2013 refinancing
Revolving Credit Facility
Term Loan A Facility
Unsecured Convertible Bond
High Yield Bond
Mortgage Loans + Asset Loans
Subordinated loan
(113)
--------(32)
---
----(19)
----(27)
---
----(19)
----(22)
---
----(19)
----(22)
---
----(76)
----(52)
---
------(250)
--(16)
---
--48
----(250)
(8)
---
--(48)
------(9)
---
----------(9)
---
----------(9)
---
----------(9)
---
Dividends
Equity Issuance / (Repurchase)
--234
-----
-----
-----
-----
-----
-----
-----
-----
-----
-----
89
(46)
(41)
(41) (128) (266) (210)
(57)
(9)
(9)
(9)
167
(94)
(42)
34
(14)
(76)
(16)
146
191
189
189
41
209
114
72
107
93
16
---
146
337
526
209
114
72
107
93
16
---
146
337
526
715
Cash Flow from Financing Activities
Excess Cash for the Period
Beginning Cash Balance
Ending Cash Balance

21. CFS After S&LB
Pro Forma
2013
Year 1
2014
Year 2
2015
Year 3
2016
Year 4
2017
Year 5
2018
Year 6
2019
Year 7
2020
Year 8
2021
(14)
116
-----
(153)
125
-----
14
13
-----
(7)
83
-----
(17)
103
-----
(17)
116
-----
12
90
-----
45
65
-----
64
41
-----
79
23
-----
89
10
-----
0
(1)
---
(6)
(0)
---
(2)
(0)
---
(4)
(0)
---
(3)
(0)
---
(1)
(0)
---
(1)
(0)
---
(1)
(0)
---
(2)
(0)
---
(2)
(0)
---
(2)
(0)
---
Inc. / (Dec.) in Trade Creditors
Inc. / (Dec.) in Accrued Liabilities
Inc. / (Dec.) in Other Creditors
(53)
-----
(3)
-----
(3)
-----
7
-----
4
-----
3
-----
3
-----
3
-----
3
-----
3
-----
3
-----
(Inc.) / Dec. in Net Working Capital
(53)
(9)
(5)
3
2
1
1
1
1
1
1
Cash Flow from Operating Activities
49
(38)
22
79
88
100
103
110
106
103
101
Investing Activities
Capital Expenditures
Other Investing Activities
Cash Flow from Investing Activities
(71)
100
(137)
1.620
(129)
---
(100)
---
(72)
---
(10)
---
(10)
---
(10)
---
(10)
---
(10)
---
(10)
---
1.483 (129) (100)
(72)
(10)
(10)
(10)
(10)
(10)
(10)
Operating Activities
Net Income
Plus: Depreciation
Plus: Amortization
Plus: Amortization of Financing Fees
Changes in Working Capital Items
(Inc.) / Dec. in Accounts Receivable
(Inc.) / Dec. in Inventories
(Inc.) / Dec. in Prepaid and Other Current Assets
30
Year 9 Year 10
2022
2023
Financing Activities
Debt repaid in 2013 refinancing
Revolving Credit Facility
Term Loan A Facility
Unsecured Convertible Bond
High Yield Bond
Mortgage Loans + Asset Loans
Subordinated loan
(113)
--------(32)
---
----(19)
----(27)
---
----(19)
----(22)
---
----(19)
----(22)
---
----(76)
----(52)
---
------(250)
--(16)
---
--------(250)
(8)
---
----------(9)
---
----------(9)
---
----------(9)
---
----------(9)
---
Dividends
Equity Issuance / (Repurchase)
--234
-----
-----
-----
-----
-----
-----
-----
-----
-----
-----
89
(46)
(41)
(41) (128) (266) (258)
(9)
(9)
(9)
(9)
Cash Flow from Financing Activities
Excess Cash for the Period
Beginning Cash Balance
Ending Cash Balance
167
41
1.399 (148)
209
1.608
(62)
1.460
(112) (176) (165)
1.397
1.285
209 1.608 1.460 1.397 1.285
1.110
1.110
91
87
84
82
944
1.036
1.123
1.206
944 1.036
1.123 1.206 1.288

22. Asset Sales Page
Assumptions Page 6 - Asset Sales
Hotels
Sold
Transaction
Date
Net
Proceeds
G.Book
Value
Acum
Dep
Prov
1.869
56%
Tangible Fixed Assets 2012
Percentages to use
Net book
Value
3.310
100%
1.221
37%
Capital
Gain
Aditional
Leases
220
7%
Past Transactions
Krasnapolsky
2013
142
100
177
65
12
42
0
2014
1.545
1.620
2.868
1.058
191
-75
93
Proposed Transactions
Scenario 1
FA Page
CFS
IS
BS

23. Valuation Methodology:
 The company has two distinctive business segments:
 Hotel Business.
 Sotogrande.
 We use SOTP method to valuate the group:
 DCF method to valuate the Hotel Business.
 This valuation changes with the proposed transactions.
 Perpetuity:
 We use g = 1,5% for both cases.
 We use FCF of year 10 as normalized FCF for the
calculation.
 GAV method to valuate Sotogrande.
 The value of Sotogrande is static in our simulations.

