EX-99.C.9 8 y92196a3exv99wcw9.txt MARKET VALUE APPRAISAL OF HOTEL PROPERTY EXHIBIT C(9) COMPLETE APPRAISAL IN A SUMMARY APPRAISAL REPORT HOTEL PROPERTY HOLIDAY INN HUDSON 240 Hines Hill Road Hudson, Summit County, Ohio 44236 PREPARED FOR: Maureen Mastroieni Murray Devine & Co. 1650 Arch Street, Suite 2700 Philadelphia, PA 19103 EFFECTIVE DATE OF THE APPRAISAL: June 20, 2003 INTEGRA REALTY RESOURCES - COLUMBUS FILE NUMBER: 411-033274 [PICTURE] November 24, 2003 Maureen Mastroieni Murray Devine & Co. 1650 Arch Street, Suite 2700 Philadelphia, PA 19103 SUBJECT: Market Value Appraisal - Hotel Property Holiday Inn Hudson 240 Hines Hill Road Hudson, Summit County, Ohio 44236 Integra Columbus File No. 411-033 Dear Ms. Mastroieni: Integra Realty Resources is pleased to transmit the summary report of a complete appraisal that was prepared on the referenced property. The purpose of this appraisal is to derive an opinion of the market value of the Fee Simple Estate of the property as of June 20, 2003, the effective date of the appraisal. The attached report sets forth the data, research, analyses, and conclusions for this appraisal. The report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) and the Standards of Professional Practice of the Appraisal Institute. Our opinion of market value is premised upon the Assumptions and Limiting Conditions beginning on Page 3. The definition of market value is in Addendum B. The site has an area of approximately 12.41 acres; it is improved with a 2-story, masonry hotel containing 288 rooms. The room mix includes 6 singles, 149 doubles, 2 suites, 83 regular kings, 54 king leisure and 4 king accessible units. The common area includes 6,516 square feet of ballroom space along with additional meeting rooms. The improvements were constructed in 1967 and 1976. The improvements contain 189,115 square feet. November 24, 2003 Page 2 Based on the analyses and conclusions in the accompanying report, and subject to the definitions, assumptions, and limiting conditions expressed in this report, it is our opinion that the Prospective market value of the Fee Simple Estate of the subject as a going concern, as of January 1, 2004, or upon completion of deferred maintenance. FIVE MILLION SEVEN HUNDRED THOUSAND DOLLARS ($5,700,000) The subject's going concern value may be allocated as follows: Land & Buildings $ 4,600,000 81% Furniture, Fixtures & Equipment $ 800,000 14% Business & Other Intangibles $ 300,000 5% Total Going Concern Value $ 5,700,000 100%
The preceding value conclusion is subject to the following Extraordinary Assumptions and Limiting Conditions. 1. The subject is currently operating as a franchised Holiday Inn hotel. This appraisal implicitly assumes a sale, at which point the Franchisor will prepare a Product Improvement Plan (PIP) as one of the items required for transfer of the franchise. Our analysis assumes continued, uninterrupted affiliation with the existing franchise. Any PIP requirements necessary are assumed complete under the As Stabilized Value above. 2. We assume any leased items including furniture, fixtures and equipment are paid off at closing. Therefore we have not deducted any lease balances. We further assume accounts receivable and accounts payable are reconciled at closing. 3. The subject is an existing Holiday Inn hotel that was constructed in 1967/1976. The property was evaluated on April 22, 2003 for hotel cleanliness, condition, life safety standards, and brand integrity standards. The subject property received an overall evaluation score of 94.45% and received a passing score. This was the highest score the subject property received in five years. No Product Improvement plan has reportedly been completed by Intercontinental Hotels and Resorts for a transfer of this asset. The definition of Market value assumes a sale. A Product Improvement plan will be conducted at the time of application for a franchise transfer. Integra Realty resources has assumed continued affiliation with Holiday Inn Hotels. The stabilized value assumes that any product improvement items are completed. Therefore, the "As Is" market value could be LESS THAN reported above. Any PIP requirements should be deducted from the above Stabilized value. Our report, and value indication is subject to all transfer requirements of the affiliation, including a product improvement plan. November 24, 2003 Page 3 4. This appraisal assumes the Ameritech lease which expires in June of 2004 is renegotiated and extended throughout the duration of ownership. As Is Value is determined by deducting any costs necessary to stabilize the subject. Correction of some deferred maintenance is necessary, subject to additional PIP requirements by Holiday Inn. We have estimated costs at $900,000. The As Is Value as of June 20, 2002, is therefore estimated at: FOUR MILLION EIGHT HUNDRED THOUSAND DOLLARS ($4,800,000). If you have any questions or comments, please contact the undersigned. Thank you for the opportunity to be of service. Respectfully submitted, INTEGRA COLUMBUS Eric E. Belfrage, MAI, CRE, ISHC Robin M. Lorms, MAI, CRE Certified General Real Estate Appraiser Certified General Real Estate Appraiser OH Certificate #383767 OH Certificate #383772
HOLIDAY INN HUDSON TABLE OF CONTENTS TABLE OF CONTENTS
PAGE NO. TABLE OF CONTENTS ................................................ 1 SUMMARY OF SALIENT FACTS AND CONCLUSIONS ......................... 2 GENERAL INFORMATION .............................................. 3 Identification of Subject .................................... 3 Current Ownership, Sales History, Status ..................... 3 Purpose, Property Rights and Effective Date .................. 3 Intended Use and Intended User ............................... 3 Scope of Appraisal ........................................... 3 ECONOMIC ANALYSIS ................................................ 6 Summit County Area Analysis .................................. 6 MARKET AREA ANALYSIS ............................................. 16 Lodging Market Analysis ...................................... 21 PROPERTY ANALYSIS ................................................ 58 Description and Analysis of the Land ......................... 58 Description and Analysis of the Improvements ................. 61 Real Estate Tax Analysis ..................................... 67 Highest and Best Use Analyses ................................ 69 VALUATION ANALYSIS ............................................... 71 Valuation Methodology ........................................ 71 Sales Comparison Approach .................................... 72 Income Capitalization Approach ............................... 82 Capitalization ............................................... 96 Reconciliation ............................................... 109 CERTIFICATION .................................................... 112 ASSUMPTIONS AND LIMITING CONDITIONS .............................. 114 ADDENDA Qualifications of Appraiser(s) ............................... Addendum A Definitions .................................................. Addendum B Subject Photographs .......................................... Addendum C Financials and Property Information .......................... Addendum D DCF .......................................................... Addendum E Letter of Authorization ...................................... Addendum F
[IRR LOGO] PAGE 1 HOLIDAY INN HUDSON SUMMARY OF SALIENT FACTS AND CONCLUSIONS SUMMARY OF SALIENT FACTS AND CONCLUSIONS HOTEL PROPERTY PROPERTY Holiday Inn 240 Hines Hill Road Hudson, Summit County, OH 44236 PROPERTY TAX IDENTIFICATION NUMBER (S) 13-00890, 13-00891, 13-00892 EFFECTIVE DATE OF THE APPRAISAL June 20, 2003 "AS IS" VALUE June 20, 2003 PROSPECTIVE VALUE January 1, 2004 (or completion of deferred maintenance) DATE OF THE REPORT July 15, 2003 OWNER OF RECORD JAGI Cleveland - Hudson, LLC LAND AREA 12.41 acres, 540,580 square feet NUMBER OF ROOMS 288 GROSS BUILDING AREA (GBA) 189,115 square feet YEAR BUILT 1967/1976 ZONING DESIGNATION B-1 (Retail Business District) FLOOD PLAIN MAP PANEL NUMBER AND DATE 390 7490001A, Feb. 18, 1981 FLOOD PLAIN DESIGNATION Zone X REAL ESTATE TAXES, YEAR 2003 $231,251.64 HIGHEST AND BEST USE AS IMPROVED Continued hotel use PROPERTY RIGHTS APPRAISED Fee Simple Estate ESTIMATED EXPOSURE TIME AND MARKETING PERIOD 12 months, 12 months MARKET VALUE INDICATIONS COST APPROACH Not developed SALES COMPARISON APPROACH $6,200,000 to $6,300,000 INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION $5,700,000 MARKET VALUE CONCLUSION OF GOING CONCERN $5,700,000 OR $ 19,792 PER ROOM GOING CONCERN ALLOCATION AS OF JAN. 1, 2004 LAND & IMPROVEMENTS $4,600,000 PERSONAL PROPERTY $800,000 BUSINESS AND OTHER INTANGIBLES $300,000 TOTAL $5,700,000 AS IS MARKET VALUE AS OF JUNE 20, 2003 $4,800,000
[IRR LOGO] PAGE 2 HOLIDAY INN HUDSON GENERAL INFORMATION GENERAL INFORMATION IDENTIFICATION OF SUBJECT The subject consists of a 288-room, lodging facility containing a gross building area of approximately 189,115 square feet. The improvements were constructed in 1967/76 and are situated on a site totaling 12.41 acres, or 540,580 square feet, more or less. The street address is 240 Hines Hill Road, Hudson, Ohio. It is further identified by the assessment office as Parcels 13-00890, 13-00891, and 13-00892. A complete legal description of the property is in Addendum D. Photographs of the subject are in Addendum A. CURRENT OWNERSHIP, SALES HISTORY, STATUS The subject is currently owned by JAGI Cleveland-Hudson LLC, who acquired title August 17, 1998 from Galburton Inn, Inc. for $13,369,350, as recorded in Liber 5417, folio 9206 of the Summit County land records. To the best of our knowledge, no other sale or transfer of ownership has occurred within the past three years, and as of the effective date of this appraisal, the property is not subject to an agreement of sale or option to buy, nor is it listed for sale. PURPOSE, PROPERTY RIGHTS AND EFFECTIVE DATE The purpose of the appraisal is to develop an opinion of the market value of the fee simple interest in the property as of the effective date of the appraisal, as of June 20, 2003. Unless otherwise stated, all factors pertinent to a determination of value have been considered as of this date. INTENDED USE AND INTENDED USER The purpose of this appraisal is to derive our opinion of the market value of the Fee Simple interest of the subject as of the effective date of the appraisal, June 20, 2003. Unless otherwise stated, all factors pertinent to a determination of value have been considered as of this date. The property was inspected on June 20, 2003 by Eric E. Belfrage, MAI, CRE, ISHC and John R. Dehner. This appraisal report has been prepared for Maureen Mastroieni of Murray Devine & Co. to assist in due diligence in the process of assisting Janus Hotels in a transaction converting them from a public to private organization. It is not intended for any other use. SCOPE OF APPRAISAL As part of this appraisal, we have completed the following steps to gather, confirm, and analyze the data. - Physically inspected the subject and the surrounding neighborhood. - Collected factual information about the subject and the surrounding market and confirmed that information with various sources. - Prepared a highest and best use analysis of the subject site as though vacant and of the subject as improved. [IRR LOGO] PAGE 3 HOLIDAY INN HUDSON GENERAL INFORMATION - Collected and confirmed market information needed to consider the three traditional approaches to value: cost approach, sales comparison approach and income capitalization approach. - Prepared a summary appraisal report setting forth the conclusion derived in this analysis as well as the information upon which the conclusions are based. This report involves a complete appraisal of the subject and conforms with the requirements of the Uniform Standards of Professional Appraisal Practice (USPAP), the Standards of Professional Practice of the Appraisal Institute, and the appraisal guidelines set forth in the Financial Institutions Reform Recovery Enforcement Act (FIRREA). All of the three traditional approaches to value have been considered in this appraisal. Additional information regarding the appraisal methods used can be found in the individual sections of this report. Pertinent definitions, including the definition of market value and property rights appraised, are in Addendum B. The exposure period and marketing time are defined as follows: EXPOSURE TIME AND MARKETING PERIOD Generally, exposure time relates to what has occurred (retrospective) and is occurring (current) in the market, whereas marketing period is a projection (prospective) of what is likely to occur in the market. Any sound opinion of value must consider what has occurred and what will most likely occur. Both time periods are a function of price, time, use, and the cost and availability of funds. The primary difference between the two time periods is that for marketing period anticipated changes in market conditions (trends) are also considered. Verification of sales data, such as days on the market for both listed and sold properties, and interviews with market participants are the primary source for both time estimates. Other important factors are an understanding of buyers' and sellers' motivations, their financial assumptions, who the most likely purchasers will be, and how financing influences their buying decision. Recent national surveys were consulted to determine the typical expected marketing period. Following is the First Quarter 2003 Survey from PriceWaterhouse Coopers.
CURRENT THIRD KEY INDICATORS QUARTER QUARTER 2002 YEAR AGO AVERAGE MARKETING TIME (IN MONTHS) RANGE 2.00-12.00 2.00-12.00 2.00-12.00 AVERAGE 7.00 7.00 7.90 CHANGE (Basis Points) - 0 -11.39
*Source: PricewaterhouseCoopers [IRR LOGO] PAGE 4 HOLIDAY INN HUDSON GENERAL INFORMATION Despite the market downturn in lodging performance, assets continue to sell. Obviously, well performing, new and well located assets that are priced correctly will sell quickly. Many hotel assets listed for sale including some older, poorly maintained or poorly performing assets are experiencing a pricing gap between sellers and buyers expectations. Financing remains a critical issue in the marketability of hotel assets. While difficult to obtain, hotel financing remains available, at reasonably favorable pricing. In our opinion, given the subject's affiliation and pricing at or near the appraised values, both exposure and marketing periods of up to 12 months are reasonable. [IRR LOGO] PAGE 5 HOLIDAY INN HUDSON ECONOMIC ANALYSIS ECONOMIC ANALYSIS SUMMIT COUNTY AREA ANALYSIS INTRODUCTION We analyzed the demographics of Summit County and the State of Ohio, using as a basis information provided by NPA Data Services, Inc., a recognized source. Information includes historical and projected population, employment and income data. POPULATION Historical and projected population trends for Summit County are charted below: POPULATION TRENDS SUMMIT COUNTY
YEAR POPULATION (1,000'S) ---------------------------------------------------- 1988 511.7 1993 528.4 1998 540.7 1999 541.7 2000 544.0 2001 545.2 2002 548.2 2003 551.3 2004 551.6 2005 551.9 2006 552.2 2007 552.7 2008 553.4 2013 558.0 2018 565.2
The population of Summit County increased at a compounded annual rate of 0.39% from 1998 to 2003. For the same time period, the State of Ohio grew at a compounded annual rate of approximately 0.44%. Over the last fifteen years Summit County's average annual compound change was 0.50%, compared to 0.46% for the State of Ohio. Looking ahead, both Summit County and the State of Ohio are anticipated to experience continued growth, with future population estimates reflecting growth rates similar to those experienced in the past. For the period 2003 to 2018, the populations of Summit County and the the State of Ohio are expected to increase by an average annual compound rate of 0.17% and 0.51%, respectively. For the next five years, the population of Summit County should grow slower than the 15-year average. [IRR LOGO] PAGE 6 HOLIDAY INN HUDSON ECONOMIC ANALYSIS POPULATION TRENDS COMPARISON
STATE OF OHIO SUMMIT COUNTY ------------------------------------------------------------------------------------------------ % % YEAR POPULATION (000'S) CHANGE POPULATION (000'S) CHANGE ----------------------------------------------------------------------------- 1988 10,798.6 511.7 1993 11,101.1 2.8% 528.4 3.3% 1998 11,311.5 1.9% 540.7 2.3% HISTORICAL 1999 11,335.5 0.2% 541.7 0.2% 2000 11,371.2 0.3% 544.0 0.4% 2001 11,394.4 0.2% 545.2 0.2% 2002 11,476.4 0.7% 548.2 0.6% CURRENT 2003 11,560.8 0.7% 551.3 0.6% 2004 11,607.0 0.4% 551.6 0.0% 2005 11,655.0 0.4% 551.9 0.1% 2006 11,704.8 0.4% 552.2 0.1% 2007 11,757.0 0.4% 552.7 0.1% PROJECTED 2008 11,811.7 0.5% 553.4 0.1% 2013 12,119.2 2.6% 558.0 0.8% 2018 12,471.0 2.9% 565.2 1.3%
AVERAGE ANNUAL HISTORICAL COMPOUND CHANGE Past 5 years 0.44% 0.39% Past 15 years 0.46% 0.50% PROJECTED Next 5 years 0.43% 0.07% Next 15 years 0.51% 0.17%
Source: NPA Data Services, Inc.; compiled by IRR EMPLOYMENT Employment trends for both Summit County and the State of Ohio should follow a pattern similar to the population trends for these areas, although at higher rates of increase. From 1998 to 2003, Summit County employment grew at an average annual compound rate of 0.41% compared to 0.35% for the the State of Ohio. These figures indicate that Summit County surpassed the State of Ohio in employment growth over the last five years. Looking back fifteen years, Summit County employment grew at an average annual compound rate of 1.20%, compared to the State of Ohio growth rate of 1.19%. Over the next five and fifteen years Summit County employment growth should lag the State of Ohio growth rate. From 2003 to 2008, Summit County should grow by a 0.95% average annual growth rate, while the long term projection, 2003 to 2018, is for a 0.81% increase. For the same periods, employment in the State of Ohio is expected to grow at average annual compound rates of 1.27% and 1.10%, respectively. Employment gains are a strong indicator of economic health and generally correlate with real estate demand. Historically, Summit County has exceeded the State of Ohio's growth rate, suggesting that Summit County's relative position is stable. [IRR LOGO] PAGE 7 HOLIDAY INN HUDSON ECONOMIC ANALYSIS Employment trends for Summit County and the the State of Ohio are presented below. NON-FARM EMPLOYMENT TRENDS COMPARISON
STATE OF OHIO SUMMIT COUNTY ------------------------------------------------------------------------------------------------ % % YEAR EMPLOYMENT (000'S) CHANGE EMPLOYMENT (000'S) CHANGE ----------------------------------------------------------------------------- 1988 5,610.6 272.2 1993 5,907.8 5.3% 292.1 7.3% 1998 6,586.3 11.5% 318.9 9.2% HISTORICAL 1999 6,685.5 1.5% 325.5 2.1% 2000 6,787.1 1.5% 328.2 0.8% 2001 6,728.2 -0.9% 328.8 0.2% 2002 6,637.8 -1.3% 323.3 -1.7% CURRENT 2003 6,704.0 1.0% 325.5 0.7% 2004 6,792.7 1.3% 328.7 1.0% 2005 6,892.9 1.5% 332.5 1.2% 2006 6,977.1 1.2% 335.5 0.9% PROJECTED 2007 7,062.7 1.2% 338.6 0.9% 2008 7,140.3 1.1% 341.3 0.8% 2013 7,549.8 5.7% 355.8 4.2% 2018 7,894.8 4.6% 367.2 3.2%
AVERAGE ANNUAL HISTORICAL COMPOUND CHANGE Past 5 years 0.35% 0.41% Past 15 years 1.19% 1.20% PROJECTED Next 5 years 1.27% 0.95% Next 15 years 1.10% 0.81%
Source: NPA Data Services, Inc.; compiled by IRR To more completely understand the economy of Summit County and the State of Ohio and how it relates to future real estate demand, we analyze employment mix. The following chart depicts the current distribution of employment by industry. [IRR LOGO] PAGE 8 HOLIDAY INN HUDSON ECONOMIC ANALYSIS EMPLOYMENT SECTORS 2003 SUMMIT COUNTY [BAR CHART]
SECTOR PERCENTAGE Services 32.5% Retail Trade 18.4% Manufacturing 14.0% Government 10.5% FIRE 7.3% Wholesale Trade 5.7% Construction 5.4% TCPU 4.9% Mining & Other 1.3%
The preceding chart and following tables show that in 2003, the largest employment sectors in Summit County were: - Services (32.5%) - Retail Trade (18.4%) - Manufacturing (14.0%) - Government (10.5%) By comparison, the State of Ohio's largest employment sectors were Services (30.9%), Retail Trade (18.0%), Manufacturing (15.2%), and Government (12.4%). Over the past fifteen years, the largest meaningful percentage gains in employment within Summit County occurred within the Mining & Other and Services sectors with annual average compound growth rates of 3.36% and 2.52% respectively. Over the past five years the most significant activity has occurred in the Mining & Other and FIRE sectors with annual average compound growth rates of 3.92% and 2.17%, respectively. [IRR LOGO] PAGE 9 HOLIDAY INN HUDSON ECONOMIC ANALYSIS HISTORIC EMPLOYMENT TRENDS SUMMIT COUNTY
% % CHANGE RATE ----------------- 1988 OF TOTAL 1993 1998 2003 OF TOTAL (15 YR) (5 YR) -------------------------------------------------------------------------------------------------- Total Employment 272.2 100% 292.1 318.9 325.5 100% 1.2% 0.4% Services 72.8 26.8% 87.1 98.0 105.9 32.5% 2.5% 1.6% Retail Trade 51.8 19.0% 54.4 58.5 59.8 18.4% 1.0% 0.4% Manufacturing 56.9 20.9% 53.4 52.9 45.5 14.0% -1.5% -3.0% Government 30.9 11.4% 32.7 34.4 34.3 10.5% 0.7% 0.0% FIRE 17.0 6.2% 18.3 21.2 23.6 7.3% 2.2% 2.2% Wholesale Trade 14.4 5.3% 14.8 18.2 18.5 5.7% 1.7% 0.4% Construction 12.4 4.5% 13.5 16.2 17.7 5.4% 2.4% 1.8% TCPU 13.6 5.0% 14.9 16.2 16.1 4.9% 1.2% -0.2% Mining & Other 2.5 0.9% 3.0 3.4 4.2 1.3% 3.4% 3.9% Ttl Non-Mfg. 215.4 79.1% 238.7 266.0 280.0 86.0% 1.8% 1.0% Ttl Office-Related* 120.7 44.3% 138.1 153.6 163.8 50.3% 2.1% 1.3%
---------- *Includes FIRE, Services and Government (Numbers in thousands (000's)) In the following chart, we examine relative changes in the broad categories of Manufacturing, Office Related and Other Non-Manufacturing employment. For purposes of this analysis, we define office related employment as total employment in the FIRE, Services and Government sectors. While not all employment in these sectors is office related, office employment trends tend to mirror the trends in these three categories combined. As seen in these charts, office-related employment has captured an increasing share of total employment, indicating a shift toward a more service-based economy, which is consistent with the national trend. EMPLOYMENT SECTOR TRENDS SUMMIT COUNTY [LINE GRAPH]
YEAR Office Ralated Other Non-Manufacturing Manufacturing ---- -------------- ----------------------- ------------- 1988 120.7 215.4 56.9 1993 138.1% 238.7 53.4 1998 153.6 266.0 52.9 2003 163.8 280.0 45.5 2008 174.7 298.3 43.0 2013 184.7 315.1 40.7 2018 192.9 328.9 38.3
Historical trends for the State of Ohio are summarized in the following chart. The largest meaningful gains in employment over the past fifteen years occurred within the [IRR LOGO] PAGE 10 HOLIDAY INN HUDSON ECONOMIC ANALYSIS Services and Construction sectors with annual average compound growth rates of 2.2%. Over the past five years significant activity has occurred in the Mining & Other and Construction sectors with annual average compound growth rates of 1.9% and 1.5%. HISTORIC EMPLOYMENT TRENDS STATE OF OHIO
CHANGE RATE % % ------------------ 1988 OF TOTAL 1993 1998 2003 OF TOTAL (15 YR) (5 YR) ------------------------------------------------------------------------------------------------------------ Total Employment 5610.6 100% 5907.8 6586.3 6704.0 100% 1.2% 0.4% Construction 266.4 4.7% 286.1 343.1 370.0 5.5% 2.2% 1.5% FIRE 388.2 6.9% 401.5 478.9 512.7 7.6% 1.9% 1.4% Government 744.2 13.3% 789.0 803.2 828.0 12.4% 0.7% 0.6% Manufacturing 1128.3 20.1% 1073.7 1121.2 1017.1 15.2% -0.7% -1.9% Mining & Other 71.4 1.3% 73.3 77.8 85.6 1.3% 1.2% 1.9% Retail Trade 1001.9 17.9% 1064.3 1186.1 1209.8 18.0% 1.3% 0.4% Services 1487.9 26.5% 1685.3 1968.3 2070.2 30.9% 2.2% 1.0% TCPU 248.8 4.4% 254.9 289.2 297.1 4.4% 1.2% 0.5% Wholesale Trade 273.7 4.9% 279.7 318.6 313.5 4.7% 0.9% -0.3% Ttl Non-Mfg 4482.3 79.9% 4834.0 5465.1 5686.9 84.8% 1.6% -0.8% Ttl Office-Related* 2620 46.7% 2875.8 3250.4 3410.9 50.9% 1.8% 1.0%
---------- *Includes FIRE, Services and Government (Numbers in thousands (000's)) Fifteen year projections for Summit County show Mining & Other related employment leading all other sectors with Construction second. The forecast for the State of Ohio has Mining & Other related employment leading all other sectors with Wholesale Trade second. Future projections are summarized in the following tables. PROJECTED EMPLOYMENT TRENDS SUMMIT COUNTY
