[Appendix 1] Ratio Analysis of DHC

Notes Industry benchmarks Ratio Type 2019 2018 2017 Direction/ Compare Industry Target- Target-
Trend to 2020 2021
Industry
Revenue year-over-year growth rate Revenue growth 0.1% 4.8% NA Declining Below 4.8% 10.0% 10.0%
Current ratio Liquidity 0.23 0.25 0.24 Steady Below 0.8
1 Cash ratio = cash / current liabilities Liquidity 0.00 0.07 0.08 Declining Below 0.15
Days in receivable Efficiency 35.49 39.92 39.67 Steady Below 45.0
Total debt-to-equity Leverage 2.17 2.59 2.99 2.60
Total debt to assets Leverage 0.68 0.72 0.75 Declining On Par 0.72
2 Return on equity Profitablity 8.4% 11.5% 11.7% Declining Various 11.0% 11.0% 11.0%
3 Operating margin Profitablity 9.2% 10.9% 11.5% Declining Below 16.0% 13.0% 16.0%
4 Profit margin Profitablity 3.4% 4.3% 4.3% Declining Below 8.0% 8.0% 8.0%
5 Revenue/PAR Profitablity 280 N/A Above $ 262.0 315 336
6 ADR Profitablity 400 $ 335.0 420 420
Room operating costs as a percentage Operating efficiency 51.0% 51.0% 50.0% Increasing Above 49.0%
of room revenue
Food and beverage costs as a Operating efficiency 68.0% 68.0% 68.0% Declining Below 65.0%
percentage of food and beverage
revenue
Total wages as a percentage of Operating efficiency 33.4% NA NA N/A Above 26.0%
revenue
Administrative and general expenses Operating efficiency 15.7% 15.4% 15.8% Steady Above 15.0%
as a percentage of revenue

Marketing as a percentage of revenue Operating efficiency 2.0% 1.5% 1.3% Increasing On Par 2.0%

Occupancy Rate Operating efficiency 70.0% N/A Below 78.0% 75.0% 80.0%
Net Profit growth Operating efficiency -20.9% 5.8% NA Declining 8%-10% 8%-10%

Notes
1 Days in receivable=(AR/Annual Revenue) x 365
2 Return on equity=Net profit/Total shareholder's equity
3 Operating margin=Operating income/Total revenue
4 Profit margin=Operating Income/Total Revenue
5 Rev/PAR*=Total room Revenue/Total rooms available for sale=ADR x Occupancy Rate
6 ADR**=Average Daily Rate=Total room revenue/Total rooms sold
[Appendix 2] Option 1 Invest in TMSR - Discounted Cashflow Valuation
PURPOSE: To calculate TMSR's value by using discounted cashflow method
STEP 1: TMSR financial projections as per TMSR assumptions
(July 1st to June 30th) Reference 2021 2022 2023 2024 2025 2026 Note
Revenue:
Ski lift ticket sales 20,350,000 23,520,000 25,520,000 28,800,000 32,500,000 33,500,000
Ski school fees 4,070,000 4,704,000 6,380,000 7,200,000 8,125,000 8,375,000
Retail shop sales 5,291,000 6,350,400 7,145,600 8,064,000 9,100,000 9,380,000
Food services 4,273,500 4,939,200 5,359,200 6,048,000 6,825,000 7,035,000
Total revenue A 33,984,500 39,513,600 44,404,800 50,112,000 56,550,000 58,290,000
Cost of sales:
Lifts 9,564,500 11,054,400 11,994,400 13,536,000 15,275,000 15,745,000
Ski school 2,849,000 3,292,800 4,466,000 5,040,000 5,687,500 5,862,500
Retail shop 3,968,250 4,762,800 5,359,200 6,048,000 6,825,000 7,035,000
Food services 2,777,775 3,210,480 3,483,480 3,931,200 4,436,250 4,572,750
Total cost of sales B 19,159,525 22,320,480 25,303,080 28,555,200 32,223,750 33,215,250
Gross margin A-B=C 14,824,975 17,193,120 19,101,720 21,556,800 24,326,250 25,074,750
Operating expenses:
Additional maintenance 2,200,000 1,800,000 1,800,000 - - -

Sales and marketing 3,100,000 3,100,000 3,200,000 3,200,000 3,300,000 3,300,000

Insurance 2,850,000 2,950,000 3,050,000 3,150,000 3,250,000 3,250,000
Depreciation J 7,000,000 11,375,000 4,750,000 4,750,000 4,750,000 4,750,000 1
General and admin 1,250,000 1,750,000 1,802,500 1,856,575 1,912,272 1,969,640
Total operating expenses D 16,400,000 20,975,000 14,602,500 12,956,575 13,212,272 13,269,640

Operating income before C-D=E - 1,575,025 - 3,781,880 4,499,220 8,600,225 11,113,978 11,805,110
interest and income taxes

Interest expense F 950,000 950,000 950,000 950,000 950,000 950,000 2

Income before income E-F=G - 2,525,025 - 4,731,880 3,549,220 7,650,225 10,163,978 10,855,110
taxes
Income taxes (27%) Gx27%=H - 681,757 - 1,277,608 958,289 2,065,561 2,744,274 2,930,880
Net earnings for the year G-H=I - 1,843,268 - 3,454,272 2,590,931 5,584,664 7,419,704 7,924,230
(and comprehensive
income)
STEP 2: Discounted cash flow model
(July 1st to June 30th) Reference 2021 2022 2023 2024 2025 2026 Terminal Note
(2.5%
Growth)
Income before income G - 2,525,025 - 4,731,880 3,549,220 7,650,225 10,163,978 10,855,110 11,126,488
taxes
Add back:
Depreciation J 7,000,000 11,375,000 4,750,000 4,750,000 4,750,000 4,750,000 4,750,000
Interest F 950,000 950,000 950,000 950,000 950,000 950,000 950,000
Projected EBITDA 5,424,975 7,593,120 9,249,220 13,350,225 15,863,978 16,555,110 16,826,488
Less: income taxes @ - 1,464,743 - 2,050,142 - 2,497,289 - 3,604,561 - 4,283,274 - 4,469,880 - 4,543,152
27%
Cash flow from operations 3,960,232 5,542,978 6,751,931 9,745,664 11,580,704 12,085,230 12,283,336