24. FCF before S&LB:
Valuation
Hitorical Period
Projected Period
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2011 2012
Hotel Business EBITDA
Tax rate
2013 2014 2015 2016
2017 2018 2019 2020 2021 2022 2023
161
120
115
135
172
214
221
230
234
237
240
244
247
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
Taxes
-40
-30
-29
-34
-43
-54
-55
-58
-58
-59
-60
-61
-62
Depretiation
Depreciation * t
119
30
116
29
116
29
125
31
152
38
178
44
198
49
211
53
185
46
159
40
135
34
117
29
105
26
Changes in Working
Capital
-53
-9
-5
3
2
1
1
1
1
1
1
Capex
Aditional Cash from the sale of Assets
-71
100
-137
0
-129
0
-100
0
-72
0
-10
0
-10
0
-10
0
-10
0
-10
0
-10
0
FCF for valuation
Discounting Factor
Discounted FCF
92
1,00
92
-13
0,92
-12
32
0,84
27
107
0,77
83
145
0,71
102
216
0,65
141
212
0,60
127
209
0,55
114
205
0,50
103
203
0,46
93
203
0,42
86

25. FCF After S&LB:
Valuation
Hitorical Period
Projected Period
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2011 2012
Hotel Business EBITDA
Tax rate
2013 2014 2015 2016
2017 2018 2019 2020 2021 2022 2023
161
120
115
-33
76
117
122
129
131
132
133
134
136
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
Taxes
-40
-30
-29
8
-19
-29
-30
-32
-33
-33
-33
-34
-34
Depretiation
Depreciation * t
119
30
116
29
116
29
125
31
13
3
83
21
103
26
116
29
90
23
65
16
41
10
23
6
10
3
Changes in Working
Capital
-53
-9
-5
3
2
1
1
1
1
1
1
Capex
Aditional Cash from the sale of Assets
-71
-137
100 1.620
-129
0
-100
0
-72
0
-10
0
-10
0
-10
0
-10
0
-10
0
-10
0
FCF for valuation
Discounting Factor
Discounted FCF
92 1.480
1,00 0,92
92 1.358
-74
0,84
-62
11
0,77
8
47
0,71
33
117
0,65
76
111
0,60
66
106
0,55
58
101
0,50
51
98
0,46
45
95
0,42
40

26.  Value Before S&LB:
Valuation until 2023e
WACC
NPV
 Value After S&LB:
9,01%
863,2
Valuation until 2023e
WACC
NPV
9,01%
1.673,3
Perpetuity
Period
g
Perpetuity Value
Discounted Perpetuity
Year 10
1,50%
2.740,2
1.156,4
Perpetuity
Period
g
Perpetuity Value
Discounted Perpetuity
Year 10
1,50%
1.290,0
544,4
Total value for Hotel Business (EV)
2.019,6
Total value for Hotel Business (EV)
2.217,6
Sotogrande EV
Real Estate inventories
Other Tourists Assets
Sotolindo
Sotogrande at Cap Cana
Donnafugata Golf Resor & Spa
Pre-tax GAV
Sotogrande's Book Value
Capital Gain
Tax rate
Tax charge
After-tax GAV
GAV
215,9
41,2
88,4
31,5
16,7
393,7
251
142,7
30%
42,81
350,89
NH group valuation
NH hotel business EV
Sotogrande
Total EV
Net Debt
31/12/14
Minorities
31/12/14
Total Equity
Shares outstanding
Price per share
Sotogrande EV
Real Estate inventories
Other Tourists Assets
Sotolindo
Sotogrande at Cap Cana
Donnafugata Golf Resor & Spa
Pre-tax GAV
Sotogrande's Book Value
Capital Gain
Tax rate
Tax charge
After-tax GAV
GAV
215,9
41,2
88,4
31,5
16,7
393,7
251
142,7
30%
42,81
350,89
NH group valuation
2.019,6
350,9
2.370,5
730,7
159
1.480,9
308,27
4,8
NH hotel business EV
Sotogrande
Total EV
Net Debt
31/12/14
Minorities
31/12/14
Total Equity
Shares outstanding
Price per share
2.217,6
350,9
2.568,5
-762,9
159
3.172,5
308,27
10,3

27. WACC Calculations:
 We compile the data of a peer group to calculate the
company’s WACC.
 Data used:
 Levered Beta.
 Market value of Equity.
 Market Value of Debt.
 We calculate the Unlevered Beta of each peer:
 We assign the average to our company.

