-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FeJFHiKK2xr9Xu9MCfQE2SjBiEwpODqupPBs1UblhCpKfrmIYaZzRYGXO3nUp7w7 /MaKJVwG0ObQAjcAT329EQ== 0001011723-98-000152.txt : 19980923 0001011723-98-000152.hdr.sgml : 19980923 ACCESSION NUMBER: 0001011723-98-000152 CONFORMED SUBMISSION TYPE: PRER14A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980922 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAMOUS HOST LODGING V LP CENTRAL INDEX KEY: 0000737876 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 942933595 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRER14A SEC ACT: SEC FILE NUMBER: 000-14540 FILM NUMBER: 98712778 BUSINESS ADDRESS: STREET 1: 2030 J ST CITY: SACRAMENTO STATE: CA ZIP: 95814 BUSINESS PHONE: 9164429183 MAIL ADDRESS: STREET 1: 2030 J STREET STREET 2: 2030 J STREET CITY: SACRAMENTO STATE: CA ZIP: 95814 FORMER COMPANY: FORMER CONFORMED NAME: SUPER 8 LODGING V LTD DATE OF NAME CHANGE: 19910331 PRER14A 1 AMENDMENT NO. 3 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. 3) Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ] Check the appropriate box: [X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 Famous Host Lodging V, L.P. (Name of Registrant as Specified In Its Charter) N/A (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [ ] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: ------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: ------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: ------------------------------------------------------ 5) Total fee paid: ------------------------------------------------------ [X] Fee paid previously with preliminary materials. [X] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: $820 2) Form, Schedule or Registration Statement No.: Schedule 14A 3) Filing Party: Registrant 4) Dated Filed: May 15, 1998 REVISED PRELIMINARY COPY CONSENT SOLICITATION STATEMENT PROPOSED ACTIONS BY WRITTEN CONSENT OF LIMITED PARTNERS OF FAMOUS HOST LODGING V, L.P. October ____, 1998 INTRODUCTION The limited partners (the "Limited Partners") of FAMOUS HOST LODGING V, L.P., a California limited partnership (the "Partnership"), are being asked by the Partnership and Grotewohl Management Services, Inc. (the "Managing General Partner") to consider and approve by written consent the proposed sale of all of the Partnership's interests in real property and related personal property (the "Property") for an aggregate purchase price of $4,100,000, and the dissolution of the Partnership, which proposal is described hereinafter ("Proposal #1"). If Proposal #1 is approved and the proposed sale is consummated, among other things, all of the Partnership's assets will be liquidated and the Partnership will be dissolved. (See "Effects of Approval of the Proposals" below.) If Proposal #1 is approved, the Partnership will be authorized to sell the Property to Tiburon Capital Corporation, or a nominee thereof (the "Buyer"). As discussed below under "Purchase Agreement," Mark Grotewohl, a former employee of the Partnership and the son of the two owners of the Managing General Partner, is an affiliate of the Buyer. The Limited Partners are urged to consider the following additional factors: - The Buyer is engaging in the transaction in order to make a profit by operating the Property, and the Buyer's interests differ from those of the Limited Partners. (See "Purchase Agreement" and "Special Factors.") - The Managing General Partner is subject to conflicts of interest, including conflicts arising from the settlement of lawsuits (see "Legal Proceedings"), which may have impacted its decision to sell the Property, its conduct of negotiations leading to the proposed sale of the Property and its recommendation with respect thereto. (See "Conflicts of Interest.") - The Managing General Partner did not list the Property for sale to obtain competitive bids. Instead, the Managing General Partner obtained a formal appraisal of the Property upon which the purchase price therefor is based. (See "Special Factors" and "Conflicts of Interest.") It is possible, then, that the Partnership might have received a higher price for the Property if it had solicited offers by listing the Property. - The appraiser may be subject to conflicts of interest in that it has prepared other appraisals for the Managing General Partner. (See "Appraisal of the Property/Fairness Opinion.") i - The Managing General Partner did not retain an unaffiliated representative to act solely on behalf of the Limited Partners in negotiating the terms of the proposed transaction. (See "Special Factors.") - The Limited Partners will be allocated taxable gain if the Property is sold. (See "Effects of Approval of the Proposals - Federal Income Tax Consequences.") Specifically, the Limited Partners are being asked to approve the following Proposals: Proposal #1. An amendment to the Partnership Agreement to grant to the Managing General Partner authority to sell the Property and related personal property to the Buyer, notwithstanding that the Buyer is an Affiliate of Mark Grotewohl; to dissolve and wind up the affairs of the Partnership; to distribute the proceeds of the sale and any other cash held by the Partnership in accordance with the Partnership Agreement; to terminate the Partnership; and to take any action deemed necessary or appropriate by it to accomplish the foregoing. The exact wording of such amendment is set forth under "Amendments to Partnership Agreement." Proposal #2. An amendment to the Partnership Agreement to grant to the Managing General Partner authority, without the further approval of the Limited Partners, to sell the Property if the purchaser is not an affiliate of the General Partners, and if such sale is for "all cash," and represents an amount equal to or greater than the amount reflected in an appraisal which is not more than 15 months old at the date the purchase agreement is executed; to dissolve and wind up the affairs of the Partnership; to distribute the proceeds of the sale and any other cash held by the Partnership in accordance with the Partnership Agreement; to terminate the Partnership; and to take any action deemed necessary or appropriate by it to accomplish the foregoing. The exact wording of such amendment is set forth under "Amendments to Partnership Agreement." If the Limited Partners approve Proposal #1, Proposal #2 (whether approved or not) will be of no force and effect unless the sale to the Buyer pursuant to Proposal #1 is not consummated. If the Property is not sold pursuant to Proposal #1 (either because Proposal #1 is not approved or because Proposal #1 is approved but the Property is not sold to the Buyer) and Proposal #2 is approved by the Limited Partners, the Managing General Partner will endeavor to sell the Property pursuant to Proposal #2. If the Limited Partners approve Proposal #1, closing of the sale will be subject to certain terms and conditions, including the availability of sufficient debt financing to the Buyer. (See "Purchase Agreement.") If the sale is consummated, distributions will be made to the Limited Partners in accordance with the terms of the Partnership's Certificate and Agreement of Limited Partnership (the "Partnership Agreement"). In an amendment to the settlement agreement respecting the lawsuits discussed below (see "Legal Proceedings"), the Partnership agreed to close the proposed transaction within a 30-day period after approval thereof by the Limited Partners, so as to provide the Limited Partners with the proceeds from the sale as quickly as possible. Proposal #1 and Proposal #2 are subject to the approval of a majority-in-interest of the Limited Partners. If the Limited Partners do not approve Proposal #1 or Proposal #2, the Partnership will continue to conduct its operations as usual. ii The purchase agreement was executed on April 30, 1998 by John F. Dixon and William R. Dixon, Jr., on behalf of the Buyer, and Philip B. Grotewohl and David P. Grotewohl, on behalf of the Partnership. The purchase agreement also covers the proposed sale of the Property of four other California limited partnerships as to which the Managing General Partner serves as Managing General Partner. The term of all such purchases are identical, except for the amount being offered for each property. The Buyer has the right to rescind the purchase agreement if any of the five partnerships fails to approve the sale of its property or Property to the Buyer. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. This Consent Solicitation Statement and the enclosed form of Actions By Written Consent of Limited Partners (the "Consent") were first sent to the Limited Partners on or about October __, 1998. Units of limited partnership interest in the Partnership (the "Units") represented by Consents duly executed and returned to the Partnership on or before October __, 1998 (unless extended by the Managing General Partner pursuant to notice mailed to the Limited Partners) will be voted or not voted in accordance with the instructions contained therein. If no instructions for the proposals are given on an executed and returned Consent, Units so represented will be voted in favor of the proposals. The Managing General Partner will take no action with respect to the proposals addressed herein except as specified in the duly executed and returned Consents. The cost of this solicitation of Consents is being borne by the Partnership. Such solicitation is being made by mail and, in addition, may be made by officers and employees of the Partnership and the Managing General Partner, either in person or by telephone or telegram. iii TABLE OF CONTENTS Page Special Factors............................................................ 1 Outstanding Voting Securities and Voting Rights............................ 5 Consent Under Partnership Agreement........................................ 7 The Property and the Partnership's Business................................ 7 Narrative Description of Business........................................ 7 (a) Franchise Agreements........................................ 7 (b) Operation of the Hotel and Restaurant....................... 7 (c) Competition................................................. 8 Property................................................................. 8 Management................................................................. 9 Purchase Agreement.........................................................10 Conflicts of Interest......................................................12 Effects of Approval of the Proposals.......................................12 General..................................................................13 Determination and Use of Net Proceeds....................................13 Federal Income Tax Consequences..........................................14 (a) General...........................................................14 (b) Characterization of Gain..........................................14 Dissolution of the Partnership...........................................16 Appraisal of the Property/Fairness Opinion.................................16 Legal Proceedings..........................................................19 Amendments to Partnership Agreement........................................22 Financial Information......................................................23 Selected Partnership Financial Data......................................23 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................23 I. Fiscal Year Financial Statements.................................23 (a) Liquidity and Capital Resources......................23 (b) Results of Operations................................24 II. Interim Financial Statements....................................27 (a) Liquidity and Capital Resources......................27 (b) Results of Operations................................27 Other Financial Information..............................................27 Financial Statements.......................................................F-i iv SPECIAL FACTORS A number of special factors apply to the Proposals. Some factors are described more fully elsewhere in this Consent Solicitation Statement and should be read in conjunction with the rest of this Consent Solicitation Statement. Limited Partners are urged to read all of this Consent Solicitation Statement carefully. The primary purpose of the Proposals is to provide Limited Partners with an opportunity to liquidate their investment in the Partnership. Based on (i) comments and questions from Limited Partners with respect to a liquidation of their investment, (ii) the lack of a public market for the Units, and (iii) the duration of the Partnership, the Managing General Partner believes such liquidity is desired by the Limited Partners. The Partnership was formed in 1984 and its motel property located in Barstow, California opened for business during 1985. This Consent Solicitation Statement has been prepared to ask