Discounted to $145,000

Asking Price

Fixed Plant $40,000

Moveable Plant $60,000

Goodwill $25,000

Total $125,000

Plus stock at valuation (approximately $20,000)

Appraisal of Katanning Hotel Freehold Price

Asking Price Freehold $545,000

Less leasehold $125,000

Land and Buildings $420,000

Rent $50,000

Return on Investment 11.9%

Land and Buildings

Considering the condition of the buildings and excellent presentation with lessee responsible for upkeep and maintenance 11.9% return on the lessors investment is considered to be very attractive.

Katanning is the Great Southern major commercial and agricultural centre with shire

population of approximately 5300 people. The town is centrally situated on the Great Southern Highway.

It provides a gateway to Albany and the beautiful South Coast, Esperance and the South East,

Kalgoorlie and the historical Goldfields and Bunbury and the magnificent South West.

First established in the late 1800's with the completion of the Great Southern Railway,

it is now the major centre of the region providing modern business, schooling, medical and

recreational facilities.

The town is serviced by an active tourist bureau.

The Katanning Hotel in the last 3 years has undergone a major refurbishment program.

The front bar is now regarded as one of the better front bars in rural WA.

The lounge bar has a more formal setting. The hotel has been recarpeted, painted and the rooms have

received a major upgrade. The hotel in general presents very well and now provides the opportunity

for a new owner to capitalise on all of these improvements.

The commercial kitchen is well equipped with commercial stainless steel cooking

equipment and benches.

A complete schedule of all plant and equipment is available.

There are two bar areas. The front bar has been totally renovated and has enormous character.

It is a very popular meeting place for town locals and travellers alike.

The lounge bar forms part of the more formal meals and functions area and is opened normally

on a Thursday, Friday and Saturday evenings, plus of course for any functions.

The Katanning Hotel is the only hotel in town with verandahs. The vendors have commenced

serving drinks on the verandahs on a Thursday to Saturday evenings. The verandahs give an

excellent aspect of the town.

The hotel has the following accommodation rooms.

4 double

4 single

2 double

11 single

The above rooms share one female and one male ablution block.

The male ablution block consists of 3 showers and two wc's.

The female ablution block consists of 2 wc's, 1 shower and 2 baths.

This area is used to accommodate long term guests. It has a separate entry,

with 5 single rooms, 1 lounge room, 1 kitchenette and 1 ablution block with

1 shower and 1 wc.

The manager's accommodation consists of a 3 bedroom flat with a lounge,

dining bathroom with shower and wc. The flat is comfortable, has been

recarpeted and painted. It has no kitchen facilities. The owners use the main

commercial kitchen downstairs.

Rooms with ensuite

Single $33.00 per night

Twin $66.00 per night

Double $55.00 per night

Rooms with shared facilities (Basic)

Standard Single $16.50 per night

Double $38.50 per night

Business Class (Shared facilities with TV and tea / coffee)

Single $22.00 per night

Twin $44.00 per night

Triple $66.00 per night

Double $44.00 per night (As above plus fridge)

Business class also has a shared kitchenette with fridge, microwave, stove and sink.

A new 4 x 5 year lease is being made available on very favourable terms.

Initial rent for the first year will be $50,000 which represents 7.65% of current turnover of $653,430.

Industry norm is 7% to 9% of turnover.

Rent reviews will be every year and aligned to CPI with market rent adjustments every 5 years.

A copy of the lease document is available for prospective purchasers.

Current trading hours are

Monday, Tuesday 3 pm to close

Wednesday, Thursday 12 noon to 12 midnight

Friday 12 noon to 1 am (see Note 2)

Saturday 12 noon to 12 pm (See Note 2)

Sunday 12 noon to close

Note 1 - The hotel currently has an extended trading permit to 1.00 am

Saturday on a trial period. The trial is to be reviewed in May 2002. 

The vendor expects this to become a permanent arrangement.

Note 2 - The vendors have applied for a permanent, 

extended trading permit to 1.00 am Friday.

The vendors have only just commenced meals (other than booked functions).

They intend to open the restaurant for casual meals as follows.

Dinner 5 nights Monday to Friday

Lunches 3 days Wednesday, Thursday, Friday

The vendors are aiming to attract house guests to dine in rather than 

dine out at other town eating places, as well as of course 

attracting local diners.

It is believed that now the restaurant is opening for casual meals, 

this will have a favourable effect on sales.

Full accountant's figures for the full years ending June 30, 2001 

and 2002 and for the two months ending June 1999 are

 provided as Annexure B to this profile.