CHANGE RATE % % ----------------- 2003 OF TOTAL 2008 2013 2018 OF TOTAL (15 YR) (5 YR) ------------------------------------------------------------------------------------------------------------ Total Employment 325.5 100% 341.3 355.8 367.2 100% 0.8% 1.0% Construction 17.7 5.4% 19.3 21.0 22.5 6.1% 1.6% 1.8% FIRE 23.6 7.3% 24.9 26.0 26.8 7.3% 0.8% 1.1% Government 34.3 10.5% 36.3 38.0 39.4 10.7% 0.9% 1.1% Manufacturing 45.5 14.0% 43.0 40.7 38.3 10.4% -1.1% -1.1% Mining & Other 4.2 1.3% 5.0 5.8 6.5 1.8% 3.0% 3.7% Retail Trade 59.8 18.4% 62.6 65.2 67.1 18.3% 0.8% 0.9% Services 105.9 32.5% 113.6 120.8 126.8 34.5% 1.2% 1.4% TCPU 16.1 4.9% 16.4 16.5 16.6 4.5% 0.2% 0.3% Wholesale Trade 18.5 5.7% 20.3 21.9 23.3 6.3% 1.5% 1.9% Ttl Non-Mfg. 280.0 86.0% 298.3 315.1 328.9 89.6% 1.1% 1.3% Ttl Office-Related* 163.8 50.3% 174.7 184.7 192.9 52.5% 1.1% 1.3%
---------- *Includes FIRE, Services and Government (Numbers in thousands (000's)) [IRR LOGO] PAGE 11 HOLIDAY INN HUDSON ECONOMIC ANALYSIS PROJECTED EMPLOYMENT TRENDS STATE OF OHIO
CHANGE RATE % % ----------------- 2003 OF TOTAL 2008 2013 2018 OF TOTAL (15 YR) (5 YR) ------------------------------------------------------------------------------------------------------------ Total Employment 6704.0 100% 7140.3 7549.8 7894.8 100% 1.1% 1.3% Construction 370.0 5.5% 403.4 439.2 471.6 6.0% 1.6% 1.7% FIRE 512.7 7.6% 544.7 574.0 597.6 7.6% 1.0% 1.2% Government 828.0 12.4% 884.9 937.2 980.8 12.4% 1.1% 1.3% Manufacturing 1017.1 15.2% 1014.8 1001.3 975.0 12.3% -0.3% 0.0% Mining & Other 85.6 1.3% 96.6 107.9 118.6 1.5% 2.2% 2.5% Retail Trade 1209.8 18.0% 1297.5 1380.5 1451.9 18.4% 1.2% 1.4% Services 2070.2 30.9% 2242.7 2410.6 2561.4 32.4% 1.4% 1.6% TCPU 297.1 4.4% 310.9 323.6 333.8 4.2% 0.8% 0.9% Wholesale Trade 313.5 4.7% 344.9 375.8 404.2 5.1% 1.7% 1.9% Ttl Non-Mfg. 5686.9 84.8% 6125.5 6548.6 6919.8 87.7% 1.3% 1.5% Ttl Office-Related* 3410.9 50.9% 3672.3 3921.8 4139.8 52.4% 1.3% 1.5%
---------- *Includes FIRE, Services and Government (Numbers in thousands (000's)) Summit County accounted for approximately 4.85% of the State of Ohio's employment in 1988. In 2003, the ratio is 4.87% and it is projected at 4.65% through 2018. This is an indication that Summit County is growing at a rate similar to the State of Ohio. Summit County's economy is not dependent on a particular sector. The employment base is varied, as are the major employers. Therefore, Summit County should be less susceptible to cyclical fluctuations that have occurred in other areas dominated by a single industry. The area's major employers are listed below. MAJOR EMPLOYERS
EMPLOYER -------- Akron City Bd of Ed Government Akron General Health System Service Allstate Insurance Co. Insurance Children's Hospital Medical Center Service City of Akron Government DaimlerChrysler Corp Manufacturing FirstEnergy Corp Utility Goodyear Tire & Rubber Co Manufacturing McDermott Int'l/Babcock & Wilcox Manufacturing Newell Rubbermaid/Little Tikes Co Manufacturing Roadway Inc. Transportation Signet Group Plc/Sterling Inc Trade Summa Health System Service Summit County Government Government University of Akron Government
---------- Source: Ohio Department of Development [IRR LOGO] PAGE 12 HOLIDAY INN HUDSON ECONOMIC ANALYSIS INCOME Personal income is a significant factor in determining the real estate demand in a given market. From 1998 to 2003, Summit County's income grew at an average annual compound rate of 1.60%, compared to the State of Ohio average annual compound growth rate of 1.88%. The two market areas displayed a similar pattern in per capita income growth over the last fifteen years. Summit County's average annual compound growth rate was 1.84% as compared to 1.73% for the State of Ohio. Projections for the next five and fifteen year periods reflect growth rates for Summit County that are slightly lower than the anticipated gains for the State of Ohio. For the two time frames, 2003 to 2008 and 2003 to 2018, Summit County is anticipated to experience 2.20% and 1.78% average annual growth rates, respectively, compared to the projected growth rates of the State of Ohio of 2.28% and 1.86%. An examination of income per household reveals that, historically, Summit County has experienced a growth rate similar to the State of Ohio. Future projections predict similar growth for Summit County compared to the State of Ohio. In absolute dollars, Summit County's personal income historically has been above that of the State of Ohio, both on per capita and per household bases. INCOME PER CAPITA COMPARISON
STATE OF OHIO SUMMIT COUNTY ------------------------------------------------------------------------------------ % % YEAR INCOME/CAPITA CHANGE INCOME/CAPITA CHANGE ------------------------------------------------------------- 1988 $21,340 $22,282 1993 $22,325 4.6% $23,430 5.2% 1998 $25,161 12.7% $27,065 15.5% HISTORICAL 1999 $25,561 1.6% $27,373 1.1% 2000 $26,366 3.1% $27,656 1.0% 2001 $26,658 1.1% $28,394 2.7% 2002 $26,805 0.5% $28,509 0.4% CURRENT 2003 $27,616 3.0% $29,306 2.8% 2004 $28,362 2.7% $30,071 2.6% 2005 $29,107 2.6% $30,832 2.5% 2006 $29,745 2.2% $31,483 2.1% PROJECTED 2007 $30,363 2.1% $32,111 2.0% 2008 $30,918 1.8% $32,672 1.7% 2013 $33,787 9.3% $35,575 8.9% 2018 $36,400 7.7% $38,210 7.4%
AVERAGE ANNUAL HISTORICAL COMPOUND CHANGE Past 5 years 1.88% 1.60% Past 15 years 1.73% 1.84% PROJECTED Next 5 years 2.28% 2.20% Next 15 years 1.86% 1.78%
Source: NPA Data Services, Inc.; compiled by IRR [IRR LOGO] PAGE 13 HOLIDAY INN HUDSON ECONOMIC ANALYSIS INCOME PER HOUSEHOLD COMPARISON
STATE OF OHIO SUMMIT COUNTY -------------------------------------------------------------------------------------------------- % % YEAR INCOME/HOUSEHOLD CHANGE INCOME/HOUSEHOLD CHANGE --------------------------------------------------------------------------- 1988 $56,955 $57,848 1993 $58,389 2.5% $59,652 3.1% 1998 $64,676 10.8% $67,843 13.7% HISTORICAL 1999 $65,439 1.2% $68,386 0.8% 2000 $67,249 2.8% $68,920 0.8% 2001 $67,803 0.8% $70,462 2.2% 2002 $68,025 0.3% $70,605 0.2% CURRENT 2003 $69,929 2.8% $72,377 2.5% 2004 $71,656 2.5% $74,083 2.4% 2005 $73,373 2.4% $75,772 2.3% 2006 $74,814 2.0% $77,182 1.9% 2007 $76,195 1.8% $78,531 1.7% PROJECTED 2008 $77,410 1.6% $79,707 1.5% 2013 $83,497 7.9% $85,605 7.4% 2018 $88,211 5.6% $90,118 5.3%
AVERAGE ANNUAL HISTORICAL COMPOUND GROWTH Past 5 years 1.57% 1.30% Past 15 years 1.38% 1.50% PROJECTED Next 5 years 2.05% 1.95% Next 15 years 1.56% 1.47%
Source: NPA Data Services, Inc.; compiled by IRR CONCLUSION Overall, the economic outlook for Summit County is positive. Total population is projected to increase slightly. More importantly, the area is projected to experience increasing employment growth. Based on this analysis, it is anticipated that Summit County will continue to grow and prosper. The expected growth should provide an economic base that supports demand for real estate in the subject neighborhood and for the subject property. These conditions should stimulate increases in general property values within the foreseeable future. [IRR LOGO] PAGE 14 HOLIDAY INN HUDSON ECONOMIC ANALYSIS [MAP] [MAP] [IRR LOGO] PAGE 15 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MARKET AREA ANALYSIS BOUNDARIES The subject is in the suburban part of the city of Hudson. For purposes of this report, the neighborhood boundaries are best described as a 1, 3 and 5 mile ring surrounding the subject. A map highlighting these boundaries and identifying the location of the property follows this section. The neighborhood is primarily influenced by the Ohio Turnpike and IR 80. ACCESS Primary access to the neighborhood is from SR 8. Secondary access is from old Route 8 and other local roadways. Other major access routes within five miles include I-271, I-480 and 82, as well as I-303. The subject is between Akron and Cleveland, and proximate to the communities of Macedonia, Streetsboro, Cuyahoga Falls and Richfield, Ohio. Major redevelopment of the I-80 access ramps could result in a large impact on the subject beyond the 2011 planned construction. A copy of the proposed changes is shown following this section. Road access is average. EMPLOYMENT Primary employment centers in the neighborhood consist of various major employers previously cited. PUBLIC SERVICES Schools, fire and police protection are all considered average for the neighborhood. LAND USE Neighborhood land uses include a mix of commercial, business and residential. Other land use characteristics are summarized in the following outline format. [IRR LOGO] PAGE 16 HOLIDAY INN HUDSON MARKET AREA ANALYSIS PREDOMINANT AGE OF IMPROVEMENTS 30 years PREDOMINANT QUALITY AND CONDITION Average APPROXIMATE PERCENT DEVELOPED 30% LIFE CYCLE STAGE Stability INFRASTRUCTURE/PLANNING Average PREDOMINANT LOCATION OF UNDEVELOPED LAND North PREVAILING DIRECTION OF GROWTH North
SUBJECT'S IMMEDIATE SURROUNDING LAND USE NORTH Boston Hills Country Club SOUTH I-80 & Boston Heights EAST Old vacant hotel WEST Boston Hills Country Club DEMOGRAPHIC FACTORS In order to assess the dynamics of the immediate environment, we have prepared a ring study using Claritas demographic site reports. Projections for the near term future are also offered. The 1 mile ring conclusions are presented following this section. TRENDS During the last ten years, the subject's neighborhood has shown population and household growth in the 1, 3 and 5 mile rings. DEVELOPMENT ACTIVITY During the last five years, the subject's neighborhood has had little new development, limited to a Comfort Inn to the north. Projected development, or development in progress includes potential rerouting of access to the turnpike. DEMAND GENERATORS The following generates lodging demand in the area and neighborhood: - Kent State University - Ditec - First Energy - Cuyahoga Valley National Park - SBC - Chrysler - Matco Tools - Hale Farm and Village - Alltel - Six Flags - Bank One - Kings Medical - Akron University - All State [IRR LOGO] PAGE 17 HOLIDAY INN HUDSON MARKET AREA ANALYSIS OUTLOOK AND CONCLUSIONS The neighborhood is in the stability stage of its life cycle. Recent development activity has been minimal. Expected trends are positive. Given the history of the neighborhood and the growth trends, it is our opinion that the values in the subject neighborhood are expected to remain stable to increase in the near future. [MARKET AREA MAP] [IRR LOGO] PAGE 18 HOLIDAY INN HUDSON MARKET AREA ANALYSIS [ONE, THREE, AND FIVE MILE RADIUS MAP] [IRR LOGO] PAGE 19 HOLIDAY INN HUDSON MARKET AREA ANALYSIS POP-FACTS: DEMOGRAPHIC QUICK FACTS
1 Ml 3 Ml 5 Ml DESCRIPTION RADIUS PCT. RADIUS PCT. RADIUS PCT. POPULATION 2008 Projection 4,467 24,824 57,712 2003 Estimate 4,118 23,382 53,683 2000 Census 3,896 22,484 51,162 1990 Census 2,715 17,182 40,243 Growth 1990 - 2000 43.50% 30.86% 27.13% HOUSEHOLDS 2008 Projection 1,644 8,260 21,491 2003 Estimate 1,519 7,748 19,603 2000 Census 1,439 7,431 18,463 1990 Census 976 5,558 13,742 Growth 1990 - 2000 47.44% 33.70% 34.35% 2003 EST. POPULATION BY SINGLE CLASSIFICATION RACE 4,118 23,382 53,683 White Alone 3,934 95.53% 21,868 93.52% 49,168 91.59% Black or African American Alone 55 1.34% 589 2.52% 2,441 4.55% American Indian and Alaska Native Alone 7 0.17% 26 0.11% 60 0.11% Asian Alone 79 1.92% 665 2.84% 1,348 2.51% Native Hawaiian and Other Pacific Islander Alone 0.00% 1 0.00% 2 0.00% Some Other Race Alone 14 0.34% 47 0.20% 126 0.23% Two or More Races 29 0.70% 186 0.80% 539 1.00% 2003 EST. POPULATION HISPANIC OR LATINO 4,118 23,382 53,683 Hispanic or Latino 29 0.70% 199 0.85% 486 0.91% Not Hispanic or Latino 4,089 99.30% 23,183 99.15% 53,196 99.09% 2003 TENURE OF OCCUPIED HOUSING UNITS* 1,519 7,748 19,603 Owner Occupied 1,202 79.13% 6,966 89.91% 15,567 79.41% Renter Occupied 318 20.93% 782 10.09% 4,035 20.58% 2003 AVERAGE HOUSEHOLD SIZE 2.64 2.98 2.71 2003 EST. HOUSEHOLDS BY HOUSEHOLD INCOME 1,519 7,748 19,603 Income Less than $15,000 40 2.63% 221 2.85% 879 4.48% Income $15,000 - $24,999 56 3.69% 220 2.84% 1,002 5.11% Income $25,000 - $34,999 81 5.33% 261 3.37% 1,113 5.68% Income $35,000 - $49,999 159 10.47% 554 7.15% 2,298 11.72% Income $50,000 - $74,999 224 14.75% 1,014 13.09% 3,836 19.57% Income $75,000 - $99,999 170 11.19% 1,078 13.91% 3,227 16.46% Income $100,000 - $149,999 320 21.07% 1,820 23.49% 3,749 19.12% Income $150,000 - $249,999 266 17.51% 1,546 19.95% 2,253 11.49% Income $250,000 - $499,999 134 8.82% 653 8.43% 814 4.15% Income $500,000 and over 69 4.54% 381 4.92% 431 2.20% 2003 EST. AVERAGE HOUSEHOLD INCOME $ 141,620 $ 148,793 $ 106,701 2003 EST. MEDIAN HOUSEHOLD INCOME $ 104,673 $ 114,456 $ 80,216 2003 EST. PER CAPITA INCOME $ 52,370 $ 49,273 $ 38,968
*In contrast to Claritas Demographic Estimates, "smoothed" data items are Census 2000 tables made consistent with current year estimated and 5 year projected base counts. (C)2003 CLARITAS INC. All rights reserved. [IRR LOGO] PAGE 20 HOLIDAY INN HUDSON MARKET AREA ANALYSIS LODGING MARKET ANALYSIS The strength of any market depends on supply and demand. The following analysis addresses national, regional and local investment trends. However, the primary concern is to discover the conditions affecting the subject's specific market area competitive set. Supply and demand in this submarket directly affects the subject's value. We have presented national, regional and state trends. This data frames the local market and competitive set performance and displays influential trends occurring in the lodging industry. Statistics compiled by Smith Travel Research for the US Lodging Industry are presented below. NATIONAL TRENDS U.S. LODGING INDUSTRY KEY STATISTICS
SUPPLY DEMAND % % GOP FIXED CHARGES % CHG % CHG OCCUPANCY % CHG ADR CHG REVPAR CHG (RTS) * (RTS) ------ ------ --------- ----- ------- ---- -------- ---- ------- ------------- 1992 0.8 2.1 62.6 1.3 $ 59.17 1.5 $ 37.06 2.8 29.5 25.6 1993 0.4 1.9 63.6 1.6 $ 60.79 2.7 $ 38.64 4.2 30.5 22.8 1994 1.2 3.1 64.7 1.7 $ 63.19 3.9 $ 40.91 5.9 36.2 24.0 1995 1.5 2.1 65.1 0.6 $ 66.22 4.8 $ 43.10 5.4 37.0 20.1 1996 2.4 2.32 64.9 -0.3 $ 70.53 6.5 $ 45.81 6.3 38.2 17.6 1997 3.6 2.8 64.4 -0.8 $ 74.71 5.9 $ 48.13 5.1 40.3 15.8 1998 4.2 3.1 63.8 -0.9 $ 78.17 4.6 $ 49.86 3.6 40.2 13.5 1999 4.1 3.0 63.2 -1.1 $ 81.29 4.0 $ 51.33 2.9 39.2 13.9 2000 3.1 3.7 63.5 0.6 $ 85.24 4.9 $ 54.15 5.5 40.9 13.5 2001 2.4 -3.4 59.8 -5.7 $ 84.45 -1.3 $ 50.49 -6.9 37.0 17.7 2002 1.8 .8 59.2 -1.0 $ 83.15 -1.5 $ 49.24 -2.5 N/A N/A
* GROSS OPERATING PROFIT RATIO TO SALES SOURCE: (C) 2002 Smith Travel Research Positive factors between 1996 and 1999 formed an environment in which significant new hotel supply was developed, and in many cases is completing its way through the pipeline. The forces impacting the expansion cycle of lodging assets which dominated the market between 1996 and 1999 included: - Improved hotel performance - Financing availability at low interest rates - Demand from real estate investment trusts - Growing economic trends - Expansion of major franchise affiliations During this time feasibility of many new projects had been indicated for the first time in many years. This meant that product could be designed, built and stabilized at a cost less than its value. Participants and Analysts became concerned in 2000 that an oversupply of new product was being added. As a result, financing became more restrictive and the pipeline began to slow. [IRR LOGO] PAGE 21 HOLIDAY INN HUDSON MARKET AREA ANALYSIS The room demand for hotels is measured by room nights sold (RNS). Demand grew in excess of supply between 1992 and 1995. Supply (Room Nights Available) increased faster than demand between 1996 and 2001 (except for a slight increase in 2000), resulting in occupancy decreases. Rate growth continued through 2000, likely fueled by the healthy economy and new product, which generally can be sold for a higher room rate. Room rates declined in 2001 for the first time in the 10 year trend presented. The hotel real estate investment trusts showed poor performance subsequent to the late 1998 capital market disruption. This weakened the REIT purchase capabilities. Many in fact sold non-core assets to reposition themselves. Commercial mortgage backed securities experienced increased rate spreads and some lenders were unable or unwilling to honor rate commitments. These factors along with perceived overbuilding resulted in a more conservative posture among buyers, sellers, lenders and analysts. The recession and events of September 11 exacerbated these trends. Recovery of the lodging market has been delayed by: - Prolonged economic downturn - Uncertainty with regard to the war on terror - Continued terrorism fears - Financial market instability - Public mistrust of business leaders - Prolonged travel reductions These factors have resulted in a fundamental shift in the lodging market. The combination of the above factors has dampened the lodging industry's health. In Legg Mason's 1st Quarter 2003 Market Cycle Monitor, the hotel sector was judged to be at the beginning of Phase I (Recovery). Legg Mason states "hotel recovery slowed as business and leisure travel slowed; many hotels are still not at break even occupancy". In each region, where occupancies decreased supply increased faster than demand, room revenue continued to show healthy growth. [IRR LOGO] PAGE 22 HOLIDAY INN HUDSON MARKET AREA ANALYSIS [PICTURE] SOURCE: Legg Mason Equity Research Real Estate Market Cycle Monitor The future of the lodging industry is understandably the topic of much study. PricewaterhouseCoopers has forecast the following lodging performance.
TABLE 1: PRICEWATERHOUSECOOPERS U.S. LODGING FORECAST, JUNE 2003 ANNUAL FIGURES ---------------------------------------- --------------------------------------------------------- 2000 2001 2002 2003 2004 2005 ------- ------- ------- ------- ------- ------- OCCUPANCY (PERCENT) 63.4 59.7 59.2 59.1 60.7 61.6 PERCENTAGE CHANGE FROM PRIOR YEAR 0.6 -5.7 -0.9 -0.1 2.7 1.4 PCT. POINT DIFFERENCE FROM PRIOR YEAR 0.4 -3.6 -0.5 0.0 1.6 0.9 AVERAGE DAILY RATE ($) $ 85.79 $ 85.00 $ 83.71 $ 83.46 $ 84.94 $ 87.30 PERCENTAGE CHANGE FROM PRIOR YEAR 5.5 -0.9 -1.5 -0.3 1.8 2.8 ANNUAL REVPAR ($, SEAS. ADJ.) $19,840 $18,533 $18,079 $18,010 $18,822 $19,619 PERCENTAGE CHANGE FROM PRIOR YEAR 6.2 -6.6 -.2.4 -0.4 4.5 4.2 INFLATION AS MEASURED BY CPI 3.4 2.8 1.6 2.6 1.7 2.4 REAL GDP, PERCENT CHANGE FROM PRIOR YEAR 3.8 0.3 2.4 2.4 3.8 3.6 AVERAGE DAILY ROOMS SOLD (000S) 2,644 2,551 2,570 2,603 2,705 2,781 PERCENTAGE CHANGE FROM PRIOR YEAR 3.4 -3.5 0.8 1.3 3.9 2.8
Sources: PricewaterhouseCoopers LLP (2003 to 2005) [IRR LOGO] PAGE 23 HOLIDAY INN HUDSON MARKET AREA ANALYSIS Recovery by 2004 is generally expected by lodging analysts. Of course, this may vary by segment and location. The next step in drilling down to the subject market is to study regional and state trends. REGIONAL & STATE TRENDS Regional trends show a generally comparable decline in occupancy as the national statistics. The following data reported by Smith Travel by region depicts this. OPERATING PERFORMANCE - DECEMBER 2002 YEAR TO DATE - DECEMBER 2002 VS. DECEMBER 2001
ROOM ROOM ROOM OCCUPANCY % ADR ($) REVPAR ($) REV AVAIL SOLD ---------------------- ------------------------ ------------------------ ------------------------ SEGMENT 2002 2001 % CHG 2002 2001 % CHG 2002 2001 % CHG % CHG % CHG % CHG ----------------- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ UNITED STATES 59.2 59.8 -1.0 83.15 84.45 -1.5 49.24 50.49 -2.5 -0.7 1.8 0.8 REGION NEW ENGLAND 60.0 61.2 -2.0 98.69 101.55 -2.8 59.20 62.19 -4.8 -2.3 2.7 0.6 MIDDLE ATLANTIC 63.4 63.7 -0.5 109.44 111.55 -1.9 69.44 71.02 -2.2 -0.4 1.9 1.5 SOUTH ATLANTIC 59.1 59.4 -0.5 81.05 81.63 -0.7 47.86 48.50 -1.3 0.4 1.8 1.2 E N CENTRAL 54.8 55.3 -0.9 75.04 75.94 -1.2 41.10 41.97 -2.1 -0.2 2.0 1.0 E S CENTRAL 55.9 54.9 1.8 61.19 60.24 1.6 34.21 33.07 3.4 4.6 1.1 3.0 W N CENTRAL 56.0 56.4 -0.7 65.22 64.78 0.7 36.56 36.54 0.1 1.6 1.5 0.9 W S CENTRAL 57.4 58.7 -2.2 71.07 71.08 -0.1 40.72 41.74 -2.4 -0.1 2.4 0.0 MOUNTAIN 61.2 61.8 -1.0 82.51 83.78 -1.5 50.47 51.80 -2.6 -1.7 0.9 -0.2 PACIFIC 62.9 64.0 -1.7 96.15 100.09 -3.9 60.53 64.03 -5.5 -3.6 2.0 0.3 PRICE LUXURY 65.8 65.6 0.3 137.85 143.32 -3.8 90.73 94.06 -3.5 -1.5 2.1 2.4 UPSCALE 61.7 61.7 0.0 91.05 93.18 -2.3 56.22 57.50 -2.2 0.3 2.6 2.6 MIDPRICE 57.2 58.1 -1.5 68.40 69.58 -1.7 39.13 40.44 -3.2 -0.9 2.4 0.8 ECONOMY 54.8 56.1 -2.3 54.11 54.26 -0.3 29.68 30.44 -2.5 -1.5 1.0 -1.2 BUDGET 56.1 58.0 -3.3 42.27 41.22 2.5 23.69 23.90 -0.9 -1.5 -0.6 -4.0
Source: Smith Travel Research, December 2002 Lodging Outlook YEAR TO DATE - MAY 2003 VS. MAY 2002
OCCUPANCY % ADR ($) REVPAR ($) PERCENT CHG FROM YTD 2002 ------------- --------------- --------------- ------------------------- ROOM ROOM ROOM SEGMENT 2003 2002 2003 2002 2003 2002 REV AVAIL SOLD ----------------- ---- ------ ------ ------ ------ ------ ------- ------ ------- UNITED STATES 56.7 57.8 83.92 84.63 47.59 48.88 -1.2 1.5 -0.3 NEW ENGLAND 52.0 54.1 91.76 94.01 47.70 50.83 -3.7 2.6 -1.3 MIDDLE ATLANTIC 56.9 59.0 102.88 106.81 58.56 63.03 -5.3 1.9 -1.7 SOUTH ATLANTIC 59.6 60.6 85.53 85.44 51.01 51.81 -0.3 1.3 -0.4 E N CENTRAL 49.9 50.5 72.76 72.75 36.30 36.71 0.5 1.7 0.5 E S CENTRAL 55.1 53.7 60.94 59.70 33.58 32.09 5.6 0.9 3.4 W N CENTRAL 49.3 50.9 63.66 63.52 31.41 32.31 -1.4 1.4 -1.7 W S CENTRAL 56.5 58.6 71.60 73.08 40.44 42.82 -3.9 1.7 -2.0 MOUNTAIN 60.1 61.0 89.81 90.69 54.01 55.29 -1.2 1.2 -0.2 PACIFIC 60.1 60.9 96.30 96.76 57.84 58.92 -0.1 1.7 0.3 PRICE LUXURY 65.1 66.1 144.55 147.48 94.15 97.52 -1.0 2.5 1.0 UPSCALE 59.0 60.1 90.83 92.24 53.55 55.43 -0.8 2.7 0.7 MIDPRICE 54.3 55.5 67.47 68.14 36.66 37.84 -1.8 1.3 -0.8 ECONOMY 51.2 52.5 51.97 52.03 26.62 27.33 -2.4 0.2 -2.2 BUDGET 53.5 54.6 40.48 40.24 21.66 21.98 -1.5 -0.1 -2.1
[IRR LOGO] PAGE 24 HOLIDAY INN HUDSON MARKET AREA ANALYSIS State performance is shown below. OHIO HOTEL & LODGING DECEMBER 2002 COMPARED WITH DECEMBER 2001 OPERATING PERFORMANCE - DECEMBER
OCCUPANCY % AVERAGE ROOM RATE REVPAR REVENUE SUPPLY DEMAND --------------------- --------------------- --------------------- ------------------------- SEGMENT 2002 2001 % CHG 2002 2001 % CHG 2002 2001 % CHG % CHG % CHG % CHG --------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------- ------ ------ United States 59.2 59.8 -1 83.15 84.45 -1.5 49.24 50.49 -2.5 -0.7 1.8 0.8 Ohio 53.2 53.3 -0.2 67.07 67.56 -0.7 35.71 35.99 -0.8 1.2 1.9 1.9 Cincinnati, Oh-Ky-In 51.7 50.1 3.2 68.43 69.77 -1.9 35.39 34.96 1.2 0.2 -1 2.2 Cleveland, Oh 55 57.4 -4.2 75.3 77.51 -2.9 41.41 44.47 -6.9 -3.9 3.2 -1.1 Columbus, Oh 56.9 58.6 -2.9 71.07 70.8 0.4 40.44 41.46 -2.5 2.9 5.5 2.5 Akron, Oh 54.4 52.9 2.8 64.91 66.69 -2.7 35.28 35.31 -0.1 0.3 0.4 3.1 Sandusky, Oh 40.9 38.2 7.1 76.32 75.64 0.9 31.25 28.92 8.1 9.6 1.4 8.6 Toledo, Oh 54.1 53.7 0.7 60.66 60.37 0.5 32.8 32.43 1.1 2.5 1.3 2 Youngstown-Warren, Oh 46.1 47.9 -3.8 58.45 59.11 -1.1 26.96 28.32 -4.8 -6.5 -1.8 -5.5 Ohio North Area 51.7 49.6 4.2 60.39 60 0.7 31.23 29.77 4.9 7 1.9 6.3 I-75 Corridor North 47 48.4 -2.9 55.44 55.21 0.4 26.04 26.73 -2.6 -3.4 -0.9 -3.8 Dayton Oh 55 56.8 -3.2 61.84 60.55 2.1 34 34.37 -1.1 0.4 1.5 -1.7 Springfield Oh 49.2 49.2 0 60.04 60.73 -1.1 29.54 29.89 -1.2 3 4.2 4.2
SOURCE: Smith Travel Research SMITH TRAVEL RESEARCH OHIO HOTEL & LODGING COMP CITIES CVB APRIL 2003 COMPARED WITH APRIL 2002 OPERATING PERFORMANCE - APRIL - YEAR TO DATE
OCCUPANCY AVERAGE ROOM RATE REVPAR REVENU SUPPLY DEMAND ------------------- --------------------- --------------------- ------------------------- SEGMENT 2003 2002 % CHG 2003 2002 % CHG 2003 2002 % CHG % CHG % CHG % CHG -------------------- ---- ---- ----- ----- ----- ----- ----- ----- ----- ------ ------ ------ United States 55.7 56.9 -2.1 84.31 85.07 -0.9 46.97 48.38 -2.9 -1.4 1.6 -0.5 Ohio 46.9 47.6 -1.5 65.15 64.79 0.6 30.54 30.85 -1.0 0.8 1.8 0.2 Cincinnati, Oh-Ky-In 48.1 47.4 1.5 66.79 66.18 0.9 32.12 31.34 2.5 1.2 -1.3 0.2 Cleveland, Oh 48.1 48.4 -0.6 71.00 73.52 -3.4 34.13 35.61 -4.2 -3.7 0.5 -0.3 Columbus, Oh 52.1 54.1 -3.7 71.32 69.98 1.9 37.14 37.85 -1.9 2.2 4.1 0.2 Akron, Oh 46.9 46.6 0.6 63.54 63.05 0.8 29.77 29.35 1.4 3.7 2.2 2.9 Sandusky, Oh 23.8 24.1 -1.2 52.79 53.24 -0.8 12.57 12.80 -1.8 -1.8 0.0 -1.0 Toledo, Oh 46.2 51.2 -9.8 60.46 60.49 0.0 27.91 31.00 -10.0 -8.1 2.0 -8.1 Youngstown- Warren, Oh 41.0 38.8 5.7 57.86 55.93 3.5 23.75 21.68 9.5 9.5 0.0 5.9 Ohio North Area 43.2 43.5 -0.7 57.11 56.07 1.9 24.69 24.37 1.3 4.3 2.9 2.4 I-75 Corridor North 41.0 42.1 -2.6 55.44 54.82 1.1 22.76 23.05 -1.3 -1.3 0.0 -2.4 Dayton Oh 50.9 50.6 0.6 62.93 61.57 2.2 32.02 31.16 2.8 6.2 3.3 3.9 Springfield Oh 45.9 46.4 -1.1 58.21 58.87 -1.1 26.72 27.34 -2.3 -1.9 0.4 -0.8
SOURCE: Smith Travel Research LOCAL TRENDS It is hoped by market participants that slowing room starts and demand recovery will enhance the occupancy rates for hotels beginning in mid to late 2003. New supply within the subject's market area is assessed by studying the Smith Travel Response Report for the market tract within which the subject is located. New supply in the [IRR LOGO] PAGE 25 HOLIDAY INN HUDSON MARKET AREA ANALYSIS subject tract has included hotels built between 1998 and 2003. These are summarized as follows. NEW SUPPLY 1998 - 2003