the Limited Partners to approve the sale of the Property for cash in the amount of the appraised fair market value of $4,100,000. It has always been the intention of the Partnership to liquidate the Property when it became apparent that the best interests of the Limited Partners would be served by doing so. The Managing General Partner has received inquiries from the Limited Partners over the years as to when the Property was to be sold and the Partnership liquidated. Its response, until recently, has been that because of overbuilt and depressed motel market conditions, the time was not right for a sale of the Property. Conditions have changed, and the Managing General Partner believes that the Property should be sold now and the Partnership liquidated. During September and October 1997, Everest Property II, LLC, a member of an affiliated group of entities which is the second largest investor group in the Partnership (the "Everest Group"), made an offer to purchase the Property and the motel properties of four other California limited partnerships as to which the Managing General Partner serves as general partner (the Partnership and the four other partnerships are referred to herein as the "GMS Partnerships"). The purchase price set forth in the October offer for the Property was $2,614,730, a price far below $4,100,000, the recent appraised value and the price offered in Proposal #1. The Managing General Partner rejected the prior offer. Subsequent conflicts between the Everest Group and the Partnership resulted in lawsuits. Inasmuch as the Managing General Partner agreed with the Everest Group in principle that the Property should be sold, a settlement was reached whereby, among other things, the Managing General Partner agreed to take steps to sell the Property and the properties of the other GMS Partnerships, and the lawsuits were dismissed. (See "Legal Proceedings.") In an amendment to the settlement agreement, the Everest Group agreed to vote its Units in favor of Proposal #1. (See "Outstanding Voting Securities and Voting Rights.") The Managing General Partner considered seeking third party buyers for the Property, and would do so if Proposal #2 were approved and Proposal #1 were disapproved, but believes that the transaction structure of Proposal #1 represents a more favorable option to expedite the liquidation of the Limited Partners' interests in the Partnership. Although the solicitation of third party bids might have resulted in a higher price for the Property, the Managing General Partner believes that inasmuch as the Partnership has obtained an 1 independent appraisal of the Property, there is little likelihood of obtaining bids in the immediate future on more favorable terms than those offered by Tiburon Capital Corporation. It is also possible that a delay in pursuing the Buyer's offer by listing the Property would have resulted in the loss of that offer. In this regard, prior to negotiating the terms represented by Proposal #1, the Managing General Partner received in writing from two real estate brokers who are not affiliated with the Partnership or the Managing General Partner suggested sale strategies for the sale of the Property and the properties of the other GMS Partnerships. One broker suggested a sealed bid sales strategy with an emphasis of obtaining a single purchaser or a minimum number of purchasers. This broker presented a value for the eight properties which, in the aggregate, was slightly lower than the aggregate of those in the proposed transactions. However, the values assigned to each property were, in some instances, lower than those of the proposed transactions and, in other instances, higher. The other broker suggested that the properties would derive the highest value if sold as a portfolio. The list price determined by this broker was substantially the same as that of the proposed transactions. This broker also suggested that a higher list price might be appropriate for a buyer trying to break into the California lodging industry. Nonetheless, under each strategy presented by this broker the prices assigned to each of the eight properties were, in some instances, lower than those of the proposed transactions and, in other instances, higher. (Limited Partners should be aware that "list" prices and "values" are prices assigned by brokers to position properties for ultimate sale over a period of time. Such estimated prices are not intended to be appraised values, are not the result of the rigorous efforts entailed in producing appraised values, may reflect marketing strategy more than an honest estimate of the probable value and, therefore, may not accurately reflect the actual amount of a sale price for any given property.) Thereafter, Tiburon Capital Corporation (together with its nominees, the "Buyer") was introduced to the Managing General Partner by Mark Grotewohl and Philip Grotewohl, on behalf of the Managing General Partner, conducted negotiations relative to the sale of the Property. As discussed more fully below under "Appraisal of the Property/Fairness Opinion," the Property has been appraised by PKF Consulting, a national hospitality industry specialist. PKF Consulting is an international firm of management consultants, industry specialists, and appraisers who provide a wide range of services to the hospitality, real estate, and tourism industries. Headquartered in San Francisco, PKF Consulting has offices in New York, Philadelphia, Atlanta, Boston, Houston, Los Angeles, Washington, D.C., and abroad. As a member of the Pannell Kerr Forster International Association, PKF Consulting has access to the resources of one of the world's largest accounting and consulting firms, with 300 offices in 90 countries. Its conclusion is that the fair market value of the Property is $4,100,000, which is the purchase price of the Property set forth in Proposal #1, and, through February 1999, would be the minimum purchase price of the Property under Proposal #2. The purchase price is to be paid in cash, and the net proceeds thereof will be distributed in accordance with the Partnership Agreement upon the close of the sales transactions and the concomitant dissolution of the Partnership. The amended settlement agreement with the Everest Group and the contract of sale between the Partnership and the Buyer provide for a closing of the sale within 30 days after approval of the sale by the Limited Partners, in order to provide for a rapid distribution of sale proceeds to the Limited Partners. Termination of the Partnership will occur as soon as the winding up process can be completed. The Partnership and the Managing General Partner are recommending the approval of the Proposals by the Limited Partners for the following reasons: 2 The Managing General Partner believes that the subject contract was entered into at the crest of a seller's market which may not last much longer. Although there can be no assurance that the Property's value will not increase over time, the Managing General Partner believes that within the next five years only modest increases in the Property's value can be expected to occur. This belief is substantiated by the appraiser's projection of future revenues. In fact, during the 12-month period ended August 31, 1998, revenues from the Property have increased. The Managing General Partner believes that now is the time to sell the Property. The Partnership's intention has always been to sell the Property when the market conditions warranted sale. It was never an investment objective of the Partnership to hold the Property permanently. The Managing General Partner understands that the circumstances of many of the Limited Partners have changed over the life of the Partnership and believes that the Limited Partners should be presented with an opportunity to liquidate their investments. It is important that the Limited Partners understand that no true market exists for the sale of the Limited Partner's investment Units, and that the only practical way of obtaining full value for the Units is to arrange for the sale of the Property itself. Heretofore, to dispose of their Units, Limited Partners have had to arrange private sales, or accept tender offers, at prices well below the correlative value of the underlying assets. The Property is proposed to be sold to the Buyer for $4,100,000, approximately $1,485,000 more than was offered for the Property in October 1997 by the Everest Group. The sales price is equal to the appraised value of the Property as determined by PKF Consulting, an independent real estate advisory firm specializing in the valuation of lodging properties. The proposed sale will be for all cash. PKF Consulting has rendered a fairness opinion, stating its opinion that the sales price is fair to the Partnership. As of August 31, 1998, the Limited Partners had already received, over the life of the Partnership, the sum of $693.19 per Unit in the form of quarterly distributions. Upon the sale of the Property as described herein, the Limited Partners would receive an additional pre-tax distribution in the estimated amount of approximately $433 per Unit. For a discussion of other effects of the sale of the Property, including Federal income tax consequences, see "Effects of Approval of the Proposal" below. Notwithstanding the preceding, Limited Partners should note that the Buyer hopes to benefit from its acquisition of the Property, and that the Managing General Partner has a conflict of interest (see "Conflicts of Interest") in proposing the sale at this time. The fair market value and net cash flow of the Property may increase over time. Therefore, it is possible that Limited Partners would receive a greater return on their investment if the Partnership continued to own and operate the Property and sold it at a later date, instead of consummating a sale under the Proposals. The Limited Partners would likely fare worse under a strategy of retaining the Property if its value were to decline. The Managing General Partner has faced substantial conflicts of interest in proposing, negotiating and structuring the Proposals. See "Conflicts of Interest." Although, as discussed above, the Managing General Partner believes that the Limited Partners are interested in a means of liquidating their investment, the Proposals have not been initiated by the Limited Partners. The steps that are being taken to provide the Limited Partners with procedural 3 safeguards are the commissioning of an independent appraisal of the Property upon which Proposal #1 and Proposal #2 are based, the commissioning of a fairness opinion respecting Proposal #1, and the submission of the Proposals to Limited Partners for their approval, all of whom are unaffiliated with the Managing General Partner. The Partnership has not retained an independent representative for the Limited Partners. The Managing General Partner believes that the steps taken and to be taken constitute sufficient safeguards for the Limited Partners' interests. The Partnership, the Managing General Partner and Mark Grotewohl reasonably believe that the proposed transaction represented by Proposal #1 is fair to the Limited Partners. The Partnership, the Managing General Partner and Mark Grotewohl have considered a number of material factors in connection with developing such beliefs. Foremost among such factors are the receipt of an independent appraisal with respect to the Property from PKF Consulting, and the structuring of the proposed transaction so that the approval of Limited Partners (all of whom are unaffiliated with the Partnership, the Managing General Partner and Mark Grotewohl) is required to be obtained. The Managing General Partner relied on the appraisal to determine the valuation of $4,100,000 for the Property. As further discussed in the appraisal (see "Appraisal of the Property/Fairness Opinion"), PKF Consulting relied on a discounted cash flow analysis based on the projected operating results of the Property over a ten-year period, and applied a factor for the residual value of the Property at the end of that ten-year period. Inasmuch as the appraisal, by definition, is an evaluation of going concern value, in relying on the appraisal the Partnership, the Managing General Partner and Mark Grotewohl considered the going concern value of the Property. However, they did not independently evaluate the going concern value. They did not consider the current liquidation value of the Property because it is clear that the highest and best use of the Property is as an operating motel. To sell the building and personal property in a liquidation sale would be ill advised. Based upon experience in the lodging industry, as well as general familiarity with industry news as reported by trade journals, the Partnership, the Managing General Partner and Mark Grotewohl reasonably believe that the appraised fair market value of the Property as determined by PKF Consulting is fair and reasonable. In determining the fairness of the