Less: net capital N - 4,821,654 - 8,109,732 - 3,327,860 - 3,327,860 - 3,327,860 - 3,327,860 - 3,327,860 3
investment, net of tax
shield
Less: working capital - - - - - - - 4
adjustments
Discretionary cash flow - 861,423 - 2,566,755 3,424,070 6,417,804 8,252,844 8,757,370 8,955,476
Capitalization rate 12.5% 8.00 5
Terminal value 71,643,805
Present value factor 15.0% 0.87 0.76 0.66 0.57 0.50 0.43 0.43
Discounted at 15.0% $ -749,438 $ -1,950,734 $ 2,259,886 $ 3,658,148 $ 4,126,422 $ 3,765,669 $ 30,806,836
Present value of $ 41,916,790
discretionary cash flows =
TMSR value
Add: Net realizable value -
of redundant assets

Add: Present value of 3,418,118 6

existing tax shield on UCC

Less: interest-bearing - 12,490,000 7

debt
Equity value $ 32,844,908
Low High
Range of equity value (+/- $ 31,203,000
$ 34,487,000
5%) (rounded)
Investment from the five $ -25,000,000 $ -25,000,000
investors
NPV $ 6,203,000 $ 9,487,000
CONCLUSION: Per discounted cash flow valuation, the value of TMSR is between $31M and $34M. The NPV is between $6M and $9M.
Note: EV and NPV calculation are based on assumptions provided. If actual revenue is lower or cost is higher compared to assumptions, they will
decrease EV and NPV.
Uncertainty of Assumptions:
1. Potential shareholder has no experience running ski resort but the assumption on revenue growth is optimisitc. Ski resort's sales is highly dependent on
weather conditions. If actual revenue growth is lower than expectation, this will negatively affect TMSR's financials. It may also has negative impact on
DHC's IPO plan.
2.Disinvestment in TMSR may requires large amount of cash in first three years in employee training, capital expenditure, marketing, reputation rebuild,
maintenance to bring TMSR back to world class ski resort level. If actual cost is higher than expectation could bring down equity value as well as NPV.
Demand of cash, increasing cost and potential increase in debt level can negatively affect DHC's IPO target.
Note 1: Assumption: Capital expenditures x 1.25
Note 2: Assumption: Kept it the same as 2019. $14.7M injection by the five investors is interest free.
Note 3:
2021 2022 2023 2024 2025 2026 Assumption
Capital expenditures (end of year):
Redundant asset - - - - - - Case fact: No
redundant asset.
Building 1,500,000 5,000,000 1,600,000 1,600,000 1,600,000 1,600,000
Equipment 3,600,000 3,600,000 1,700,000 1,700,000 1,700,000 1,700,000
Vehicles 500,000 500,000 500,000 500,000 500,000 500,000
Total L 5,600,000 9,100,000 3,800,000 3,800,000 3,800,000 3,800,000
CCA rates:
Buildings 4% Equipment 20% Vehicles 30%
Tax rate 27% Discount rate 15%
Present value of tax shield:
Building 90,824 302,746 96,879 96,879 96,879 96,879
Equipment 591,652 591,652 279,391 279,391 279,391 279,391
Vehicles 95,870 95,870 95,870 95,870 95,870 95,870
Total M 778,346 990,268 472,140 472,140 472,140 472,140 Assumption: all the
new assets acquired
after November 21,
2018

Capital expenditures, net o L-M=N 4,821,654 8,109,732 3,327,860 3,327,860 3,327,860 3,327,860
Note 4: Working capital investments are expected to be negligible therefore nil.
Note 5: Note 6: Note 7: Assumption: The current
Discount rate 15.0% Current CCA tax portion of mortgage payable
balance shield is paid off prior to 2020 YE.
Long-term growth rate 2.5% Building 10,680,000 646,665
Capitalization rate 12.5% Equipment 11,590,000 1,904,791
Vehicles 4,520,000 866,661
Total 3,418,118
[Appendix 3] Option 1 Invest in TMSR - Ratio Analysis

Purpose: Discussion of whether TMSR’s(ski) ratio is aligns with DHC’s IPO target

Analysis:
TMSR DHC Target Comment
2020 2019 Trend 2020 2021 2020 Target Note
Met?
Revenue growth
Revenue year-over-year growth rate -8.20% 10% 10% NOT MET 1
Liquidity
Current ratio 0.24 0.26 Decreasing
Cash ratio 0.01 0.02 Decreasing
Efficiency
Days in receivable 42 46 Decreasing 2
Solvency
Total debt-to-equity 1.94 2.95 Decreasing Max 2.5 Max 2.5 MET 3
Total debt to assets 0.66 0.75 Decreasing
Profitablity
Return on equity 24% 34% Decreasing 11% 11% MET
Return on investment 1.26
Operating margin 17% 17% Stable 13% 16% MET
Profit margin 10% 10% Stable 8% 8% MET
Operating efficiency
Food and beverage costs/food and 65.01% 38.95% Increasing 4
beverage revenue
Administrative and general expenses 3.07% 4.91% Decreasing
as a percentage of revenue
Marketing as a percentage of revenue 5.96% 7.76% Decreasing
Growth
Net Profit growth -9.28% 8%-10% 8%-10% NOT MET

Summary:
1) Revenue growth: does not align with DHC target will negatively affect DHC's IPO plan.
2)Solvency: improved in 2020.DOE met DHC's target in 2020 due to disinvestment in non-core
business (TMSR).
3)2020 profitability: met DHC's target as TMSR strive to lower cost by reducing sales & marketing
cost.
4)Net profit growth: way lower than DHC target will jeopardize DHC's IPO plan