PROJECT ROOMS OPEN -------------------------------------- ----- ---- COUNTRY INN AND SUITES, MACEDONIA 54 2000 HILTON GARDEN, TWINSBURG 142 1999 COUNTRY INN AND SUITES, CUYAHOGA FALLS 79 1998 HAMPTON INN, KENT 80 1998 MICROTEL INN AND SUITES, STREETSBORO 100 1998 BEST WESTERN, STREETSBORO 66 1999 HOLIDAY INN EXPRESS, STREETSBORO 72 1999 TOWNEPLACE SUITES, STREETSBORO 72 2001 HAMPTON INN SUITES, STREETSBORO 90 1999 FAIRFIELD INN, STREETSBORO 83 1998 WINGATE INN, STREETSBORO 84 2000 HAMPTON INN, RICHFIELD 64 2003 ECONOLODGE, AKRON SOUTH 39 2000 HAMPTON INN, AKRON SOUTH 66 2002 FAIRFIELD INN, AKRON SOUTH 85 2002 BEST WESTERN INN SUITES, AKRON 52 1998 ----- TOTAL 1,228 -----
The previous chart shows a total of 16 hotels, or 1,228 rooms. The Census among the Akron tract was 5,138 in 1997. This grew to 6,366 rooms by 2003, indicating a 23.9% growth in supply in 5 years. Significant supply additions have resulted in declining occupancies. Declines have been exacerbated by the current economic conditions and the events of September 11. A 100 room Courtyard by Marriott off Route 8 has been rumored for some time. DEMAND ASSESSMENT Demand for hotel rooms can be categorized as: 1) "demonstrated demand", or that demand which can be quantified by examining occupancy levels at existing hotels; 2) "induced" demand, defined as that demand which does not currently seek accommodations in the market area but could be persuaded to do so through proper sales efforts, new demand generators or the availability of additional rooms supply or 3) "unsatisfied demand" is existing demand that cannot be satisfied within the immediate area due to full occupancy. Each source of demand is discussed as follows. [IRR LOGO] PAGE 26 HOLIDAY INN HUDSON MARKET AREA ANALYSIS DEMONSTRATED DEMAND Demand for hotels in any given area is measured by occupancy percentages, average daily rates and revenue per available room. Although these statistics vary between properties due to age, condition, location, franchise affiliation, marketing efforts and seasonality of the market area, a review of area occupancy levels and ADR's is useful in preparing an estimate of future market performance. In the case of the subject market, it is located in Summit County and is largely impacted by I-80 Ohio Turnpike traffic and feeder markets including Pittsburgh, Detroit, Columbus and Buffalo. We have identified several area hotels as primary competitors, and quantified their historical performance. Existing hotel demand growth was studied along with other demand factors such as population growth, household growth, employment growth, etc. for determination of an applicable demonstrated demand growth rate. INDUCED DEMAND Induced demand is defined as demand that does not now seek accommodations in the area but could be persuaded to purchase room nights through sales and marketing efforts, availability of appropriate facilities or the entry of some new demand generator. Induced demand has been generated in the subject area historically by the addition of the new franchise hotels, offering branded accommodations to travelers that previously had not stayed in the market. New demand generators can include industrial or business activity, new development or employer shifts. Potential sources of new demand could include new office development and the offering of the new Embassy Suites, a Hilton affiliated product. Some induced demand has been indicated in 2002 with a 6.6% increase in room nights sold. Demand is continuing to grow year to date April by 2.7% compared to same time period 2002. UNSATISFIED DEMAND Unsatisfied demand is defined as potential room nights previously lost in the market because of lack of available facilities. For example, if an event fills every hotel in the immediate market, any excess demand for that event will be distributed into secondary markets. In addition, regular transient traffic would be displaced. Currently demand among primary competitors is generally satisfied with year-end 2002 occupancy at 57%. No turn-away demand is considered to exist. No turn-away demand is projected. SEGMENTATION OF DEMAND Demand for hotel accommodations among the competitive hotels is comprised of the following market segments: Corporate demand is generated by the office, businesses, and commercial activity in the nearby area. This form of demand exhibits Monday to Thursday demand patterns and generally peaks on Tuesday and Wednesday nights. Major employers and area businesses generate both destination and transient commercial demand. [IRR LOGO] PAGE 27 HOLIDAY INN HUDSON MARKET AREA ANALYSIS Following is a list of top corporate accounts as of 2003. - Ameritech - Chrysler - Jo-Ann Stores - Alltel - Gabriel Brothers - Kings Medical - MKEPS - Matco Commercial demand generates 50% to 60% of room nights sold in the market area. Group demand is generated by corporate, commercial, or SMERF and association groups that either meet at the individual competitive hotels, or meet at company offices. While the length of stay varies depending on the type of group, it is typically two or three nights and can sometimes include a weekend night. Group demand can be generated by area citywides for both corporate and leisure markets. Group demand accounts for approximately 20% to 30% of RNS among the competitive set. Leisure demand occurs primarily on weekends and is comprised of individual travelers, families and social groups. In the summer transient demand also occurs during the week but is still strongest on the weekends. The stay is typically one night, however, certain social travelers stay two nights or more. In the subject area leisure demand would include: - Blossom Music Center - Football Hall of Fame - Six Flags - NEC Golf Tournament - Soap Box Derby The leisure segment accounts for approximately 20% to 30% of RNS among the competitive set Demand growth in the subject marketplace is impacted by several factors including the following. [IRR LOGO] PAGE 28 HOLIDAY INN HUDSON MARKET AREA ANALYSIS SOURCES OF DEMAND GROWTH GENERAL LODGING INDUSTRY TRENDS
TRAVEL INDUSTRY ASSOCIATION * 2000 2001 2002 2003f 2004f ----- ----- ----- ----- ----- Unemployment Rate (%) 4.0 4.8 5.8 5.9 5.7 Real GDP (%) 3.8 0.3 2.4 2.5 3.6 Consumer Price Index (CPI%) 3.4 2.8 1.6 2.3 1.6 Total Travel Expenditures in US (%) 7.1 -5.8 -2.3 2.9 5.8 US Residents 6.7 -4.9 -2.0 2.9 5.4 International Visitors 9.8 -11.2 -3.8 2.9 8.2 Total Domestic Person Trips (%) 1.0 2.0 0.3 1.9 3.2 Total International Visitors to the US (%) 4.9 -11.9 -6.7 0.7 6.6
SMITH TRAVEL 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- Supply Growth USA 2.4 3.6 4.2 4.1 3.1 2.4 1.8 Demand Growth USA 2.2 2.8 3.1 3.2 3.7 -3.4 0.8
LOCAL SOURCES GROWTH RATE ----------------------------------- ----------------------------------------------------------- Population Growth 4.3%/yr 1990 to 2000 (1 mile ring) Population Projections 1.6%/yr thru 2008 (1 mile ring) Household Growth 4.7%/yr 1990 to 2000 (1 mile ring) Projected Household Growth 1.6%/yr thru 2008 (1 mile ring) Traffic Volume Ohio Turnpike I-80 and SR- 8; 1995 TVC = 35,730 / 2001 TVC = 37,050 for a total increase of 3.7% or 0.6% annually. Demand Growth Among Competitive Set 29.5% total increase or 6% annually from 1997 to 2002 New Development Courtyard Hotel rumored I-80 ramp changes 2011 +/-
The previous causes of demand change have been capitalized on by significant additional new supply in the Cleveland and Akron area. Significant demand growth for hotels is not expected given economic conditions. However, highway related growth could occur due to expected auto travel. New supply has slowed, and occupancies should stabilize in the near future. The subject feeder markets include Pittsburgh and Chicago, Columbus and Michigan. The full service facility is a positive attribute for the subject. This is enhanced by the significant meeting space, which attracts group demand. Meetings and banquets as well as social gatherings are routine. [IRR LOGO] PAGE 29 HOLIDAY INN HUDSON MARKET AREA ANALYSIS PRIMARY COMPETITORS The primary hospitality competitors have been selected from the subject market as follows. PRIMARY COMPETITORS
ID# PROPERTY AGE # RMS --- ------------------------------- ---- ----- 1 Country Inn & Suites 2000 54 2 Baymont Inns & Suites 1997 86 3 Garden Inn Twinsburg 1999 142 4 Sheraton hotel Suites 1990 209 5 Fairfield Inn 1998 83 6 Holiday Inn Express & Suites 1999 72 7 Hampton Inn Suites 1999 90 8 Wingate Inn 2000 84 9 Comfort Inn 1989 79 10 Comfort Inn 1989 132 11 Best Western Inn & Suites 1998 52 12 Radisson Hotel 1989 128 13 Hampton Inn 1996 64 14 Courtyard Akron 1996 78 15 Holiday Inn Akron 1974 166 16 Four Points Akron West 1998 91 17 Hilton Akron 1970 203 18 HOLIDAY INN CLEVELAND HUDSON 1967 288 19 Comfort Inn Boston Hts. 1997 58 20 Holiday Inn Cleveland Richfield 1966 217 21 Best Western Streetsboro 1999 66 22 Hampton Inn Richfield 2003 64 ----- TOTALS 2,506 =====
Primary competitors total 2,506 rooms. Primary competitors were interviewed, photographed and ranked on our lodging fundamentals rating scale. Based on the score of each property, we have determined the competitive position in the market of the lodging alternatives including the subject property. Following is a summary of primary competitors. [IRR LOGO] PAGE 30 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #1 TYPE: Limited Service PROPERTY: COUNTRY INN & SUITES LOCATION: 7820 Capital Blvd., Macedonia, Ohio 44056 Phone: 330-908-1700 Age: 2000 Renovation Plans: NA # Guest Rooms: 54 #Suites: Yes # Function Rooms: 2 Amenities: Indoor pool, complementary breakfast, Direct TV RATES: RACK: Single: $ 109 Double: X Person: Segmentation: Commercial N/A Group Stay N/A Leisure N/A Extended Stay N/A [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation:(1) 20 20 Age, Condition & Perceived Cleanliness: 10 9 Exposure:(2) 10 8 Access:(3) 10 7 Convenience to Support Services: 10 7 Location:(4) 10 8 Convenience to Demand Generators: 10 8 Security:(5) 10 8 Amenities:(6) 10 7 TOTAL 100 82
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE,INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT,LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 31 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #2 TYPE: Limited Service PROPERTY: BAYMONT INN & SUITES 268 E. Highland Road, LOCATION: Macedonia, Ohio 44056 Phone: 330-468-5400 Age: May 1997 Renovation Plans: # Guest Rooms: 86 #Suites: Yes # Function Rooms: No Amenities: Complementary breakfast, Jacuzzi, coffee maker, hair dryer, indoor pool RATES: RACK: Single: $ 104.99 Double: $ 99.99 X Person: Segmentation: Commercial N/A Group Stay N/A Leisure N/A Extended Stay N/A [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation:(1) 20 15 Age, Condition & Perceived Cleanliness: 10 8 Exposure:(2) 10 8 Access:(3) 10 8 Convenience to Support Services: 10 8 Location:(4) 10 8 Convenience to Demand Generators: 10 8 Security:(5) 10 8 Amenities:(6) 10 8 TOTAL 100 79
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 32 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #3 TYPE: Limited Service PROPERTY: HILTON GARDEN INN LOCATION: 8971 Wilcox Drive, Twinsburg, Ohio 44087 Phone: (330) 405-4488 Age: 1999 Renovation Plans: No # Guest Rooms: 142 #Suites: # Function Rooms: 5-6, ballroom Amenities: Breakfast, indoor pool, lobby bar (comp.), whirlpool, business center RATES: RACK: Single: $ 119 Double: X Person: Segmentation: Commercial 50% Group Stay 20% Leisure 30% Extended Stay [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation:(1) 20 20 Age, Condition & Perceived Cleanliness: 10 9 Exposure:(2) 10 9 Access:(3) 10 8 Convenience to Support Services: 10 8 Location:(4) 10 8 Convenience to Demand Generators: 10 8 Security:(5) 10 9 Amenities:(6) 10 9 TOTAL 100 88
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 33 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #4 TYPE: Full Service PROPERTY: SHERATON HOTEL & SUITES LOCATION: 1989 Front Street, Cuyahoga Falls, Ohio Phone: 330-929-3000 Age: Jan 1990 Renovation Plans: $2 mil for interiors last year # Guest Rooms: 209 #Suites: All # Function Rooms: 5,000 SF, 12 breakout rooms Amenities: Restaurant, lounge, indoor pool, exercise room, gift shop RATES: RACK: Single: $ 199 Double: X Person: $ 20 Segmentation: Commercial 40% Group Stay 40% Leisure 20% Extended Stay [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation:(1) 20 16 Age, Condition & Perceived Cleanliness: 10 9 Exposure:(2) 10 9 Access:(3) 10 8 Convenience to Support Services: 10 8 Location:(4) 10 7 Convenience to Demand Generators: 10 9 Security:(5) 10 8 Amenities:(6) 10 9 TOTAL 100 83
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SUREY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 34 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #5 TYPE: Ltd. Service PROPERTY: FAIRFIELD INN, STREETSBORO LOCATION: 9783 SR-14 @ I-80 Exit 13, Streetsboro, Ohio Phone: (330) 422-1166 Age: 1998 Renovation Plans: None # Guest Rooms: 83 #Suites: 20 (included above) # Function Rooms: 2, total 2,900 SF Amenities: Indoor pool, continental breakfast, meeting space, satellite TV, exercise room RATES: RACK: Single: $ 119.00 Double: $ 99.00 X Person: 3 person rate Segmentation: Commercial N/A Group Stay N/A Leisure N/A Extended Stay N/A [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: 20 15 Age, Condition & Perceived Cleanliness: 10 10 Exposure:(1) 10 10 Access:(2) 10 8 Convenience to Support Services: 10 9 Location:(3) 10 9 Convenience to Demand Generators: 10 8 Security:(4) 10 9 Amenities:(5) 10 9 TOTAL 100 87
1) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 2) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 3) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 4) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 5) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 35 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #6 TYPE: Ltd. Service PROPERTY: HOLIDAY INN EXPRESS & SUITES LOCATION: 9459 SR-14 @ I-80 SR 14 Exit 13, Streetsboro, Ohio Phone: (330) 422-1888 Age: 1999 Renovation Plans: None # Guest Rooms: 72 #Suites: 18 # Function Rooms: Amenities: Hi speed internet, indoor pool, continental breakfast, exercise facility, cable TV RATES: RACK: Single: $ 119.00 Double: X Person: Flat Segmentation: Commercial N/A Group Stay N/A Leisure N/A Extended Stay N/A [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: 20 17 Age, Condition & Perceived Cleanliness: 10 10 Exposure: (1) 10 8 Access: (2) 10 8 Convenience to Support Services: 10 9 Location: (3) 10 9 Convenience to Demand Generators: 10 8 Security: (4) 10 8 Amenities: (5) 10 9 TOTAL 100 86
1) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 2) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 3) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 4) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 5) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 36 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #7 TYPE: Ltd. Service PROPERTY: HAMPTON INN & SUITES LOCATION: 800 Mondial Parkway @ I- 80 & SR 14 exit 13, Streetsboro, Ohio Phone: (330) 422-0500 Age: 1999 Renovation Plans: None # Guest Rooms: 90 #Suites: 27 # Function Rooms: Meeting space for small functions Amenities: Indoor pool, continental breakfast, cable TV, exercise room RATES: RACK: Single: $110.00 Double: X Person: Flat up to 4 persons Segmentation: Commercial N/A Group Stay N/A Leisure N/A Extended Stay N/A [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: 20 19 Age, Condition & Perceived Cleanliness: 10 10 Exposure: (1) 10 9 Access: (2) 10 8 Convenience to Support Services: 10 9 Location: (3) 10 9 Convenience to Demand Generators: 10 8 Security: (4) 10 9 Amenities: (5) 10 9 TOTAL 100 90
1) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 2) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 3) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 4) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 5) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 37 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #8 TYPE: Ltd. Service PROPERTY: WINGATE INN LOCATION: 9705 SR-14 @ I-80 SR 14 exit 13, Streetsboro, Ohio Phone: (330) 422-9900 Age: 2000 (opened August) Renovation Plans: None # Guest Rooms: 85 #Suites: 1 # Function Rooms: 3, 1,100 SF Amenities: Indoor pool, cable TV, HBO, continental breakfast, exercise center, business center RATES: RACK: Single: $ 109.00 Double: $ 119.00 X Person: $ 10 for 3rd person Segmentation: Commercial N/A Group Stay N/A Leisure N/A Extended Stay N/A [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: 20 15 Age, Condition & Perceived Cleanliness: 10 10 Exposure:(1) 10 10 Access:(2) 10 8 Convenience to Support Services: 10 9 Location:(3) 10 9 Convenience to Demand Generators: 10 8 Security:(4) 10 9 Amenities:(5) 10 9 TOTAL 100 87
1) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 2) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 3) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 4) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 5) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 38 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #9 TYPE: Ltd. Service PROPERTY: COMFORT INN LOCATION: 9789 SR-14 @ I-80 SR 14 Exit 13, Streetsboro, Ohio Phone: (330) 626-5511 Age: 1989 Renovation Plans: None # Guest Rooms: 79 #Suites: None # Function Rooms: 1 meeting room Amenities: Continental breakfast RATES: RACK: Single: $ 85.99 Double: $ 105.95 X Person: Flat up to 4 people Segmentation: Commercial N/A Group Stay N/A Leisure N/A Extended Stay N/A [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: 20 15 Age, Condition & Perceived Cleanliness: 10 7 Exposure:(1) 10 9 Access:(2) 10 7 Convenience to Support Services: 10 9 Location:(3) 10 9 Convenience to Demand Generators: 10 8 Security:(4) 10 8 Amenities:(5) 10 6 TOTAL 100 78
1) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 2) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 3) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 4) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 5) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 39 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #10 TYPE: Limited Service PROPERTY: COMFORT INN LOCATION: 130 Montrose Ave West, Akron, Ohio Phone: (330) 666-5050 Age: 1989 Renovation Plans: 2000 - 2001 # Guest Rooms: 132 #Suites: 52 Jacuzzi # Function Rooms: 1 max capacity 30 people Amenities: Indoor pool, continental breakfast, cable RATES: RACK: Single: $ 69.99 Double: $ 79.99 X Person: $ 10 Segmentation: Commercial 40% Group Stay Leisure 60% Extended Stay [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation:(1) 20 15 Age, Condition & Perceived Cleanliness: 10 8 Exposure:(2) 10 8 Access:(3) 10 8 Convenience to Support Services: 10 8 Location:(4) 10 8 Convenience to Demand Generators: 10 9 Security:(5) 10 7 Amenities:(6) 10 6 TOTAL 100 76
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 40 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #11 TYPE: Limited Service PROPERTY: BEST WESTERN INN & SUITES LOCATION: 160 Montrose Avenue, Akron, Ohio 43221 Phone: (330) 670-0888 Age: 1998 Renovation Plans: 0 # Guest Rooms: 52 #Suites: Yes # Function Rooms: 1 Amenities: Indoor pool, Jacuzzi suites, exercise room, local calls RATES: RACK: Single: $99.99 Double: $69.99 X Person: Segmentation: Commercial 40% Group Stay 30% Leisure 30% Extended Stay N/A [MAP] [PICTURE] Comments: LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 14 Age, Condition & Perceived Cleanliness: 10 9 Exposure: (2) 10 8 Access: (3) 10 8 Convenience to Support Services: 10 8 Location: (4) 10 8 Convenience to Demand Generators: 10 9 Security: (5) 10 8 Amenities: (6) 10 7 TOTAL 100 79
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC . 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 41 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #12 TYPE: Full Service PROPERTY: RADISSON HOTEL LOCATION: 200 Montrose Avenue W., Akron, Ohio Phone: (330) 666-9300 Age: 1989 Renovation Plans: 1998 # Guest Rooms: 128 #Suites: 4 # Function Rooms: 4 Amenities: Restaurant, lounge, indoor pool, exercise room, DSL internet RATES: RACK: Single: $149 Double: $160 X Person: Segmentation: Commercial 35% Group Stay 35% Leisure 30% Extended Stay % [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 13 Age, Condition & Perceived Cleanliness: 10 9 Exposure: (2) 10 7 Access: (3) 10 8 Convenience to Support Services: 10 8 Location: (4) 10 8 Convenience to Demand Generators: 10 9 Security: (5) 10 9 Amenities: (6) 10 7 TOTAL 100 78
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 42 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #13 TYPE: Limited Service PROPERTY: HAMPTON INN LOCATION: 80 Springside Drive, Akron, Ohio Phone: (330) 666-7361 Age: 1996 Renovation Plans: None # Guest Rooms: 64 #Suites: 0 # Function Rooms: 0 Amenities: Indoor pool, exercise room RATES: RACK: Single: $89.00 Double: $89.00 X Person: $6 Segmentation: Commercial 80% Group Stay 10% Leisure 10% Extended Stay % [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 19 Age, Condition & Perceived Cleanliness: 10 9 Exposure: (2) 10 9 Access: (3) 10 8 Convenience to Support Services: 10 9 Location: (4) 10 9 Convenience to Demand Generators: 10 8 Security: (5) 10 8 Amenities: (6) 10 7 TOTAL 100 86
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 43 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #14 TYPE: Full Service PROPERTY: COURTYARD BY MARRIOTT LOCATION: 100 Springside Drive, Akron, Ohio Phone: (330) 668-9090 Age: 1996 Renovation Plans: None # Guest Rooms: 78 #Suites: 3 # Function Rooms: 1 max capacity 40 people Amenities: Indoor pool, restaurant, exercise room RATES: RACK: Single: $99 Double: $99 X Person: $5 Segmentation: Commercial 70% Group Stay 10% Leisure 20% Extended Stay % [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 19 Age, Condition & Perceived Cleanliness: 10 9 Exposure: (2) 10 9 Access: (3) 10 8 Convenience to Support Services: 10 9 Location: (4) 10 9 Convenience to Demand Generators: 10 8 Security: (5) 10 8 Amenities: (6) 10 9 TOTAL 100 88
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 44 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #15 TYPE: Limited Service PROPERTY: HOLIDAY INN LOCATION: 4073 Medina Road, Akron, Ohio Phone: (330) 666-4131 Age: 1974 Renovation Plans: 1999 # Guest Rooms: 166 #Suites: 3 # Function Rooms: 8 rooms, 7,100 SF Amenities: Outdoor pool, restaurant, lounge, dataports RATES: RACK: Single: $109.00 Double: $109.00 X Person: Segmentation: Commercial 70% Group Stay 20% Leisure 10% Extended Stay [MAP] [PICTURE] Comments: Hyde Park Grill leased to operator who expended $1.5 million on renovation LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 17 Age, Condition & Perceived Cleanliness: 10 7 Exposure: (2) 10 10 Access: (3) 10 9 Convenience to Support Services: 10 9 Location: (4) 10 9 Convenience to Demand Generators: 10 8 Security: (5) 10 8 Amenities: (6) 10 8 TOTAL 100 85
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 45 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #16 TYPE: Full Service PROPERTY: FOUR POINTS SHERATON LOCATION: 3150 West Market Street, Akron, Ohio Phone: (330) 869-9000 Age: 1998 Renovation Plans: Completed in 1998 # Guest Rooms: 120 #Suites: 14 # Function Rooms: 7 max capacity 350 people, 7,500 SF Amenities: Indoor pool, restaurant, exercise room RATES: RACK: Single: $119.00 Double: $119.00 X Person: Segmentation: Commercial 40% Group Stay 30% Leisure 30% Extended Stay N/A [MAP] [PICTURE] Comments: Owner demolished 2 wings in one bldg and reconstructed 90 hotel units in 1998 LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 15 Age, Condition & Perceived Cleanliness: 10 10 Exposure: (2) 10 6 Access: (3) 10 6 Convenience to Support Services: 10 7 Location: (4) 10 8 Convenience to Demand Generators: 10 9 Security: (5) 10 8 Amenities: (6) 10 8 TOTAL 100 77
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 46 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #17 TYPE: Full Service PROPERTY: HILTON INN LOCATION: 3180 W. Market Street, Akron, Ohio Phone: (330) 867-5000 Age: 1970 Renovation Plans: 2000 # Guest Rooms: 203 #Suites: 30 # Function Rooms: 10 rooms with 14,000 SF Amenities: Indoor pool, restaurant, exercise facility RATES: RACK: Single: $169 Double: $169 X Person: Segmentation: Commercial 50% Group Stay 40% Leisure 10% Extended Stay [MAP] [PICTURE] Comments: Across from Akron Mall LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 15 Age, Condition & Perceived Cleanliness: 10 8 Exposure: (2) 10 6 Access: (3) 10 6 Convenience to Support Services: 10 7 Location: (4) 10 8 Convenience to Demand Generators: 10 9 Security: (5) 10 9 Amenities: (6) 10 9 TOTAL 100 77