proposed transaction represented by Proposal #1, the Partnership, the Managing General Partner, and Mark Grotewohl carefully considered a number of factors. In favor of the proposed transaction were the valuation of the Property which formed the basis for the Buyer's purchase offer, the all-cash terms offered by the Buyer, and the opportunity for the Limited Partners to liquidate their investments over a short period of time. Against the proposed transaction were the fact of an inside transaction, under which the Buyer, an entity which will be affiliated with Mark Grotewohl, would acquire the Property, and the Managing General Partner's decision not to solicit bids from independent third parties. No other material factors were considered. For example, in the absence of an established public market in which Units are being traded, the Managing General Partner was not able to determine accurately any market values for the Units. However, according to Partnership Spectrum, an independent third party publication, and Schedules 13-D filed by the Everest Group, since August 1996, there have been sales of Units (including sales made pursuant to tender offers) at rates ranging from $150 per Unit to $365 per Unit. The proposed sale would result in distributions of approximately $433 per Unit. During the past two years, neither the Partnership, the Managing General Partner nor Mark Grotewohl has purchased or sold any Units. The net book value of the Partnership as of June 30, 1998 was $249.43 per Unit. The Managing General Partner has not sought 4 to solicit bids from independent third parties for a sale of the Property, and, except as described above in connection with the offer made by the Everest Group, during the past two years no offers have been made by an unaffiliated entity for a merger or consolidation of the Partnership, the sale or transfer of all or a substantial part of the assets of the Partnership, or a sale of partners' interests in the Partnership allowing the purchaser thereof to exercise control over the Partnership. Prior to any discussions, negotiations or communications with the Buyer, the Partnership obtained an independent appraisal of the Property. Following completion of the negotiations of the proposed transaction represented by Proposal #1, the Partnership obtained a fairness opinion respecting the proposed transaction from PKF Consulting. PKF Consulting was retained because of its reputation and expertise. The Partnership paid PKF Consulting approximately $8,100 for its services in the proposed transaction and the other GMS Partnerships paid PKF Consulting an aggregate of approximately $41,400. OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS The only outstanding class of voting securities of the Partnership is the Units. Each Unit entitles its holder to one vote on each Proposal. All Limited Partners as of the date action is taken on the Proposals (the "Record Date") are entitled to notice of and to vote on the Proposals. As of August 31, 1998 there were 9,022 Units outstanding and a total of 1,764 Limited Partners entitled to vote such Units. With respect to each Proposal to be voted upon, the favorable vote of Limited Partners holding in excess of 50% of the Units outstanding as of the Record Date will be required for approval. There are no rights of appraisal or similar rights of dissenters under California law or otherwise with regard to the Proposals to be voted upon. Dissenting Limited Partners are protected under California law by virtue of the fiduciary duty of the Managing General Partner to act with prudence in the business affairs of the Partnership on behalf of the Partnership and the Limited Partners. As of August 31, 1998 no person or group of related persons was known by the Partnership to be the beneficial owner of more than 5% of the Units, except the following group of related Unit holders: 5 Everest Lodging Investors, LLC 261 Units 2.89% Everest Madison Investors, LLC 298 Units 3.30% -------------------------------- Total 559 Units 6.19% None of Grotewohl Management Services, Inc. (the Managing General Partner), Philip B. Grotewohl, David P. Grotewohl or Mark Grotewohl, or any of their affiliates, are the beneficial owners of any Units. As set forth above, the Everest Group owns 559 Units (6.19% of the total). In a written agreement dated April 21, 1998 (a date prior to the date Mark Grotewohl terminated his employment with the Partnership) entered into by the GMS Partnerships, Mark Grotewohl, Everest Property II, LLC, Everest Property, LLC, Everest Madison Investors, LLC, Everest Lodging Investors, LLC, KM Investments, LLC and Everest Financial, Inc., which amended the settlement agreement dated February 20, 1998 (discussed below under "Legal Proceedings"), the Everest Group agreed to vote in favor of Proposal #1 upon satisfaction of the following conditions: (i) execution by the GMS Partnerships of an exclusive sales agency contract in favor of the Everest Group; (ii) execution by the GMS Partnerships with an entity affiliated with Mark Grotewohl not later than April 30, 1998 of purchase agreements for the properties of the GMS Partnerships providing for sale prices equal to the respective appraised values of the properties and for full payment in cash at the time of the closing of escrow; (iii) the grant to the Everest Group of the first opportunity to arrange financing for the proposed transactions; and (iv) the diligent preparation and dissemination by the Partnership of this Consent Solicitation Statement. Condition (i) was satisfied on May 8, 1998 by the execution of an exclusive sales agency contract granting the Everest Group an exclusive listing for the sale of the Property and the properties owned by the other GMS Partnerships for a six-month period. For a discussion of the commissions payable pursuant to such contract, see "Purchase Agreement" below. No meeting will be held with regard to this solicitation of the Limited Partners. Voting may be accomplished by completing and returning to the offices of the Partnership, at 2030 J Street, Sacramento, California 95814, telephone: (916) 442-9183, the form of Consent included herewith. Only Consents received prior to the close of business on the date (the "Action Date") which is the earlier of (i) the date on which the Partnership receives approval and/or disapproval of each Proposal by a majority-in-interest of the Limited Partners, or (ii) November __, 1998 (unless extended by the Managing General Partner pursuant to notice mailed to the Limited Partners), will be counted toward the vote on the Proposals. However, Limited Partners are urged to return their Consents at the earliest practicable date. The Limited Partners are not required to vote in the same fashion for each of the two Proposals. If Proposal #1 is approved, Proposal #2 will be of no force and effect (regardless of whether or not it is approved) unless the sale with the Buyer set forth in Proposal #1 is not consummated. If a Limited Partner has delivered an executed Consent to the Partnership, the Limited Partner may revoke such Consent not later than the close of business on the date immediately prior to the Action Date. As of the Action Date, the actions which are the subject of this solicitation will either be effective (if the requisite number of executed Consents have been received by the Partnership) or the solicitation period will have expired without approval of the Proposals. The only method for revoking a Consent once it has been delivered to the Partnership is by the delivery to the Partnership prior to the Action Date of a written instrument executed by the Limited Partner who executed 6 the Consent which states that the Consent previously executed and delivered is thereby revoked. Other than the substance of the revocation described above, no specific form is required for such revocation. An instrument of revocation will be effective only upon its actual receipt prior to the Action Date by the Partnership or its authorized agent at the Partnership's place of business as set forth in the foregoing paragraph. CONSENT UNDER PARTNERSHIP AGREEMENT Pursuant to Section 14.1(e) of the Partnership Agreement, a majority-in-interest of the Limited Partners must approve or disapprove the sale at one time of all or substantially all of the Partnership's properties. Also, under Section 11.2 of the Partnership Agreement, the Partnership is not permitted to sell its property to "Affiliates" of the General Partners. (The Partnership Agreement defines "Affiliate" of a person as (i) any person directly or indirectly controlling, controlled by, or under common control with such other person, (ii) any person owning or controlling 10% or more of the outstanding voting securities of such person, (iii) any officer, director or general partner of such person, and (iv) any person who is an officer, director or general partner of any of the foregoing. Although it might be contended that the Buyer is an Affiliate of the Managing General Partner, in the opinion of the Managing General Partner the Buyer does not come within such definition, because the Managing General Partner does not believe that Mark Grotewohl is an Affiliate of the Managing General Partner. (See "Purchase Agreement" below.) However, recognizing the possibility that reasonable minds might differ in resolving that issue, and because the Property constitutes substantially all of the Partnership's properties (as discussed below under "The Property and the Partnership's Business"), the Managing General Partner is seeking the approval of the proposed sale of the Property to the Buyer on the terms described herein by a majority-in-interest of the Limited Partners. THE PROPERTY AND THE PARTNERSHIP'S BUSINESS The Property consists of a leasehold interest in land located in Barstow, California, the hotel property constructed thereon by the Partnership, another leasehold interest in a restaurant, and the related personal property. Narrative Description of Business (a) Franchise Agreements The Partnership operates its hotel property as a franchisee of Holiday Inns, Inc. Holiday Inns offer accommodations in the mid-range of the lodging industry in terms of facilities and prices. (b) Operation of the Hotel and Restaurant Brown & Grotewohl, a California general partnership which is an affiliate of the Managing General Partner (the "Manager"), manages and operates the Partnership's hotel and restaurant. The Manager's management responsibilities include, but are not limited to, the supervision and direction of the Partnership's employees who operate the hotel and restaurant, the establishment of room rates and the direction of the promotional activities of the Partnership's employees. In addition, the Manager directs the purchase of replacement equipment and supplies, maintenance activity and the engagement or selection of all vendors, suppliers and independent contractors. The Partnership's financial accounting activities are performed by the hotel and restaurant staff and a centralized accounting staff, all of which work under the direction of the Managing General Partner or the Manager. Together, these staffs 7 perform all bookkeeping duties in connection with the hotel and restaurant, including all collections and all disbursements to be paid out of funds generated by hotel and restaurant operations or otherwise supplied by the Partnership. As of December 31, 1997, the Partnership employed a total of 49 persons, either full or part-time, at its hotel and restaurant, including eight desk clerks, 16 housekeeping and laundry personnel, four maintenance personnel, one general manager, four cooks and dishwashers, 11 servers and bus persons, four bartenders and one restaurant manager. In addition, and as of the same date, the Partnership employed 11 persons in administrative positions at its central office in Sacramento, California, all of whom worked for the Partnership on a part-time basis. They included accounting, investor service, sales and marketing and hotel supervisory personnel, secretarial personnel, and purchasing personnel. (c) Competition As discussed in greater detail below, the Partnership faces intense competition from hotels and motels of varying quality and size, including other mid-range hotels and motels which are part of nationwide chains and which have access to nationwide reservation systems. Property On May 10, 1984, the Partnership entered into a long-term lease of 3.05 acres of unimproved land located on East Main Street in Barstow, California. The leasehold is located within a 15-acre parcel which was developed as a lodging, restaurant, retail and theater complex known as "Barstow Station Too!". The Partnership's hotel is the only hotel or motel to be included in the complex. The original term of the lease was for 50 years with the lessee's option to renew for three additional 10-year periods. The Barstow hotel, which consists of 148 guestrooms, was placed in service on December 31, 1985, at which date 96 guestrooms were available for occupancy. The remaining 52 guestrooms became available for occupancy on March 15, 1986. On June 15, 1987 the Partnership commenced operation of a family restaurant and cocktail lounge immediately adjacent to the Barstow hotel. The Partnership leases the restaurant facility from Fred Rosenberg, the lessor of the hotel site. On May 30, 1990, the Partnership entered into a written agreement with the lessor for the amendment of the hotel and restaurant facility leases. The restaurant facility lease term was extended from January 1, 1991 to December 31, 2010; however, the Partnership has the option of terminating the lease after January 1, 2001 if the Partnership should terminate its license to operate the hotel as a franchise of Holiday Inns, Inc. Additional rent for the hotel site and restaurant facility was changed so as to be the amount by which 9% of the combined annual gross sales from the hotel and restaurant facility exceeds the combined annual minimum rent ($275,556 as of December 31, 1997; $280,116 as of December 31, 1998) under the hotel site and restaurant facility leases. The leases provide that the improvements constructed by the Partnership on the leased premises will remain the property of the Partnership during the lease term but that upon expiration of the leases, title to any such improvements will pass to the lessor. 