Note 1
We cannot compare ski resort's ratio with hotel industry's ratios as they are two different industries.
More information on industry benchmark is needed to perform a more detailed comparision with ski resort
industry average
Note 2
Assume 10% of sales are corporate credit sales
Note 3
TMSR 2019's DOE was higher than DHC's loan convenant constraint of 2.5.
Possible risk imposed to DHC if this happen again.
Note 4
Food and beverage costs/food and beverage revenue is a bit high for a ski resort.
Possible reason is price of food and beverage is too low or cost is too high.
However, additional research is needed to compare with industry benchmark.
[Appendix 4] Option 2 Purchase of AWH - Asset based valuation calculation
Purpose: To value AWH using adjusted net-asset approach, validate with market based approach and to evaluate financing option for AWH purchase
based on valuation
All figures in '000s except for %
Adjusted Net-asset based valuation
Book Adjusted Notes
value Adjust net-asset
ment to value
FMV
2019
Cash and cash 25 - 25
equivalents
Inventories 350 - 350
Prepaid expenses 290 - 290
Latent taxes & Selling - 5,782 - 5,782 1
Costs
Fixed assets
Land 680 5,220 5,900
Building 18,540 20,460 39,000
Furniture and 5,690 - 1,480 4,210
fixtures
Forgone tax shield - 1,573 - 1,573 2
Liabilities - - -
Trade payables and - 7,263 - - 7,263
accrued liabilities
Shareholder's loan - 10,000 - - 10,000
Net Assets 8,312 16,845 25,157
Note 1
FMV Selling Net Original Capital Taxable Taxes Lower of UCC Recapture Estimated Latent
Costs Proceeds ACB Gain Gain Cost and or Taxes Taxes &
Proceeds Terminal Selling
Loss Costs
Land $ 5,900 $ 236 $ 5,664 $ 680 $ 4,984 $ 2,492 $ 673 $ 680 $ - $ - $ - $ 909
Building $ 39,000 $ 1,560 $ 37,440 $ 24,650 $ 12,790 $ 6,395 $ 1,727 $ 24,650 $ 19,820 $ 4,830 $ 1,304 $ 4,591
Furniture and Fixtures $ 4,210 $ 168 $ 4,042 $ 8,740 $ - $ - $ - $ 4,042 $ 3,620 $ 422 $ 114 $ 282
$ 5,782
Note 2
Forgone tax shield is calculate as per CPA exam reference.
Forgone tax shield for b 1,436
Forgone tax shield for f 138
Conclusion: using a -5% to +5% range AWH has a value of 24 million to 26 million
-5% Value 23,899
+5% Value 26,415
Market based approach
Company Name Date of #Room Amenities Multiple
Sale price/Ebitda
Hotel A Sep-19 120 Historical, restaurant & bar 9.20X
Hotel B Dec-18 205 Historical, restaurant & health club 10.90X
Hotel C Apr-19 180 Long-term stay of min 2 weeks 11.30X
Hotel D Jul-18 160 No additional amenities 7.50X
Hotel E Feb-17 220 Bar lounge & spa 8.90X
Hotel F Aug-19 180 Historical with no additional amenities 8.50X
AWH - 150 Historical with no additional amenities

Based on above information, AWH hotel closley resembles hotel F in size and type of service offered
AWH normalized EBITDA
AWH net earnings+ 4,014 3,347 Isabelle pays herself 200,000 above market rate, one time 100,000 on professional and legal fee and
amort+ Interest+taxes- 120,000 one-time govt. grant
salary adj-one time
cost
2019 2018
Amort 2,083 1,910
Taxes 635 501
Net earnings 1,716 1,356
Applying hotel F 34,119 28,450
multiple, AWH
valuation is
Conclusion: AWH hotel valuation based on adjusted net-asset approcah and market based approach is in the range of 25 to 34 million.
Isabelle's asking price of 32 million seems reasonable based on above analysis
Financing options: Isabelle has offered two financaing options; either pay her 7 million in cash and get mortage for 25 million or issue preffered shares
to Isabelle retractable at her option
Financing options Mortage & Cash Preffered Shares
Upfront cash required 7,000 -
Interest on mortage 7.0% NA
Cost of mortage net of tax 5.1%
Annual interest+principal 2,680
Cumulative Dividend rate NA 4.7%
Annual Divided Payment 1500
Total cash required
Upfront cash required 7,000
Year 1 cash required 10,000
The cash requirement will be funded by bonds with warrants option from Patrick; DHC will have additional 3 million to spend on improving existing
operations
Conclusion:
Option 1 requires upfront cash outflow of 7 million, considring AWH's cash position, this would have to be financed with some other finaincing option
Option 2 doesn't require any upfront cash, however, a cumulative preferred dividend of 1.5 million will have to be paid out to Isabelle annualy.
Considering lower cost of financing 4.7% vs 5.1% and no upfornt cash requirement, option 2 is recommended financing option if DHC wants to proceed
with AWH acquisition.
The upfront and first year cash requirement will be funded by Patricks offer of Bonds with warrants

Finanacing Proposals from Patrick:

In order for DHC to make strategic investment, it'll need external financing as the company's free cash flow not enough to support new investment.
Patrick Kuzoff, a local entrepreneur is interested in making an investmetn in DHC. Patrick is offereing two investmetn options:

Financing options from patrick: Bond with Converti

warrants ble bond

Amount offered 20,000 20,000

Term of bond in years 5 7
Interest rate 4.0% 2.5%
Proceeds from warrants if executed 1,600 NA
Total proceeds 21,600 20,000
Cost of debt over 5 years 4000 2,500
Proceeds net of cost over 5 yr period 17,600 17,500
#shares issued 200 1,000
Dilution 95.2% 80.0%
* # shares O/S 4 million
Key issues to consider for chosing the right financing option:
1. The net cost of bonds with warrants is lower
2. Bonds with warrants mature 2 years earlier
3. There will be 20 million cash outflow at the end of year 5 to pay the bond amount if bond with warrant is chosen
4. Convertible bond option is slightly more expensive and causes more dilution, however, this option doesn't require cash outflow of 20 million after 5
years.
Conclusion - if convertible bond option is chosen, Patrick will gain 20% ownership, i.e same as rest of the 4 owners. To limit dilution, the recommended
financing option is bonds with warrants.
DHC can refinance 20 million obligation to patrick from any bank, this will limit dilution while providing necessary cash-flow
[Appendix 5] Option 3 Selling condos - Discounted Cash Flow Analysis
Purpose: To prepare discounted cashflow analysis
Start July01st, 2020
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Note
Revenue from condo sales:
One-bedroom sold $0 $5,400,000 $8,100,000 $4,050,000 $0 $0 $0 $0 $0 $0 $0
Two-bedwoom sold $0 $9,000,000 $13,500,000 $6,750,000 $0 $0 $0 $0 $0 $0 $0
Annunal maintenace fee $0 $252,000 $630,000 $819,000 $843,570 $868,877 $894,943 $921,792 $949,445 $977,929 $1,007,267 1
Total revenue $0 $14,652,000 $22,230,000 $11,619,000 $843,570 $868,877 $894,943 $921,792 $949,445 $977,929 $1,007,267
Operating cost:
Legal and profeesional fees $0 -$615,385 -$923,077 -$461,538 $0 $0 $0 $0 $0 $0 $0 2
Additional administration costs $0 -$1,000,000 -$1,000,000 -$790,000 -$813,700 -$838,111 -$863,254 -$889,152 -$915,827 -$943,301 -$971,600
Additional marketing costs -$1,400,000 -$1,740,000 -$1,740,000 -$1,740,000 $0 $0 $0 $0 $0 $0 $0
Renovation costs -$7,000,000
Total operating cost -$8,400,000 -$3,355,385 -$3,663,077 -$2,991,538 -$813,700 -$838,111 -$863,254 -$889,152 -$915,827 -$943,301 -$971,600

Operating income before before interest, taxes, -$8,400,000 $11,296,615 $18,566,923 $8,627,462 $29,870 $30,766 $31,689 $32,640 $33,619 $34,628 $35,666
depreciation, and amortization
Loss of contribution margin during construction -$1,970,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Opportunity cost on room rentals $0 -$2,337,000 -$2,407,110 -$2,479,323 -$2,553,703 -$2,630,314 -$2,709,224 -$2,790,500 -$2,874,215 -$2,960,442 -$3,049,255 3

EBITDA -$10,370,000 $8,959,615 $16,159,813 $6,148,138 -$2,523,833 -$2,599,548 -$2,677,534 -$2,757,860 -$2,840,596 -$2,925,814 -$3,013,589

Less: income tax @27% -$2,799,900 $2,419,096 $4,363,150 $1,659,997 -$681,435 -$701,878 -$722,934 -$744,622 -$766,961 -$789,970 -$813,669
Cash flow after tax -$7,570,100 $6,540,519 $11,796,664 $4,488,141 -$1,842,398 -$1,897,670 -$1,954,600 -$2,013,238 -$2,073,635 -$2,135,844 -$2,199,920
Discount rate @11%
PV factor 0.95 0.86 0.77 0.69 0.63 0.56 0.51 0.46 0.41 0.37 0.33

Discounted cash flow -$7,185,221 $5,592,780 $9,087,653 $3,114,842 -$1,151,941 -$1,068,918 -$991,879 -$920,392 -$854,057 -$792,504 -$735,386
Net present value $4,094,978

The net present value of selling condo project is around $4.0 million based on the 10 year planning.
Note1 $2100 annual mainteance fee for each owner and will increase 3% annually after all of the sales are completed
Note2 $2,000,000 in total and equally allocated to 390 ownership units
Note3 3% annual increase after year 2023
Assumptions
1. Assumed all condos are sold in first three years. If actual sales is below expectation and rental income from potential unsold condos are considered negligible
This will negatively affect DHC's casfhlow and other IPO target.
2.DHC assumed legal fee will occur in the first three years where condo sales is going on, and these cost are considered as legal cost per transaction.
However, It is DHC's first time entering real estate market, and its possible that DHC will encounter more legal inquiries other than purely condo sales .
The fractional condo ownership could lead to complicated legal concerns which might increase the cost of legal fee. This may not only increase condo
sales related legal fees but also contingency lawsuit issues. If these happens, profitabiltiy and debt to equity may be negatively affected.
Purpose: To calculate the future date the project has a zero NPV

Year Discounted Days

cash flow
2020 -$7,185,221 183
2021 -$1,592,441 365
2022 $7,495,213 64

Rate of return 11%

Rate of return with growth annuity compounding 7.77%
Future value of 2020 to 2030 NPV at 2030 $12,250,191.93
Years after 2030 for NPV 0 7.573664659 The NPV will be first time equal to zero on March, 2022. It will increase to the maximum
Year 2037 December,2023 and then decrease to zero again on July, 2037.
[Appendix 6] Option 4 HHH Management Services- Profitability Analysis

Purpose: To determine profitability of HHH management services

Analysis:
HHH's ADR and Occupancy Rate before Renovation (Four-Star) Reference Note
Current
ADR $250 A: Given
Occupancy Rate 70% B: Given
Rev/PAR $175 AxB

# of Rooms 170 C: Given

HHH's Expected ADR and Occupancy Rate after Renovation (Five-Star) 1

2020 2021 2022 2023
ADR $310 $315 $320 $320 D: Given
Occupancy Rate 70% 70% 75% 80% E: Given
Rev/PAR $217 $221 $240 $256 F=D x E