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 47 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #18 TYPE: Full Service PROPERTY: HOLIDAY INN, HUDSON LOCATION: 240 Hines Hill Road, Hudson, Ohio 44236 Phone: (330) 653-9191 Age: 1967 Renovation Plans: Not recently # Guest Rooms: 288 #Suites: 2 # Function Rooms: 14 Amenities: Restaurant, lounge, indoor/ outdoor pool, fitness center RATES: RACK: Single: $129.00 Double: $129.00 X Person: Segmentation: Commercial 50% Group Stay 30% Leisure 20% Extended Stay % [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 17 Age, Condition & Perceived Cleanliness: 10 7 Exposure: (2) 10 8 Access: (3) 10 8 Convenience to Support Services: 10 8 Location: (4) 10 8 Convenience to Demand Generators: 10 7 Security: (5) 10 8 Amenities: (6) 10 8 TOTAL 100 79
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 48 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #19 TYPE: Limited Service PROPERTY: COMFORT INN LOCATION: 6731 Industrial Parkway, Boston Heights, Ohio 44236 Phone: (330) 650-2040 Age: 1997 Renovation Plans: # Guest Rooms: 58 #Suites: # Function Rooms: 0 Amenities: Indoor pool, deluxe continental breakfast, spa, fitness center RATES: RACK: Single: $79.99 Double: $89.99 X Person: Segmentation: Commercial Group Stay Leisure Extended Stay [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 15 Age, Condition & Perceived Cleanliness: 10 8 Exposure: (2) 10 8 Access: (3) 10 8 Convenience to Support Services: 10 7 Location: (4) 10 7 Convenience to Demand Generators: 10 7 Security: (5) 10 8 Amenities: (6) 10 7 TOTAL 100 75
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 49 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #20 TYPE: Full Service PROPERTY: HOLIDAY INN LOCATION: 4742 Brecksville Road, Richfield, Ohio 44286 Phone: (330) 659-6151 Age: 1965/79 Renovation Plans: Renovated 1997 # Guest Rooms: 217 #Suites: 1 # Function Rooms: Amenities: Holidome, indoor/outdoor pool, restaurant RATES: RACK: Single: $119.00 Double: $119.00 X Person: Segmentation: Commercial 30% Group Stay 36% Leisure 30% Extended Stay [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: (1) 20 17 Age, Condition & Perceived Cleanliness: 10 7 Exposure: (2) 10 6 Access: (3) 10 9 Convenience to Support Services: 10 6 Location: (4) 10 7 Convenience to Demand Generators: 10 7 Security: (5) 10 8 Amenities: (6) 10 10 TOTAL 100 77
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY 2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 50 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #21 TYPE: Ltd. Service PROPERTY: BEST WESTERN INN & SUITES 9172 Market Square Drive LOCATION: @ I-80 SR14 Exit 13, Streetsboro, Ohio Phone: (330) 422-6446 Age: 1999 Renovation Plans: None # Guest Rooms: 66 #Suites: # Function Rooms: 1 meeting rm, accommodates up to 25 Amenities: Indoor pool, sauna, exercise room, game room, cable TV, HBO, continental breakfast RATES: RACK: Single: $135.00 Double: $135.00 X Person: Segmentation: Commercial N/A Group Stay N/A Leisure N/A Extended Stay N/A [MAP] [PICTURE] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: 20 14 Age, Condition & Perceived Cleanliness: 10 10 Exposure: (1) 10 8 Access: (2) 10 8 Convenience to Support Services: 10 9 Location: (3) 10 9 Convenience to Demand Generators: 10 8 Security: (4) 10 9 Amenities: (5) 10 9 TOTAL 100 84
1) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 2) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 3) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 4) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 5) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 51 HOLIDAY INN HUDSON MARKET AREA ANALYSIS MOTEL SURVEY COMPARABLE #22 TYPE: Ltd. Service PROPERTY: HAMPTON INN LOCATION: 4860 Brecksville Rd. Richfield, Oh 44286 Phone: (330) 659-6662 Age: 2003 Renovation Plans: None # Guest Rooms: 64 #Suites: Yes # Function Rooms: Yes Amenities: Indoor pool, fitness facility, guest laundry, business center RATES: RACK: Single: $99.00 Double: $99.00 X Person: Segmentation: Commercial N/A Group Stay N/A Leisure N/A Extended Stay N/A [MAP] LODGING FUNDAMENTALS SCORECARD
MAX. SCORE PROPERTY SCORE ---------- -------------- Property Affiliation: 20 19 Age, Condition & Perceived Cleanliness: 10 10 Exposure: (1) 10 6 Access: (2) 10 8 Convenience to Support Services: 10 6 Location: (3) 10 7 Convenience to Demand Generators: 10 7 Security: (4) 10 8 Amenities: (5) 10 8 TOTAL 100 79
1) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC. 2) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC. 3) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC. 4) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC. 5) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC. [IRR LOGO] PAGE 52 HOLIDAY INN HUDSON MARKET AREA ANALYSIS Following is a ranking of primary competitors based on our scoring methodology. This helps to reveal fill patterns and customer preferences among the competitors. The properties scoring at the top are generally the most desirable, and therefore would be expected to earn in excess of their natural market share. Conversely, those near the bottom would likely earn below their market share. This scale cannot account for dissimilar management, administrative, or sales skill, but generally will denote the subject's relative position among its competitive set. RANKING SUMMARY OF PRIMARY COMPETITORS
RANK PROPERTY COMPARABLE # SCORE 1 Hampton Inn, Streetsboro 7 90 2 Hilton Garden Inn, Twinsburg 3 88 3 Courtyard, Akron 14 88 4 Wingate Inn, Streetsboro 8 87 5 Fairfield Inn, Streetsboro 5 87 6 Hampton Inn, Akron 13 86 7 Holiday Inn Express, Streetsboro 6 86 8 Holiday Inn, Akron 15 85 9 Best Western Inn, Streetsboro 21 84 10 Sheraton Hotel, Cuyahoga Falls 4 83 11 Country Inn and Suites, Macedonia 1 82 12 Hampton Inn, Richfield 22 79 13 HOLIDAY INN, HUDSON 18 79 14 Baymont Inn and Suites, Macedonia 2 79 15 Best Western Inn, Akron 11 79 16 Radisson Hotel, Akron 12 78 17 Comfort Inn, Streetsboro 9 78 18 Holiday Inn Richfield 20 77 19 Hilton Inn, Akron 17 77 20 Four Points Sheraton, Akron 16 77 21 Comfort Inn, Akron West 10 76 22 Comfort Inn, Boston Heights 19 75
The subject falls at 13 in the above list of 22 competitors. This property falls within the mid to low range of the set, indicating it should earn less than its natural market share. The subject's score reflects completion of anticipated repairs or renovations, if any. Market performance based on room nights sold among primary competitors is summarized in the following chart. Data on selected primary competitors was gathered by interviews of managers at these facilities along with data tracked by Smith Travel. Total aggregate supply and demand is summarized on the following chart. [IRR LOGO] PAGE 53 HOLIDAY INN HUDSON MARKET AREA ANALYSIS PERFORMANCE OF PRIMARY COMPETETORS
YEAR RNA CHG.% RNS CHG.% OCCUP.% CHG.% ADR CHG.% REVPAR CHG.% ---- --- ----- --- ----- ------- ----- --- ----- ------ ----- 1997 648,731 394,839 60.9% $ 73.40 $ 44.67 1998 711,132 9.6% 452,337 14.6% 63.6% 4.5% $ 76.37 4.0% $ 48.58 8.7% 1999 800,662 12.6% 487,226 7.7% 60.9% -4.3% $ 79.94 4.7% $ 48.65 0.1% 2000 867,691 8.4% 503,046 3.2% 58.0% -4.7% $ 81.82 2.4% $ 47.44 -2.5% 2001 901,915 3.9% 479,631 -4.7% 53.2% -8.3% $ 79.27 -3.1% $ 42.16 -11.1% 2002 897,478 -0.5% 511,169 6.6% 57.0% 7.1% $ 74.72 -5.7% $ 42.56 1.0% YTD4/02 296,520 144,673 48.8% $ 70.56 $ 34.43 YTD4/03 296,944 0.1% 148,556 2.7% 50.0% 2.5% $ 71.19 0.9% $ 35.62 3.5%
Significant demand growth has occurred since 1997, although it has not kept pace with supply growth over that time period. The significant amount of supply added in 1997 to 1999 is largely attributable to the Streetsboro market with a significant number of limited service hotels constructed to serve the Six Flags Sea World attraction. Demand actually exceeded supply growth in 1998. It, however, declined in 2001. This is due to the economic conditions currently experienced nationally along with the September 11 tragedy combined with decline in demand for Six Flags and Sea World due to the removal of Shamu and the Killer Whales exhibit. Reportedly a whale exhibit will be returning in the next few years. An improved marketing budget has been deployed to induce additional "drive to" demand for this attraction. We have compared the subject's performance with the performance of the primary competitors. The subject performance is shown as follows. SUBJECT HISTORIC PERFORMANCE
YEAR SUBJ. OCC. CHG.% SUBJ. ADR CHG.% SUBJ. RPAR CHG.% ---- ---------- ----- --------- ----- ---------- ----- 1999 56.70% $ 81.37 $ 46.14 2000 52.50% -7.4% $ 82.46 1.3% $ 43.29 -6.2% 2001 48.70% -7.2% $ 76.03 -7.8% $ 37.03 -14.5% 2002 48.40% -0.6% $ 69.54 -8.5% $ 33.66 -9.1% YTD4/02 38.00% $ 67.99 $ 25.84 YTD4/03 37.40% -1.6% $ 61.96 -8.9% $ 23.17 -10.3%
The subject has experienced declining occupancies over the past few years. This is largely due to increased competition, as supply grew faster than demand. Also, the economy and 2001 conditions affected all hotels. The subject ADR has decreased significantly in the last few years from $81.37 in 1999 to $69.54 in 2002 for a total of $11.83. The subject's ADR and occupancy has continued to decrease year to date April 2003. [IRR LOGO] PAGE 54 HOLIDAY INN HUDSON MARKET AREA ANALYSIS DEMAND GROWTH PROJECTIONS Historically, demand increased 29.5% or 6% annually among primary competitors in the marketplace between 1997 and 2002. Demand decreased in 2001 by 4.7% then rebounded in 2002 by 6.6%. This was likely caused by economic conditions as well as the events of September 11. Year to date April, demand is up slightly by 2.7%. This time period is insufficient to accurately determine a trend. However, we expect modest demand increase through the end of the year and in the near future. Expected summer travel should sustain demand growth. No new supply is expected in the next few years. There is a 85-100 room Courtyard rumored to be constructed off State Route 8 and Steels Corner Road. Due to inferior market conditions development during the projection period is unlikely. We have projected demand growth from all sources at 3% in 2003 and 4% in 2004 and 2005. NEW SUPPLY As discussed above, an 85 to 100 room Courtyard has been approved by Stow off State Route 8 and Steels Corner Road. This approval occurred one year ago, and the developer has delayed construction. We assume this project is not developed during our projection period. MARKET PENETRATION Market penetration is the relationship between the earned market share and the natural market share of properties competing in the marketplace. Natural market share is calculated based on room nights available of the individual property compared to room nights available for the market total. Earned market share is based on room nights sold for individual properties compared to total room nights sold in the marketplace. A penetration rate of above 100% indicates the individual property is earning more than its natural market share due to some perceived superior factor such as affiliation, age, room condition or quality, management expertise, special market segmentation, etc. Market penetration of less than 100% suggests that a property is earning less than its natural market share. Factors impacting poorly performing properties include improper affiliation, poor locational attributes, inferior management policies, older, dated or poor room condition, etc. Our competitive ranking scale shows the subject ranked at 13 out of a total of 22 competitors. Penetration, assuming competitive pricing, should fall near to below the natural market share of 100%. Market penetration and ADR are related. For instance in general, the lower the ADR the higher the occupancy level. The pricing of rooms can skew the penetration rate if an imbalance exists. For instance, an otherwise high scoring property (based on competitive ranking) can earn a low penetration rate if pricing is too high. A balance is typically sought by a specific property between penetration and yield. Historic subject penetration is summarized as follows. [IRR LOGO] PAGE 55 HOLIDAY INN HUDSON MARKET AREA ANALYSIS SUBJECT HISTORIC PENETRATION
YEAR SUBJ. OCC. CHG.% MKT. OCC. CHG.% PEN.% ---- ---------- ------ --------- ----- ----- 1999 56.70% 60.9% -4.3% 93.2% 2000 52.50% -7.4% 58.0% -4.7% 90.6% 2001 48.70% -7.2% 53.2% -8.3% 91.6% 2002 48.40% -0.6% 57.0% 7.1% 85.0% YTD4/02 38.00% 48.8% 77.9% YTD4/03 37.40% -1.6% 50.0% 2.5% 74.8%
The subject property shows declining penetration in 1999 and 2000. There was a slight rebound in the subject's penetration in 2001, up 1% form 2000. The subject's penetration as well as occupancy levels have declined in 2002 as well as year to date 2003. During the same time period the market showed a significant increase in occupancy. Despite this penetration decline, the presence of the MEPS contract should enhance the subject's ability to penetrate in the last three quarters of 2003. Further, we assume completion of any needed renovations to maintain the Holiday Inn affiliation. Our analysis projects 83% market penetration. Based on supply and demand changes along with the above penetration projections, the following occupancy is projected. SUBJECT OCCUPANCY PROJECTIONS
YEAR RNA CHG.% RNS CHG.% OCCUP.% CHG.% PENN. SUBJ. OCC CHG ---- --- ----- --- ----- ------- ----- ----- --------- --- 1999 800,662 12.6% 487,226 7.7% 60.9% -4.3% 93.2% 56.7% 2000 867,691 8.4% 503,046 3.2% 58.0% -4.7% 90.6% 52.5% -7.4% 2001 901,915 3.9% 479,631 -4.7% 53.2% -8.3% 91.6% 48.7% -7.2% 2002 897,478 -0.5% 511,169 6.6% 57.0% 7.1% 85.0% 48.4% -0.6% 2003 920,838 2.6% 526,504 3.0% 57.2% 0.4% 83.0% 47.5% -2.0% 2004 920,838 0.0% 547,564 4.0% 59.5% 4.0% 83.0% 49.4% 4.0% 2005 920,838 0.0% 569,467 4.0% 61.8% 4.0% 83.0% 51.3% 4.0%
Footnote: 2003 includes the 64 room Hampton Inn in Richfield The above analysis indicates that based on 83% subject penetration, occupancy in the range of 47% to 51% should be capable of being generated over the next few years. We have projected 3% demand growth in 2003 and 4% demand growth in 2004 and 2005. We have concluded to stabilized occupancy for the subject property at 48% in 2003. AVERAGE DAILY RATE The average daily rate yield is similar to the penetration rate in that it compares the subject's average daily rate to market averages. [IRR LOGO] PAGE 56 HOLIDAY INN HUDSON MARKET AREA ANALYSIS The average daily rate is obviously related to occupancy levels. Assuming market penetration of 83% a complementary rate posture is expected at the subject property. Historical average daily rate yield is summarized as follows. SUBJECT HISTORIC ADR YIELD
YEAR SUBJ. ADR CHG.% MKT. ADR CHG.% YIELD ---- --------- ----- -------- ----- ------ 1999 $ 81.37 $ 79.94 4.7% 101.8% 2000 $ 82.46 1.3% $ 81.82 2.4% 100.8% 2001 $ 76.03 -7.8% $ 79.27 -3.1% 95.9% 2002 $ 69.54 -8.5% $ 74.72 -5.7% 93.1% YTD4/02 $ 67.99 $ 70.56 96.4% YTD4/03 $ 61.96 -8.9% $ 71.19 0.9% 87.0%
The subject experienced decreasing rates in 2001 and 2002. From 1999 to 2002 the subject's ADR decreased $11.83. Year to date April shows the subject's ADR experienced a 8.9% decrease from the same time period in 2002. Rate yield decreased yearly from 1999 to 2002 from 101.8% to 93.1%. Rate yield year to date 2003 at 87% is shown compared to year to date 2002 at 96.4%. A stabilized ADR yield of 90% is projected in this analysis. Market rate has declined an average of 0.3% over the last five years. A decline in 2001 and 2002 occurred for a total of $7.10. Year to date 2003 market rate has increased nearly 1% from year to date 2002. In our opinion we project market rate will increase 1% in 2003 and 2% in 2004 and 2005. SUBJECT ADR YIELD PROJECTION
YEAR SUBJ. ADR CHG.% MKT. ADR CHG.% YIELD SUBJ. ADR CHG.% ---- --------- ----- -------- ----- ----- --------- ----- 1999 $ 81.37 $ 79.94 4.7% 101.8% $ 81.37 2000 $ 82.46 $ 81.82 2.4% 100.8% $ 82.46 1.3% 2001 $ 76.03 -7.8% $ 79.27 -3.1% 95.9% $ 76.03 -7.8% 2002 $ 69.54 -8.5% $ 74.72 -5.7% 93.1% $ 69.56 -8.5% 2003 $ 75.47 1.0% 90.0% $ 67.92 -2.4% 2004 $ 76.98 2.0% 90.0% $ 69.28 2.0% 2005 $ 78.52 2.0% 90.0% $ 70.67 2.0%
Based on the above projection, an ADR of $68 is appropriate for 2003. CONCLUSION Given the above analysis we have projected stabilized occupancy and rate at 48% and $68 for the subject property for ProForma 2003. This will be used in the Income Approach. [IRR LOGO] PAGE 57 HOLIDAY INN HUDSON PROPERTY ANALYSIS PROPERTY ANALYSIS DESCRIPTION AND ANALYSIS OF THE LAND The subject site is summarized in the following tables. The description is based on our inspection as well as information provided by Summit County. A copy of the site plan is presented following this section. PHYSICAL FEATURES LAND AREA Approximately 12.41 acres, or 540,580 square feet. CONFIGURATION (See site/plat plan following this section). TOPOGRAPHY Level at road grade DRAINAGE Adequate. FLOOD PLAIN COMMUNITY PANEL # 390749 0001A, effective February 18, 1981. FLOOD ZONE Zone X FLOOD INSURANCE Not typically required within this zone. ENVIRONMENTAL HAZARDS Environmental evaluation is beyond our scope of expertise. A qualified engineer should be consulted on this matter. No obvious hazardous materials or conditions were observed during our inspection. GROUND STABILITY We were not furnished a soil analysis to review but predicate that the soil's load bearing capacity is sufficient to support the existing structure. We did not observe any evidence to the contrary during our inspection of the property. STREETS, ACCESS, FRONTAGE
STREET HINES HILL ROAD SR 8 FRONTAGE 275+/-feet 1,100+/-feet PAVING Asphalt Asphalt CURBS/GUTTERS Yes Yes SIDEWALKS No No LANES 2 4 DIRECTION OF TRAFFIC East/west North/south CONDITION Average Good SIGNALS/TRAFFIC CONTROL At SR 8 At Hines Hill Road ACCESS 1 curb cut Limited access highway VISIBILITY Good Good
Access to and from I-80 may be changed in the future, based on the ODOT plan provided previously. The subject is reportedly in Phase II of the improvement which is not scheduled to begin until 2011. This of course could be delayed due to funding. [IRR LOGO] PAGE 58 HOLIDAY INN HUDSON PROPERTY ANALYSIS However the roadway access may be changed dramatically resulting in a service road along the west line. This could result in a major reconfiguration of lobby and check in areas. While this is not an immediate consideration, the buyer would likely be concerned with the impact on resale. We recommend a detailed engineering report from ODOT be acquired and studied by ownership. LEGAL ZONING DESIGNATION B-1, Retail Business District per the city of Boston Heights. City council has proposed amending the current zoning code. The subject would fall under the RB (retail business) classification. This classification permits larger operations of retail or hotels. PERMITTED USES Retail, hotel, office, general business, etc. Conditional uses include service stations, car washes, auto sales, taverns. CONFORMANCE Based on our discussion with the zoning official, the current use of the site constitutes a legally permissible use that conforms to the current zoning ordinance. EASEMENTS, ENCUMBRANCES, AND MORATORIA We were not provided a current title report to review and are not aware of any easements, encumbrances, or restrictions that would adversely affect the use of the site. A title search is recommended to determine whether any adverse conditions exist. We are not aware of any moratoria on development that would affect the property. ENCROACHMENTS We were not provided a survey. However, an inspection of the site revealed no apparent encroachment(s). UTILITIES
UTILITY PROVIDER WATER All public SEWER All public ELECTRICITY All public NATURAL GAS All public LOCAL TELEPHONE All public
SUMMARY OF LAND DESCRIPTION Overall, the physical characteristics of the subject site are suitable for the existing development. Most factors, including its topography, location, and accessibility, are positive attributes. The subject site is more than adequate for uses such as those permitted by zoning, including lodging use, and the available utilities adequately service the site. [IRR LOGO] PAGE 59 HOLIDAY INN HUDSON PROPERTY ANALYSIS Site plan [IRR LOGO] PAGE 60 HOLIDAY INN HUDSON PROPERTY ANALYSIS DESCRIPTION AND ANALYSIS OF THE IMPROVEMENTS The following description is based on our inspection of the property, a discussion with the manager, and a review of county property record cards. EXTERIOR DESCRIPTION NAME OF PROPERTY Holiday Inn Hudson GENERAL PROPERTY TYPE Lodging SPECIFIC PROPERTY USE Hotel SIZE GROSS BUILDING AREA(GBA) 189,115 square feet NUMBER OF ROOMS 288 FLOOR AREA RATIO .35 SOURCE OF SQUARE FOOTAGE INFORMATION Courthouse NUMBER OF BUILDINGS 3 STORIES 2 CONFIGURATION Irregular in shape FLOOR PLATE The first floor measures 136,213 square feet and features a lobby, 200 seat restaurant and lounge area, kitchen, general office, laundry room, indoor pool, outdoor pool, business center, meeting rooms, public restrooms, storage, and mechanical rooms. YEAR BUILT 1967 and 1976 ESTIMATED EFFECTIVE AGE 30 years ESTIMATED PHYSICAL LIFE 50 years (per Marshall Valuation Service) TYPE/QUALITY OF CONSTRUCTION Class C, masonry building, average quality (per Marshall Valuation Service) FOUNDATION Poured, reinforced concrete footings, slab on grade. STRUCTURAL FRAME Masonry EXTERIOR WALLS/WINDOWS Drivit over masonry insulated windows ROOF Rubber membrane, flat roof; the inspection of the subject and discussion with the GM indicated some leakage exists. Replace costs of about $800,000 are reported. SPECIAL FEATURES Indoor pool. The southern end of the site with the "500" and "600" series buildings is connected to an 18,000 SF training center that is owned by the subject. This center is leased to Ameritech.
[IRR LOGO] PAGE 61 HOLIDAY INN HUDSON PROPERTY ANALYSIS ROOM MIX
ROOM TYPE TOTAL NUMBER -------------------------------------------------------------------------------- STANDARD DOUBLE 149 KING 73 HANDICAP ROOMS 10 SUITES 2 KING LEISURE 54 TOTALS 288 Standard rooms measure approximately 12 square feet wide.
INTERIOR DESCRIPTIONS INTERIOR PARTITIONING A combination of drywall, masonry, and ceramic tile. Firewalls are per code. CEILING COVER Ceilings consist of a combination of drywall and suspended acoustical ceiling panels and sprayed concrete panel. WALL COVER Vinyl wall coverings and painted drywall with variations. FLOOR COVER Primarily commercial grade carpet in the general office, corridors, hotel rooms, meeting rooms, and restaurant. Tile floor in the bathrooms and lobby. LIGHTING A combination of suspended and recessed fluorescent and incandescent lighting. BATHROOM FIXTURES Bathrooms include a bathtub with showerhead, toilet, and vanity cabinet with a lay-in sink; fixtures are vitreous china. Solid surface vanity top, 8" ceramic flooring, fiberglass unit tub surround. BANQUET/MEETING The grand ballroom contains a total area of ROOMS 6,516 SF, divisible into 6 rooms. Four additional rooms (one divisible) are located in the conference area. Three smaller meeting rooms are in various locations. OTHER SPECIAL The subject has an indoor and outdoor swimming FEATURES pool, a whirlpool, and a fitness center. The hotel also has a business center and self-service guest laundry, tennis, basketball and volleyball courts are adjacent to the outdoor pool. The guest rooms feature specially designed work areas and coffee makers, irons/boards, and hair dryers. There is also a lounge area on the concierge level for 160 people. CONDITION Average to good
[IRR LOGO] PAGE 62 HOLIDAY INN HUDSON PROPERTY ANALYSIS EQUIPMENT AND MECHANICAL SYSTEMS HVAC HVAC in the guest rooms consist of through-the-wall electric units. Public space has roof mounted units. Several reportedly require replacement. ELECTRICAL 3 phase 4 wire 250 amp service PLUMBING Two domestic boilers, storage tank, copper supplies FIRE PROTECTION Water sprinkler fire protection system, public areas only; smoke detectors located throughout. ELEVATORS/STAIRWELLS No elevators. Adequate stair corridors SECURITY SYSTEM Card key systems for the individual rooms FURNITURE, FIXTURES Each room includes chairs, lamps, framed & EQUIPMENT prints, two double or king size beds, bureau, (FF&E) and nightstand. Additionally, each room includes a 25" color television with remote and housekeeping linens and blankets. Additional FF&E items include lobby area furniture and framed prints, and furniture and televisions in the restaurant/lounge area. CONDITION The appraisal inspection was limited to a visual examination of the building components. It is not possible to ascertain the integrity of concealed structural components of the serviceability of mechanical systems; inspections of this type are beyond the scope of the investigation required for this assignment. Mechanical systems are reportedly in average condition. Some roof mounted HVAC requires replacement.
SITE IMPROVEMENTS PARKING NUMBER OF SPACES Adequate SURFACE TYPE/CONDITION Asphalt, good condition, some capping required ADEQUACY The subject has adequate parking LANDSCAPING Average DRAINAGE AND RETENTION Adequate; storm sewer drainage systems allow site water to be collected and drained through surface drains located in the parking lot areas.