8 In 1997, the Partnership incurred a total of $285,302 in rent expense for its Barstow hotel site and restaurant facility. In addition, the Partnership pays all property taxes and assessments for each leasehold site. The Partnership's hotel achieved the following average occupancy rates and average room rates during 1997, 1996 and 1995: 1997 1996 1995 ------------------------------------------- Average Occupancy 68.6% 71.1% 74.9% Rate Average Room Rate $66.30 $64.63 $60.95 The following lodging facilities provide direct and indirect competition to the Partnership's Barstow hotel: Approximate Number Distance Facility Of Rooms From The Hotel - ------------------------------------------------------------------------------ Quality Inn 100 Adjacent Days Inn 113 0.25 Mile Comfort Inn 62 0.50 Mile Vagabond Inn 67 0.50 Mile Best Western 79 0.50 Mile Holiday Inn Express 65 3.00 Miles The Barstow hotel's major sources of patronage are generated by local military bases, with civilian Federal employees, military personnel and Federal government contractors generating approximately 26% of the hotel's room revenue. The Barstow area also attracts traveling salespeople and other commercial travelers, as well as leisure travelers. For a discussion of the revenue received by the Partnership from the restaurant see "Management's Discussion and Analysis of Financial Condition and Results of Operations." MANAGEMENT The Partnership is a California limited partnership which has no executive officers or directors. The principal business address of the Partnership is 2030 J Street, Sacramento, CA 95814. The Partnership's general partners are Grotewohl Management Services, Inc., as managing general partner, and Robert J. Dana, as associate general partner. Grotewohl Management Services, Inc. is a California corporation owned one-half by Philip B. Grotewohl and one-half by his former wife, who is not involved in the day-to-day operations of Grotewohl Management Services, Inc., and who does not serve as a director or executive officer thereof. The sole director of Grotewohl Management Services, Inc. is Philip Grotewohl, and the executive officer of Grotewohl Management Services, Inc. is Philip Grotewohl. David Grotewohl has authority to sign documents on behalf of the Managing General Partner as its nominal President and Chief Financial Officer, but has no executive duties. He does act as "inside" legal counsel to the Managing General Partner, and his principal occupation has been to head the operation and maintenance of the Property and the properties of the other GMS Partnerships. The principal business address of Grotewohl Management Services, Inc. is 2030 J Street, Sacramento, CA 95814. During the past five years Grotewohl Management Services, Inc. and its affiliate, Brown & Grotewohl, a California general partnership one-half owned by Philip Grotewohl and one-half owned by the Estate 9 of Dennis A. Brown, principally have been engaged in the business of managing various limited partnerships which own and operate lodging facilities, and in the business of managing such lodging facilities. During the past five years Philip Grotewohl's business activities have been conducted solely through Grotewohl Management Services, Inc. and Brown & Grotewohl. The principal business address of Philip Grotewohl is 2030 J Street, Sacramento, CA 95814. In addition to the services described above, during the past two and three-quarters years David Grotewohl has been engaged part-time as a sole proprietor in the marketing of consumer products and services under the business name "The Biscayne Group." The principal business address of David Grotewohl is 2030 J Street, Sacramento, CA 95814. Robert J. Dana is the associate general partner of the Partnership and, as such, has no control over the management of the Partnership. During the past five years Robert J. Dana has been self-employed through D/S Telecom and Telecom Options as a seller of long-distance telephone services. The principal business address of Robert J. Dana is 6439 Timber Springs Drive, Santa Rosa, CA 95409. PURCHASE AGREEMENT On April 30, 1998, the Partnership entered into an agreement to sell the Property to Tiburon Capital Corporation, San Francisco, California, or a nominee of Tiburon Capital Corporation (the "Buyer"), for the sum of $4,100,000, payable in cash at the close of escrow. Escrow was opened at Chicago Title Company, San Francisco, California on June 10, 1998. Except as otherwise indicated, the following paragraph is based on information provided by the Buyer. Tiburon Capital Corporation is a California corporation formed in 1992. All of its stock has been owned since its inception equally by William R. Dixon, Jr., Herbert J. Jaffe, John L. Wright and John F. Dixon. Management and control persons of Tiburon Capital Corporation consist of its stockholders. Tiburon Capital Corporation and its related entities, including Pacific Management Group, Inc., NCM Management Ltd. and Capital Concepts Investment Corp., are and have been involved in many business transactions, including the ownership and asset or property management of real estate assets. (The owners, management and the control persons of such related entities are two or more of the owners of Tiburon Capital Corporation.) In many instances, the real estate assets were or are owned by limited partnerships or limited liability companies formed and syndicated by Tiburon Capital Corporation or its related entities for the specific purpose of owning such assets. The form of an entity owning real estate assets is typically dictated by investors and/or lenders. If the proposed sale is consummated, a nominee of Tiburon Capital Corporation, which would be a limited liability company, would actually purchase the Property instead of Tiburon Capital Corporation. The members of such limited liability company would be another limited liability company (formed and syndicated by Tiburon Capital Corporation), Mark Grotewohl and, perhaps, others. Mark Grotewohl's interest in the Buyer would be limited to 50% of the profits remaining after return of all capital (whether debt or equity) to all investors and creditors, plus a return thereon. Mark Grotewohl would also form a limited liability company to provide property management services to the Buyer. The fee for this service would be 4 1/2% of gross property revenues, from which Mark Grotewohl would be required to fund all property management expenses. The foregoing would be reflected in written agreement if Proposal #1 were approved. It is possible that some terms of the relationships would vary from those as described, but in no event would Mark Grotewohl's interest in the Buyer or the eight properties be greater than as indicated. 10 Mark Grotewohl is the son of Philip B. Grotewohl. During the last five years, until April 30, 1998, Mark Grotewohl was employed as the marketing and sales director for the five GMS Partnerships. Since that time, Mark Grotewohl has been engaged in facilitating the proposed transaction, and is operating from the offices of the Managing General Partner. It might be contended that Mark Grotewohl is, by virtue of his past relationship with the Partnership and the other GMS Partnerships, an Affiliate of the Partnership as defined in its Partnership Agreement. Under Section 11.2 of the Partnership Agreement, the Partnership is not permitted to sell its real property to "Affiliates" of the General Partners. (The Partnership Agreement defines an "Affiliate" of a person as (i) any person directly or indirectly controlling, controlled by, or under common control with such person, (ii) any person owning or controlling 10% or more of the outstanding voting securities of such person, (iii) any officer, director, or general partner of such person, and (iv) any person who is an officer, director or general partner of any of the foregoing. The Managing General Partner believes that, based on the facts and circumstances, Mark Grotewohl is not an Affiliate of the Partnership, because Mark Grotewohl (i) does not control the Partnership or the Managing General Partner, (ii) owns no voting securities in the Partnership or the Managing General Partner, and (iii) is not an officer, director or partner of the Managing General Partner or the Partnership. However, the Managing General Partner recognizes that reasonable minds could differ as to the resolution of this issue and has decided to treat this transaction as an inside transaction. The Buyer has made a contemporaneous offer to purchase the motel properties of the four other GMS Partnerships. The offers made by the Buyer for the properties of each of the GMS Partnerships have been evaluated independently by the Managing General Partner. Other than with respect to the purchase price of each motel, the offers are on identical terms. If the limited partners of the other Partnerships do not approve the sale of their respective properties to the Buyer, however, the Buyer has the right and option not to proceed with the proposed purchase of the Property from the Partnership, even if the Limited Partners approve this sale. In this regard, the Partnership has not solicited any offers to purchase the Property or the motel properties of the other GMS Partnerships, has not listed the Property or the motel properties of the other GMS Partnerships for sale with independent brokers, and has not otherwise actively sought competing offers for the Property or the motel properties of the other GMS Partnerships. Consequently, the offer presented by the Buyer is the only offer that the Managing General Partner has received for the Property or the motel properties of the other GMS Partnerships other than those presented by the Everest Group. There are a number of significant conditions to the consummation of the proposed sale of the Property to the Buyer; therefore, there can be no assurance as to whether, or when, such transaction will be consummated. Among these conditions are the Partnership's receipt of the approval of the Limited Partners; the Buyer's receipt (at the Partnership's expense) and approval of an ALTA Survey and preliminary title report for the Property; the absence of any damage or loss to the Property prior to the closing date in excess of $50,000; the decision by the Buyer, in its unfettered discretion, to terminate the proposed purchase prior to June 30, 1998; the Buyer's receipt prior to June 30, 1998 of a loan commitment for financing in an amount of not less than 90% of the purchase price of the Property (as of the date hereof the Buyer had not yet received such a commitment); and receipt by the Partnership of any necessary approvals of the sale by, among others, the franchisor, the landlords, and the subtenants. The Managing General Partner expects that such conditions will be satisfied; however, there can be no assurances in this regard. No federal or state regulatory requirements must be complied with, or approvals obtained, in connection with the transaction. 