Note the vendors acquired the hotel on April 6 1999.

1) Gross Profit and Cost of Goods in 2000 are distorted because of the way

 the accountant has treated accommodation revenue that year by not including it in Total Income but rather Other Income. Accommodation revenue for 2001 was $77,962 and is included in Total Income.

Accommodation Revenue in 2001 has been included in Total Income.

2) Rent is shown in summary but not in the accountants figures as the vendors own the freehold.

(3)        One off cost for draft of lease.

Note that turnover in 2001/2002 is down on previous years due to a downturn in the Katanning economy. This trend has now changed with a resurgence in economic activity in the town. 

A large machinery dealership (Westrac) has recently opened in the town. The nearby gold mine at Nyabing has recently recommenced production. Katanning meatworks have now extended operations to a five day week and a second meatworks, Bowfort, commence operations in September 2002 on a five day week. The flour mill has reopened and Westwools have opened a complex in the town. This all has a positive effect on the hotel sales. 

The following figures provided by the vendors give evidence to this trend.

 The above figures show an average cumulative 16.5% increase in 2002 versus 2001. If this trend continues, and it is expected to with increased commercial activity in the town then turnover for the 2002/2003 financial year will nearly reach $700,000.

The hotel presents extremely well. Repairs and Maintenance is well up to date and decor and improvements are all recent. Industry norm for hotel rent is 7% to 9% of the total gross turnover.

Because of the excellent presentation of the premises and their good state of repair 8% is considered a fair and reasonable rent figure.

Therefore

8% of 653,430 = $52,274

Adopt $50,000 for first year (7.65%)

It is emphasised that Fortune Business and Property Marketing are NOT

licensed valuers. However Fortune does consult licensed valuers and has a data base of statistical information relating to sales of businesses in all industries throughout Australia.

A business is an investment just like any other investment. If one were to invest in a rental property one would look at the rental return offered and the possibility of a capital gain. For an investment of cash in a

term deposit one would consider the interest rate offered. Investment properties offer returns (rent) of anywhere from 4% to 12% or more depending on location and type. Term deposits (cash) can

range from as little as 0% to 6% or 7%. A business on the other hand can offer returns of 25% to over 100%. 

Buying a business is an investment like any other. One has to consider the return. Normal investment rules apply - the higher the risk the greater the returns. The lower the risk, the lower the return.

Gone are the days when one could add up the business assets and then

added one years' net profit as goodwill. Astute purchasers particularly

with professional advice require more.

Arriving at a price for a small business is not guess-work using Return on Investment or ROI.

ROI is the time it takes to recoup the money invested based on the actual return of a business.

For example if it takes two years to get your investment back you are in effect getting an annual return of 50%.

ROI is now the yardstick used by Business Valuers and Business Brokers to determine the price of a business based on sales of similar businesses across Australia. Return On Investment is the adjusted net profit of the business divided by the total purchase price expressed as a percentage.

That is

ROI%= Adjusted Net Profit x100

Purchase Price

OR

Purchase Price = Adjusted NOP x 100

                                                                                                                 ROI%

Adjusted NOP $153,574

Less Rent $50,000 (7.7% of T/O) NB Industry norm 7-9%

Leasehold NOP $103,574

The ROI (Return on Investment) range for leasehold hotels with an NOP of $100,000 is 60%-85%.

The Katanning Hotel is a substantial building in an excellent location in the main street.The building is in a good state of repair. The hotel has a large accommodation base (many with ensuites). The bars and restaurant function areas present well. There is enormous room for improvement with food sales given the excellent facilities available. A new 20 year lease is being offered. On the negative side there are two other hotels in the town and therefore competition is stiff. Dependant upon the skills of each operator will depend the success or otherwise of each establishment. This therefore raises the risk factor.

Accordingly an ROI of 68% has been adopted for the Katanning Hotel.

This is just on the lower side of middle of the range (middle is 72.5%).

Therefore

Asking Price - NOP x 100

ROI

Asking Price - = 103,574 x 100

68

= $152,315

Adopt - $152,000

Fixed Plant $53,000

Moveable Plant $64,000

Goodwill $23,000

Total $140,000

Plus stock at valuation (stock approximately $12,000)

The above report has been completed from information supplied by the vendors of the relevant business. Fortune Business and Property Marketing has no reason to doubt its accuracy. However, Fortune Business and Property Marketing cannot guarantee the accuracy or content of this report. Nor can Fortune Business and Property Marketing take any responsibility for any estimate, projections, errors or omissions. Accordingly, all interested parties should make their own independent investigation and enquiries

concerning the relevant property.