HHH
2020 2021 2022 2023
Daily Hotel Revenue $36,890 $37,485 $40,800 $43,520 C x F
Number of days in operation 31 365 365 365 2
Gross Hotel Revenue $1,143,590 $13,682,025 $14,892,000 $15,884,800 G
Rate 32% 32% 32% 32% Given
Gross Operating Profit $365,949 $4,378,248 $4,765,440 $5,083,136 H 3

DHC
2020 2021 2022 2023
Revenue:
Consulting services fees re: $ 700,000 $ - $ - $ -
renovations
Management Fee I: 5% of $ 57,180 $ 684,101 $ 744,600 $ 794,240 G x 5%
Gross Revenue from HHH
Management Fee II: 8% of $ 29,276 $ 350,260 $ 381,235 $ 406,651 H x 8%
Gross Operating Profit from HHH

Licensing Fee: 3% of Gross $ 34,308 $ 410,461 $ 446,760 $ 476,544 G x 3%

Revenue from HHH
Total Revenue $ 820,763 $ 1,444,822 $ 1,572,595 $ 1,677,435

Expense:
Management Salaries and $ 70,000 $ 875,000 $ 901,250 $ 928,288 4
Benefits
Salary and benefit for $ 330,000 $ - $ - $ - 5
Renovations
Penalty re: renovation cost $ - $ - $ - $ - 6
overruns or incompletion by Nov.
30
Insurance $ - $ - $ - $ - 7
Property taxes $ - $ - $ - $ - 7
Total Expense $ 400,000 $ 875,000 $ 901,250 $ 928,288

Net Operating Income $ 420,763 $ 569,822 $ 671,345 $ 749,147

Income Taxes $ 113,606 $ 153,852 $ 181,263 $ 202,270 8
Net Income $ 307,157 $ 415,970 $ 490,082 $ 546,878

Operating Margin % 51.26% 39.44% 42.69% 44.66% 9

Annual Profit Margin % 37.42% 28.79% 31.16% 32.60% 10
Note that some costs are missing from the analysis, including the upfront capital required for capital improvement,
fund reserved to finance capital asset replacements, corporate expenses incurred for HHH, and potential $90,000
penalty for late renovation completion.

Assumptions
1.ADR and occupancy rate assumption are based on five-star competitors's benchmark. If HHH's actual ADR and
occupancy rate is is lower than industry average, operating and profit margin will deriorate and DHC's net income
from managing HHH will be negatively affected. If that happens, managing HHH may has negative impact on
DHC's IPO plan.
2. It is assumed that DHC will not overrun renovation cost and renovation will be completed by Nov 2020. If
overrun or delay happens, DHC will not only responsible for additional $90,000 penalty but also increased salary
and benefit cost to personnel involved in rennovations. This will negatively affect their net income and possibility of
meeting IPO target.

Conclusion
The incremental net operating income for DHC is $420,763, $569,822, $671,345, $749,147 respectively from
2020 to 2023. The revenue stream will improve the cash position for the company and help finance other strategic
options. The option will help DHC achieve IPO as both the operating and profit margin are higher than the target.

Notes
1 The expected results might differ from the actual results as the profitability is based on the expected ADR and
occupancy rate provided in Appendix XVI.
2 It is a short year for 2020 as the hotel operations will commence December 1, 2020.
Assumption: HHH's year end is Dec. 31, and HHH will operate 365 days each year after.
3 It is provided that the gorss operating profit is expected to be 32% of gross hotel revenue.
4 The management salaries and benefit is $70,000 in December 2020 and $875,000 annually, starting in 2021.
It will increase by 3% annually.
5 It is provided that it will incur $330,000 salary and benefit during the renovation period.
6 Assumption: DHC will not overrun the renovation cost and will complete the renovation by November 30,
2020.
7 We were not able to include these expenses as they are unknown to us.
8 Tax rate is assumed to be 27% as per DHC's financial statement.
9 The expected operating margin from 2020 to 2023 are between 39% and 51%, which are higher than the IPO
target of 13% and 16%
10 The expected profit margin from 2020 to 2023 are between 28% and 37%, which are higher than the IPO
target of 8%.
[Appendix 7] Distinct Hotels Corporation - ProForma Statements
ProForma Income Statement for the years ended December 31 (In thousands of C$)
2020 2021 2022 2023 2024 Comments
Room revenue 89,266 103,246 109,856 117,016 124,785 Revenue growth assumptions from below
Food and beverage 45,584 47,772 50,065 52,468 54,986 Revenue growth assumptions from below
Spa services 1,420 1,380 1,400 1,410 1,420 As prepared by Jessica Sterene
Golf revenue 2,157 2,260 2,369 2,482 2,601 Estimate for annual operating profit of 350K each
year
HHH Consulting revenue 821 1,445 1,573 1,677 1,677 As per HHH consulting plan; assumption: 2024
vs 2023 flat revenue
139,247 156,103 165,263 175,054 185,470
Revenue growth 11.9% 12.1% 5.9% 5.9% 6.0%
Expenses
Room operating costs 45,526 50,590 53,830 57,338 61,144
Food and beverage costs 30,997 31,052 32,542 34,104 35,741
Cost of spa services 751 729 740 745 751 Assuming same spa margin as of 2017
Golf services costs 1,807 1,807 1,807 1,807 1,807 Consistent golf operations
Administrative and general expenses 21,823 23,415 24,789 26,258 27,821
HHH operating expenses 400 875 901 928 928
Depreciation and amortization 12,634 12,709 12,784 12,859 12,934 Note -1
Property tax, utilities, and insurance 9,747 10,927 11,568 12,254 12,983 Same ratio to revenue as of 2019
Marketing and sales expenses 2,785 2,342 2,148 2,276 2,411 Same ratio to revenue as of 2019
Implementaion expenses 1,170 132
Total expenses 127,638 134,578 141,109 148,569 156,519
Operating income 11,609 21,524 24,154 26,485 28,951
Operating Margin 8% 14% 15% 15% 16%
Interest expense 5,735 5,300 4,865 4,430 3,995 Note-2
Income before taxes 5,874 16,224 19,289 22,055 24,956
Income taxes (27%) 1,586 4,381 5,208 5,955 6,738
Net profit and comprehensive earnings 4,288 11,843 14,081 16,100 18,218