11 The Buyer will deposit the sum of $21,000 into escrow on the date the Partnership notifies the Buyer that the Limited Partners have approved the proposed sale of the Property to the Buyer. Should the Buyer default in the performance of its obligations under the purchase agreement, the Partnership will be entitled to retain said deposit as its only damages. The Partnership and the Buyer will share closing costs. The Managing General Partner anticipates that the Partnership's share of aggregate closing costs, including real estate brokerage commissions, will be approximately $153,750. Included therein is a real estate brokerage commission payable to Everest Financial, Inc., a member of the Everest Group, in an amount equal to 2.75% of the purchase price. Everest Financial, Inc. has agreed to reallow 1.25% of the purchase price to the Buyer's broker or, at the Buyer's option, the Buyer will be entitled to a credit against the purchase price in the amount of 1.25% of the purchase price. CONFLICTS OF INTEREST The Managing General Partner is subject to substantial conflicts of interest in connection with the Proposals arising out of its relationship with the Partnership, including the conflicts discussed below. Philip B. Grotewohl, the co-owner and chief executive officer of the Managing General Partner, is the father of Mark Grotewohl, an affiliate of the Buyer. Accordingly, the Managing General Partner faced a significant conflict of interest in determining the terms of the proposed transaction with the Buyer, in determining not to solicit bids from independent third parties, and in rendering its recommendation as to the fairness of the proposed transaction with the Buyer. The Managing General Partner also faced significant conflicts of interest in determining to sell the Property at this time in that it agreed to sell the Property in the agreement settling the lawsuits brought against and by the Everest Group. (See "Legal Proceedings.") The state court action by the Everest Group brought partly in response to the Managing General Partner's federal court action brought against the Everest Group alleged violations by the Managing General Partner of the Partnership Agreement and of its fiduciary duty to the Partnership. Accordingly, the Managing General Partner may have been motivated to agree to sell the Property as a result of the lawsuits rather than in pursuit of the best interests of the Limited Partners. However, based upon its experience in the lodging industry, as well as general familiarity with industry news as reported by trade journals, the Managing General Partner believes that the appraised market value of the Property as determined by PKF Consulting is fair and reasonable. The Managing General Partner also believes that the sale of the Property in accordance with the terms and conditions outlined in this Consent Solicitation Statement will assist the Partnership in meeting its investment objectives. Nonetheless, there can be no assurance that (i) the Limited Partners would not receive a greater amount of sale proceeds if the Managing General Partner were to solicit bids for the Property from third parties, or (ii) the continued retention and operation of the Property by the Partnership coupled with a sale of the Property at a later date would not result in greater after-tax distributions to the Limited Partners. EFFECTS OF APPROVAL OF THE PROPOSAL Set forth below is a discussion of the effects of the sale of the Property pursuant to Proposal #1. The effect of a sale of the Property pursuant to Proposal #2 would be substantially similar. 12 General The consummation of the sale of the Property pursuant to Proposal #1 and the concomitant dissolution of the Partnership should result in the following consequences for the Partnership, the Limited Partners and the General Partners: (i) The Limited Partners are expected to receive the distributions of net cash proceeds from the sale of the Property as described below. (ii) The Limited Partners and the General Partners are expected to realize the Federal income tax consequences as described below. (iii) All of the Partnership's assets and liabilities will be liquidated, the Partnership will be dissolved and terminated, and the registration of the Units under the Securities Exchange Act of 1934 will be terminated. The consequences stated above are discussed in more detail in the subsections which follow. Those subsections, in part, include computations as to the cash proceeds to be received and distributed by the Partnership, and the taxable gain and allocations thereof to be made by the Partnership, in the event the proposed sale is consummated. HOWEVER, THIS INFORMATION IS PRESENTED SOLELY FOR THE PURPOSES OF EVALUATING THE PROPOSALS. ALL AMOUNTS ARE ESTIMATES ONLY. ALL COMPUTATIONS ARE BASED ON ASSUMPTIONS (SUCH AS THE DATE OF SALE, THE EXPENSES OF THE SALE, AND THE RESULTS OF PARTNERSHIP OPERATIONS THROUGH THE DATE OF SALE) WHICH MAY OR MAY NOT PROVE TO BE ACCURATE AND SHOULD NOT BE RELIED UPON TO INDICATE THE ACTUAL RESULTS WHICH MAY BE ATTAINED. Determination and Use of Net Proceeds The following is a summary of the projected amount of cash to be received by the Partnership and the projected amount of cash to be distributed to the Limited Partners, assuming the Property is sold for a gross sales price of $4,100,000. This summary has been prepared by the Managing General Partner. If the proposed transaction with the Buyer is consummated on November 30, 1998, it is estimated that the Partnership would receive the following net proceeds: Gross sales price $4,100,000 Less: Real estate commission (112,750) Estimated escrow and closing costs (76,000) Termination payment to franchisor (89,000) ---------- Net proceeds of sale $3,822,250 ========== Included in closing costs set forth above are, among other items, estimated legal fees of $37,000, estimated fees in connection with the appraisal and fairness opinion of $10,000, estimated accounting fees of $16,000 and estimated fees in connection with solicitation activities of $4,000. Because of unanticipated expenses of acquiring a Holiday Inn franchise, the Buyer has decided that it will not operate the motel as a Holiday Inn. Therefore the present franchise will be terminated. The early termination will require the payment of a termination fee of approximately $178,000, of which the Seller has agreed to pay one-half ($89,000). 13 The Partnership's real property taxes are payable twice yearly on April 10 and December 10, partially in arrears, in the current amount of $31,560 each. The Partnership's minimum lease payment for its leasehold interests is $23,343 monthly. Accordingly, if the proposed transaction with the Buyer is consummated, the actual date of consummation will determine whether there is a credit to the Partnership for prorated lease payments and/or a credit to the Buyer for prorated real property taxes. Similarly, the amount indicated below as the estimate of reserves available for distribution on dissolution of the Partnership will vary depending on the actual date of consummation of the proposed transaction. The net proceeds of $3,822,250 estimated to be received by the Partnership from the proposed transaction, in the estimated amount of $423.66 per Unit based on a closing date of November 30, 1998, would be distributed entirely to the Limited Partners. The Partnership's cash reserves would be retained for the payment of accounts payable and other liabilities and expenses incurred to that date or expected to be incurred in connection with the operation of the Property through the date of sale and the operation and winding-up of the Partnership through its termination, including severance pay to certain employees of the Partnership and the other GMS Partnerships, and the balance, estimated to be $85,000 or $9.42 per Unit, also would be distributed entirely to the Limited Partners. Alternatively, if the Property is not sold pursuant to Proposal #1 or Proposal #2, the Partnership would continue to operate the Property for an indeterminate period. The Managing General Partner estimates that if the Property is not sold the Partnership will make average annual distributions to the Limited Partners of from zero to $324,792 ($36.00 per Unit) for the foreseeable future. However, there can be no assurance that the Managing General Partner's estimate in this regard will be borne out. Federal Income Tax Consequences (a) General. The following is a summary of the Federal income tax consequences expected to result from a sale of the Property based on the Internal Revenue Code of 1986, as amended (the "Code"), existing laws, judicial decisions and administrative regulations, rulings and practices. This summary is general in content and does not include considerations which might affect certain Limited Partners, such as Limited Partners which are trusts, corporations or tax-exempt entities, or Limited Partners who must pay an alternative minimum tax. Except as otherwise specifically indicated, this summary does not address any state or local tax consequences. Tax counsel to the Partnership, Derenthal & Dannhauser, has delivered an opinion to the Partnership which states that the following summary has been reviewed by it and, to the extent the summary involves matters of law, represents its opinion, subject to the assumptions, qualifications, limitations and uncertainties set forth therein. (b) Characterization of Gain. Upon the sale of property, the owner thereof measures his gain or loss by the difference between the amount of consideration received in connection with the sale and the owner's adjusted basis in the property. A gain will be recognized for Federal income tax purposes. This is so because the depreciation used for Federal income tax purposes, which decreases adjusted basis, was greater than that used for book purposes. The Property should constitute "Section 1231 property" (i.e., real property and depreciable assets used in a trade or business which are held for more than one year) rather than "dealer" property (i.e., property which is held 14 primarily for sale to customers in the ordinary course of business). While it is possible that the Internal Revenue Service will argue that the Property is "dealer" property, gain upon the sale of which would be taxed entirely as ordinary income, tax counsel to the Partnership is of the opinion that it is more likely than not that such an assertion would not be sustained by a court. A Limited Partner's allocable share of Section 1231 gain from the sale of the Property would be combined with any other Section 1231 gains or losses incurred by him in the year of sale, and his net Section 1231 gains or losses would be taxed as long-term capital gains or constitute ordinary losses, as the case may be, except that a Limited Partner's net Section 1231 gains will be treated as ordinary income to the extent of net Section 1231 losses for the five most recent years which have not previously been offset against net Section 1231 gains. Long-term gain on sale of Section 1231 property is taxed as follows: (i) the excess of accelerated depreciation over straight-line depreciation is taxed at ordinary income rates, (ii) to the extent that any other gain would be treated as ordinary income if the property were depreciable personal property rather than depreciable real property, at a maximum rate of 25%, and (iii) the balance at a maximum rate of 20%. Set forth below are the Managing General Partner's estimates of the total taxable gain for Federal income tax purposes, and the allocations thereof, which will result if the proposed sale of the Property to the Buyer is consummated, based on an assumed closing date of November 30, 1998. These estimates do not include any amounts relating to Partnership operations prior to the sale of the Property or relating to dissolution of the Partnership. These estimates are not the subject of an opinion of counsel. 