[IRR LOGO] PAGE 63 HOLIDAY INN HUDSON PROPERTY ANALYSIS IMPROVEMENTS ANALYSIS CONDITION The condition of the improvements is average to good. The property has been reasonably well maintained. After acquisition in 1998, the owner completed renovations which included new casegoods in all rooms, room carpet and all soft goods in 188 rooms, new vanities, bath floors, tub surrounds, public renovations and exterior renovations. The cost of this renovation is unknown. The most recent quality inspection occurred on April 22, 2003 and received its highest score in five years. The overall evaluation score was 94.45% and received a passing score. A copy of the summary report is in the Addendum. DEFERRED MAINTENANCE Condition of renovations and some replacements are likely necessary for franchise maintenance. The following list of items is used to determine an approximate As Is Value. Final costs of replacements or renovations is subject to a transfer PIP and contractor estimate. ITEM Vinyl & carpet conference room area's 10 HVAC units Paint pool deck Elliptical trainer 2 micro units in bar Tesa lock system decoders 30 rooms need carpet and drapery 115 rooms bedspreads 20 desk lamps Roof repair or replaced (estimated replacement costs at $800,000) The cost estimate of these items, subject to a contractor bid is $900,000. HISTORY OF MAINTENANCE The historic maintenance expenses reported to us are consistent with the expenses of comparable properties. QUALITY OF CONSTRUCTION The quality of construction is average. FUNCTIONAL UTILITY Our inspection did not reveal any significant items of functional obsolescence. ADA COMPLIANCE Unknown
[IRR LOGO] PAGE 64 HOLIDAY INN HUDSON PROPERTY ANALYSIS ENVIRONMENTAL We are neither considered experts nor competent to assess environmental issues. Upon physical inspection of the site and improvements, no indication "to the untrained eye" of environmental hazard was found. Unless stated otherwise, we assume no hazardous conditions exist on or near the subject. We recommend the client consider retaining an expert in this area. PRODUCT IMPROVEMENT PLAN The report is subject to a transfer PIP necessary to maintain Holiday Inn affiliation. [PICTURE] [IRR LOGO] PAGE 65 HOLIDAY INN HUDSON PROPERTY ANALYSIS [PICTURE] [IRR LOGO] PAGE 66 HOLIDAY INN HUDSON PROPERTY ANALYSIS REAL ESTATE TAX ANALYSIS Real estate tax assessments are a function of the Auditors Office on a county basis. The property is located in Summit County, Ohio. Real estate taxes in this state and this jurisdiction represent ad valorem taxes, meaning a tax applied in proportion to value. The real estate taxes for an individual property may be determined by dividing the assessed value for a property by $1,000, then multiplying the estimate by the composite rate. The composite rate is based on a tax rate determined by the local taxing district. The assessed values are based upon the current conversion assessment rate of 35% of assessor's market value. For reference purposes, the subject has been assigned a property tax identification numbers as follows: 13-00890, 13-00891, 13-00892. The combined current land, building, market and assessed values are summarized as follows:
TAX YEAR LAND IMPROVEMENTS FULL CASH VALUE ASSESSED VALUE ---------------------------------------------------------------------------------------------- 2002 $1,737,400 $9,493,300 $11,230,700 $6,418,720
Assessed value is 35% of true or market value determined by the County Auditor, indicating full cash value of the real estate only of $11,230,700. Real estate taxes are paid in semi-annual, equal installments due June and December. The tax rate in the subject's tax district, is $95.07. The effective tax rate after the reduction for commercial property is $65.369591 per $1,000. Taxes are paid a year in arrears. The 2002 taxes, payable 2003, are calculated at $231,256. A first half payment of $74,125.82 has been paid. There are no special assessments. The owner has appealed taxes based on a reduced market value as of January 1, 2002, utilizing a preliminary indication of $8,800,000. In Ohio a sale is the best evidence of value. This report assumed a sale occurs at approximately the appraised value. We further assume a successful tax appeal based on this sale. Taxes on a stabilized basis are calculated below. VALUE $8,800,000 LESS FF&E $ 800,000 ---------- TAXABLE $8,000,000 ASSESSED VALUE @ 35% $2,800,000 GROSS TAX AT $48.50/$1,000 $ 183,035 LESS ROLLBACK @ 10% (18,303) ---------- NET TAX $ 164,732
[IRR LOGO] PAGE 67 HOLIDAY INN HUDSON PROPERTY ANALYSIS PERSONAL PROPERTY TAXES Personal property taxes are also charged for lodging properties that maintain furniture, fixtures and equipment in their operation. Personal property required in the operation of the subject would include furniture, fixtures and equipment in rooms as well as office and food and beverage equipment. Actual personal property taxes in 2003 are $18,920 which first half of $9,460 has been paid. The total taxable value was $199,010. Listed value is $209,010, indicating True Value (depreciated) at $806,611, rounded at $800,000. Combined real estate and personal property tax are estimated at $183,652. [IRR LOGO] PAGE 68 HOLIDAY INN HUDSON PROPERTY ANALYSIS HIGHEST AND BEST USE ANALYSES PROCESS Before a property's value can be concluded, the highest and best use of the property must be determined for both the subject site as though vacant, and for the property as currently improved (if applicable). The highest and best use must be: - Legally permissible under the zoning laws and other restrictions that apply to the site. - Physically possible for the site. - Economically feasible. - Capable of producing the highest net return on investment (i.e. highest value) from among the possible, permissible, and economically feasible uses. AS THOUGH VACANT LEGALLY PERMISSIBLE Zoning codes, land use plans, easements, and private deed restrictions often restrict permitted uses. The site is zoned for business uses. Permitted uses include retail and hotel. Given prevailing land use patterns in the area, and recognizing the principle of conformity, only commercial use has been given further consideration in determining highest and best use of the site, as though vacant. PHYSICALLY POSSIBLE The physical characteristics of the site should reasonably accommodate any use that is not restricted by its size of 12.41 acres, or 540,580 square feet. If vacant, limited access SR 8 restricts accessibility. Big Box or high volume retail would be unlikely for this reason. Physical access may change with ODOT's access to I-80 changes scheduled to begin (subject phase) in 2011. FINANCIALLY FEASIBLE Based on the information discussed in the Lodging Market Analysis section of this report, there is currently a fairly low demand for hotel rooms. If vacant, new hotel development is unlikely. Additionally, the site size would accommodate a more mixed use type development. Most new hotels are built on much smaller sites. This would permit development of a hotel, or multiple hotels, restaurants, etc. Financial feasibility does not currently appear to exist. MAXIMALLY PRODUCTIVE Ultimate hotel or commercial use is the only use that meets the previous three tests. Accordingly, it is concluded to be maximally profitable, and the highest and best use of [IRR LOGO] PAGE 69 HOLIDAY INN HUDSON PROPERTY ANALYSIS the site, as though vacant. While immediate development is not considered feasible, a buyer may land bank the site for future lodging or commercial use. AS IMPROVED The subject site has been developed with a 2-story, full service, masonry-building hotel containing 288 rooms; the common area includes a restaurant known as Blossoms, Chasers Lounge, an indoor pool, outdoor pool, vending areas, and a total of 13,428 square feet of meeting space, and registration area. The improvements were constructed in 1967 and 1976; the gross building area is approximately 189,115 square feet. The existing use is the highest and best use of the site if it were vacant. Moreover, it produces a significant positive cash flow and this can reasonably be expected to continue. Accordingly, the existing use is concluded to be feasible. There are no alternative uses that could reasonably be expected to provide a higher present value than the current lodging use. The value produced by the existing improvements exceeds the value of the site, as if vacant. For these reasons, the existing use is concluded to be maximally productive, and the highest and best use of the property as improved. [IRR LOGO] PAGE 70 HOLIDAY INN HUDSON VALUATION ANALYSIS VALUATION ANALYSIS VALUATION METHODOLOGY The traditional methods of processing market data into a value indication include: - Cost Approach; - Sales Comparison Approach; and - Income Capitalization Approach. The cost approach assumes that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility. This approach is particularly applicable when the improvements being appraised are relatively new and represent the highest and best use of the land, or when the property has unique or specialized improvements for which there is little or no sales data from comparable properties. Given the age of the subject improvements, significant accrued depreciation has occurred. A Cost Approach is not considered to yield a reliable estimate of value. It has therefore not been processed. The sales comparison approach assumes that an informed purchaser would pay no more for a property than the cost of acquiring another existing property with the same utility. This approach is especially appropriate when an active market provides sufficient reliable data that can be verified from authoritative sources. The sales comparison approach is less reliable in an inactive market, or when estimating the value of properties for which no real comparable sales data is available. It is also questionable when sales data cannot be verified with principals to the transaction. The income capitalization approach reflects the market's perception of a relationship between a property's potential income and its market value, a relationship expressed as a capitalization rate. This approach converts the anticipated benefits (dollar income or amenities) to be derived from the ownership of property into a value indication through capitalization. This approach is widely applied when appraising income-producing properties. We have used two approaches to value (the Sales Comparison and Income Capitalization Approaches) in the preparation of this report. The reconciliation at the end of this appraisal report discusses the relative strengths and weaknesses of each approach. [IRR LOGO] PAGE 71 HOLIDAY INN HUDSON VALUATION ANALYSIS SALES COMPARISON APPROACH In the sales comparison approach to value, the following steps have been taken in estimating market value. - Research recent sales of comparable improved properties; - Select the most comparable sales and present the pertinent data on these sales; - Adjust the sales for differences in the various elements of comparison; and, - Summarize the analysis and conclude a value indication based upon the adjusted sale prices of the comparables. In performing the sales comparison approach, we surveyed sales activity for similar hotel properties in the area. Relying upon sales that occurred recently as the best indication of current investor attitudes and market behavior, we have selected seven improved sales as most comparable and as best indicators of value for the subject. The seven selected sales are summarized in a following table; the sale prices identified in the table have been adjusted for cash-equivalency, when appropriate. We have also included individual comparable data along with photographic exhibit and a location map. Pertinent data is summarized in the comparable sheet. Our adjustment process is based on revenue per available room (RevPar). RevPar accounts for occupancy and rate at each hotel and is a primary determinant of value for buyers and sellers in the marketplace. The RevPar of a hotel accounts for physical and economic factors. In analyzing the sales data, we have selected the price per guest unit as the unit of comparison. We have also considered a room revenue multiplier as a secondary analysis. Most buyers, sellers and brokers utilize price per room and room revenue multipliers when making an initial estimate of subject value. This is the unit of comparison most commonly quoted by brokers, sellers, and purchasers when discussing sales transactions and is considered the most relevant for the subject. [IRR LOGO] PAGE 72 HOLIDAY INN HUDSON VALUATION ANALYSIS SALE #1 NAME: HOLIDAY INN LOCATION: 615 East Front Street, Traverse City, Michigan GRANTOR: Bay Area Ltd. Castrop Wolfe GRANTEE: Development DATE OF SALE: June 20, 2001 TERMS: Cash to new mortgage VERIFICATION E. Belfrage to Buyer PROPERTY DATA AGE: 1970s NO. OF RMS: 179 [MAP] SALES PRICE: $14,700,000 + $400,000 = $15,100,000 ROOMS INCOME: $4,900,000 NET OPERATING INCOME: $1,7775,000 RATIOS OF COMPARISON PRICE/ROOMS: $84,358 ROOM REVENUE MULTIPLIER: 3.1 OVERALL RATE: 11.75% COMMENTS: PIP list for Holiday Inn was an additional $400,000. Guest rooms have electronic locks for optimum security. In room amenities include data ports. Income data is actual as of 2000. 1999 actual income was ADR: $93.47 occupancy of 75.74%, NOI of $1,571,844. Buyer expects 75% @ $100. [PICTURE] [IRR LOGO] PAGE 73 HOLIDAY INN HUDSON VALUATION ANALYSIS SALE #2 NAME: TRUEMAN CLUB HOTEL LOCATION: 900 E. Dublin Granville Rd. Columbus, OH GRANTOR: Red Roof Inn Inc. GRANTEE: Govind Hospitality DATE OF SALE: 8/8/2001 TERMS: Cash to seller VERIFICATION E. Belfrage to Buyer PROPERTY DATA AGE: 1973 NO. OF RMS: 182 [MAP] SALES PRICE: $4,000,000 + Renovation + Profit $2,500,000 = $6,500,000 ROOMS INCOME: $2,869,776 NET OPERATING INCOME: $800,000 est. RATIOS OF COMPARISON PRICE/ROOMS: $35,714 ROOM REVENUE MULTIPLIER: 2.3 OVERALL RATE: 12.3% COMMENTS: Buyer projects $72 at 60% occupancy for rooms department subsequent to conversion to Clarion. Buyer originally expected Doubletree conversion. Operates food and beverage. [PICTURE] [IRR LOGO] PAGE 74 HOLIDAY INN HUDSON VALUATION ANALYSIS SALE #3 NAME: QUALITY INN CENTRAL LOCATION: 4747 Montgomery Rd. Norwood, Oh GRANTOR: Frisch's Restaurants GRANTEE: Stevens Hotel Group, LLC DATE OF SALE: 5/2001 TERMS: Cash equivalent VERIFICATION E. Belfrage appraiser to buyer PROPERTY DATA AGE: 1969 NO. OF RMS: 148 [MAP] SALES PRICE: $3,900,000 ROOMS INCOME: $2,294,784 (projected 2001) NET OPERATING INCOME: $522,481 (projected 2001) RATIOS OF COMPARISON PRICE/ROOMS: $26,351 ROOM REVENUE MULTIPLIER: 1.7 OVERALL RATE: 13.4% COMMENTS: Major renovations completed in 1996 with about $3.5 million in total renovation costs. Seller was Frisch's Restaurants who retained a separate adjacent freestanding restaurant. Property has operated as Quality Inn since construction. Quality Inn required no PIP immediately. However, exterior paint or treatment may be necessary in the near future. [PICTURE] [IRR LOGO] PAGE 75 HOLIDAY INN HUDSON VALUATION ANALYSIS SALE #4 NAME: RAMADA INN LOCATION: 4363 St Rt. 43, Kent, Oh GRANTOR: Janus Hotels GRANTEE: Paddy RAO DATE OF SALE: 12/31/2001 TERMS: Seller financed to facilitate closing by 12/31/2001 VERIFICATION PROPERTY DATA AGE: 1976 NO. OF RMS: 150 [MAP] SALES PRICE: $2,500,000 + $150,000 PIP = $2,650,000 ROOMS INCOME: $1,423,062 NET OPERATING INCOME: $396,468 est. RATIOS OF COMPARISON PRICE/ROOMS: $17,434 ROOM REVENUE MULTIPLIER: 1.9 OVERALL RATE: 11.2% COMMENTS: Buyer in process of refinancing. $2.1 million seller loan. Buyer to retain Ramada affiliation. Property was built as Holiday Inn and converted in 2001. 2001 rooms revenue was $1.5 million with $700,000 in F&B revenue. 4,742 meeting space. Janus purchased in August 2001 for $1.7 million and completed $400,000 in renovations for Ramada conversion. Seller is to pay for a portion of PIP. [PICTURE] [IRR LOGO] PAGE 76 HOLIDAY INN HUDSON VALUATION ANALYSIS SALE #5 NAME: CLARION HOTEL LOCATION: 7007 N High St., Worthington, Oh GRANTOR: Boulevard Motel Corp. GRANTEE: He Hari, Inc. DATE OF SALE: 2/15/2001 TERMS: Cash to seller PROPERTY DATA AGE: 1975 NO. OF RMS: 231 [MAP] SALES PRICE: $5,650,000 including FF&E budget ROOMS INCOME: $2,800,000 NET OPERATING INCOME: $775,000 est. RATIOS OF COMPARISON PRICE/ROOMS: $24,458 ROOM REVENUE MULTIPLIER: 2.0 OVERALL RATE: 13.7% COMMENTS: Purchaser may convert to alternate franchise affiliation. Radisson is being considered. However, at time of sale, purchase was based on "As Is" operations. [PICTURE] [IRR LOGO] PAGE 77 HOLIDAY INN HUDSON VALUATION ANALYSIS SALE #6 NAME: FORMER SHERATON TO BE CONVERTED TO HOWARD JOHNSON PLAZA LOCATION: 2145 Hamilton Rd., Columbus, Ohio GRANTOR: Bank of America GRANTEE: OM Management DATE OF SALE: 5/24/2002 TERMS: Cash to seller VERIFIED: PROPERTY DATA AGE: 1970 NO. OF RMS: 205 [MAP] SALES PRICE: $3,375,000 + $250,000 = $3,625,000 ROOMS INCOME: $1,850,000 est. NET OPERATING INCOME: $450,000 est. RATIOS OF COMPARISON PRICE/ROOMS: $17,683 ROOM REVENUE MULTIPLIER: 1.96 OVERALL RATE: 12.4% COMMENTS: Buyer to convert to Howard Johnson Plaza, a Cendant brand. Financing is SBA and conventional. Buyer will complete roofing repairs and spend about $250,000 for conversion. Franchise Bennegan's is located in F&B Division, operated by owner. Seller repossessed from Frieden Hotel Group, who has renovated and converted from former Ramada to Sheraton Four Points. [PICTURE] [IRR LOGO] PAGE 78 HOLIDAY INN HUDSON VALUATION ANALYSIS SUMMARY OF COMPARABLE SALES
TOTAL YEAR SALE PRICE/ NO. NAME/ADDRESS SALE DATE ROOMS BUILT PRICE UNIT RRM ---------------------------------------------------------------------------------------------------- Holiday Inn 1 615 E. Front Street 6/20/2001 179 1970s $15,300,000 $ 85,475 3 Traverse City, MI ---------------------------------------------------------------------------------------------------- Truman Club Hotel 2 900 E. Dublin Granville 8/8/2001 182 1973 $ 6,500,000 $ 35,714 2.3 Columbus, OH ---------------------------------------------------------------------------------------------------- Quality Inn Central 3 4747 Montgomery Rd. 5/2001 148 1969 $ 3,900,000 $ 26,351 1.7 Norwood, OH ---------------------------------------------------------------------------------------------------- Ramada Inn 4 4363 St. Rt. 43 12/31/2001 150 1976 $ 2,650,000 $ 17,434 1.9 Kent, OH ---------------------------------------------------------------------------------------------------- Clarion Hotel 5 7007 N. High St. 2/15/2001 231 1975 $ 5,650,000 $ 24,458 2.0 Worthington, OH ---------------------------------------------------------------------------------------------------- Former Sheraton 6 2145 Hamilton Rd. 5/24/2002 205 1970 $ 3,625,000 $ 17,683 1.96 Columbus, OH ----------------------------------------------------------------------------------------------------
The price per unit and room revenue multiplier (RRM) are relied upon by market participants. We have considered that due to the income producing nature of the subject, all aspects of a property's investment appeal are incorporated in revenue per available room. This obviously assumes comparable net income ratios as would be found in properties with similar physical attributes. The following adjustment grid compares the comparables to the subject based on dissimilarities in RevPar. [IRR LOGO] PAGE 79 HOLIDAY INN HUDSON VALUATION ANALYSIS SALES COMPARISON CHART
1 2 3 -------------------------------------------------------------------------------- SUBJECT HOLIDAY INN TRUEMAN CLUB QUALITY INN PROPERTY TRAVERSE CITY, MI COLUMBUS, OH NORWOOD, OH ---------------------------------------------------------------------------------------------------------------- Sale Price $ 2,500,000 $ 6,500,000 $ 3,900,000 # of Rooms 288 179 182 148 Date of Sale 6/20/01 8/8/2001 5/2001 Year Opened 1967/1976 1970s 1973 1969 ---------------------------------------------------------------------------------------------------------------- Property Rights Conveyed Fee Simple Fee Simple Fee Simple Fee Simple Adjustment Adjusted Unit Price $ 85,475 $ 35,714 $ 26,351 ---------------------------------------------------------------------------------------------------------------- Conditions of Sale Arm's Length Arms Length Arms Length Adjusted Unit Price $ 85,475 $ 35,714 $ 26,351 ---------------------------------------------------------------------------------------------------------------- RevPar * $ 32.64 $ 76.53 $ 43.20 $ 42.48 Adjustment -57% -24% -23% Adjusted Unit Price $ 36,754 $ 27,143 $ 20,290 ---------------------------------------------------------------------------------------------------------------- 4 5 6 ------------------------------------------------------------ FORMER CLARION HOTEL SHERATON RAMADA INN WORTHINGTON, COLUMBUS, KENT, OH OH OH -------------------------------------------------------------------------------------------- Sale Price $ 2,650,000 $ 5,650,000 $ 3,625,000 # of Rooms 150 231 205 Date of Sale 12/31/2001 2/15/2001 5/24/2002 Year Opened 1976 1975 1970 -------------------------------------------------------------------------------------------- Property Rights Conveyed Fee Simple Fee Simple Fee Simple Adjustment Adjusted Unit Price $ 17,434 $ 24,458 $ 17,683 -------------------------------------------------------------------------------------------- Conditions of Sale Arms Length Arms Length Arms Length Adjusted Unit Price $ 17,434 $ 24,458 $ 17,683 -------------------------------------------------------------------------------------------- RevPar * $ 25.99 $ 33.21 $ 24.72 Adjustment 26% -2% 32% Adjusted Unit Price $ 21,967 $ 23,969 $ 23,342 --------------------------------------------------------------------------------------------
* Based on first full year, or stabilized year revenue [IRR LOGO] PAGE 80 HOLIDAY INN HUDSON VALUATION ANALYSIS After consideration of the RevPar adjustment to the price per room indication, a range of from $20,290 to $36,754 is offered. Sales 3 and 5 required the lowest adjustment and indicates a range from $20,290 to $23,969 per unit. A conclusion at $22,000 per room is utilized. Calculations are as follows:
UNIT PRICE X # UNITS = VALUE ---------- ------- ----- $22,000 288 $6,336,000 ROUNDED $6,300,000
A room revenue multiplier offers a close range indication of from 1.7 to 3.0 times. The most comparable sales indicated a low range of 1.7 to 2.0. Using a multiplier of 1.8 times stabilized room gross as used in the Direct Capitalization Approach, calculations of value are as follows.
ROOM SALES X RRM = VALUE ---------- --- ----- $3,431,144 1.8 $6,176,059 ROUNDED $6,200,000
The Sales Comparison Approach conclusion is $6,200,000 to $6,300,000. The subject was purchased by the prior owner for $13,369,350 by Janus Hotels. This transfer occurred in 1998, prior to the capital market disruption. Significant supply additions and the recession have resulted in declining hotel values. Given the age of this transaction and changes in market conditions, it has little bearing on the current market value. The indication of value by the Sales Comparison Approach does not consider the cost of the Product Improvement Plan needed to maintain the Holiday Inn affiliation or deduction of maintenance items cited in the Improvements Description, or resulting from due diligence inspections. [IRR LOGO] PAGE 81 HOLIDAY INN HUDSON VALUATION ANALYSIS INCOME CAPITALIZATION APPROACH INTRODUCTION The income capitalization approach uses one or more techniques in which the subject's anticipated net operating income is capitalized into a value indication. The validity of this value indication depends on the quality of the data available to estimate income, vacancy, and expenses and to select a capitalization rate. Other important factors concern the characteristics of the income stream, its economic life span, and the method used to convert the net income into value. Following is an overview of the steps used in the income capitalization approach. - Estimate potential gross income. This involves multiplying the number of rooms by the average daily rate (ADR) multiplied by a projected average annual occupancy. The ADR and occupancy are typically based upon historical experience in the subject and data extracted from the marketplace. Additional revenues from other operating departments are then considered. - Estimate expenses. - Calculate the reconstructed net operating income. - Select a capitalization rate from the market to use in direct capitalization. - Perform a discounted cash flow analysis to estimate value through yield analysis. - Reconcile a value indication for the income capitalization approach. INCOME ESTIMATE Economic rent is market rent or the average room rate a potential patron is warranted in paying and the motel operator is warranted in receiving for services. Forecasting of the subject's economic income involves an analysis of room sales. This is best accomplished by stabilized historical operation in conjunction with comparison with other similar motel properties available within the subject's effective market area. This was conducted in the Market Analysis section of this report. Average daily rate and occupancy levels on a stabilized basis as determined in the Market Analysis section cited stabilized ADR and occupancy in 2003 at $68 and 48%. Total room revenue is calculated as follows. [IRR LOGO] PAGE 82 HOLIDAY INN HUDSON VALUATION ANALYSIS ROOMS X DAYS OF THE YEAR = ROOM NIGHTS AVAILABLE ----- ---------------- --------------------- 288 365 105,120 RNA X PROJECTED OCCUPANCY = ROOM NIGHTS SOLD --- ------------------- ---------------- 105,120 48% 50,458 RNS X AVERAGE DAILY RATE = ROOM SALES --- ------------------ ---------- 50,458 $68 $3,431,144 ESTIMATION OF NET OPERATING INCOME The subject property was originally built as a Holiday Inn Hotel. It has historically been operated and is currently operated as a Holiday Inn. Integra Realty Resources has been provided with historical operating statements which have been compiled in a comparative statement on the following page. We have studied industry standard Experience Exchange Reports published by both Smith Travel Research (the Host Report) and PKF Consulting (the Trend Report). These industry trend reports identify full service hotels by price, category, size and region. Smith Travel Research has prepared a custom Host Report for 34 midmarket, full service hotels in Ohio, Indiana, Michigan and Kentucky. This study was conducted for Integra Realty Resources, specifically for this assignment. This data is also presented for determination of stabilized operating expenses for the subject property. [IRR LOGO] PAGE 83 HOLIDAY INN HUDSON VALUATION ANALYSIS HOLIDAY INN HUDSON HISTORICAL OPERATING STATEMENTS
DESCRIPTION 2000 %REV PAR POR 2001 %REV PAR POR 2002 %REV PAR POR ----------- ---- ---- --- --- ---- ---- --- --- ---- ---- --- --- INCOME: ROOMS 288 $4,555,110 61.23% $15,816 $ 82.46 $3,888,707 60.74% $13,502 $ 76.03 $3,540,782 59.03% $12,294 $ 69.54 FOOD & BEVERAGE $2,523,121 33.92% $ 8,761 $ 45.68 $2,160,022 33.74% $ 7,500 $ 42.23 $2,074,228 34.58% $ 7,202 $ 40.74 TELEPHONE $ 59,509 0.80% $ 207 $ 1.08 $ 47,211 0.74% $ 164 $ 0.92 $ 45,388 0.76% $ 158 $ 0.89 OTHER $ 301,128 4.05% $ 1,046 $ 5.45 $ 305,833 4.78% $ 1,062 $ 5.98 $ 338,000 5.63% $ 1,174 $ 6.64 TOTAL REVENUE $7,438,868 100.00% $25,829 $134.66 $6,401,773 100.00% $22,228 $125.16 $5,998,398 100.00% $20,828 $117.81 EXPENSE: OPERATED DEPT. ROOMS $1,031,437 22.64% $ 3,581 $ 18.67 $ 952,017 24.48% $ 3,306 $ 18.61 $ 882,095 24.91% $ 3,063 $ 17.32 FOOD & BEVERAGE $2,010,812 79.70% $ 6,982 $ 36.40 $1,853,852 85.83% $ 6,437 $ 36.24 $1,730,742 83.44% $ 6,010 $ 33.99 TELEPHONE $ 53,321 89.60% $ 185 $ 0.97 $ 54,585 115.62% $ 190 $ 1.07 $ 43,199 95.18% $ 150 $ 0.85 OTHER OPERATED DEPT. $ 0 0.00% $ 0 $ -- $ 0 0.00% $ 0 $ -- $ 0 0.00% $ 0 $ -- TOTAL OPER. DEPT. EXPENSE $3,095,570 41.61% $10,749 $ 56.04 $2,860,454 44.68% $ 9,932 $ 55.92 $2,656,036 44.28% $ 9,222 $ 52.17 UNDISTRIBUTED EXPENSE ENERGY $ 489,205 6.58% $ 1,699 $ 8.86 $ 492,046 7.69% $ 1,708 $ 9.62 $ 489,163 8.15% $ 1,698 $ 9.61 MARKETING $ 325,794 4.38% $ 1,131 $ 5.90 $ 400,724 6.26% $ 1,391 $ 7.83 $ 464,342 7.74% $ 1,612 $ 9.12 REPAIR & MAINTENANCE $ 318,240 4.28% $ 1,105 $ 5.76 $ 315,748 4.93% $ 1,096 $ 6.17 $ 298,664 4.98% $ 1,037 $ 5.87 ADMIN. & GENERAL $ 589,490 7.92% $ 2,047 $ 10.67 $ 571,726 8.93% $ 1,985 $ 11.18 $ 535,942 8.93% $ 1,861 $ 10.53 TOTAL UNDISTRIBUTED EXP. $1,722,729 23.16% $ 5,982 $ 31.19 $1,780,244 27.81% $ 6,181 $ 34.80 $1,788,111 29.81% $ 6,209 $ 35.12 MANAGEMENT $ 0 0.00% $ 0 $ -- $ 0 0.00% $ 0 $ -- $ 0 0.00% $ 0 $ -- FRANCHISE FEES $ 478,372 6.43% $ 1,661 $ 8.66 $ 374,985 5.86% $ 1,302 $ 7.33 $ 346,845 5.78% $ 1,204 $ 6.81 FIXED EXPENSE INSURANCE $ 30,000 0.40% $ 104 $ 0.54 $ 48,810 0.76% $ 169 $ 0.95 $ 46,469 0.77% $ 161 $ 0.91 REAL ESTATE TAX $ 400,294 5.38% $ 1,390 $ 7.25 $ 264,164 4.13% $ 917 $ 5.16 $ 225,784 3.76% $ 784 $ 4.43 LEASE / RENT $ 0 0.00% $ 0 $ -- $ 250 0.00% $ 1 $ 0.00 $ 1,796 0.03% $ 6 $ 0.04 RESERVES $ 0 0.00% $ 0 $ -- $ 0 0.00% $ 0 $ -- $ 0 0.00% $ 0 $ -- TOTAL FIXED EXPENSE $ 430,294 5.78% $ 1,494 $ 7.79 $ 313,224 4.89% $ 1,088 $ 6.12 $ 274,049 4.57% $ 952 $ 5.38 TOTAL EXPENSE $5,726,965 76.99% $19,885 $103.67 $5,328,907 83.24% $18,503 $104.18 $5,065,041 84.44% $17,587 $ 99.48 NET OPERATING INCOME $1,711,903 23.01% $ 5,944 $ 30.99 $1,072,866 16.76% $ 3,725 $ 20.97 $ 933,357 15.56% $ 3,241 $ 18.33 ROOMS SOLD 55,240 51,150 50,915 OCCUPANCY 52.5% 48.7% 48.4% AVERAGE DAILY RATE $ 82.46 $ 76.03 $ 69.54 AVE F&B PER OCCUPIED ROOM $ 45.68 $ 42.23 $ 40.74