Profit margin 3% 8% 9% 9% 10%

Reconciliation of RE
Balance — beginning of year 40,346 43,134 53,477 66,058 78,658
Net earnings 4,288 11,843 14,081 16,100 18,218
Dividends to Isabelle (1,500) (1,500) (1,500) (3,500) (3,500) Starting 2023, DHC to pay 500K to existing
shareholders
Balance — end of year 43,134 53,477 66,058 78,658 93,376
 Pro Forma Statement of cash flows for the years ended December 31 (In thousands of C$)
2020 2021 2022 2023 2024
Operating activities
Net profit 4,288 11,843 14,081 16,100 18,218
Depreciation and amortization 12,634 12,709 12,784 12,859 12,934
Interest expense 5,735 5,300 4,865 4,430 3,995
Income taxes expense 1,586 4,381 5,208 5,955 6,738
Change in working capital balances (same ratio to total revenue as at 2019)
Trade receivables 168 188 199 211 224
Inventories (283) (317) (336) (356) (377)
Prepaid expenses (207) (232) (246) (260) (276)
Trade payables and accrued liabilities (1,401) (1,571) (1,663) (1,761) (1,866)
Contract liability — revenue (2,434) (2,729) (2,889) (3,060) (3,242)
20,086 29,573 32,004 34,117 36,347
Interest paid (5,735) (5,300) (4,865) (4,430) (3,995)
Income taxes paid (1,586) (4,381) (5,208) (5,955) (6,738)
Total cash flow from operating activities 12,765 19,892 21,931 23,732 25,614

Investing activities
Investment in PP&E (14,000) (3,000) (3,000) (3,000) (3,000)
Financing activities
Repayment on term loan — Nova Scotia (3,000) (3,000) (3,000) (3,000) (3,000)

Repayment on term loan — Ontario (4,000) (4,000) (4,000) (4,000) (4,000)

Increase in line of credit - - - - -
Funding from patrick 20,000 - - - -
Dividends paid (1,500) (1,500) (1,500) (1,500) (1,500)
Total cash flow from financing activities 11,500 (8,500) (8,500) (8,500) (8,500)

Change in cash 10,265 8,392 10,431 12,232 14,114

Opening cash and cash equivalents - 10,265 18,656 29,087 41,319
Closing cash and cash equivalents 10,265 18,656 29,087 41,319 55,433
Proforma Assumptions:
Revenue Growth:
DHC improves its revenue growth similar to industry & 2018 4.80%
AWH to maintain revenue growth from 2018 to 2019 14.0%
Operating margins to improve to stay same in 2020, due to higher expenses in onboarding of new subsidiary and then improve to industry
average in 2021 and 2022
 2020 2021 2022 2023 2024
Room operating costs as a % of room 51% 49% 49% 49% 49%
revenue
Food and beverage costs as a % of food 68% 65% 65% 65% 65%
and beverage revenue
Total wages as a percentage of revenue 33% 26% 26% 26% 26%

Administrative and general expenses as 16% 15% 15% 15% 15%

a % of revenue
Marketing as a percentage of revenue 2% 2% 2% 2% 2%
Note 1
Depriciation Schedule Straight Depreciation
Line- Period
Land 2,750
Buildings 116,950
Furniture Fixtures and Equipment 28,520
Vehicles 5,600
Awani Spa License 2,000
Depriciation run rate 10,850
Additions - Kelowna hotel renovation cost 11,000 40
DHC Depriciation 10,850
AWH Assets
Land 680
Buildings 24,650 40 616
Furniture Fixtures and Equipment 8,740 8 1,093
Total depreciation and amortization 12,559
Incremantal capital spend each year 3,000
Annual incremetnal depriciation 75
Note 2
Interest Expense 2020 2021 2022 2023 2024
O/S Long-term Debt
Nova Scotia 39,000 36,000 33,000 30,000 27,000
Ontario 40,000 36,000 32,000 28,000 24,000
AWH Shareholder's loan funded by 20,000 20,000 20,000 20,000 20,000
Patrick's Bonds
Interest
Nova Scotia @ 6.5% 2,535 2,340 2,145 1,950 1,755
Ontario @ 6% 2,400 2,160 1,920 1,680 1,440
AWH Shareholder's loan funded by 800 800 800 800 800
Patrick @ 4%
Interest expense 5,735 5,300 4,865 4,430 3,995
Wage Allocation 2019 %
Room operating costs 18,641 43%
Food and beverage costs 14,354 33%
Cost of spa services 614 1%
Administrative and general expenses 7,965 18%
Total 43,593 95%
35.0%
Shareholders' equity
Share capital (4,000,000 o/s shares )* 10,175 10,175 10,175 10,176 10,177

Retained earnings 43,134 53,477 66,058 78,658 93,376

Total shareholders' equity 53,309 63,652 76,233 88,834 103,553
Total liabilities and shareholders' equity 53,309 63,652 76,233 88,834 103,553

Return on equity 8% 19% 18% 18% 18%

* 200,000 additional shares to be issued
to patrick in 2025
Conclusion:
 Comparison against criteria of 2020 2021 2022 2023 2024 Comments
sucessful IPO:
Annual Revenue Growth target: 10% 12% 10% 7% 6% 6% Slower growth in 2022 due to higher portion of
revenue from DHC legacy hotels growing at
industry avg of 4.8%
Net profit margin: 8% to 10% 3% 8% 9% 9% 10% Exceed recommended IPO requirement from
2021, and improving year over year
Operating margin => Industry i.e 16% 8% 14% 15% 15% 16% Not meeting recommended IPO requirement in
initial years, however improving year over year