15 Portion Total Taxed As Portion Portion Estimated Ordinary Taxed At Taxed At Gain Income 25% Rate 20% Rate --------------------------------------------------- Limited Partners $2,677,000 $ 0 $2,677,000 $ 0 General Partners 27,000 0 27,000 0 ------ ----- ------ ----- Total $2,704,000 $ 0 $2,704,000 $ 0 ========= ===== ========= ===== Per Unit $296.72 $ 0 $296.72 $ 0 ======= ===== ====== ===== Because of different methods of depreciation used for California income tax purposes than for Federal income tax purposes, the Managing General Partner anticipates that consummation of the proposed transaction would produce a gain for California income tax purposes in the amount of approximately $1,971,000, of which approximately $20,000 and $1,951,000 would be allocated to the Managing General Partners and to the Limited Partners, respectively. Dissolution of the Partnership Section 18.1(e) of the Partnership Agreement provides that the Partnership shall be dissolved upon the sale of all lodging properties or interests therein and the conversion into cash of any proceeds of sale originally received in a form other than cash. If the proposal is approved by a majority-in-interest of the Limited Partners, and if the proposed sale of the Property is consummated, the Partnership will be dissolved, the Managing General Partner will commence to wind up the business of the Partnership, and after payment of all expenses of the Partnership (including the expense of a final accounting for the Partnership) the remaining cash reserves of the Partnership will be distributed in accordance with the provisions of the Partnership Agreement. The Managing General Partner will then take all necessary steps toward termination of the Partnership's Certificate of Limited Partnership. APPRAISAL OF THE PROPERTY/FAIRNESS OPINION The appraisals of the Property and the fairness opinion respecting the proposed transaction with the Buyer were prepared by PKF Consulting, San Francisco, California. PKF Consulting was selected by the Managing General Partner based on the Managing General Partner's belief as to the expertise of PKF Consulting in appraising motel properties in the State of California and in rendering fairness opinions with respect to the sale thereof. The Managing General Partner's belief is based on past experience with PKF Consulting, which rendered appraisals of the Property and the properties of the other GMS Partnerships in 1988, on its knowledge of the lodging industry, and on recommendations from others in the lodging industry, including attorneys and accountants. PKF Consulting also prepared appraisals of the motel properties of the other GMS Partnerships. PKF Consulting was instructed to prepare its appraisals based on the assumption that the Property was to be sold on the open market to knowledgeable buyers and that there would be no pressure to make a quick sale. PKF Consulting was not advised that an affiliate of Mark Grotewohl would be a potential buyer of the Property. No limitations were imposed by the Partnership on the appraiser's investigation. PKF Consulting delivered a written 16 report, dated February 20, 1998, which stated that the "as is" market value of the Property as of January 1, 1998 was $4,100,000. PKF Consulting also delivered its written fairness opinion, dated May 19, 1998, to the effect that the proposed transaction with the Buyer is fair and equitable from a financial standpoint to the Limited Partners. The amount offered by the Buyer for the Property is based upon, and is equal to, the market value set forth in the appraisals. Other than with respect to the rendering of the appraisal reports and fairness opinions referred to above, during the past two years there has been no material relationship between PKF Consulting and the Partnership or its affiliates. PKF Consulting received a total of approximately $49,000 from the Partnership and the other GMS Partnerships in connection with the rendering of such appraisal reports and fairness opinions. PKF Consulting is an international firm of management consultants, industry specialists, and appraisers who provide a wide range of services to the hospitality, real estate, and tourism industries. Headquartered in San Francisco, PKF Consulting has offices in New York, Philadelphia, Atlanta, Boston, Houston, Los Angeles, Washington, D.C., and abroad. As a member of the Pannell Kerr Forster International Association, PKF Consulting has access to the resources of one of the world's largest accounting and consulting firms, with 300 offices in 90 countries. The services offered by PKF Consulting include: market and feasibility studies; real estate appraisals and business valuations; tourism and recreational studies; strategic planning; operational reviews; asset management; chain and management company selection; real estate consulting services; financial consulting; and litigation support, expert witness and arbitration services. The following is excerpted from the appraisal reports: "The scope of this appraisal included a detailed analysis of the competitive market position of each of the eight properties. More specifically, the market analysis for each property included the following work program. 1) In-depth analysis of the historical operating performance of each property. 2) Detailed inspection of each property, focused on identifying areas of deferred maintenance and/or functional obsolescence. 3) Evaluation of the economic environment of each property's local market, focusing on economic factors which impact the demand for hotel rooms such as changes in employment, office space absorption, airport utilization, attendance at tourist attractions and convention facilities, etc. 4) Primary market research in each market area, including interviews with key demand generators, inspection and evaluation of competitive hotels and discussions with persons familiar with the development patterns of each local market. 5) Analysis of each property's future market position. This analysis included a projection of the current and future demand for hotel accommodations in each market, including an 17 assessment of existing and potential future competitive supply, and the share of the market that each hotel could reasonably be able to capture over the next five to ten years. Based on the foregoing scope of work, it was concluded that the Highest and Best Use of each property is as currently improved. In developing a value conclusion for each hotel, two of the three traditional approaches to valuation have been used: the Sales Comparison and Income Capitalization Approaches. In the Sales Comparison Approach, the value of the subject properties were estimated based on an analysis of the sales of other similar facilities using a unit indicator of price per room or multiple of rooms revenue. In the Income Capitalization Approach, the value of each property is estimated based on an analysis of the historical and projected income and expenses generated by each facility during a typical holding period. Both direct capitalization and yield capitalization (discounted cash flow analysis) methods were employed. The earnings stream most commonly used as the basis for the Income Capitalization method of valuation is the projected net operating income (NOI) from operations after the deduction of real estate taxes and insurance, but before the deduction of interest, depreciation, amortization and taxes on income. Also deducted from the profit from operations is a reserve for capital improvements for each property. The projected operating income for each property was based on a review of local market conditions and the historical operating results of each hotel, coupled with an analysis of the historical operating results of comparable hotels as compiled in PKF Consulting's 1997 issue of `Trends in the Hotel Industry.' Under the direct capitalization method, the NOI for a typical or stabilized year of operation is converted into a value estimate by dividing it by an appropriate income capitalization rate. The capitalization rate represents the relationship between income and value observed in the market and is derived through an analysis of comparable sales as well as other analyses. In yield capitalization, the value of a property is the present value of the net operating income of each property in each year of a holding period (typically ten years) plus the present value of the property as if sold at the end of the holding period (the "reversion"). The present value of these elements is obtained by applying a market-derived discount rate. The value of the reversion is obtained through the capitalization of the adjusted income at the end of the holding period, which should be a normalized or typical year, with a deduction for the costs of sale. In our analysis, the discount rates used to value the subject hotels ranged from 13.0 to 14.5 percent; going-in capitalization rates ranged from 10.0 to 11.5 percent; and reversionary capitalization rates ranged from 10.5 to 12.0 percent. Differences in the discount and capitalization rates applied to individual properties were based on a combination of factors, including the age and condition of the hotels, local market conditions, durability of the projected income stream, and the ownership rights appraised (fee simple interest or leasehold interest). 18 The Cost Approach has not been included in the estimate of the value of the subject properties. The Cost Approach is most applicable in the valuation of special use properties, properties which are proposed or under construction, and aged properties, in which the value of the improvements may be nominal and the value of the property as a whole approaches land value. The subject properties are all going concerns and the existing improvements contribute significant value to the property. The costs to replace these facilities are of little more than historical significance and are not used by the typical investor interested in the purchase of an existing property." Upon request the Partnership will furnish to a Limited Partner, without charge, a copy of the appraisal report. In this regard Limited Partners are cautioned to refer to the entire appraisal report, inasmuch as the opinions of value stated therein are subject to the assumptions and limiting conditions stated therein. Furthermore, Limited Partners should be aware that appraised values are opinions and, as such, may not represent the realizable value of the Property. Upon request, the Partnership will also furnish to a Limited Partner, without charge, a copy of the fairness opinion. LEGAL PROCEEDINGS On October 27, 1997 a complaint was filed in the United States District Court, Eastern District of California by the Partnership, the other GMS Partnerships, and the Managing General Partner, as plaintiffs (the "GMS Plaintiffs"). The complaint named as defendants Everest/Madison Investors, LLC, Everest Lodging Investors, LLC, Everest Property, LLC, Everest Partners, LLC, Everest Property II, LLC, Everest Property, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre Capital Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citrin, Ronald J. Kravit, and Stephen P. Enquist (the "Federal Defendants"). The factual basis underlying the GMS Plaintiffs' causes of action pertained to tender offers directed by the Federal Defendants to limited partners of the GMS Partnerships, and to indications of interest made by certain of the Federal Defendants in purchasing the properties of the GMS Partnerships. The complaint requested the following relief: (i) a declaration that each of the Federal Defendants had violated Sections 13(d), 14(d) and 14(e) of the Securities and Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations promulgated by the Securities and Exchange Commission thereunder; (ii) a declaration that certain of the Federal Defendants had violated Section 15(a) of the Exchange Act and the rules and regulations thereunder; (iii) an order permanently enjoining the Federal Defendants from (a) soliciting tenders of or accepting for purchase securities of the GMS Partnerships, (b) exercising any voting rights attendant to the securities already acquired, (c) soliciting proxies from the limited partners of the GMS Partnerships, and (d) violating Sections 13 or 14 of the Exchange Act or the rules and regulations promulgated thereunder; (iv) an order enjoining certain of the Federal Defendants from violating Section 15(a) of the Exchange Act and the rules and regulations promulgated thereunder; (v) an order directing certain of the Federal Defendants to offer to each person who sold securities in the GMS Partnerships to such defendants the right to rescind such sale; (vi) a declaration that the GMS Partnerships need not provide to the Federal Defendants a list of limited partners in the GMS Plaintiffs or any other information respecting the GMS Partnerships which is not publicly available; and (vii) awarding the GMS Plaintiffs reasonable attorneys' fees, costs of suit incurred, and such other and further relief as the Court may deem just and proper. On October 28, 1997 a complaint was filed in the Superior Court of the State of California, Sacramento County by Everest Lodging Investors, LLC and 19 Everest/Madison Investors, LLC, as plaintiffs (the "State Plaintiffs"), against Philip B. Grotewohl, the Managing General Partner, Kenneth M. Sanders, Robert J. Dana, Borel Associates, and BWC Incorporated, as defendants (the "State Defendants"), and the GMS Partnerships, as nominal defendants. On November 11, 1998 the complaint was amended and Mark and David Grotewohl were added as defendants. The State Plaintiffs alleged that the State Defendants received unauthorized rebates of franchise fees paid to Super 8 Motels, Inc., that the Managing General Partner caused the GMS Partnerships to make unauthorized payments of salaries and expenses, and reimbursements of expenses to the Managing General Partner, that the Managing General Partner refused to cooperate with the State Plaintiffs' efforts to buy the properties of the GMS Partnerships, and that the Managing General Partner refused to provide information required by the GMS Partnerships' governing documents and California law. The Managing General Partner believes that these allegations were unjustified. As amended, the complaint requested the following relief: (i) a declaration that the action was a proper derivative action; (ii) an order requiring the State Defendants to discharge their fiduciary duties to the GMS Partnerships by accepting no kickbacks, charging no unauthorized expenses, responding