[IRR LOGO] PAGE 84 HOLIDAY INN HUDSON VALUATION ANALYSIS TRENDS IN THE HOTEL INDUSTRY SUMMARY OF FULL SERVICE HOTELS FULL SERVICE HOTELS RATIOS TO REVENUES AND DOLLARS PER AVAILABLE ROOM [ILLEGIBLE]
ALL FULL-SERVICE AVERAGE FOR TOP HOTELS 25%(3) NORTH CENTRAL OVER 200 ROOMS UNDER $70.00 ------------------------------------------------------------------------------- (%) ($) (%) ($) (%) ($) (%) ($) (%) ($) REVENUES: Rooms 65.9 23,837 63.9 35,814 63.5 20,161 64.5 24,543 69.9 13,302 Food - including Other Income 23.6 8,526 23.8 13,362 26.6 8,434 24.7 9,401 22.3 4,237 Beverage 4.6 1,670 5.1 2,863 4.8 1,525 4.8 1,825 4.0 759 Telecommunications 1.8 654 2.2 1,212 1.7 535 1.8 698 1.3 247 Other Operated Departments 3.0 1,069 3.7 2,088 2.5 780 3.1 1,160 1.4 264 Rentals and Other Income 1.2 417 1.4 755 1.1 335 1.2 456 1.1 213 ----------------------------------------------------------------------------- Total Revenues 100.0 36,174 100.0 56,094 100.0 31,770 100.0 38,082 100.0 19,022 DEPARTMENTAL COSTS AND EXPENSES: Rooms 17.3 6,269 15.9 8,934 16.4 5,214 17.0 6,455 20.3 3,854 Food 19.0 6,875 19.0 10,673 20.5 6,502 19.7 7,519 18.1 3,441 Beverage 2.4 861 2.4 1,370 2.2 705 2.4 924 2.5 467 Telecommunications 1.0 370 1.0 557 1.1 332 1.0 391 1.1 216 Other Operated Departments 1.7 603 2.1 1,194 1.2 394 1.7 644 0.7 131 ----------------------------------------------------------------------------- Total Costs and Expenses 41.4 14,978 40.5 22,729 41.4 13,146 41.8 15,933 42.6 8,110 ----------------------------------------------------------------------------- Total Operated Departmental Income 58.6 21,195 59.5 33,365 58.6 18,623 58.2 22,149 57.4 10,912 UNDISTRIBUTED OPERATING EXPENSES:(2) Administrative and General 9.1 3,274 7.9 4,404 9.0 2,847 8.9 3,386 10.7 2,042 Franchise Fees - including Marketing Fees 2.9 1,041 2.1 1,191 3.0 960 2.7 1,028 4.7 886 Marketing 5.6 2,034 5.1 2,858 5.7 1,813 5.6 2,134 6.4 1,216 Property Operation and Maintenance 5.0 1,796 4.2 2,341 5.4 1,703 4.9 1,853 6.1 1,157 Utility Costs 4.1 1,493 3.2 1,817 4.3 1,363 4.1 1,554 5.5 1,053 Other Unallocated Operated Departments - 2 - 1 - - - 2 - 1 ----------------------------------------------------------------------------- Total Undistributed Expenses 26.7 9,640 22.5 12,611 27.3 8,686 26.2 9,957 33.4 6,356 ----------------------------------------------------------------------------- Income before Fixed Charges 31.9 11,555 37.0 20,753 31.3 9,938 32.0 12,192 24.0 4,556 MANAGEMENT FEES, PROPERTY TAXES, AND INSURANCE:(2) Management Fees 2.6 930 2.4 1,354 2.6 838 2.6 970 2.9 558 Property Taxes and Other Municipal Charges 3.7 1,352 3.6 2,033 4.7 1,483 3.7 1,423 3.7 694 Insurance 1.0 374 0.9 483 0.9 292 1.0 383 1.4 274 ----------------------------------------------------------------------------- Total Management Fees, Property Taxes, and Insurance 7.3 2,656 6.9 3,869 8.2 2,613 7.3 2,775 8.0 1,527 ----------------------------------------------------------------------------- Income before Other Fixed Charges(1) 24.6 8,899 30.1 16,884 23.1 7,325 24.7 9,416 15.9 3,030 -----------------------------------------------------------------------------
Source: Trends 2003 * Average based on total groups, although not all establishments reported data. ** Income before deducting Depreciation, Rent, Interest, Amortization, and Income Taxes. [IIR LOGO] PAGE 85 HOLIDAY INN HUDSON VALUATION ANALYSIS HOST REPORT FULL SERVICE HOTELS
EAST NORTH CENTRAL ECONOMY 150 TO 300 ROOMS ----------------------------------------------------------------------------- % $ POR $PAR % $ POR $PAR % $ POR $PAR ====== ======= ======= ====== ======= ======= ====== ======= ======= REVENUE Rooms 63.1% $116.47 $25,481 69.0% $ 74.99 $16,101 64.3% $106.07 $30,170 Food 19.8% $ 36.51 $ 7,987 16.8% $ 18.27 $ 3,923 18.4% $ 30.42 $10,211 Beverage 4.9% $ 9.10 $ 1,991 4.1% $ 4.49 $ 964 4.3% $ 7.16 $ 2,195 Other Food & Beverage 5.0% $ 9.17 $ 2,007 4.8% $ 5.16 $ 1,108 3.7% $ 6.12 $ 2,964 Telecommunications 2.0% $ 3.74 $ 818 1.6% $ 1.72 $ 369 1.8% $ 2.89 $ 988 Other Operated Departments 3.1% $ 5.68 $ 1,244 2.0% $ 2.22 $ 477 5.9% $ 9.73 $ 2,263 Rentals & Other Income 2.0% $ 3.60 $ 788 1.5% $ 1.64 $ 353 1.6% $ 2.58 $ 934 Cancellation Fee .1% $ .24 $ 53 .1% $ .08 $ 18 .1% $ .21 $ 132 TOTAL REVENUES 100.0% $184.51 $40,369 100.0% $108.57 $23,313 100.0% $165.18 $49,857 ----- ------- ------- ----- ------- ------- ----- ------- ------- DEPARTMENTAL EXPENSES Rooms 25.3% $ 29.51 $ 6,457 29.5% $ 22.15 $ 4,755 25.7% $ 27.26 $ 7,466 Food & Beverage 73.0% $ 39.99 $ 8,750 80.0% $ 22.33 $ 4,795 77.4% $ 33.84 $11,359 Telecommunications 50.7% $ 1.90 $ 415 79.6% $ 1.37 $ 293 54.7% $ 1.58 $ 514 Other Operated Departments 2.4% $ 4.52 $ 988 1.4% $ 1.49 $ 321 2.8% $ 4.63 $ 1,795 TOTAL EXPENSES 41.1% $ 75.92 $16,610 43.6% $ 47.34 $10,164 40.7% $ 67.31 $21,134 ----- ------- ------- ----- ------- ------- ----- ------- ------- TOTAL DEPARTMENTAL PROFIT 58.9% $108.59 $23,759 56.4% $ 61.23 $13,149 59.3% $ 97.87 $28,723 ----- ------- ------- ----- ------- ------- ----- ------- ------- UNDISTRIBUTED OPERATING EXPENSES Administrative & General 8.9% $ 16.39 $ 3,586 9.0% $ 9.79 $ 2,101 9.1% $ 15.02 $ 4,234 Marketing 6.8% $ 12.48 $ 2,731 7.3% $ 7.94 $ 1,706 7.0% $ 11.61 $ 3,419 Utility Costs 3.6% $ 6.62 $ 1,448 5.9% $ 6.44 $ 1,382 4.2% $ 6.89 $ 1,830 Property Operating & Maintenance 5.1% $ 9.48 $ 2,075 6.1% $ 6.62 $ 1,422 4.9% $ 8.15 $ 2,284 ----- ------- ------- ----- ------- ------- ----- ------- ------- TOTAL UNDISTRIBUTED OPERATING EXPENSES 24.4% $ 44.97 $ 9,840 28.4% $ 30.79 $ 6,611 25.2% $ 41.67 $11,767 GROSS OPERATING PROFIT 34.5% $ 63.62 $13,919 28.0% $ 30.44 $ 6,538 34.1% $ 56.20 $16,956 Franchise Fees (Royalty) .7% $ 1.24 $ 271 1.1% $ 1.25 $ 267 1.3% $ 2.07 $ 229 Management Fees 3.4% $ 6.22 $ 1,360 3.0% $ 3.23 $ 693 2.8% $ 4.59 $ 1,657 ----- ------- ------- ----- ------- ------- ----- ------- ------- INCOME BEFORE FIXED CHARGES 30.4% $ 56.16 $12,288 23.9% $ 25.96 $ 5,578 30.0% $ 49.54 $15,070 ----- ------- ------- ----- ------- ------- ----- ------- ------- SELECTED FIXED CHARGES Property Taxes 5.1% $ 9.37 $ 2,050 1.9% $ 2.06 $ 442 2.8% $ 4.59 $ 1,590 Insurance .6% $ 1.10 $ 240 1.0% $ 1.06 $ 228 .8% $ 1.30 $ 350 Reserve for Capital Replacement 1.6% $ 2.92 $ 639 2.1% $ 2.24 $ 482 1.6% $ 2.65 $ 916 ----- ------- ------- ----- ------- ------- ----- ------- ------- AMOUNT AVAILABLE FOR DEBT SERVICE & OTHER FIXED CHARGES * 23.1% $ 42.77 $ 9,359 18.9% $ 20.60 $ 4,426 24.8% $ 41.00 $12,214 ===== ======= ======= ===== ======= ======= ===== ======= ======= OCCUPANCY 61.2% 64% 62.5% ----- ------- ------- ----- ------- ------- ----- ------- ------- ROOMS 277 217 215 ----- ------- ------- ----- ------- ------- ----- ------- ------- AVERAGE RATE $166.47 $ 74.99 $106.08 ===== ======= ======= ===== ======= ======= ===== ======= =======
Source: Smith Travel Research 2002 [IRR LOGO] PAGE 86 HOLIDAY INN HUDSON VALUATION ANALYSIS CUSTOM HOST REPORT 2001 FULL-SERVICE: SELECTED PROPERTIES
34 PROPERTIES RATIO TO AMOUNT PER AMOUNT/OCCUPIED 6,935 TOTAL ROOMS SALES AVAILABLE ROOM ROOM NIGHT ====================================== ======== ============== =============== REVENUE Rooms 66.4% $17,126 $ 80.93 Food 20.1% $ 5,174 $ 24.45 Beverage 5.0% $ 1,278 $ 6.04 Other Food & Beverage 4.7% $ 1,202 $ 5.68 Telecommunications 1.5% $ 399 $ 1.89 Other Operated Departments 1.6% $ 413 $ 1.95 Rentals & Other Income .6% $ 164 $ .78 Cancellation Fee .1% $ 35 $ .17 TOTAL REVENUES 100.0% $25,791 $121.89 ------ ------- ------- DEPARTMENTAL EXPENSES Rooms 25.2% $ 4,317 $ 20.40 Food & Beverage 74.8% $ 5,724 $ 27.05 Telecommunications 60.2% $ 240 $ 1.14 Other Operated Departments 1.8% $ 459 $ 2.16 TOTAL EXPENSES 41.6% $10,740 $ 50.75 ------ ------- ------- DEPARTMENTAL PROFITS Rooms 74.8% $12,809 $ 60.53 Food & Beverage 25.2% $ 1,930 $ 9.12 Telecommunications 39.8% $ 159 $ .75 Other Operated Departments 98.2% $ 118 $ .57 TOTAL DEPARTMENTAL PROFIT 58.4% $15,051 $ 71.14 ------ ------- ------- UNDISTRIBUTED OPERATING EXPENSES Administrative & General 9.4% $ 2,433 $ 11.50 Marketing 7.8% $ 2,007 $ 9.48 Utility Costs 5.1% $ 1,320 $ 6.24 Property Operating & Maintenance 6.4% $ 1,652 $ 7.81 ------ ------- ------- TOTAL UNDISTRIBUTED OPERATING EXPENSES 28.7% $ 7,412 $ 35.03 ------ ------- ------- GROSS OPERATING PROFIT 29.7% $ 7,639 $ 36.11 ------ ------- ------- Franchise Fees (Royalty) 2.6% $ 666 $ 3.15 Management Fees 2.9% $ 752 $ 3.56 ------ ------- ------- INCOME BEFORE FIXED CHARGES 24.1% $ 6,221 $ 29.40 ------ ------- ------- SELECTED FIXED CHARGES Property Taxes 3.0% $ 764 $ 3.61 Insurance 1.1% $ 272 $ 1.29 Reserve for Capital Replacement .3% $ 78 $ .37 ------ ------- ------- AMOUNT AVAILABLE FOR DEBT SERVICE & OTHER FIXED CHARGES * 19.7% $ 5,107 $ 24.13 ====== ======= ======= OCCUPANCY 58.1% ------ ------- ------- AVERAGE RATE $80.93 ====== ======= =======
Source: Smith Travel Research 2003 * Other fixed charges include depreciation and amortization, interest, rent and equipment leases [IRR LOGO] PAGE 87 HOLIDAY INN HUDSON VALUATION ANALYSIS REVENUES ROOMS REVENUE Room revenue was projected at the beginning of this section at $3,431,144. This is supported by a detailed penetration and yield study within the Market Analysis section. RESTAURANT INCOME The food and beverage division has been operated by the hotel. Historically, food and beverage revenue per occupied room has ranged from $40.74 to $45.68. Integra Realty Resources has appraised many full service restaurants in hotel operations with food and beverage revenue totaling from $24.11 to $62.14 per occupied room. The Custom Host Report shows $36.17. PKF Report is not applicable. Trend Reports for 2002 publish the following: FOOD & BEVERAGE PER OCCUPIED ROOM
REPORT ECONOMY ENC REGION 150-300 RMS ------ ------- ---------- ----------- Host $ 27.92 $54.78 $43.70
The projected stabilized food and beverage revenue including banquet room rental is projected at $40.00 per occupied room. TELEPHONE INCOME Telephone revenue historically has ranged from $158 to $207 per available room. This is equivalent to annual revenue of $45,388 to $59,509. This is also equivalent to $0.89 to $1.08 per occupied room. Telephone revenue is declining due to cellular usage. We have estimated total telephone revenue at $40,000. OTHER INCOME Other revenue includes guest laundry, vending revenue, lease, no-show, amusement park, game room, etc. Other revenue also includes net rent from Ameritech for the training center at $266,492.11 annually. This lease expires June 2004. It was originally executed in 1975 with amendments over time. This appraisal assumes this lease is renegotiated and extended throughout the duration of ownership. Discussions with the GM indicate that Ameritech has considered relocating to their own facility, however nothing more is known at this time. Total other revenue ranged from $1,046 to $1,174 per available room, or $301,128 to $338,000. This is equivalent to $5.45 to $6.64 per occupied room. We have projected stabilized other revenue at $335,000. [IRR LOGO] PAGE 88 HOLIDAY INN HUDSON VALUATION ANALYSIS DEPARTMENTAL EXPENSES ROOMS EXPENSE Rooms expense includes wages for front desk and housekeeping personnel, payroll taxes, guest supplies, cleaning supplies and laundry, linens, advertising, and miscellaneous expenses. Rooms also should include all franchise reservation fees such as Holidex Systems, etc. ROOMS EXPENSE
SUBJECT HISTORY CUSTOM SUBJECT 2000/01/02 HOST PKF HOST STABILIZED YR --------------- ---- --- ------ ------------- RATIO TO DEPT. REVENUE 22.6%/24.5%/24.9 % 25.3%-29.5% NA 25.2% 25% $ PER OCCUPIED RM $18.67/$18.61/$17.32 $22.15-$29.51 NA $20.40 $ PER AVAIL ROOM/YR $3,581/$3,306/$3,063 $4,755-$7,466 $3,854-$8,934 $4,317
On a stabilized basis, a rooms expense of 25% is utilized, which includes Holiday Inn reservation costs. FOOD AND BEVERAGE Food and beverage expense includes all costs of labor, food costs, liquor costs, table and glass services, etc. Banquet expenses are also considered. FOOD AND BEVERAGE EXPENSE
SUBJECT HISTORY CUSTOM SUBJECT 2000/01/02 HOST PKF HOST STABILIZED YR --------------- ---- --- ------ ------------- RATIO TO DEPT. REVENUE 79.7%/85.8%/83.4 % 73%-80% NA 74.8% 83% $ PER OCCUPIED RM $36.40/$36.24/$33.99 $22.33-$39.99 NA $27.05 $ PER AVAIL ROOM/YR $6,982/$6,437/$6,010 $4,795-$11,359 NA $5,724
Given historical expenses and trend data, we have utilized 83% for food and beverage expense. TELEPHONE EXPENSE Telephone expense includes local and long distance calls and line charges. TELEPHONE EXPENSE
SUBJECT HISTORY CUSTOM SUBJECT 2000/01/02 HOST PKF HOST STABILIZED YR --------------- ---- --- ------ ------------- RATIO TO DEPT. REVENUE 89.6%/115.6%/95.2% 50.7-79.6% NA 60.2% 95% $ PER OCCUPIED RM $ 0.97/$1.07/$0.85 $1.37-$1.90 NA $1.14 $ PER AVAIL ROOM/YR $ 185/$190/$150 $ 293-$514 NA $240
In this analysis we have utilized 95% telephone expense in line with operations history. OTHER EXPENSE Costs associated with other revenue have historically reflected net revenue. [IRR LOGO] PAGE 89 HOLIDAY INN HUDSON VALUATION ANALYSIS UNDISTRIBUTED EXPENSES ENERGY COSTS Energy costs include all heat, light and power costs. ENERGY EXPENSE
SUBJECT HISTORY CUSTOM SUBJECT 2000/01/02 HOST PKF HOST STABILIZED YR --------------- ---- --- ------ ------------- RATIO TO DEPT. REVENUE 6.6%/7.7%/8.2% 3.6%-5.9% 3.2%-5.5% 5.1% 8% $ PER OCCUPIED RM $ 8.86/$9.62/$9.61 $ 6.44-$6.89 N/A $ 6.24 $ PER AVAIL ROOM/YR $1,699/$1,708/$1,698 $1,382-$1,830 $1,053-$1,817 $1,320
Due to the subject's public area a higher expense is reasonable. We have concluded to 8% for energy expense. MARKETING MARKETING EXPENSE
SUBJECT HISTORY CUSTOM SUBJECT 2000/01/02 HOST PKF HOST STABILIZED YR --------------- ---- --- ------ ------------- RATIO TO DEPT. REVENUE 4.4%/6.3%/7.7% 6.8%-7.3% 5.1-6.4% 7.8% 8% $ PER OCCUPIED RM $ 5.90/$7.83/$9.12 $ 7.94-$12.48 N/A $ 9.48 $ PER AVAIL ROOM/YR $1,131/$1,391/$1,612 $1,706-$3,419 $1,216-$2,858 $20.07
The Holiday Inn marketing fee is 1.5% of room revenue which was previously allocated under franchise fees. We have concluded to 8% in this analysis. FRANCHISE FEES The subject is a Holiday Inn Hotel. Maintenance of the affiliation is crucial to continued operation at the projected performance. Holiday Inn's royalty costs are 5% of room's revenue, which equates to 2.95% of total revenue. Various chain franchise affiliation costs are summarized on the following pages. [IRR LOGO] PAGE 90 HOLIDAY INN HUDSON VALUATION ANALYSIS FRANCHISE FEES CHART [IRR LOGO] PAGE 91 HOLIDAY INN HUDSON VALUATION ANALYSIS REPAIR AND MAINTENANCE Repair and maintenance expenses include exterior building maintenance and repair, parking lot maintenance, lawn care, landscaping, minor room repair and maintenance costs. REPAIR AND MAINTENANCE EXPENSE
SUBJECT HISTORY CUSTOM SUBJECT 2000/01/02 HOST PKF HOST STABILIZED YR --------------- ---- --- ------ ------------- RATIO TO DEPT. REVENUE 4.3%/4.9%/5% 4.9%-6.1% 4.2%-6.1% 6.4% 5% $ PER OCCUPIED RM $ 5.76/$6.17/$5.87 $ 6.62-$9.48 N/A $ 7.81 $ PER AVAIL ROOM/YR $1,105/$1,096/$1,037 $1,422-$2,284 $1,157-$2,341 $16.52
We have concluded to 5% in this analysis, recognizing that a separate reserve for replacement is considered. ADMINISTRATIVE AND GENERAL ADMINISTRATIVE AND GENERAL EXPENSE
SUBJECT HISTORY CUSTOM SUBJECT 2000/01/02 HOST PKF HOST STABILIZED YR --------------- ---- --- ------ ------------- RATIO TO DEPT. REVENUE 7.9%/8.9%/8.9% 8.9%-9.1% 7.9%-10.7% 9.4% 9% $ PER OCCUPIED RM $10.67/$11.18/$110.53 $ 9.79-$16.39 N/A $11.50 $ PER AVAIL ROOM/YR $2,047/$1,985/$1,861 $2,101-$4,234 $2,042-$4,404 $24.33
Administrative and general expense of 9% is projected in this analysis. MANAGEMENT Management fees historically have not been recorded. Management companies often charge an incentive management fee in addition to a base. Total fees of between 2% and 5% are customary. The Korpacz Investor Survey cites the following chart. [IRR LOGO] PAGE 92 HOLIDAY INN HUDSON VALUATION ANALYSIS RESERVES FOR REPLACEMENT AND MANAGEMENT FEES (% OF TOTAL REVENUE) FIST QUARTER 2003
RESERVES FOR MANAGEMENT LODGING SEGMENT REPLACEMENT FEES --------------- ------------ ----------- FULL - SERVICE RANGE 3.00%-8.00% 1.00%-4.00% AVERAGE 4.39% 2.81% ---------------------------------------------------------------------- ECONOMY/LIMITED SERVICE RANGE 3.00%-6.00% 2.00%-5.00% AVERAGE 4.44% 3.56% ---------------------------------------------------------------------- LUXURY RANGE 3.00%-7.00% 1.00%-5.00% AVERAGE 4.36% 2.77% ---------------------------------------------------------------------- EXTENDED STAY RANGE 3.00%-5.00% 2.00%-5.00% AVERAGE 4.30% 3.40% ----------------------------------------------------------------------
Source: PWC 1st Qtr 2003 The existing management contract is cancelable upon default. We have considered market management fees in this analysis as the purpose of this report is to determine Fee Simple Market Value. We have utilized 3% of total revenue as the management fee for the subject property. INSURANCE INSURANCE EXPENSE
SUBJECT HISTORY CUSTOM SUBJECT 2000/01/02 HOST PKF HOST STABILIZED YR --------------- ---- --- ------ ------------- RATIO TO DEPT. REVENUE 0.4%/0.8%/0.8% 0.6%-1% 0.9%-1.4% 1.1% 0.80% $ PER OCCUPIED RM $0.54/$0.95/$0.91 $1.06-$1.30 N/A $ 1.29 $ PER AVAIL ROOM/YR $ 104/$169/$161 $ 228-$350 $274-$483 $ 2.72
We have concluded to 0.8% for insurance expense in this analysis. REAL ESTATE TAXES Real and personal property taxes were discussed in the Site Description section. We have estimated taxes at $183,652. [IRR LOGO] PAGE 93 HOLIDAY INN HUDSON VALUATION ANALYSIS RESERVES A 4% reserve for replacement is included in our analysis to account for short-term replacement of items such as paving, carpeting, furniture, fixtures and equipment. FF&E appears to be in good condition. HVAC systems are in working order. A 4% reserve account is based on current market conditions. Discussions with buyers regarding their parameters indicate reserves at predominantly 4%. A 2000 study published by the International Society of Hotel Consultants suggests that cap ex for full service hotels averaged 6.1% between 1988 and 1998. However, until market participants recognize an increased deduction from NOI and adjust corresponding purchase parameters, a lower reserve is utilized. The Korpacz Survey cited under the management fee discussion indicated average full service reserves at 4.38%. The following is a summary of the pro forma operating expenses anticipated for the coming year on a stabilized basis or stabilized ProForma for 2003 year. This assumes renovations are complete as required by the Franchisor. [IRR LOGO] PAGE 94 HOLIDAY INN HUDSON VALUATION ANALYSIS HOLIDAY INN HUDSON PROFORMA INCOME EXPENSE STATEMENT
DESCRIPTION TOTAL % SALES $/RM. POR ----------- ----- ------- ----- --- INCOME: ROOMS 288 $3,431,144 58.91% $11,914 $ 68.00 FOOD & BEVERAGE $2,018,320 34.65% $ 7,008 $ 40.00 TELEPHONE $ 40,000 0.69% $ 139 $ 0.79 OTHER $ 335,000 5.75% $ 1,163 $ 6.64 TOTAL REVENUE $5,824,464 100.00% $20,224 $ 115.43 EXPENSE: OPERATED DEPT. ROOMS $ 857,786 25.00% $ 2,978 $ 17.00 FOOD & BEVERAGE $1,675,206 83.00% $ 5,817 $ 33.20 TELEPHONE $ 38,000 95.00% $ 132 $ 0.75 OTHER OPERATED DEPT. $ 0 0.00% $ 0 $ - TOTAL OPER. DEPT. EXPENSE $2,570,992 44.14% $ 8,927 $ 50.95 UNDISTRIBUTED EXPENSE ENERGY $ 465,957 8.00% $ 1,618 $ 9.23 MARKETING $ 465,957 8.00% $ 1,618 $ 9.23 FRANCHISE FEES $ 171,557 2.95% $ 596 $ 3.40 REPAIR & MAINTENANCE $ 291,223 5.00% $ 1,011 $ 5.77 ADMIN. & GENERAL $ 524,202 9.00% $ 1,820 $ 10.39 TOTAL UNDISTRIBUTED EXP. $1,918,896 32.95% $ 6,663 $ 38.03 MANAGEMENT $ 174,734 3.00% $ 607 $ 3.46 FIXED EXPENSE INSURANCE $ 46,596 0.80% $ 162 $ 0.92 TAXES $ 183,652 3.15% $ 638 $ 3.64 OTHER $ 0 0.00% $ 0 $ - RESERVES $ 232,979 4.00% $ 809 $ 4.62 TOTAL FIXED EXPENSE $ 463,226 7.95% $ 1,608 $ 9.18 TOTAL EXPENSE $5,127,848 88.04% $17,805 $ 101.63 NET OPERATING INCOME $ 696,616 11.96% $ 2,419 $ 13.81 ROOMS SOLD 50,458 OCCUPANCY 48.00% AVERAGE DAILY RATE $ 68.00 AVE F&B PER OCCUPIED ROOM $ 40.00
[IRR LOGO] PAGE 95 HOLIDAY INN HUDSON VALUATION ANALYSIS CAPITALIZATION There are two forms of capitalization, which can be utilized to process income into value. These are direct and yield capitalization techniques. In direct capitalization a stabilized net operating income can be processed into value by utilization of an overall rate. This process requires the projection of stabilized net operating income. Direct capitalization is the most fundamental approach and accounts for market conditions as they are anticipated in the near future. Direct capitalization is typically the most reliable indication for stabilized hotels. In yield capitalization factors can be accounted for such as demand growth, changes in average daily rate, operating expense changes, start up of new or renovated projects, etc. The subject is existing and has reached/will be stabilized. A discounted cash flow has been processed in this analysis to reflect anticipated changes expensed in the industry over the next few years. DIRECT CAPITALIZATION Direct capitalization involves the processing of a stabilized year net operating income into value. This relationship is best derived from recent sales of comparable properties. Overall rates of capitalization are determined by dividing net operating income into the sale price. This relationship is applied to the subject net operating income calculated above. As a crosscheck to market derived overall rates we have utilized a band of investment technique. This analysis utilizes typical mortgage variables available today as well as equity returns in the marketplace. Historical indications of overall rates from market sales for comparable quality properties indicate a range of from 11.2% to 13.7% as follows:
Sale Property Overall Rate -------------------------------------------------- 1 Holiday Inn, Traverse City 11.75% 2 Trueman Club, Columbus 12.3% 3 Quality Inn, Norwood 13.4% 4 Ramada Inn, Kent 11.2% 5 Clarion, Worthington 13.7% 6 Former Sheraton, Columbus 12.4%
BAND OF INVESTMENT TECHNIQUE Mortgage financing in this analysis assumes the investor/buyer seeks the best available loan in order to maximize leverage. We have had discussions with brokers, operators and owners indicating that motel loan criteria has become quite restrictive. Many lenders are very cautious regarding hotel property due to fears of oversupply, recession and declines in travel. This has resulted in lower loan to value and higher debt coverage ratio requirements. Realtyrates.com indicates lodging interest rates at 5.83% to 16.58% with an average of 8.01%. Spreads over 10 year treasuries are 1.49% to 12.24%, with an average of [IRR LOGO] PAGE 96 HOLIDAY INN HUDSON VALUATION ANALYSIS 3.67% shown as follows. REALTYRATES.COM INVESTOR SURVEY - 2ND QUARTER 2003 PERMANENT FINANCING
HEALTH RV/CAMP SENIOR MFG HSG SELF SPECIAL APT. GOLF HOUSING IND. LODGING MH PARK OFFICE RESTAURANT RETAIL STORAGE PURPOSE SPREAD OVER BASE* Minimim 1.25% 2.17% 1.40% 1.44% 1.49% 1.30% 1.40% 2.25% 1.40% 1.49% 2.25% Maximum 3.95% 6.00% 4.50% 4.55% 12.24% 4.30% 4.80% 7.60% 4.55% 4.80% 10.04% Average 2.11% 3.41% 2.67% 2.37% 3.67% 2.24% 2.60% 4.06% 2.49% 3.58% 4.25% INTEREST RATE Minimim 5.59% 6.51% 5.74% 5.78% 5.83% 5.64% 5.74% 6.59% 5.74% l0.08% 6.59% Maximum 8.29% 10.34% 8.84% 8.89% 16.58% 8.64% 9.14% 11.94% 8.89% 8.89% 14.38% Average 6.45% 7.75% 7.01% 6.71% 8.01% 6.58% 6.94% 8.40% 6.83% 6.83% 8.59% DEBT COVERAGE RATIO Minimim 1.15 1.25 1.10 1.20 1.30 1.20 1.20 1.30 1.20 1.20 1.25 Maximum 1.85 1.80 2.00 1.80 2.10 1.80 1.80 2.10 1.80 2.30 2.40 Average 1.51 1.50 1.54 1.40 1.64 1.42 1.50 1.61 1.39 1.52 1.70 LOAN-TO-VALUE RATIO Minimim 50% 50% 50% 50% 50% 60% 50% 50% 50% 80% 50% Maximum 85% 80% 95% 80% 80% 80% 80% 75% 80% 50% 80% Average 74% 66% 72% 72% 67% 73% 68% 66% 72% 69% 67% AMORTIZATION(YRS.) Minimim 20 15 20 20 15 20 20 15 20 20 15 Maximum 35 30 35 30 30 30 30 25 30 30 30 Average 27 21 25 26 23 26 28 19 27 28 21 TERM(YRS.) Minimim 3 5 3 3 5 5 3 3 3 3 3 Maximum 40 30 25 30 30 30 30 15 10 10 20 Average 21.50 9.25 13.75 11.67 8.00 9.25 8.00 7.50 6.25 6.25 8.00 * 10-YEAR TREASURY
Copyright 2003 RealtyRates.com Based on discussions with hotel lending professionals, mortgage rate spreads for hotel properties comparable to the subject generally fall in the range of 300 to 450 basis points over the corresponding 7 to 10 year treasuries. A treasury bill rate of 3.2% is applicable as of June 15, 2003. A 450 basis point spread would indicate an interest rate of 7.7%. A mortgage constant based on 20 year amortization period is .0981. EQUITY RETURN A Band of Investment analysis will be completed to determine an appropriate overall rate incorporating the above mortgage variables. The Band of Investment analysis includes consideration of both debt and equity capital. Representatives of Integra Realty Resources attend various industry conferences and events. Our discussions with active hotel brokers, buyers and analysts have yielded typical equity return ranges. [IRR LOGO] PAGE 97 HOLIDAY INN HUDSON VALUATION ANALYSIS Current equity requirements for existing stabilized hospitality property range from approximately 11% to 12% on the low end to a high of approximately 18% to 20%. Obviously the lower equity requirements would be for stabilized properties at excellent operating levels in good condition and excellent locations. The upper range requirements would be for more poorly operating properties, older properties, poorly located properties or those requiring some level of renovation. In our opinion, an equity dividend rate for the subject property considering stabilized operation and completion of any needed renovations of 15% appears realistic. The Band of Investment technique is calculated as follows. BAND OF INVESTMENT TECHNIQUE
POSITION PERCENTAGE X RATE = PRODUCT ------------------------------------------------------------- Mortgage .6 .0981 .0589 ------------------------------------------------------------- Equity .4 .15 .06 ------------------------------------------------------------- Total .1189 ------------------------------------------------------------- Say 11.9% -------------------------------------------------------------
NATIONAL STUDIES Several organizations in addition to Integra Realty Resources maintain data on investor requirements for rate of return on various property types. Some include hotel as a classification. Following are investment criteria for hotel properties. TABLE 5 2002 CAP RATE RANKS
2002 2002 2002 HIGH 2002 RANK PROPERTY TYPE LOW (%) (%) AVG. (%) ---- --------------------- ------ --------- -------- 1 Suburban Multi Family 7.0% 10.0% 8.6% 2 Urban Multi Family 7.0% 10.5% 8.6% 3 Regional Mall 7.0% 9.8% 8.7% 4 Community Mall 8.0% 10.0% 9.3% 5 CBD Office 8.0% 10.8% 9.4% 6 Bulk 8.3% 11.5% 9.4% 7 Neighborhood Strip 8.5% 10.5% 9.5% 8 Suburban Office 8.8% 10.5% 9.5% 9 Office/Warehouse 8.5% 10.5% 9.5% 10 Manufacturing 8.5% 12.0% 9.7% 11 R&D 8.8% 11.0% 9.8% 12 CBD Lodging 9.5% 12.5% 11.0% 13 Suburban Lodging 10.0% 13.0% 11.3% 14 Airport Lodging 9.5% 13.0% 11.3%
TABLE 7 2002 DISCOUNT RATE RANKS
2002 2002 2002 HIGH 2002 RANK PROPERTY TYPE LOW (%) (%) AVG. (%) ---- --------------------- ------ --------- -------- 1 Regional Mall 9.5% 12.0% 10.8% 2 Suburban Multi Family 9.5% 12.0% 10.8% 3 Urban Multi Family 9.5% 14.0% 10.9% 4 Community Mall 10.0% 12.5% 11.2% 5 CBD Office 10.5% 12.5% 11.3% 6 Neighborhood Strip 10.0% 13.0% 11.3% 7 Suburban Office 10.0% 13.0% 11.4% 8 Bulk 10.0% 14.0% 11.4% 9 Office/Warehouse 10.0% 13.0% 11.4% 10 Manufacturing 10.0% 14.0% 11.7% 11 R&D 10.0% 13.0% 11.7% 12 CBD Lodging 11.0% 15.0% 13.1% 13 Suburban Lodging 11.5% 15.5% 13.3% 14 Airport Lodging 12.0% 15.0% 13.4%