Return on equity i.e => 11% 8% 19% 18% 18% 18% Exceeding recommended IPO requirement

Board targets 2020 2021 2022 2022 2022

Operating margin 13% 16% 16% 16% 16%
Profit margin 8% 8% 8% 8% 8%
ROE 11% 11% 11% 11% 11%
Forecast 2020 2021 2022 2022 2022
Operating margin 8% 14% 15% 15% 16% The operating margin% is below board's target in
first few years but increasing each year and
meets target in 2024
Profit margin 3% 8% 9% 9% 10% The profit margin% is below board's target in
2020, however exceeds bord's target in 2021 and
2022 driven by AWH synergies and lower wages

ROE 8% 19% 18% 18% 18% ROE is exceeds board's target and improving
year over year
[Appendix 8] Awani spa licence impairment

Purpose: to calculate fair value less cost of disposal

Fair value $ 1,325,000.00

Cost of disposal $ 30,000.00
Fair value less cost of disposal $ 1,295,000.00

Purpose: to calculate value in use

Risk-free rate 3%
Beta 1.3
Market risk premium 5%
Cost of equity 10%
Cost of debt before tax 6%
Tax rate 27%
Cost of debt after tax 4.38%
Debt weighting 20.00%
Equity weighting 80.00%
Weighted average cost of capital 8.48%
Rate with 2% growth annuity compounding 6.35%
Rate with 3% growth annuity compounding 5.32%
2020 2021 2022 2023 2024 Notes
Revenue $ 1,420,000.00 $ 1,380,000.00 $ 1,400,000.00 $ 1,410,000.00 $ 1,420,000.00 1
Room supply purchases from Awani $ 2,500,000.00 $ 2,800,000.00 $ 2,850,000.00 $ 2,890,000.00 $ 2,900,000.00 2

Contribution margin increase:

4% discount of room supply $ 100,000.00 $ 112,000.00 $ 114,000.00 $ 115,600.00 $ 116,000.00
5% of annual revenue saving $ 71,000.00 $ 69,000.00 $ 70,000.00 $ 70,500.00 $ 71,000.00

2024 PV of 4% discount of room supply from 2024 to 2036 $1,068,937.04

2024 PV of 5% of annual revenue saving from 2024 to 2036 $615,781.85

Cash flows $ 171,000.00 $ 181,000.00 $ 184,000.00 $ 186,100.00 $ 1,871,718.89

Discount [email protected]%
NPV $1,836,168.29
Value in use $1,836,168.29

Notes
1 Revenue expected to increase 2% annually
2 Supply purchases are expected to increase 3% annually
Appendix 9 - Golf Course - Cost Volume Profit Analysis
Purpose: To conduct the cost volume profit analysis on the golf course.
Step 1: Golf course operation in 2019
2019 Note
Others Hotel Guests Total
Number of player rounds 7,391 9,033 16,424 Given: 55% golfers were registered hotel guests.
Price per golf round $ 85 $ 85 $ 85
Sales $ 628,218 $ 767,822 $ 1,396,040 A
VARIABLE COSTS:
Golf services costs: 1
Wages $ 735,000 1 and 2
Course maintenance costs $ 432,000 1 and 3
Fuel and lubricants 1 and 3
Electricity 1 and 3
Water 1 and 3
Total variable costs: $ 1,167,000 B
Contribution Margin $ 229,040 C = A - B
FIXED COSTS:
Fixed operating costs $ 895,000 Given
Total fixed costs: $ 895,000 D
Operating loss $ -665,960 E = C - D
Step 2: Golf course operation in 2020 by making it as a semi-private.
Part 1: What rate to charge for a round of golf per hotel and member guest to ensure an operating profit of $350,000 in 2020?
It is given that the variable costs per golfer visit in 2020 will be the same as in 2019.
Total variable costs: $ 1,167,000
Number of player rounds 16,424
Unit variable cost for 2020 $ 71.05 F
2019 fixed operating costs $ 895,000
Will increase in 2020 by (Given) $ 130,000
2020 fixed operating costs $ 1,025,000 G
Target operating profit in 2020 (G $ 350,000 H
Contribution Margin in 2020 $ 1,375,000 I = G + H
Number of guest golfer visits in 2 11,000 J
Unit variable cost for 2020 $ 71.05 F
Total variable cost for 2020 $ 781,600 K = J x F

Total sales required in 2020 $ 2,156,600 L = I + K

Less: Principal members' annual $ -275,000 110 x $2,500
Less: Spousal members' annual $ -90,000 40 x $2,250
Less: Initiation fees $ - 4
Sales needed from guest golfers $ 1,791,600 M
Rate per visit/round $ 162.87 M / J
Part 1 Conclusion: Charge $163 for a round of golf per hotel and member guest to ensure an operating profit of $350,000 in
2020.
Assumption: DHC does not charge extra rounding fee to principal and spousal members since they pay
annual fees.
Part 2: Four scenarios
The percentage of capacity utilized
2020 Total Max. Capacity Utilized
Principal Spousal Guests
Members Members
Number of players 110 40
Number of visits per player 70 70
Total visits (Scenario 1) 7,700 2,800 11,000 21,500 35000 61%
Number of players 110 40
Number of visits per player 80 80
Total visits (Scenario 2) 8,800 3,200 11,000 23,000 35000 66%
Number of players 110 40
Number of visits per player 90 90
Total visits (Scenario 3) 9,900 3,600 11,000 24,500 35000 70%
Number of players 110 40
Number of visits per player 100 100
Total visits (Scenario 4) 11,000 4,000 11,000 26,000 35000 74%