in good faith to the offer made by an affiliate of the State Plaintiffs to purchase the properties of the GMS Partnerships and disclosing such offers to the limited partners of the GMS Partnerships, and delivering all information respecting the GMS Partnerships requested by the State Plaintiffs; (iii) an order enjoining the State Defendants from breaching their fiduciary duties; (iv) disgorgement of profits in excess of the reasonable value of the services actually rendered; (v) appointment of a receiver; and (vi) an award for compensatory and punitive damages and, under RICO, treble damages, and costs, all in an amount to be determined. On February 20, 1998, the parties entered into a settlement agreement pursuant to which both of the above complaints were dismissed. Pursuant to the terms of the settlement agreement, the Federal Defendants (excluding The Blackacre Capital Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citrin, Ronald J. Kravit and Stephen P. Enquist) agreed not to generally solicit the acquisition of any additional units of the GMS Partnerships without first filing necessary documents with the Securities and Exchange Commission, and also agreed to conduct any such solicitation in compliance with the provisions of Section 14 of the Exchange Act and Regulation 14D, notwithstanding that any such solicitation might otherwise be exempt from such requirements. It was also agreed, among other things, that the Managing General Partner would retain, on behalf of the GMS Partnerships, a real estate broker to market for sale all of the properties of the GMS Partnerships. The Managing General Partner agreed to evaluate and consider in good faith a designee of Everest Property, Inc. to serve as the real estate broker. Further, the Managing General Partner agreed to include in any listing agreement between the GMS Partnerships and their real estate broker a provision requiring the broker to share one-half of the real estate commission payable with Everest Property, Inc. or its designee in the event that Everest Property, Inc. or its designee were the procuring broker for the property generating the real estate commission. The Managing General Partner also agreed to proceed in a commercially reasonable manner with the marketing of all properties of the GMS Partnerships, and agreed to entertain all bona fide offers, whether made for all of the properties of the GMS Partnerships as a group, for all of the properties of a particular GMS Partnership as a group, or for an individual property. The Managing General Partner agreed, by no later than June 30, 1998, to accept for submission to the limited partners of any GMS Partnership either (i) any bona fide offer (an "Acceptable Offer") to purchase one or more of the properties of a GMS Partnership if the offer were a cash offer at a price equal to 75% or more of the appraised value of the property or properties, or (ii) any offer for a property or properties of a GMS Partnership on terms deemed by the Managing General Partner to be more favorable to that GMS 20 Partnership than the Acceptable Offer. In addition, the Managing General Partner agreed to submit the offer for approval to the limited partners of the GMS Partnership and other procedures as required by the GMS Partnership's Agreement of Limited Partnership and applicable law. In this connection, the Managing General Partner agreed, under certain circumstances, to include in the solicitation materials a proposal seeking the approval of the limited partners to a sale of the property or properties to another buyer upon substantially the same or better terms as those offered by the buyer. The Managing General Partner retained the right to recommend to the limited partners of a GMS Partnership rejection of any proposal if the proposed sales price were less than the appraised value of the properties or were not payable entirely in cash. The Managing General Partner also agreed that, upon the sale of a property of one of the GMS Partnerships, the Managing General Partner would distribute promptly the proceeds of the sale after payment of payables and retention of reserves to pay anticipated expenses. Under the terms of the settlement agreement, the GMS Partnerships agreed to reimburse the Everest Defendants for certain costs, not to exceed $60,000, to be allocated among the GMS Partnerships. Of this amount, the Partnership paid $12,000. For a discussion of the amendment to such settlement agreement, see "Outstanding Voting Securities and Voting Rights." 21 AMENDMENTS TO PARTNERSHIP AGREEMENT Set forth below are the proposed amendments to the Partnership Agreement which are the subject of this Consent Solicitation Statement: Section 22. SALE OF PROPERTY "22.1 Sale and Disposition of Partnership Assets A. Notwithstanding anything contained in this Agreement to the contrary, including Section 11.2 hereof, the General Partners, for and on behalf of the Partnership, are hereby authorized (i) to sell the Partnership's real property interests, including its motel, and related personal property, to Tiburon Capital Corporation or a nominee thereof, including a nominee which is an Affiliate of Mark Grotewohl, on the terms and conditions outlined in the Consent Solicitation Statement of the Partnership dated _____________, 1998; (ii) to dissolve and wind up the affairs of the Partnership; (iii) to distribute the proceeds of the sale and any other cash held by the Partnership in accordance with this Agreement; (iv) to terminate the Partnership; and (v) to take any action deemed necessary or appropriate to accomplish the foregoing. B. Notwithstanding anything contained in this Agreement to the contrary, the General Partners, for and on behalf of the Partnership, are hereby authorized (i) to sell the Partnership's real property interests, including its motel, and related personal property, if the purchaser is not an Affiliate of the General Partners, and if such sale is for "all cash," and is for an amount equal to or greater than the amount reflected in an appraisal which is not more than 15 months old at the date the purchase agreement is executed; (ii) to dissolve and wind up the affairs of the Partnership; (iii) to distribute the proceeds of the sale and any other cash held by the Partnership in accordance with this Agreement; (iv) to terminate the Partnership; and (v) to take any action deemed necessary or appropriate to accomplish the foregoing; provided, however, that the provisions of this Section 22.1B shall not be operative and shall be of no force and effect if the Partnership's motel is sold pursuant to Section 22.1A hereof." 22 FINANCIAL INFORMATION Selected Partnership Financial Data The Partnership's book values per Unit as of December 31, 1997 and June 30, 1998 were $249.43 and $249.43, respectively. Following are selected financial data of the Partnership for the period from January 1, 1993 to December 31, 1997. Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ----------- Guest room income $2,458,115 $2,489,982 $2,466,338 $2,526,730 $2,458,535 Restaurant income $690,622 $655,746 $636,141 $701,900 $775,129 Net income (loss) $(45,074) $14,787 $78,676 $188,470 $82,208 Per Partnership Unit: Cash distributions(1) $36.80 $36.80 $36.80 $34.40 $16.00 Net income (loss) $(4.95) $1.62 $8.63 $20.68 $9.02 December 31, December 31, December 31, December 31, December 31, 1997 1996 1995 1994 1993 Total assets $2,430,463 $2,815,123 $3,127,918 $3,411,671 $3,523,707 Long-term debt ---- ---- ---- ---- ---- - --------- (1) On an annual basis, to the extent cash distributions exceed net income, Limited Partners receive a return of capital rather than a return on capital. However, an annual analysis will be misleading if the Limited Partners do not receive their investment back upon liquidation of the Partnership. For investors who purchased their Units directly from the Partnership, the original investment was $1,000 per Unit, cumulative allocations of income through December 31, 1997 were approximately $43.54 per Unit, and cumulative distributions through December 31, 1997 were approximately $637.70 per Unit. Investors who did not purchase Units directly from the Partnership must consult with their own advisers in this regard.
Management's Discussion and Analysis of Financial Condition and Results of Operations I. Fiscal Year Financial Statements (a) Liquidity and Capital Resources The Managing General Partner believes that the Partnership's liquidity, defined as its ability to generate sufficient cash to satisfy its cash needs, is adequate. The Partnership's primary source of liquidity is its cash flow from operations. The Partnership had, as of December 31, 1997, current assets of $216,599, current liabilities of $176,765 and, therefore, an operating reserve of $39,834. The Managing General Partner's reserves target is 5% of the adjusted capital contributions, which are approximately $5,536,000. Current reserves are below the $276,800 reserves target partially because the Managing General Partner decided to pay for renovations and replacements from cash on hand rather than by incurring debt. The reserve will be replenished during the coming fiscal year to the extent made possible by operations. The Partnership's Property is currently unencumbered. Although no assurance can be had in this regard, the Managing General Partner believes that the Partnership's equity in its Property provides a potential source of external liquidity (through financing) in the event the Partnership's internal liquidity is impaired. During 1997, the Partnership expended $103,300 for renovations and replacements, of which $50,387 was capitalized. The expenditures included 23 $25,714 for desk chairs, chairs and sleep sofas, $19,721 for parking lot repairs, $12,341 for guestroom carpet, $6,200 for security equipment, $7,478 for lamp and ballast upgrades, $5,700 for roof repairs and $7,132 for restaurant signage. During 1996, the Partnership expended $70,569 for renovations and replacements, of which $29,643 was capitalized. The expenditures included $11,148 for computer systems, $9,103 for replacement chairs, $5,797 for carpet, $5,195 for tub refinishing, $4,745 for roof repairs and $4,000 for pool replastering. The Partnership currently has no material commitments for capital expenditures. The Property is in full operation and no further property acquisitions or extraordinary capital expenditures are planned. If the Property is not sold the Managing General Partner is aware of no material trends or changes with respect to the mix or relative cost of the Partnership's capital resources. If the Property is retained adequate working capital is expected to be generated by motel operations. (b) Results of Operations (i) Combined Financial Results The following tables summarize the Partnership's operating results for 1995, 1996 and 1997 on a combined basis. Individual hotel and restaurant results follow in separate subsections. The income and expense numbers in the following tables are shown on an accrual basis and other payments on a cash basis. Total expenditures and debt service include the operating expenses of the motel, together with the cost of capital improvements. Average Average Hotel Hotel Occupancy Room Fiscal Year Ended: Rate Rate - ------------------------------------------------------------------ December 31, 1995 74.9% $60.95 December 31, 1996 71.1% $64.63 December 31, 1997 68.6% $66.30 Total Partnership Total Expenditures Cash Flow Fiscal Year Ended: Revenues and Debt Service (1) - ------------------------------------------------------------------------------ December 31, 1995 $3,213,820 $3,158,485 $55,335 December 31, 1996 $3,257,416 $2,961,860 $295,556 December 31, 1997 $3,250,726 $3,063,793 $186,933 (1) While Partnership Cash Flow as it is used here is not an amount found in the financial statements, the Managing General Partner believes that it is the best indicator of the annual change in the amount, if any, available for distribution to the Limited Partners because it tracks the definition of the 24 term "Cash Flow" as it is used in the Partnership Agreement. These calculations are reconciled to the financial statements in the following table. Following is a reconciliation of Total Expenditures and Debt Service as used above to Total Expenses shown on the Statement of Operations (in the audited financial statements): 1997 1996 1995 ----------------------------------------------------------- Total Expenditures and Debt Service $3,063,793 $2,961,860 $3,158,485 Net Additions to Fixed Assets (50,387) (29,643) (306,084) Depreciation and Amortization 281,791 299,764 278,574 Other Items 603 10,648 4,170 =========================================================== Total Expenses $3,295,800 $3,242,629 $3,135,145 ===========================================================