28. WACC Calculations:
Peer Group
Predicted
Levered Beta
Debt/
Equity
Marginal
Tax Rate
Unlevered
Beta
ACCOR SA
REZIDOR HOTEL GROUP AB
MILLENNIUM & COPTHORNE HOTEL
INTERCONTINENTAL HOTELS GROU
STARWOOD HOTELS & RESORTS
MARRIOTT INTERNATIONAL -CL A
WYNDHAM WORLDWIDE CORP
HYATT HOTELS CORP - CL A
CHOICE HOTELS INTL INC
PIERRE & VACANCES
MELIA HOTELS INTERNATIONAL
1,0878
0,9206
0,8132
1,0274
1,4504
1,2104
1,2452
1,1948
0,8794
0,8766
0,9514
41,04%
4,82%
19,06%
16,93%
13,00%
24,98%
60,92%
19,41%
32,62%
327,78%
168,99%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
0,8451
0,8905
0,7175
0,9185
1,3293
1,0303
0,8730
1,0519
0,7159
0,2661
0,4358
Mean
Median
1,0597
1,0274
66,32%
24,98%
Unlevered
Beta
Debt/
Equity
Marginal
Tax Rate
Relevered
Beta
0,8249
69,57%
25%
1,2553
0,8249
0,8730
NH Hotels Relevered Beta
NH HOTELES SA

29. Capital Structure:
Capital Structure
Market Value of
Equity
Price of the share
1.214,58
3,94
28/11/13
Nº of Shares outstanding
308,27
28/11/13
Book Value of Debt
844,98
BS end of 2014
Total Capitalization
2.059,56
Debt/Total Capitalization
Equity/Total Capitalization
41,03%
58,97%

30. Cost of Debt:
Cost of Debt
Cost of Debt
Tax rate
After tax Kd
6,8750%
6y HYB Coupon
25%
Used by Banesto
5,16%

31. Cost of Equity:
 We use CAPM.
Cost of Equity
Risk free rate
Market risk premium
Levered Beta
4,16%
YTM 10y Spanish
Sovereing Bond
6%
Pablo Fernandez
Survey
1,2553
Peer companies
Size Premium
0%
Cost of Equity
11,69%

32. WACC:
 Formula:
 How Ke and WACC changes with debt.
Kd = 6,875%
Kd = 25%
Kd = 10%
16,00%
15,00%
14,00%
13,00%
12,00%
11,00%
10,00%
Ke
1.900
1.700
1.800
1.500
1.600
1.300
1.400
1.100
WACC
1.200
900
1.000
700
Ke
800
8,00%
500
1.900
1.700
1.800
1.500
1.600
1.300
1.400
1.100
WACC
1.200
900
1.000
700
Ke
800
500
600
300
400
200
0
9,00%
100
1.900
1.700
1.800
1.500
1.600
1.300
1.400
1.100
WACC
1.200
900
1.000
700
800
500
600
300
400
200
8,00%
0
9,00%
8,00%
100
9,00%
11,00%
10,00%
600
10,00%
13,00%
12,00%
300
11,00%
400
12,00%
15,00%
14,00%
200
13,00%
17,00%
16,00%
0
15,00%
14,00%
18,00%
100
16,00%

33. Lease Valuation

34. Lease Valuation:
 Important part of the model.
 NH provided me with the following information:
 Latest valuation.
 Net book value.
 We need to calculate the Lease payments that would
arise as a result of transactions.
 These lease payments are put through the income
statement in our model, impacting our EBITDA.

35. Lease Valuation: Assumptions
 Assumptions:
 We fix the value of the assets, using the value given by NH.
 We use a constant annual adjustment for our lease
payments.
 We assume no terminal value of the assets beyond the lease
term:

Not entirely accurate.

Long lease terms, which means that CF beyond the lease
are heavily discounted.

Conservative assumption.

We could actually pay lower rents.