[IRR LOGO] PAGE 98 HOLIDAY INN HUDSON VALUATION ANALYSIS RERC REAL ESTATE REPORT - SPRING 2003
HOTEL LOW HIGH ---------------------------------------------------------------------- PRE-TAX YIELD (IRR) (%) Range** 13.0% 14.5% AVERAGE 13.7% ---------------------------------------------------------------------- GOING IN CAP RATE (%) Range** 10.8% 11.5% AVERAGE 11.0% ---------------------------------------------------------------------- TERMINAL CAP RATE (%) Range** 11.5% 12.0% AVERAGE 11.6% ---------------------------------------------------------------------- RENTAL GROWTH Range** -5.0% 3.0% AVERAGE 0.3% ---------------------------------------------------------------------- EXPENSE GROWTH Range** 3.0% 3.2% AVERAGE 3.1% ----------------------------------------------------------------------
SOURCE: REAL ESTATE RESEARCH CORPORATION PWc National Full-Service Lodging Market - First Quarter 2003
CURRENT THIRD QUARTER KEY INDICATORS QUARTER 2003 YEAR AGO Discount Rate (IRR)(a) RANGE 11.50%-15.00% 11.50%-15.00% 11.50%-17.00% AVERAGE 13.51% 13.51% 13.85% CHANGE (BASIS POINTS) -- 0 -34 Overall Cap Rate IOAR)(a) RANGE 8.00%-13.00% 7.00%-13.00% 8.50%-13.00% AVERAGE 10.64% 10.61% 10.77% CHANGE (BASIS POINTS) -- +3 -13 Residual Cap Rage RANGE 9.00%-13.00% 9.00%-13.00% 9.00%-14.00% AVERAGE 10.67% 10.67% 10.91% CHANGE (BASIS POINTS) -- 0 -24 Average Daily Rate Chg. Rate(a) RANGE -5.00%-10.00% -5.00%-10.00% -5.00%-10.00% AVERAGE 2.30% 2.30% 1.85% CHANGE (BASIS POINTS) 0 +45 Operating Expense Chg. Rate(a) RANGE 1.00%-4.00% 1.00%-4.00% 1.00%-4.00% AVERAGE 2.90% 2.90% 2.88% CHANGE (BASIS POINTS) -- 0 +2 Average Marketing Time (in months) RANGE 2.00%-12.00% 2.00%-12.00% 2.00%-12.00% AVERAGE 7.00% 7.00% 7.90% CHANGE (BASIS POINTS) -- 0 -11.39
(a) Rate on unleveraged, all-cash transactions (b) Initial rate of change SOURCE: THE KORPACZ REAL ESTATE INVESTOR SURVEY, 1ST QUARTER 2003 [IRR LOGO] PAGE 99 HOLIDAY INN HUDSON VALUATION ANALYSIS REALTYRATES.COM INVESTOR SURVEY - 2ND QUARTER 2003 LODGING FACILITIES FULL SERVICE
ITEM INPUT OAR MINIMUM Spread Over 10-Year Treasury 1.49% DCR TECHNIQUE 1.30 0.070640 0.80 7.35 Debt Coverage Ratio 1.30 BAND OF INVESTMENT TECHNIQUE Interest Rate 5.83% Mortgage 80% 0.070640 0.056512 Amortization 30 Equity 20% 0.097500 0.019500 Mortgage Constant 0.070640 OAR 7.60 Loan-to-Value Ratio 80% SURVEYED RATES 7.75 Equity Dividend Rate 9.75% MAXIMUM Spread Over 10-Year Treasury 7.09% DCR TECHNIQUE 1.85 0.139649 0.60 15.37 Debt Coverage Ratio 1.85 BAND OF INVESTMENT TECHNIQUE Interest Rate 11.43% Mortgage 60% 0.139649 0.083091 Amortization 15 Equity 41% 0.188000 0.076140 Mortgage Constant 0.139649 OAR 15.92 Loan-to-Value Ratio 60% SURVEYED RATES 16.24 Equity Dividend Rate 18.80% AVERAGE Spread Over 10-Year Treasury 4.29% DCR TECHNIQUE 1.38 0.089348 0.70 8.60 Debt Cover age Ratio 1.38 BAND OF INVESTMENT TECHNIQUE Interest Rate 7.13% Mortgage 70% 0.089348 0.062320 Amortization 23 Equity 30% 0.138225 0.041813 Mortgage Constant 0.089348 OAR 10.41 Loan-to-Value Ratio 70% SURVEYED RATES 10.82 Equity Dividend Rate 13.82%
Copyright 2003 RealtyRates.com SOURCE: REALTYRATES.COM INVESTOR SURVEY 2ND QTR 2003 SURVEY RANGES (OVERALL CAPITALIZATION RATES)
STUDY RATE RANGE AVERAGE -------------------------------------------------------- Integra Realty Resources(1) 10% - 13% 11.3% RERC(2) 10.8% - 11.5% 11.0% PWc(3) 8% - 13% 10.64% Realty Rates(3) 7.75% - 18.17% 12.66%
(1) Suburban (2) All hotel types (3) For full service hotel product only [IRR LOGO] PAGE 100 HOLIDAY INN HUDSON VALUATION ANALYSIS OVERALL RATE CONCLUSION The applicable techniques used to estimate overall rates indicate a range of 11% to 13% as reasonable. In the final analysis, the quality, quantity, and durability of the subject's income must be considered when calculating an appropriate overall rate. The subject property should compete effectively, given its condition, location and affiliation. Our direct capitalization assumes that PIP renovations are complete and the subject is stabilized. The net income estimate includes full expenses with management and reserves. Therefore, the NOI projection appears reasonable. Current overbuilding fears have caused buyers and lenders to take a cautious attitude toward hotel assets. The subject's more remote location, age, and risk associated with contract business, and potential competition beyond the projection period from the Courtyard at Steeles Corner, is considered resulting in a higher range indication. In our opinion, a mid capitalization rate of 12.25% appears appropriate. Calculations are as follows:
NET OPERATING INCOME / OVERALL RATE = VALUE INDICATION -------------------- ------------ ---------------- $696,616 .1225% $ 5,686,661 Rounded $ 5,700,000
[IRR LOGO] PAGE 101 HOLIDAY INN HUDSON VALUATION ANALYSIS INTRODUCTION - DISCOUNTED CASH FLOW ANALYSIS We have used Argus software to develop a projection of periodic cash flows from the property over an anticipated investment holding period based on contract rents in place and anticipated future changes in market rent and operating expenses. This analysis considered current market conditions and our interpretation of the attitudes of informed investors concerning future trends. The table below sets forth the basic assumptions and projections utilized in this analysis and is followed by a summary of our cash flow model. DISCOUNTED CASH FLOW ASSUMPTIONS AND PROJECTIONS YEAR ONE August 2003 - July 2004 PROJECTION PERIOD 10 years PROGRAM Argus Software V-10 INCOME
YEAR 2003 2004 2005 2006 ------------------------------------------------------------------------------------------------------ OCCUPANCY 48% 49% 51% 51% (stabilized) ------------------------------------------------------------------------------------------------------ AVERAGE DAILY RATE $68 $69 $71 - ------------------------------------------------------------------------------------------------------
OCCUPANCY CHANGE Stated through 2005, stabilized through holding period ADR GROWTH RATE Stated through 2005 2% thereafter OTHER INCOME OTHER INCOME Increases at 2% annually EXPENSES OPERATING EXPENSES Based on stable % of revenue REVERSION REVERSION YEAR Year 11 REVERSION CAPITALIZATION RATE 12% REVERSION SELLING EXPENSES 2% DISCOUNT RATE (SEE RANGES BELOW) 13.5% - 15.5% VALUE CONCLUSION (ROUNDED) $5,700,000 - $6,400,000 DISCOUNT RATES Internal rate of return rounded to 13.5% to 15.5% based on the following.
STUDY RATE RANGE AVERAGE -------------------------------------------------------------------------- IRR Viewpoint 11.8% - 16% 13.4% RERC 13% - 14.5% 13.7% Korpacz 11.5% - 15% 13.51% --------------------------------------------------------------------------
[IRR LOGO] PAGE 102 HOLIDAY INN HUDSON VALUATION ANALYSIS Software: ARGUS Ver. 10.0.0 Date: 7/28/03 File: Holiday Inn Hudson 2003 Time: 11:27 Property Type: Hotel/Motel Ref#: AAQ Portfolio: Janus Properties Page: 1 SCHEDULE OF PROSPECTIVE CASH FLOW In Inflated Dollars for the Fiscal Year Beginning 8/1/2003
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 For the Years Ending Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 Jul-2009 -------- -------- -------- -------- -------- -------- GROSS REVENUE Room Revenue $3,431,117 $3,554,107 $3,806,395 $3,882,523 $3,960,174 $4,039,377 Food & Beverage 2,018,320 2,058,686 2,099,860 2,141,857 2,184,694 2,228,388 Telephone 40,000 40,800 41,616 42,448 43,297 44,163 Other 335,000 341,700 348,534 355,505 362,615 369,867 ---------- ---------- ----------- ---------- ---------- ---------- TOTAL GROSS REVENUE 5,824,437 5,995,293 6,296,405 6,422,333 6,550,780 6,681,795 ---------- ---------- ----------- ---------- ---------- ---------- DEPARTMENTAL EXPENSES Room Expense 857,779 888,527 951,599 970,631 990,044 1,009,844 Food & Beverage 1,675,206 1,708,709 1,742,884 1,777,741 1,813,296 1,849,562 Telephone 38,000 38,760 39,535 40,326 41,132 41,955 ---------- ---------- ----------- ---------- ---------- ---------- TOTAL DEPARTMENTAL EXPENSES 2,570,985 2,635,996 2,734,018 2,788,698 2,844,472 2,901,361 ---------- ---------- ----------- ---------- ---------- ---------- DEPARTMENTAL PROFIT 3,253,452 3,359,297 3,562,387 3,633,635 3,706,308 3,780,434 ---------- ---------- ----------- ---------- ---------- ---------- UNDISTRIBUTED EXPENSES Administrative & General 524,199 539,576 566,676 578,010 589,570 601,362 Marketing 465,955 479,623 503,712 513,787 524,062 534,544 Property Oper. & Maint. 291,222 299,765 314,820 321,117 327,539 334,090 Energy & Utilities 465,955 479,623 503,712 513,787 524,062 534,544 Management Fee 174,733 179,859 188,892 192,670 196,523 200,454 Franchise Fee 171,556 177,705 190,320 194,126 198,009 201,969 ---------- ---------- ----------- ---------- ---------- ---------- TOTAL UNDISTRIBUTED EXPENSES 2,093,620 2,156,151 2,268,132 2,313,497 2,359,765 2,406,963 ---------- ---------- ----------- ---------- ---------- ---------- GROSS OPERATING PROFIT 1,159,832 1,203,146 1,294,255 1,320,138 1,346,543 1,373,471 ---------- ---------- ----------- ---------- ---------- ---------- FIXED EXPENSES & COSTS Real Estate Taxes 183,652 187,325 191,072 194,893 198,791 202,767 Insurance 46,595 47,962 50,371 51,379 52,406 53,454 Reserves 232,977 239,812 251,856 256,893 262,031 267,272 ---------- ---------- ----------- ---------- ---------- ---------- TOTAL FIXED EXPENSES & COSTS 463,224 475,099 493,299 503,165 513,228 523,493 ---------- ---------- ----------- ---------- ---------- ---------- NET OPERATING INCOME 696,608 728,047 800,956 816,973 833,315 849,978 ---------- ---------- ----------- ---------- ---------- ---------- CASH FLOW BEFORE DEBT SERVICE $ 696,608 $ 728,047 $ 800,956 $ 816,973 $ 833,315 $ 849,978 & INCOME TAX ========== ========== ========== ========== ========== ========== Year 7 Year 8 Year 9 Year 10 Year 11 For the Years Ending Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014 -------- -------- -------- -------- -------- GROSS REVENUE Room Revenue $4,120,165 $4,202,568 $4,286,619 $4,372,352 $4,459,799 Food & Beverage 2,272,956 2,318,415 2,364,784 2,412,079 2,460,321 Telephone 45,046 45,947 46,866 47,804 48,760 Other 377,264 384,810 392,506 400,356 408,363 ---------- ---------- ---------- ---------- ---------- TOTAL GROSS REVENUE 6,815,431 6,951,740 7,090,775 7,232,591 7,377,243 ---------- ---------- ---------- ---------- ---------- DEPARTMENTAL EXPENSES Room Expense 1,030,041 1,050,642 1,071,655 1,093,088 1,114,950 Food & Beverage 1,886,553 1,924,284 1,962,771 2,002,026 2,042,066 Telephone 42,794 43,650 44,523 45,414 46,322 ---------- ---------- ---------- ---------- ---------- TOTAL DEPARTMENTAL EXPENSES 2,959,388 3,018,576 3,078,949 3,140,528 3,203,338 ---------- ---------- ---------- ---------- ---------- DEPARTMENTAL PROFIT 3,856,043 3,933,164 4,011,826 4,092,063 4,173,905 ---------- ---------- ---------- ---------- ---------- UNDISTRIBUTED EXPENSES Administrative & General 613,389 625,657 638,170 650,933 663,952 Marketing 545,234 556,139 567,262 578,607 590,179 Property Oper. & Maint. 340,772 347,587 354,539 361,630 368,862 Energy & Utilities 545,234 556,139 567,262 578,607 590,179 Management Fee 204,463 208,552 212,723 216,978 221,317 Franchise Fee 206,008 210,128 214,331 218,618 222,990 ---------- ---------- ---------- ---------- ---------- TOTAL UNDISTRIBUTED EXPENSES 2,455,100 2,504,202 2,554,287 2,605,373 2,657,479 ---------- ---------- ---------- ---------- ---------- GROSS OPERATING PROFIT 1,400,943 1,428,962 1,457,539 1,486,690 1,516,426 ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES & COSTS Real Estate Taxes 206,822 210,958 215,178 219,481 223,871 Insurance 54,523 55,614 56,726 57,861 59,018 Reserves 272,617 278,070 283,631 289,304 295,090 ---------- ---------- ---------- ---------- ---------- TOTAL FIXED EXPENSES & COSTS 533,962 544,642 555,535 566,646 577,979 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME 866,981 884,320 902,004 920,044 938,447 ---------- ---------- ---------- ---------- ---------- CASH FLOW BEFORE DEBT SERVICE $ 866,981 $ 884,320 $ 902,004 $ 920,044 $ 938,447 & INCOME TAX ========== ========== ========== ========== ==========
[IRR LOGO] PAGE 103 HOLIDAY INN HUDSON VALUATION ANALYSIS Software: ARGUS Ver. 10.0.0 Date: 7/28/03 File: Holiday Inn Hudson 2003 Time: 11:27 Property Type: Hotel/Motel Ref#: AAQ Portfolio: Janus Properties Page: 2 SCHEDULE OF SOURCES & USES OF CAPITAL Equity is Based on Property Value, Leverage and Operating Requirements
Year 1 Year 2 Year 3 Year 4 Year 5 For the Years Ending Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 -------- -------- -------- -------- -------- SOURCES OF CAPITAL Net Operating Gains $ 696,608 $728,047 $800,956 $816,973 $833,315 Initial Equity Contribution 5,692,408 Net Proceeds from Sale ---------- -------- -------- -------- -------- TOTAL SOURCES OF CAPITAL $6,389,016 $728,047 $800,956 $816,973 $833,315 ========== ======== ======== ======== ======== USES OF CAPITAL Property Present Value $5,692,408 ---------- -------- -------- -------- -------- DEFINED USES OF CAPITAL 5,692,408 ---------- -------- -------- -------- -------- CASH FLOW DISTRIBUTIONS 696,608 728,047 800,956 816,973 833,315 ---------- -------- -------- -------- -------- TOTAL USES OF CAPITAL $6,389,016 $728,047 $800,956 $816,973 $833,315 ========== ======== ======== ======== ======== UNLEVERAGED CASH ON CASH RETURN Cash to Purchase Price 12.24% 12.79% 14.07% 14.35% 14.64% NOI to Book Value 12.24% 12.79% 14.07% 14.35% 14.64% Year 6 Year 7 Year 8 Year 9 Year 10 For the Years Ending Jul-2009 Jul-2010 Jul-2011 Jul-2012 Jul-2013 -------- -------- -------- -------- -------- SOURCES OF CAPITAL Net Operating Gains $849,978 $866,981 $884,320 $902,004 $ 920,044 Initial Equity Contribution Net Proceeds from Sale 7,357,424 -------- -------- -------- -------- ---------- TOTAL SOURCES OF CAPITAL $849,978 $866,981 $884,320 $902,004 $8,277,468 ======== ======== ======== ======== ========== USES OF CAPITAL Property Present Value -------- -------- -------- -------- ---------- DEFINED USES OF CAPITAL -------- -------- -------- -------- ---------- CASH FLOW DISTRIBUTIONS 849,978 866,981 884,320 902,004 8,277,468 -------- -------- -------- -------- ---------- TOTAL USES OF CAPITAL $849,978 $866,981 $884,320 $902,004 $8,277,468 ======== ======== ======== ======== ========== UNLEVERAGED CASH ON CASH RETURN Cash to Purchase Price 14.93% 15.23% 15.54% 15.85% 16.16% NOI to Book Value 14.93% 15.23% 15.54% 15.85% 16.16%
[IRR LOGO] PAGE 104 HOLIDAY INN HUDSON VALUATION ANALYSIS Software: ARGUS Ver. 10.0.0 Date: 7/28/03 File: Holiday Inn Hudson 2003 Time: 11:27 Property Type: Hotel/Motel Ref#: AAQ Portfolio: Janus Properties Page: 3 PROSPECTIVE PROPERTY RESALE
Year 1 Year 2 Year 3 Year 4 Year 5 For the Years Ending Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 -------- -------- -------- -------- -------- RESALE AMOUNT Gross Proceeds from Sale $5,824,376 $6,407,648 $6,535,784 $6,666,520 $6,799,824 Commissions & Other Costs -116,488 -128,153 -130,716 -133,330 -135,996 ---------- ---------- ---------- ---------- ---------- NET PROCEEDS FROM SALE $5,707,888 $6,279,495 $6,405,068 $6,533,190 $6,663,828 ========== ========== ========== ========== ========== Year 6 Year 7 Year 8 Year 9 Year 10 For the Years Ending Jul-2009 Jul-2010 Jul-2011 Jul-2012 Jul-2013 -------- -------- -------- -------- -------- RESALE AMOUNT Gross Proceeds from Sale $6,935,848 $7,074,560 $7,216,032 $7,360,352 $7,507,576 Commissions & Other Costs -138,717 -141,491 -144,321 -147,207 -150,152 ---------- ---------- ---------- ---------- ---------- NET PROCEEDS FROM SALE $6,797,131 $6,933,069 $7,071,711 $7,213,145 $7,357,424 ========== ========== ========== ========== ==========
[IRR LOGO] PAGE 105 HOLIDAY INN HUDSON VALUATION ANALYSIS Software: ARGUS Ver. 10.0.0 Date: 7/28/03 File: Holiday Inn Hudson 2003 Time: 11:27 Property Type: Hotel/Motel Ref#: AAQ Portfolio: Janus Properties Page: 4 PROSPECTIVE PRESENT VALUE Cash Flow Before Debt Service plus Property Resale unted Annually (Endpoint on Cash Flow & Resale) over a 10-Year Period
For the P.V. of P.V. of P.V. of P.V. of P.V. of Analysis Year Annual Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Period Ending Cash Flow @ 13.50% @ 14.00% @ 14.50% @ 15.00% @ 15.50% -------- ------ --------- -------- -------- -------- -------- -------- Year 1 Jul-2004 $ 696,608 $ 613,752 $ 611,060 $ 608,391 $ 605,746 $ 603,124 Year 2 Jul-2005 728,047 565,155 560,208 555,327 550,508 545,752 Year 3 Jul-2006 800,956 547,798 540,623 533,571 526,642 519,832 Year 4 Jul-2007 816,973 492,294 483,713 475,319 467,107 459,070 Year 5 Jul-2008 833,315 442,415 432,798 423,431 414,305 405,415 Year 6 Jul-2009 849,978 397,588 387,239 377,202 367,469 358,027 Year 7 Jul-2010 866,981 357,304 346,477 336,025 325,930 316,181 Year 8 Jul-2011 884,320 321,102 310,007 299,340 289,086 279,224 Year 9 Jul-2012 902,004 288,566 277,373 266,661 256,405 246,588 Year 10 Jul-2013 920,044 259,328 248,176 237,550 227,421 217,765 ---------- ---------- ---------- ---------- ---------- ---------- Total Cash Flow 8,299,226 4,285,302 4,197,674 4,112,817 4,030,619 3,950,978 Property Resale @ 12.50% Cap 7,357,424 2,073,801 1,984,620 1,899,638 1,818,643 1,741,430 ---------- ---------- ---------- ---------- ---------- Total Property Present Value $6,359,103 $6,182,294 $6,012,455 $5,849,262 $5,692,408 ========== ========== ========== ========== ========== Rounded to Thousands $6,359,000 $6,182,000 $6,012,000 $5,849,000 $5,692,000 ========== ========== ========== ========== ========== Per Room 22,080 21,466 20,877 20,310 19,765 PERCENTAGE VALUE DISTRIBUTION Prospective Income 67.39% 67.90% 68.40% 68.91% 69.41% Prospective Property Resale 32.61% 32.10% 31.60% 31.09% 30.59% ========== ========== ========== ========== ========== 100.00% 100.00% 100.00% 100.00% 100.00%
[IRR LOGO] PAGE 106 HOLIDAY INN HUDSON VALUATION ANALYSIS Software: ARGUS Ver. 10.0.0 Date: 7/28/03 File: Holiday Inn Hudson 2003 Time: 11:27 Property Type: Hotel/Motel Ref#: AAQ Portfolio: Janus Properties Page: 5 PROPERTY SUMMARY REPORT TIMING & INFLATION Analysis Period: August 1, 2003 to July 31, 2013; 10 years Inflation Method: Fiscal General Inflation Rate: 0.00% PROPERTY SIZE & OCCUPANCY Property Size: 288 rooms Alternate Size: 1 room PROPERTY PURCHASE & RESALE Purchase Price: - Resale Method: Capitalize Net Operating Income Cap Rate: 12.50% Cap Year: Year 11 Commission/Closing Cost: 2.00% Net Cash Flow from Sale: $7,357,424 PRESENT VALUE DISCOUNTING Discount Method: Annually (Endpoint on Cash Flow & Resale) Unleveraged Discount Rate: 13.50% to 15.50%, 0.50% increments Unleveraged Present Value: $5,692,408 at 15.50%
[IRR LOGO] PAGE 107 HOLIDAY INN HUDSON VALUATION ANALYSIS VALUE INDICATION - DISCOUNTED CASH FLOW ANALYSIS Application of the DCF methodology resulted in an overall property value indication of $5,700,000 TO $6,400,000. VALUE INDICATION - INCOME CAPITALIZATION APPROACH Our analysis in the Income Capitalization Approach has resulted in the following value indications. DIRECT CAPITALIZATION $ 5,700,000 DISCOUNTED CASH FLOW ANALYSIS $5,700,000 TO $6,400,000
The two methods provide value indications that vary by approximately 12%; they are considered mutually supportive. The two methods may differ slightly in estimated amounts, and this is due to the use of the direct capitalization method as a "snapshot" of the property, whereas the discounted cash flow method reflects the anticipated cash flow over a longer holding period. The direct capitalization method is the technique most preferred by investors for properties similar to the subject. The discounted cash flow method is better suited to estimating value of a proposed asset, or one not yet stabilized. Given risk factors associated with the subject, we have correlated to a low range indication, supported by Direct Capitalization. Based on the preceding analysis, the most reasonable and well-supported value indication by the income capitalization approach is $5,700,000. [IRR LOGO] PAGE 108 HOLIDAY INN HUDSON VALUATION ANALYSIS RECONCILIATION Reconciliation involves the analysis of alternative value indications to determine a final value conclusion. Reconciliation is required because different value indications result from the use of multiple approaches and within the application of a single approach. The values indicated by our analyses are as follows. COST APPROACH NOT DEVELOPED SALES COMPARISON APPROACH $6,200,000 TO $6,300,000 INCOME CAPITALIZATION APPROACH $5,700,000
COST APPROACH The cost approach is most reliable for newer properties that have no significant level of accrued depreciation. The subject was constructed in 1967 and 1976 and exhibits significant accrued depreciation. Finally, purchasers of investment properties such as the subject do not typically rely upon the cost approach. Accordingly, this approach is not relied upon in this analysis. SALES COMPARISON APPROACH The sales comparison approach is most reliable in an active market when a number of similar properties have recently sold. In this case, an adequate number of sales were located. Due to shifting lodging trends given the recession and events of 2001, this approach may be considered less applicable than the Income Analysis. It does not provide a supportive conclusion. INCOME CAPITALIZATION APPROACH The income capitalization approach is often given primary reliance when evaluating investment properties. The value derived in the income capitalization approach is supported by a relatively large quantity of market data regarding room rates, occupancies, expenses and capitalization rates, and is considered to be consistent with market indications. An investor is the most likely purchaser of the appraised property and a typical investor would place greatest reliance on the income capitalization approach. For these reasons, the income capitalization approach is given the greatest weight in this analysis. FINAL CONCLUSION OF VALUE The two indications from the income capitalization approach fall within a relatively narrow range, and the sales comparison approach is considered supportive of the indication from the income capitalization approach. Based on the analyses and conclusions in the accompanying report, and subject to the definitions, assumptions, and limiting conditions expressed in this report, it is our opinion that the prospective market value of the Fee Simple estate of the subject as a going concern, as of June 20, 2003, is: [IRR LOGO] PAGE 109 HOLIDAY INN HUDSON VALUATION ANALYSIS FOURTEEN MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($5,700,000). The preceding value conclusion is subject to the following Extraordinary Assumptions and Limiting Conditions. 1. The subject is currently operating as a franchised Holiday Inn hotel. This appraisal implicitly assumes a sale, at which point the Franchisor will prepare a Product Improvement Plan (PIP) as one of the items required for transfer of the franchise. Our analysis assumes continued, uninterrupted affiliation with the existing franchise. Any PIP requirements necessary are assumed complete under the As Stabilized Value above. 2. We assume any leased items including furniture, fixtures and equipment are paid off at closing. Therefore we have not deducted any lease balances. We further assume accounts receivable and accounts payable are reconciled at closing. 3. The subject is an existing Holiday Inn hotel that was constructed in 1967/76. The most recent evaluation score was 94.45%, and the property received a passing score. No Product Improvement plan has reportedly been completed by Six Continents hotels for a transfer of this asset. The definition of Market value assumes a sale. A Product Improvement plan will be conducted at the time of application for a franchise transfer. Integra Realty resources has assumed continued affiliation with Holiday Inn Hotels. The stabilized value assumes that any product improvement items are completed. Therefore, the "As Is" market value could be LESS THAN reported above. Any PIP requirements should be deducted from the above Stabilized value. Our report, and value indication is subject to all transfer requirements of the affiliation, including a product improvement plan. 4. This appraisal assumes the Ameritech lease which expires in June of 2004 is renegotiated and extended throughout the duration of ownership. [IRR LOGO] PAGE 110 HOLIDAY INN HUDSON VALUATION ANALYSIS SEGREGATION OF GOING CONCERN VALUE The value estimate reflects the going concern of the lodging operation, including the contributory value of: land; building improvements; furniture, fixtures and equipment (FF&E); and business value, the latter including intangibles. The contributory value of the personal property is estimated to be $800,000 based on the personal property tax paid to the county. Business value exists based on three components: 1) franchise affiliation; 2) management expertise and 3) service. In our analysis we projected 83% market penetration and continued affiliation with Holiday Inn. This suggests business or going concern value exists. Principles of Integra Realty Resources has authored an article published in the Appraisal Journal. This article indicates an appropriate allocation of business value at 15% to 25%. Stabilized occupancy reflects 17% to 18% of reservations driven by the affiliation, including central reservations and global distribution systems, internet bookings, etc. Franchise costs approximate 8%, assuming 18% is ultimately resulting from affiliation, 10% of rooms revenue remains as business revenue. The Management contribution is less empirically quantifiable. At a 12% NOI ratio and 12.25% OAR, business value of $336,112 is indicated, rounded $300,000. We have allocated $300,000 of the subject's total going concern value as the business value allocation in this analysis. After deduction of FF&E and business value, the remainder is attributed to real estate including land and improvements. This allocation is summarized as follows. FF&E $ 800,000 Business Value $ 300,000 Real Estate $4,600,000 ---------- TOTAL $5,700,000