The golf rate to be charged to the guests to achieve a profit of $350,000

2020
Principal Spousal Guests Total
Members Members
Total visits (Scenario 1) 7,700 2,800 11,000 21,500
Annual fees from members 275,000 90,000 -
Rounding fee per guest - - $ 230.70
Sales 275,000 90,000 2,537,673 2,902,673
Total variable cost 547,120 198,953 781,600 1,527,673
Contribution Margin in 2020 1,375,000
Total fixed cost 1,025,000
Target operating profit in 2020 350,000
(Given)

2020
Principal Spousal Guests Total
Members Members
Total visits (Scenario 2) 8,800 3,200 11,000 23,000
Annual fees from members 275,000 90,000 -
Rounding fee per guest - - $ 240.39
Sales 275,000 90,000 2,644,255 3,009,255
Total variable cost 625,280 227,375 781,600 1,634,255
Contribution Margin in 2020 1,375,000
Total fixed cost 1,025,000
Target operating profit in 2020 (Given) 350,000
 2020
Principal Spousal Guests Total
Members Members
Total visits (Scenario 3) 9,900 3,600 11,000 24,500
Annual fees from members 275,000 90,000 -
Rounding fee per guest - - $ 250.08
Sales 275,000 90,000 2,750,837 3,115,837
Total variable cost 703,440 255,796 781,600 1,740,837
Contribution Margin in 2020 1,375,000
Total fixed cost 1,025,000
Target operating profit in 2020 (Given) 350,000

2020
Principal Spousal Guests Total
Members Members
Total visits (Scenario 4) 11,000 4,000 11,000 26,000
Annual fees from members 275,000 90,000 -
Rounding fee per guest - - $ 259.77
Sales 275,000 90,000 2,857,418 3,222,418
Total variable cost 781,600 284,218 781,600 1,847,418
Contribution Margin in 2020 1,375,000
Total fixed cost 1,025,000
Target operating profit in 2020 (Given) 350,000

The operating profit generated by using the golf manager's suggested price
2020
Principal Spousal Guests Total
Members Members
Total visits (Scenario 1) 7,700 2,800 11,000 21,500
Annual fees from members 275,000 90,000 -
Rounding fee per guest - - $ 127.50
Sales 275,000 90,000 1,402,500 1,767,500
Total variable cost 547,120 198,953 781,600 1,527,673
Contribution Margin in 2020 239,827
Total fixed cost 1,025,000
Operating loss generated $ -785,173
 2020
Principal Spousal Guests Total
Members Members
Total visits (Scenario 2) 8,800 3,200 11,000 23,000
Annual fees from members 275,000 90,000 -
Rounding fee per guest - - $ 127.50
Sales 275,000 90,000 1,402,500 1,767,500
Total variable cost 625,280 227,375 781,600 1,634,255
Contribution Margin in 2020 133,245
Total fixed cost 1,025,000
Operating loss generated $ -891,755

2020
Principal Spousal Guests Total
Members Members
Total visits (Scenario 3) 9,900 3,600 11,000 24,500
Annual fees from members 275,000 90,000 -
Rounding fee per guest - - $ 127.50
Sales 275,000 90,000 1,402,500 1,767,500
Total variable cost 703,440 255,796 781,600 1,740,837
Contribution Margin in 2020 26,663
Total fixed cost 1,025,000
Operating loss generated $ -998,337

2020
Principal Spousal Guests Total
Members Members
Total visits (Scenario 4) 11,000 4,000 11,000 26,000
Annual fees from members 275,000 90,000 -
Rounding fee per guest - - $ 127.50
Sales 275,000 90,000 1,402,500 1,767,500
Total variable cost 781,600 284,218 781,600 1,847,418
Contribution Margin in 2020 - 79,918
Total fixed cost 1,025,000
Operating loss generated $ -1,104,918
Part 2 Conclusion:
The percentage of capacity utilized assuming the maximum capacity is 35,000 golfer visits are as follows: 61% when the average number of rounds
played each year by each member is 70 (scenario 1), 66% when the average number of rounds played each year by each member is 80 (scenario 2),
70% when the average number of rounds played each year by each member is 90 (scenario 3), and 74% when the average number of rounds played
each year by each member is 100 (scenario 4).

The golf rates to be charged to the guests to achieve a profit of $350,000 are as follows: $230.70 in scenario 1, $240.39 in scenario 2, $250.08 in
scenario 3, and $259.77 in scenario 4.

If the price of $127.50 (=$85 x 150%) suggested by the golf manager is used, the following operating losses will be incurred: -$785,173 in scenario 1,
-$891,755 in scenario 2, -$998,337 in scenario 3, and -$1,104,918 in scenario 4.

Overall conclusion / We do not recommend making the golf course a semi-private as it will incur even bigger operating losses if DHC
Recommendation: charges $127.50 to guests.
This pricing of $127.50 suggested by the manager is already 50% higher than 2019's rate of $85.
However, in order to make an operating profit that DHC wants, the lowest rate needs at least be $230.70.
Note 1
Assumption: The golf services costs are variable costs.
Note 2
Number of golf peration employe 35
Average salary per employee* $ 21,000
Total wages $ 735,000
*Assumption: The average salary per employee is what has been paid during the golf season which is from late March to early October. Therefore,
no need to pro-rate the salary for six months.
Note 3
Per DHC's statement of comprehensive earnings for the years ended December 31, 2019 (draft), the golf services costs are $1,167,000.
Golf services costs $ 1,167,000
Wages $ 735,000
Remaining golf services costs $ 432,000
Assumption: The remaining golf services costs of $432,000 is the total of course maintenance costs, fuel and lubricants, electricity, and water.
Note 4
Since initiation fees are one-time payment, this has not been included into our CVP analysis calculation.
Initiation fees:
110 principal members x $20,000 per member = $ 2,200,000
40 spousal members x $15,000 per member = $ 600,000
Total initiation fees $ 2,800,000