36. Lease Valuation:
 The value of a S&LB Asset is equal to:
 Then:
0

37. Lease Valuation:

38. Lease Valuation:
Lease calculation
CPI
IRR
Term
Constant
Sum
Total value of all Hotels
Initial lease payment
2%
7%
30 years
0,95
16,55
1.544,9
93,4

39. Lease Valuation:
Initial Lease Payments
200,00
180,00
160,00
140,00
120,00
100,00
80,00
60,00
40,00
20,00
0,00
10 y
20 y
30 y
40 y
50 y
60 y
70 y
80 y
90 y
100 y

40. Lease Valuation:
Initial Lease Payment Sensitivity Analysis - Sale and Leaseback of All Hotels
Term
10 y
IRR
20 y
30 y
40 y
50 y
60 y
70 y
80 y
147,4
154,5
161,7
169,0
3%
4%
5%
6%
7%
8%
9%
10%
11%
81,0
88,7
96,8
105,2
57,5
65,7
74,5
83,7
45,5
54,1
63,5
73,5
38,3
47,3
57,2
67,8
33,4
42,8
53,2
64,5
30,0
39,7
50,6
62,4
27,5
37,5
48,8
61,0
176,4
113,9
93,4
84,0
79,1
76,3
74,7
73,7
183,9
191,5
199,1
206,9
122,8
132,0
141,3
150,8
103,4
113,7
124,3
135,1
94,9
106,2
117,7
129,3
90,7
102,7
114,8
127,0
88,5
101,0
113,5
126,0
87,3
100,1
112,9
125,6
86,7
99,7
112,6
125,4
Initial Lease Payments
0,0-50,0
11%
10%
50,0-100,0
100,0-150,0
150,0-200,0
200,0-250,0
10 y
20 y
30 y
9%
40 y
8%
50 y
7%
6%
60 y
5%
70 y
4%
80 y
3%

41. Results

42. Scenarios:
 Scenario 10:
 Status Quo.
 Scenario 1:
 S&LB of All Hotels.
 Scenario 2:
 S&LB of Hotels with Market Value > Net Book Value.
 Scenario 3:
 S&LB of Hotels with positive 2012 EBITDAR.
 Scenario 4:
 S&LB of Hotels with positive 6y avg EBITDAR.

43. Scenarios:
 Scenario 5:
 S&LB Hotels with EBITDAR > Proposed Lease payment.
 Scenario 6:
 S&LB Hotels with 2012 EBITDAR > Avg 2012 EBITDAR of all Hotels.
 Scenario 7:
 S&LB Hotels with 2012 EBITDAR < Avg 2012 EBITDAR of all Hotels.
 Scenario 8:
 S&LB Hotels with Market Value > avg Market Value.
 Scenario 9:
 S&LB Hotels with Market Value < avg Market Value.

44. Results:
Sensitivity Analysis
Price/share
1
2
Scenario
3
4
5
6
7
8
9
10
Upside
480,39%
€ 10,3
€ 7,3
€ 10,2
€ 10,2
€ 9,1
€ 8,6
€ 6,6
€ 8,7
€ 6,5
€ 4,8
114%
53%
112%
111%
90%
78%
38%
82%
34%
0%

45. Results:
Sensitivity Analysis
Scenario
1
2
3
4
5
6
7
8
9
10
Price/shar
e
480,39%
€ 10,3
€ 7,3
€ 10,2
€ 10,2
€ 9,1
€ 8,6
€ 6,6
€ 8,7
€ 6,5
€ 4,8
Upside
114%
53%
112%
111%
90%
78%
38%
82%
34%
0%
After tax
cash inflow
1564
725
1526
1525
1216
1052
511
1107
457
0