As Is Value is estimated by deducting deferred maintenance. A Product Improvement Plan may also be necessary to retain Holiday Inn affiliation. Preliminary costs are estimated in the Improvements Description at $900,000. Therefore, As Is Value as of the date of inspection, June 20, 2003, is estimated at. FOUR MILLION EIGHT HUNDRED THOUSAND DOLLARS $4,800,000 [IRR LOGO] PAGE 111 HOLIDAY INN HUDSON CERTIFICATION CERTIFICATION We certify that, to the best of our knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions. 3. We have no present or prospective interest in the property that is the subject of this report and no personal interest with respect to the parties involved. 4. We have no bias with respect to the property that is the subject of this report or the parties involved with this assignment. 5. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 6. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in compliance with the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP). 8. Eric E. Belfrage, MAI, CRE, ISHC and John R. Dehner has made a personal inspection of the property that is the subject of this report on June 20, 2003. Robin Lorms has not personally inspected the subject. 9. John R. Dehner has provided research assistance to the person(s) signing this certification. 10. This appraisal is not based on a requested minimum valuation, a specific valuation, or the approval of a loan. 11. We have not relied on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value. 12. It is our opinion that the subject does not include any enhancement in value as a result of any natural, cultural, recreational or scientific influences retrospective or prospective. 13. We have experience in appraising properties similar to the subject and are in compliance with the Competency Rule of USPAP. 14. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. [IRR LOGO] PAGE 112 HOLIDAY INN HUDSON CERTIFICATION 15. As of the date of this appraisal, Eric E. Belfrage, MAI, CRE, ISHC has and Robin M. Lorms, MAI, CRE has not completed the requirements of the continuing education program of the Appraisal Institute. Qualifications of the Appraiser(s) are in Addendum A. Eric E. Belfrage, MAI, CRE, ISHC Robin M. Lorms, MAI, CRE Certified General Real Estate Appraiser Certified General Real Estate Appraiser OH Certificate #383767 OH Certificate #383772 [IRR LOGO] PAGE 113 HOLIDAY INN HUDSON ASSUMPTIONS AND LIMITING CONDITIONS ASSUMPTIONS AND LIMITING CONDITIONS In conducting this appraisal, we have assumed, except as otherwise noted in our report, as follows: 1. The title is marketable and free and clear of all liens, encumbrances, encroachments, easements and restrictions. The property is under responsible ownership and competent management and is available for its highest and best use. 2. There are no existing judgments or pending or threatened litigation that could affect the value of the property. 3. There are no hidden or undisclosed conditions of the land or of the improvements that would render the property more or less valuable. 4. The revenue stamps placed on any deed referenced herein to indicate the sale price are in correct relation to the actual dollar amount of the transaction. 5. The property is in compliance with all applicable building, environmental, zoning, and other federal, state and local laws, regulations and codes. Our appraisal report is subject to the following limiting conditions, except as otherwise noted in our report. 6. An appraisal is inherently subjective and represents our opinion as to the value of the property appraised. 7. The conclusions stated in our appraisal apply only as of the effective date of the appraisal, and no representation is made as to the affect of subsequent events. 8. No changes in any federal, state or local laws, regulations or codes (including, without limitation, the Internal Revenue Code) are anticipated. 9. No environmental impact studies were either requested or made in conjunction with this appraisal, and we reserve the right to revise or rescind any of the value opinions based upon any subsequent environmental impact studies. If any environmental impact statement is required by law, the appraisal assumes that such statement will be favorable and will be approved by the appropriate regulatory bodies. 10. We are not required to give testimony or to be in attendance in court or any government or other hearing with reference to the property without written contractual arrangements having been made relative to such additional employment. 11. We have made no survey of the property and assume no responsibility in connection with such matters. Any sketch or survey of the property included in this report is for illustrative purposes only and should not be considered to be scaled accurately for size. The appraisal covers the property as described in this report, and the areas and dimensions set forth are assumed to be correct. 12. No opinion is expressed as to the value of subsurface oil, gas or mineral rights, if any, and we have assumed that the property is not subject to surface entry for the exploration or removal of such materials, unless otherwise noted in our appraisal. [IRR LOGO] PAGE 114 HOLIDAY INN HUDSON ASSUMPTIONS AND LIMITING CONDITIONS 13. We accept no responsibility for considerations requiring expertise in other fields. Such considerations include, but are not limited to, legal descriptions and other legal matters, geologic considerations, such as soils and seismic stability, and civil, mechanical, electrical, structural and other engineering and environmental matters. 14. The distribution of the total valuation in this report between land and improvements applies only under the reported highest and best use of the property. The allocations of value for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. This appraisal report shall be considered only in its entirety. No part of this appraisal report shall be utilized separately or out of context. 15. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or any reference to the Appraisal Institute) shall be disseminated through advertising media, public relations media, news media or any other means of communication (including without limitation prospectuses, private offering memoranda and other offering material provided to prospective investors) without prior written consent from Integra Realty Resources. 16. Information, estimates and opinions contained in this report, obtained from sources outside of the office of the undersigned, are assumed to be reliable and have not been independently verified. 17. Any income and expense estimates contained in this appraisal report are used only for the purpose of estimating value and do not constitute predictions of future operating results. 18. If the property is subject to one or more leases, any estimate of residual value contained in the appraisal may be particularly affected by significant changes in the condition of the economy, of the real estate industry, or of the appraised property at the time these leases expire or otherwise terminate. 19. No consideration has been given to personal property located on the premises or to the cost of moving or relocating such personal property; only the real property has been considered. 20. The current purchasing power of the dollar is the basis for the value stated in our appraisal; we have assumed that no extreme fluctuations in economic cycles will occur. 21. The value found herein is subject to these and to any other assumptions or conditions set forth in the body of this report but which may have been omitted from this list of Assumptions and Limiting Conditions. 22. The analyses contained in this report necessarily incorporate numerous estimates and assumptions regarding property performance, general and local business and economic conditions, the absence of material changes in the competitive environment and other matters. Some estimates or assumptions, however, inevitably will not materialize, and unanticipated events and circumstances may occur; therefore, actual results achieved during the period covered by our analysis will vary from our estimates, and the variations may be material. 23. The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific survey or analysis of this property to determine [IRR LOGO] PAGE 115 HOLIDAY INN HUDSON ASSUMPTIONS AND LIMITING CONDITIONS whether the physical aspects of the improvements meet the ADA accessibility guidelines. In as much as compliance matches each owner's financial ability with the cost to cure the non-conforming physical characteristics of a property, we cannot comment on compliance to ADA. Given that compliance can change with each owner's financial ability to cure non-accessibility, the value of the subject does not consider possible non-compliance. Specific study of both the owner's financial ability and the cost to cure any deficiencies would be needed for the Department of Justice to determine compliance. 24. This appraisal report has been prepared for the exclusive benefit of Murray Devine & Co. It may not be used or relied upon by any other party. All parties who use or rely upon any information in this report without our written consent do so at their own risk. 25. No studies have been provided to us indicating the presence or absence of hazardous materials on the site or in the improvements, and our valuation is predicated upon the property being free and clear of any environment hazards. 26. We have not been provided with any evidence or documentation as to the presence or location of any flood plain areas and/or wetlands. Wetlands generally include swamps, marshes, bogs, and similar areas. We are not qualified to detect such areas. The presence of flood plain areas and/or wetlands may affect the value of the property, and the value conclusion is predicated on the assumption that wetlands are non-existent or minimal. 22. The reader is advised a lodging facility is a labor-intensive retail business that depends on customer acceptance and highly specialized management skill. This analysis assumes that the subject will have competent, professional management, responsible ownership, and that the existing franchise, if any, will be maintained throughout the projection period. A fully-funded reserve for replacement is one of the essential elements of competent management and responsible ownership. The value conclusion is subject to the following Extraordinary Assumptions and Limiting Conditions. 1. The subject is currently operating as a franchised Holiday Inn hotel. This appraisal implicitly assumes a sale, at which point the Franchisor will prepare a Product Improvement Plan (PIP) as one of the items required for transfer of the franchise. Our analysis assumes continued, uninterrupted affiliation with the existing franchise. Any PIP requirements necessary are assumed complete under the As Stabilized Value above. 2. We assume any leased items including furniture, fixtures and equipment are paid off at closing. Therefore we have not deducted any lease balances. We further assume accounts receivable and accounts payable are reconciled at closing. 3. The subject is an existing Holiday Inn hotel that was constructed in 1967/76. The most recent guest satisfaction score was 94.45%, and the property received a passing score. No Product Improvement plan has reportedly been completed by Intercontinental Hotels and Resorts for a transfer of this asset. The definition of Market value assumes a sale. A Product Improvement plan will be conducted at the time of application for a franchise transfer. Integra Realty resources has assumed continued affiliation with Holiday Inn Hotels. The stabilized value [IRR LOGO] PAGE 116 HOLIDAY INN HUDSON ASSUMPTIONS AND LIMITING CONDITIONS assumes that any product improvement items are completed. Therefore, the "As Is" market value could be LESS THAN reported above. Any PIP requirements should be deducted from the above Stabilized value. Our report, and value indication is subject to all transfer requirements of the affiliation, including a product improvement plan. 4. This appraisal assumes the Ameritech lease which expires in June of 2004 is renegotiated and extended throughout the duration of ownership. [IRR LOGO] PAGE 117 HOLIDAY INN HUDSON ADDENDUM A QUALIFICATIONS OF APPRAISER(S) [IRR LOGO] PROFESSIONAL QUALIFICATIONS OF ERIC E. BELFRAGE, MAI, CRE, ISHC EXPERIENCE: Managing Director for INTEGRA REALTY RESOURCES, COLUMBUS, OHIO. Mr. Belfrage is also the NATIONAL DIRECTOR OF IRRS HOSPITALITY SPECIALTY PRACTICE. He has been actively engaged in real estate valuation and consulting since the mid 1970's. Background includes 25 years of independent fee appraisal. Experience has largely focused on consulting, evaluating and appraising lodging property. Valuations have been performed on various properties including, but not limited to, neighborhood and community shopping centers, apartment complexes, single and multi-tenanted industrial buildings, low to high-rise office buildings, mixed use facilities and vacant land for various uses. Specialized real estate valued includes hotels, rehab facilities, and churches. Clients served include accountants, investment firms, law firms, and lenders, private and public agencies. Valuations have been performed for real estate tax, estates, financing, equity participation and due diligence support. Market studies, feasibility studies, and valuations have been done on proposed, partially completed, renovated, and existing structures. PROFESSIONAL Designated Member: Appraisal Institute (MAI No. 7436) ACTIVITIES: SRA Member Past Chapter President Cardinal Ohio AI chapter 2001 Member: The International Society of Hospitality Consultants (ISHC Designation) Member: The Counselors of Real Estate (CRE Designation) Member: Columbus Board of Realtors (25 years) Member: The National Association of Realtors (25 years) Allied The Ohio Hotel & Lodging Association Member: (1998 Allied Member of the Year) Licensed: Ohio General Appraiser License No. 383767 Licensed: Ohio Real Estate Salesperson Author: "The Columbus Lodging Overview" (published annually) "Business Value Allocation in Lodging Valuation" (published in The Appraisal Journal - August 2001) EDUCATION: B.S. Degree, Business Administration, Franklin University, Columbus, Ohio (1984). Successfully completed numerous real estate related courses & seminars sponsored by the Appraisal Institute, accredited universities & others. Currently certified by the Appraisal Institute's voluntary program of continuing education for its designated members. QUALIFIED BEFORE Franklin County Court of Common Pleas, Columbus, Ohio COURTS AND United States Federal Bankruptcy Court, Columbus, Ohio ADMINISTRATIVE State of Ohio Board of Tax Appeals BODIES Franklin County Board of Revision APPRAISER DISCLOSURE STATEMENT IN COMPLIANCE WITH OHIO REVISED CODE SECTION 4763:12 (C) 1. NAME OF APPRAISER: ERIC E. BELFRAGE 2. Class of Certification/Licensure: X Certified General ___ Licensed Residential ___ Temporary ___ General ___ Licensed Certification/Licensure Number: 383767 3. Scope: This report X Is within the scope of my Certification or License. Is not within the scope of my Certification of License. 4. Service provided by: X Disinterested & Unbiased Third Party ___ Interested & Biased Third Party Interested Third Party on Contingent Fee Basis 5. Signature of person preparing and reporting the appraisal: /s/ Eric E. Belfrage ------------------------- This form must be included in conjunction with all appraisal assignments or specialized services performed by a state-certified or state licensed real estate appraiser. PROFESSIONAL QUALIFICATIONS OF ROBIN M. LORMS, MAI, CRE EXPERIENCE: Principal for Integra Lorms & Belfrage of Columbus, Ohio. Actively engaged in real estate valuation and consulting experience includes investment decision making in regard to acquisitions, development, property management, leasing and value decisions for third party owners, as well as internal to existing but not limited to, neighborhood and community shopping centers, apartment complexes, single and multi-tenanted industrial buildings, low to high-rise office buildings, mixed use facilities and vacant land for different uses. Specialized real estate valued includes developers, regional mall, institutional facilities and churches. Clients served include accountants, investment firms, law firms, and lenders, private and public agencies. Valuations have been performed for real estate tax, estates, financing, equity participation and due diligence support. Valuations and market studies have been done on proposed, partially completed, renovated and existing structures. PROFESSIONAL Member: Appraisal Institute ACTIVITIES: Member: The Counselors of Real Estate Member: The International Council of Shopping Centers Member: The Columbus Board of Real Estate Member: Ohio Association of Realtors Licensed: Ohio General Appraiser License No. 383772 Licensed: Ohio Real Estate Salesperson EDUCATION: B.A. Degree, Marquette University (1965). Successfully completed numerous real estate related courses & seminars sponsored by the Appraisal Institute, accredited universities & others. QUALIFIED BEFORE Franklin County Court of Common Pleas, Columbus, Ohio COURTS AND United States Federal Bankruptcy Court, Columbus, Ohio ADMINISTRATIVE State of Ohio Board of Tax Appeals BODIES Franklin County Board of Revision APPRAISER DISCLOSURE STATEMENT IN COMPLIANCE WITH OHIO REVISED CODE SECTION 4763:12 (C) 1. NAME OF APPRAISER: ROBIN M. LORMS 2. Class of Certification/Licensure: X Certified General ___ Licensed Residential ___ Temporary ___ General ___ Licensed Certification/Licensure Number: 383772 3. Scope: This report X Is within the scope of my Certification or License. Is not within the scope of my Certification of License. 4. Service provided by: X Disinterested & Unbiased Third Party ___ Interested & Biased Third Party Interested Third Party on Contingent Fee Basis 5. Signature of person preparing and reporting the appraisal: /s/ Robin M. Lorms --------------------------- This form must be included in conjunction with all appraisal assignments or specialized services performed by a state-certified or state licensed real estate appraiser. INTEGRA REALTY RESOURCES, INC. CORPORATE PROFILE Integra Realty Resources, Inc., is the largest property valuation and counseling firm in the United States, with 50 offices in 30 states. Integra was created for the purpose of combining the intimate knowledge of well-established local offices with the powerful resources and capabilities of a national company. Integra's local offices have an average of 20 years of service in the local market. A Managing Director leads each office, with an average of 25 years of local market valuation and counseling experience. Integra Realty Resources, Inc., has 140 professionals who hold the Appraisal Institute's MAI designation, of which 26 are CRE members of The Counselors of Real Estate. In addition to having expertise in the standard commercial property types, the firm has an extensive track record in specialty property classes including regional malls, hotels, health care facilities, golf courses, and pipeline rights-of-way. Integra also has a wealth of experience in market and feasibility studies, property tax consulting, litigation support, and machinery and equipment and business valuation. A listing of Integra's local offices and their Managing Directors follows: ATLANTA, GA - J. Carl Schultz, Jr., MAI, SRA, CRE MILWAUKEE, WI - SEAN REILLY, MAI ATLANTIC COAST NJ - Anthony S. Graziano, MAI, CRE MINNEAPOLIS, MN - ALAN P. LEIRNESS, MAI, CCIM AUSTIN, TX - Randy A. Williams, MAI MORGANTOWN, WV - THOMAS A. MOTTA, MAI, CRE BALTIMORE, MD - Patrick C. Kerr, MAI, SRA NAPLES, FL - JULIAN STOKES, MAI, CRE, CCIM BOSTON, MA - DAVID L. CARY, MAI, SRA, CRE NASHVILLE, TN - R. PAUL PERUTELLI, MAI, SRA CHARLOTTE, NC - FITZHUGH L. STOUT, MAI, CRE NEW YORK, NY - RAYMOND T. CIRZ, MAI, CRE, CHICAGO, IL - GARY K. DECLARK, MAI, CRE DOV E. GOLDMAN, MAI, CRE CHICAGO, IL - J. Scott Patrick, MAI NORTHERN NJ - BARRY J. KRAUSER, MAI, CRE CINCINNATI, OH - GARY S. WRIGHT, MAI, SRA ORANGE COUNTY, CA - LARRY WEBB, MAI COLUMBIA, SC - MICHAEL B. DODDS, MAI, CCIM ORLANDO, FL - GEORGE L. GOODMAN, MAI COLUMBUS, OH - ERIC E. BELFRAGE, MAI, CRE, ISHC PHILADELPHIA, PA - JOSEPH D. PASQUARELLA, MAI, CRE DALLAS, TX - MARK R. LAMB, MAI, CPA PHOENIX, AZ - WALTER WINIUS, JR., MAI, CRE DAYTON, OH - MARK L.MIDDLETON, MAI, SRA PITTSBURGH, PA - PAUL D. GRIFFITH, MAI DENVER, CO - BRAD A. WEIMAN, MAI PORTLAND, OR - BRIAN A. GLANVILLE, MAI, CRE DETROIT, MI - ANTHONY SANNA, MAI PROVIDENCE, RI - GERARD H. MCDONOUGH, MAI FORT MYERS, FL - WOODWARD S. HANSON, MAI, CRE, CCIM RICHMOND, VA - ROBERT E. COLES, MAI, CRE FORT WORTH, TX - DONALD J. SHERWOOD, MAI SACRAMENTO, CA - Scott Beebe, MAI HARTFORD, CT - MARK F. BATES, MAI, CRE SAN ANTONIO, TX - Martyn C. Glen, MAI, CRE, FRICS HOUSTON, TX - DAVID R. DOMINY, MAI SAN DIEGO, CA - LANCE W. DORE, MAI INDIANAPOLIS, IN - MICHAEL C. LADY, MAI, SRA, CCIM SAN FRANCISCO, CA - JAN KLECZEWSKI, MAI KANSAS CITY, MO/KS - KEVIN K. NUNNINK, MAI SAVANNAH, GA - J. CARL SCHULTZ, JR., MAI, SRA, CRE LAS VEGAS, NV - SHELLI L. LOWE, MAI, SRA SEATTLE, WA - ALLEN N. SAFER, MAI LOS ANGELES, CA - JOHN G. ELLIS, MAI TAMPA, FL - BRADFORD L. JOHNSON, MAI LOUISVILLE, KY - GEORGE M. CHAPMAN, MAI, SRA, CRE TULSA, OK - ROBERT E. GRAY, MAI MEMPHIS, TN - J. WALTER ALLEN, MAI WASHINGTON, DC - PATRICK C. KERR, MAI, SRA MIAMI, FL - MICHAEL Y. CANNON, MAI, SRA, CRE
CORPORATE OFFICE Raymond T. Cirz, MAI, CRE, President/CEO Kevin K. Nunnink, MAI, Chairman George G. Ward, MAI, Vice President 3 Park Avenue, 39th Floor, New York, NY 10016-5902 P: (212) 255-7858; F: (646) 424-1869; E-Mail: Integra@irr.com VISIT OUR WEB SITE AT HTTP://WWW.IRR.COM HOLIDAY INN HUDSON DEFINITIONS ADDENDUM B DEFINITIONS [IRR LOGO] PAGE B1 HOLIDAY INN HUDSON DEFINITIONS DEFINITIONS These definitions have been extracted, solely or in combination, from definitions and descriptions printed in: - Uniform Standards of Professional Appraisal Practice, 2002 Edition (USPAP); - The Dictionary of Real Estate Appraisal, Third Edition, Appraisal Institute, Chicago, Illinois, 1993 (Dictionary); - The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute, Chicago, Illinois, 2001 (Twelfth Edition); - Income/Expense Analysis, 2001 Edition - Conventional Apartments, Institute of Real Estate Management, Chicago, Illinois, 2001 (IREM); - Marshall Valuation Service, Marshall & Swift, Los Angeles, California, (Marshall). ACCRUED DEPRECIATION The difference between the reproduction or replacement cost of the improvements on the effective date of the appraisal and the market value of the improvements on the same date. (Dictionary) AMENITY A tangible or intangible benefit of real property that enhances its attractiveness or increases the satisfaction of the user, but is not essential to its use. Natural amenities may include a pleasant location near water or a scenic view of the surrounding area; man-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities. (Dictionary) APPRAISAL The act or process of developing an opinion of value; an opinion of value. (USPAP) BUSINESS VALUE A value enhancement that results from items of intangible personal property such as marketing and management skill, an assembled work force, working capital, trade names, franchises, patents, trademarks, contracts, leases, and operating agreements (Dictionary). DEFERRED MAINTENANCE Curable, physical deterioration that should be corrected immediately, although work has not commenced; denotes the need for immediate expenditures, but does not necessarily suggest inadequate maintenance in the past. (Dictionary) DISCOUNTED CASH FLOW (DCF) ANALYSIS The procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate. DCF analysis can be applied with any yield capitalization technique and may be performed on either a lease-by-lease or aggregate basis. (Dictionary) [IRR LOGO] PAGE B1 HOLIDAY INN HUDSON DEFINITIONS EFFECTIVE DATE OF THE APPRAISAL The date at which the value opinion is an appraisal applies, which may or may not be the date of inspection; the date of the market conditions that provide the context for the value opinion. Current appraisals occur when the effective date of the appraisal is contemporaneous with the date of the report. Prospective value opinions (effective date of the appraisal subsequent to the date of the report) are intended to reflect the current expectations and perceptions along with available factual data. Retrospective value opinions are likely to apply as of a specific historic date; the opinions are intended to reflect the expectations and perceptions of market participants at the specified date, along with available factual data. Data subsequent to the effective date may be considered in estimating a retrospective value as a confirmation of trends. (Dictionary and USPAP) ENTREPRENEURIAL INCENTIVE A market-derived figure that represents the amount an entrepreneur expects to receive as compensation for providing coordination and expertise and assuming the risks associated with the development of a project. (Twelfth Edition) ENTREPRENEURIAL PROFIT A market-derived figure that represents the amount an entrepreneur receives for his or her contribution to a project and risk; the difference between the development cost of a property and its market value upon completion and stabilization, which represents the entrepreneur's compensation for the risk and expertise associated with development. Entrepreneurial profit is an amount earned, estimated after completion, while entrepreneurial incentive is an amount anticipated, prior to development. (Twelfth Edition) EXPOSURE TIME Exposure time is the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. Exposure time differs from the marketing period in that exposure time is assumed to precede the effective date of the appraisal. (USPAP and Dictionary) FEE SIMPLE ESTATE Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. (Dictionary) GOING-CONCERN VALUE The value created by a proven property operation; considered as a separate entity to be valued with a specific business establishment. (Dictionary) GROSS BUILDING AREA (GBA) The total floor area of a building, including below-grade space but excluding unenclosed areas; measured from the exterior of the walls. (Dictionary) HIGHEST AND BEST USE The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the [IRR LOGO] PAGE B2 HOLIDAY INN HUDSON DEFINITIONS highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability. (Dictionary) INSURABLE VALUE Value used by insurance companies as the basis for insurance. Often considered to be replacement or reproduction cost less deterioration and non-insurable items. Sometimes cash value or market value but often entirely a cost concept. Non-insurable items (also known as exclusions) are a matter of underwriting policy, not valuation. (Marshall) INVESTMENT VALUE The specific value of an investment to a particular investor or class of investors based on individual investment requirements; distinguished from market value, which is impersonal and detached. (Dictionary) LEASED FEE ESTATE An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. (Dictionary) LEASEHOLD ESTATE The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions. (Dictionary) MARKET VALUE The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: - buyer and seller are typically motivated; - both parties are well informed or well advised, and acting in what they consider their best interests; - a reasonable time is allowed for exposure in the open market; - payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and - the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (USPAP, according to the Federal Register, CFR 34.43(F)) MARKETING PERIOD The amount of time it might take to sell an interest in real property at its estimated market value during the period immediately after the effective date of the appraisal. Marketing period is a function of price, time, use, and anticipated market conditions. (Dictionary and USPAP) [IRR LOGO] PAGE B3 HOLIDAY INN HUDSON DEFINITIONS RENTABLE FLOOR AREA (RFA) An area computed by measuring the inside finish of permanent outer building walls or from the glass line where at least 50% of the outer building wall is glass. Rentable floor area also includes all areas within outside walls less stairs, elevator shafts, flues, pipe shafts, vertical ducts, air conditioning rooms, fan rooms, janitor closets, electrical closets, balconies and such other rooms not actually available to the tenant for his furnishings and personnel and their enclosing walls. No deductions are made for columns and projections necessary to the building. (IREM) REPLACEMENT COST The estimated cost to construct, at current prices as of the effective date of the appraisal, a building with utility equivalent to the building being appraised, using modern materials and current standards, design and layout. (Dictionary and USPAP) REPRODUCTION COST The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject building. (Dictionary) ROOM COUNT The number of rooms in a building; a unit of comparison used primarily in residential appraisal. No national standard exists on what constitutes a room. The Federal Housing Administration counts an alcove opening off the living room as one-half room, but does not count dining space within a kitchen. The generally accepted method is to consider as separate rooms only those rooms that are effectively divided and to exclude bathrooms. (Dictionary) STABILIZED OCCUPANCY Occupancy at that point in time when abnormalities in supply and demand or any additional transitory conditions cease to exist and the existing conditions are those expected to continue over the economic life of the property; the optimum range of long-term occupancy which an income-producing real estate project is expected to achieve under competent management, after exposure for leasing in the open market for a reasonable period of time at terms and conditions comparable to competitive offerings. (Dictionary) USE VALUE The value a specific property has for a specific use. (Dictionary) [IRR LOGO] PAGE B4 HOLIDAY INN HUDSON ADDENDUM C SUBJECT PHOTOGRAPHS [IRR LOGO] HOLIDAY INN HUDSON [PICTURE] [PICTURE] [PICTURE] [PICTURE] [PICTURE] [PICTURE] [IRR LOGO] HOLIDAY INN HUDSON [PICTURE] [PICTURE] [PICTURE] [PICTURE] [PICTURE] [PICTURE] [IRR LOGO] HOLIDAY INN HUDSON [PICTURE] [PICTURE] [IRR LOGO] HOLIDAY INN HUDSON ADDENDUM D FINANCIALS AND PROPERTY INFORMATION [IRR LOGO] HOLIDAY INN HUDSON ADDENDUM E LETTER OF AUTHORIZATION [IRR LOGO]