46. Sensitivity: Scenario1
Independent variables: IRR and Lease Term

47. Upside - Sale and Leaseback of All Hotels
Term
10 y
30 y
40 y
50 y
60 y
70 y
80 y
72%
121%
138%
147%
152%
155%
158%
160%
4%
5%
6%
67%
61%
56%
115%
109%
103%
132%
125%
119%
140%
133%
126%
145%
138%
130%
149%
141%
133%
151%
143%
134%
152%
144%
135%
7%
IRR
20 y
3%
51%
96%
111%
118%
122%
124%
125%
126%
8%
9%
10%
11%
45%
40%
34%
90%
83%
76%
104%
97%
89%
110%
102%
94%
113%
105%
96%
115%
106%
97%
116%
107%
97%
116%
107%
97%
28%
69%
81%
85%
87%
88%
88%
88%
12%
13%
14%
15%
23%
17%
11%
5%
62%
55%
48%
41%
73%
65%
57%
49%
77%
68%
59%
51%
78%
69%
60%
52%
78%
69%
61%
52%
79%
70%
61%
52%
79%
70%
61%
52%
16%
-1%
33%
41%
43%
43%
43%
43%
43%
17%
18%
19%
20%
-7%
-12%
-18%
-24%
26%
19%
11%
4%
33%
25%
17%
9%
34%
26%
18%
10%
35%
26%
18%
10%
35%
26%
18%
10%
35%
26%
18%
10%
35%
26%
18%
10%
-50%-0%
3% 4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
0%-50%
14%
15%
50%-100%
16%
17%
100%-150%
18%
19%
10 y
20%
150%-200%
20 y
30 y
40 y
50 y
60 y
70 y
80 y

48. Operational Profile:
Scenario 10: Status Quo vs. Scenario 1: S&LB All Hotels

49. Scenario 10
Debt cash sweep
Yes
Dividends cash sweep
No
Debt Outstanding
14,0 x
800
12,0 x
700
10,0 x
1.200,0
600
1.000,0
800,0
8,0 x
Total Debt
6,0 x
600,0
4,0 x
400,0
2,0 x
0,0 x
Recurrent
EBITDA
Net Debt/
EBITDA
200,0
Term Loan A Facility
500
400
Unsecured Convertible
Bond
300
High Yield Bond
200
Mortgage Loans + Asset
Loans
100
-2,0 x
0,0
Revolving Credit Facility
Subordinated loan
0
-4,0 x
1.500
Mandatory Debt Repayments
1.300
300,0
1.100
250,0
FCF for
valuation
900
700
Discounted
FCF
500
150,0
100,0
300
50,0
100
-100
200,0
Unsecured Convertible
Bond
High Yield Bond
Term Loan A Facility
Mortgage Loans + Asset
Loans
Subordinated loan
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
450,0
Optional Debt Repayments
400,0
250,0
350,0
200,0
300,0
EBITDA
250,0
150,0
200,0
Leases and
Property Rates
150,0
100,0
50,0
100,0
50,0
-
0,0
2013 2014 2015 2016 2017 2018 20192020202120222023
Mortgage Loans + Asset
Loans
Term Loan A Facility

50. Scenario 1
Debt cash sweep
Yes
Dividends cash sweep
No
Debt Outstanding
1.200,0
15,0 x
800
1.000,0
10,0 x
700
5,0 x
800,0
Revolving Credit Facility
600
Total Debt
Term Loan A Facility
500
0,0 x
600,0
Recurrent
EBITDA
-5,0 x
400,0
-10,0 x
200,0
Net Debt/
EBITDA
400
Unsecured Convertible
Bond
300
High Yield Bond
200
Mortgage Loans + Asset
Loans
-15,0 x
-20,0 x
0,0
100
0
Subordinated loan
1.500
Mandatory Debt Repayments
1.300
300,0
1.100
250,0
900
FCF for
valuation
200,0
700
Discounted
FCF
500
150,0
300
100,0
100
50,0
-100
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Unsecured Convertible
Bond
High Yield Bond
Term Loan A Facility
Mortgage Loans + Asset
Loans
Subordinated loan
-
-300
450,0
Optional Debt Repayments
350,0
250,0
250,0
200,0
EBITDA
150,0
150,0
Leases and
Property Rates
50,0
-50,0
-150,0
2013 2014 2015 2016 2017 2018 20192020202120222023
100,0
50,0
-
Mortgage Loans + Asset
Loans
Term Loan A Facility

51. Sensitivity: Scenario 5
Independent variables: IRR and Lease Term
Scenario 5: S&LB Hotels with EBITDAR > than proposed Lease

52. Upside - Sale and Leaseback of All Hotels
Term
10 y
20 y
30 y
40 y
50 y
60 y
70 y
80 y
3%
13%
98%
118%
139%
146%
149%
152%
156%
4%
5%
6%
11%
8%
7%
94%
88%
76%
113%
105%
97%
131%
115%
105%
138%
119%
109%
141%
134%
114%
145%
135%
115%
147%
137%
116%
7%
IRR
5%
52%
90%
97%
101%
103%
105%
105%
8%
9%
10%
11%
3%
2%
1%
41%
28%
18%
79%
52%
41%
89%
76%
47%
92%
80%
51%
94%
81%
52%
95%
81%
52%
95%
82%
53%
1%
11%
24%
30%
32%
36%
40%
40%
12%
13%
14%
15%
1%
0%
0%
0%
8%
6%
3%
3%
15%
9%
7%
4%
18%
11%
8%
5%
20%
11%
8%
6%
23%
11%
8%
6%
23%
11%
8%
6%
23%
11%
8%
6%
16%
0%
1%
3%
3%
3%
3%
3%
3%
17%
18%
19%
20%
0%
0%
0%
0%
1%
1%
0%
0%
1%
1%
0%
0%
2%
1%
0%
0%
2%
1%
0%
0%
2%
1%
0%
0%
2%
1%
0%
0%
2%
1%
0%
0%
-20%-0%
3% 4%
5%
6%
7%
0%-20%
8%
9%
10%
20%-40%
11%
12%
40%-60%
13%
14%
15%
60%-80%
16%
17%
80%-100%
18%
19%
100%-120%
10 y
20%
20 y
30 y
120%-140%
40 y
50 y
140%-160%
60 y
70 y
80 y

53. Sensitivity: Effect of
Capital Gains (Losses)
Independent variables: Market Value and Net Book Value

54. Sensitivity on the value of the Market Value and Net Book Value relation
Net book value
2.000
Market value
100
200
300
400
500
600
700
800
900
1.000
1.100
1.200
1.300
1.400
1.500
1.600
1.700
1.800
1.900
2.000
1.900
1.800
1.700
1.600
1.500
1.400
1.300
1.200
700
6,9
7,2
7,4
7,7
6,9
7,1
7,4
7,6
6,8
7,1
7,3
7,6
6,8
7,0
7,3
7,5
6,7
6,9
7,2
7,4
6,6
6,8
7,1
7,3
6,5
6,8
7,0
7,3
6,4
6,7
6,9
7,2
6,3
6,6
6,8
7,1
5,8
6,1
6,3
6,6
7,9
7,9
7,8
7,8
7,7
7,6
7,5
7,4
7,3
6,8
8,2
8,4
8,7
8,9
8,1
8,4
8,6
8,9
8,1
8,3
8,6
8,8
8,0
8,3
8,5
8,8
7,9
8,2
8,4
8,7
7,8
8,1
8,3
8,6
7,8
8,0
8,3
8,5
7,7
7,9
8,2
8,4
7,6
7,8
8,1
8,3
7,1
7,3
7,6
7,8
9,2
9,4
9,7
9,9
10,2
10,4
10,7
10,9
11,2
11,4
11,7
9,1
9,4
9,6
9,9
10,1
10,4
10,6
10,9
11,1
11,4
11,6
9,1
9,3
9,6
9,8
10,1
10,3
10,6
10,8
11,1
11,3
11,6
9,0
9,3
9,5
9,8
10,0
10,3
10,5
10,8
11,0
11,2
11,5
8,9
9,2
9,4
9,7
9,9
10,2
10,4
10,7
10,9
11,2
11,4
8,8
9,1
9,3
9,6
9,8
10,1
10,3
10,6
10,8
11,1
11,3
8,8
9,0
9,3
9,5
9,8
10,0
10,3
10,5
10,8
11,0
11,3
8,7
8,9
9,2
9,4
9,7
9,9
10,2
10,4
10,7
10,9
11,2
8,6
8,8
9,1
9,3
9,6
9,8
10,1
10,3
10,6
10,8
11,1
8,1
8,3
8,6
8,8
9,1
9,3
9,5
9,8
10,0
10,3
10,5
0,0-2,0
2,0-4,0
4,0-6,0
6,0-8,0
8,0-10,0
10,0-12,0

55. Conclusion

56. Conclusion:
 According to the results obtained, S&LB transactions do
create value for the shareholders of our target company.
 There is limited influence of Investor IRR and term lease,
meaning that there is value creation for a wide range of
values for this variables.
 The most important determinant in the value creation
process of these strategies is the after tax cash inflow.
Capital gains or losses have limited influence.
 Capital losses are actually a value creator in our simulation,
because they create tax shields, giving us a higher after tax
cash inflow.

57. Conclusion:
 It is hard to extrapolate the results obtained for NH to other
companies, but the data seems to land overwhelmingly on
the side of S&LB transactions.
 There seems to be great leeway to accommodate the
particular circumstances of any company and still create
value with the transaction.
 More research should be conducted in the following areas:
 S&LB transactions in more Hotel companies, and in other
industries.
 Sale and Management back.
 More flexible.
 Better alignment with Asset light strategies.

58. Thank you