A reconciliation of Partnership Cash Flow (from the chart above) to Net Income (Loss) as shown on the Statements of Operations (in the audited financial statements) is as follows: 1997 1996 1995 ------------------------------------------------------- Partnership Cash Flow $186,933 $295,556 $55,335 Net Additions to Fixed Assets 50,387 29,643 306,084 Depreciation and Amortization (281,791) (299,764) (278,574) Other Items (603) (10,648) (4,169) ======================================================= Net Income ($45,074) $14,787 $78,676 =======================================================
Following is a reconciliation of Partnership Cash Flow (shown above) to the aggregate total of Cash Flow from Hotel Operations (shown in the succeeding subsection) and the Total Restaurant Net Loss (shown in the second succeeding subsection): 1997 1996 1995 ----------------------------------------------------- Cash Flow from Hotel Operations $408,473 $467,476 $251,271 Total Restaurant Net Loss (231,552) (182,081) (207,886) ----------------------------------------------------- Aggregate Cash Flow from Property Operations $176,921 285,395 43,385 Interest on Cash Reserves 6,938 9,131 11,825 Other Income (Net of Other Expenses) Not Allocated to the Property 3,074 1,030 125 ===================================================== Partnership Cash Flow $186,933 $295,556 $55,335 =====================================================
(ii) Hotel Operations The following table summarizes the operating results of the hotel for 1997, 1996, and 1995. Total expenditures include the operating expenses of the hotel, together with the cost of capital improvements and those Partnership expenses properly allocable to such hotel. Cash Flow from Total Total Hotel Fiscal Year Ended: Revenues Expenditures Operations - -------------------------------------------------------------------------------- December 31, 1995 $2,565,636 $2,314,365 $251,271 December 31, 1996 $2,591,465 $2,123,989 $467,476 December 31, 1997 $2,553,167 $2,144,694 $408,473 The Partnership's hotel experienced a $38,298 or 1.5% decrease in total revenues during 1997 as compared to 1996. The decrease in average occupancy rate 25 from 71.1% in 1996 to 68.6% in 1997 was partially offset by an increase in the average daily rate from $64.63 in 1996 to $66.30 in 1997. The occupancy generated by the group market segments declined while occupancy by the other market segments stayed about the same. The average room rate for all market segments increased due to rate increases. The Partnership's hotel achieved a $25,829 or 1.0% increase in total revenues during 1996 as compared to 1995. The 5% decline in the average occupancy rate was offset by the $3.68 increase in the average room rate. The occupancy generated by the government and corporate market segments declined while occupancy by the other market segments increased. The average room rate for all market segments increased due to rate increases. The Barstow hotel's total expenditures increased $20,705 or 1.0% during 1997 as compared to 1996. This included increases of $7,855 for additional billboards, $9,139 for central overhead allocation, $8,776 for travel agent commissions, $8,145 for legal fees and $43,879 for renovations and replacements. These increases were partially offset by reductions of $34,243 in security services. The Barstow hotel's total expenditures decreased $190,376 or 8.2% during 1996 as compared to 1995. This decrease is primarily attributable to the reduction in renovations and replacements. This decrease was partially offset by increased expenditures of $69,170 for security services, of $9,858 for front desk wages and salaries, of $8,589 in workers' compensation insurance, of $7,311 for print advertising, of $16,780 for commissions and of $7,250 for appraisal fees. (iii) Restaurant Operations The following table summarizes the operating results of the restaurant for 1997, 1996, and 1995: 1997 1996 1995 ---- ---- ---- Food Sales $533,750 100.0% $506,255 100.0% $496,097 100.0% Cost of Food Sales (229,820) -43.1% (203,022) -40.1% (183,583) -37.0% ---------------- -------------------- ----------------- Gross Profit from Food Sales $303,930 56.9% 303,233 59.9% 312,514 63.0% Beverage Sales 156,871 100.0% 149,490 100.0% 140,044 100.0% Cost of Beverages Sold (50,488) -32.2% (50,866) -34.0% (47,772) -34.1% ---------------- -------------------- ----------------- Gross Profit from Beverage Sales $106,383 67.8% 98,624 66.0% 92,272 65.9% ---------------- -------------------- ----------------- Combined Gross Profit $410,313 59.4% 401,857 61.3% 404,786 63.6% Restaurant Operating Expenses (641,865) -92.9% (583,938) -89.0% (612,672) -96.3% ---------------- -------------------- ----------------- Total Restaurant Net Loss ($231,552) -33.5% $(182,081) -27.8% $(207,886) -32.7% ================ ==================== =================
The Partnership's restaurant experienced a $49,471 or 27.2% increase in its net loss during 1997 as compared to 1996. There was an effort to increase restaurant sales, but the costs rose faster than revenue. Holiday Inn has modified its standards so that the restaurant operations can be reduced from 16 hours per day to six hours per day. Effective February 23, 1998, the restaurant hours were reduced to seven hours per day. Financial projections of the modified operation indicate that future restaurant operating losses will be much lower than those experienced during the last three fiscal years. 26 The Partnership's restaurant achieved a $25,805 or 12.4% decrease in its net loss during 1996 as compared to 1995. The improved performance is attributable to the elimination of $20,000 in professional fees and some renovations paid in the previous year. II. Interim Financial Statements (a) Liquidity and Capital Resources As of June 30, 1998, the Partnership's current assets of $344,323 exceeded its current liabilities of $186,967, providing an operating reserve of $157,356. Cash distributions have been suspended in order to replenish the Partnership reserves. The Statement of Cash Flows for the six months ended June 30, 1998 shows that the Partnership continues to generate cash sufficient to meet its cash needs. The Partnership expended $42,580 on renovations and replacements during the six months ended June 30, 1998, of which $13,970 was capitalized. The expenditures included $8,970 for guestroom carpet, $5,000 for the restaurant signs and $18,915 for roof repairs. (b) Results of Operations Total income decreased $55,140 or 3.3% for the first two quarters of 1998 as compared to the first two quarters of 1997. Hotel room revenue increased $25,987 or 2.0% due to an increase in the average room rate from $66.11 to $68.77, which was partially offset by a decrease in the occupancy rate from 72.9% to 71.5%. The decrease in occupancy was due primarily to reduced military activity at Fort Irwin. Restaurant revenue decreased $80,829 or 25.3% due to a reduction in daily operating hours from 16 to seven. Total expenses decreased $64,238 or 4.0% primarily due to reduced restaurant costs and the reversal in the three months ended June 30, 1998 of a contingent liability previously accrued. This reversal also gives rise to the credit in general and administrative expenses for the three months ended June 30, 1998. Other Financial Information In 1996 the computers used by the Partnership at the Managing General Partner's offices in Sacramento were updated. In the process of updating its hardware and software, the Managing General Partner eliminated any potential Year 2000 problem with respect to such computers. Similarly, the Managing General Partner does not anticipate any material Year 2000 problem with the computers in use at the motel. The Managing General Partner has not investigated and does not know whether any Year 2000 problems may arise from its third party vendors. Because the motels are "budget" motels, the Partnership's most significant vendors are its utility providers and banks. To the extent banking services, utility services and other goods and services are unavailable as a result of Year 2000 problems with the computer systems of such vendors or otherwise, the ability of the Partnership to conduct business at its motel would be comprised. No contingency plans have been developed in this regard. Items 304 and 305 of Regulation S-K promulgated by the Securities and Exchange Commission are not applicable to the Partnership. 27 FINANCIAL STATEMENTS for CONSENT SOLICITATION STATEMENT of FAMOUS HOST LODGING V, L.P. October __, 1998 F-i INDEX TO FINANCIAL STATEMENTS FAMOUS HOST LODGING V, L.P. Page INDEPENDENT AUDITORS' REPORT ............................................ F-1 FINANCIAL STATEMENTS: Balance Sheets, December 31, 1997 and 1996............................... F-2 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995.................................... F-3 Statements of Partners' Equity for the Years Ended December 31, 1997, 1996 and 1995.............................. F-4 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.................................... F-5 Notes to Financial Statements............................................ F-7 Balance Sheets, June 30, 1998 and December 31, 1997 (Unaudited).......... F-12 Statements of Operations for the Three Months and Six Months Ended June 30, 1998 and 1997 (Unaudited)............................ F-13 Statements of Partners' Equity for the Six Months Ended June 30, 1998 and 1998 (Unaudited)............................ F-14 Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 (Unaudited)............................ F-15 Notes to Financial Statements............................................ F-16 F-ii REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners Famous Host Lodging V, L.P. We have audited the accompanying balance sheets of Famous Host Lodging V, L.P., a California limited partnership, as of December 31, 1997 and 1996, and the related statements of operations, partners' equity, and cash flows for each of the years in the three year period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Famous Host Lodging V, L.P. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1997, in conformity with generally accepted accounting principles. VOCKER KRISTOFFERSON AND CO. February 26, 1998 San Mateo, California F-1 e-super8/s8597fs.wp8.wpd FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) BALANCE SHEETS December 31, 1997 and 1996 ASSETS 1997 1996 ------------ -------- Current Assets: Cash and temporary investments (Notes 1, 3, 8 and 9) $ 146,113 $ 246,283 Accounts receivable 32,624 24,531 Prepaid expenses 37,862 39,762 ---------- ----------- Total Current Assets 216,599 310,576 --------- ---------- Property and Equipment (Note 2): Building 4,077,604 4,077,604 Furniture and equipment 1,294,151 1,253,417 Projects in progress - 58,444 ------------- ----------- 5,371,755 5,389,465 Accumulated depreciation and amortization (3,190,183) (2,917,212) ---------- ---------- Property and Equipment, Net 2,181,572 2,472,253 ---------- ---------- Other Assets 32,294 32,294 ----------- ----------- Total Assets $2,430,465 $2,815,123 ========== ========== LIABILITIES AND PARTNERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 165,909 $ 184,017 Due to related parties 10,856 322 ---------- ------------ Total Liabilities 176,765 184,339 --------- ----------- Contingent Liabilities and Lease Commitments (Notes 4 and 5) Partners' Equity: General Partners 3,385 3,836 Limited Partners: 10,000 units authorized, 9,022 units issued and outstanding 2,250,315 2,626,948 --------- ---------- Total Partners' Equity 2,253,700 2,630,784 --------- ---------- Total Liabilities and Partners' Equity $2,430,465 $2,815,123 ========== ==========
See accompanying notes to financial statements. F-2 FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) STATEMENTS OF OPERATIONS Years Ended December 31: 1997 1996 1995 ------------ ------------ --------- Income: Guest room $2,458,115 $2,489,982 $2,466,338 Restaurant 690,622 655,746 636,141 Telephone and vending 55,707 65,512 54,893 Interest 6,938 9,131 11,825 Other 39,344 37,045 44,624 ------------ ----------- ---------- Total Income 3,250,726 3,257,416 3,213,821 ----------- ---------- ---------- Expenses: Hotel and restaurant operations (Notes 4, 5 and 6) 1,886,822 1,900,900 1,790,818 Restaurant operations (Note 4,5 and 6) 887,991 800,817 844,027 General and administrative (Note 4) 77,356 78,787 61,637 Depreciation and amortization (Note 2) 281,791 299,764 278,574 Property management fees (Note 4) 161,840 162,361 160,089 ----------- ----------- ---------- Total Expenses 3,295,800 3,242,629 3,135,145 ---------- ---------- ---------- Net Income (Loss) $ (45,074) $ 14,787 $ 78,676 =========== =========== =========== Net Income (Loss) Allocable to General Partners $(451) $148 $787 ===== ==== ==== Net Income (Loss) Allocable to Limited Partners $(44,623) $14,639 $77,889 ======== ======= ======= Net Income (Loss) Per Partnership Unit (Note 1) $4.95 $1.62 $8.63 ===== ===== ===== Distributions to Limited Partners Per Partnership Unit (Note 1) $36.80 $36.80 $36.80 ====== ====== ======
See accompanying notes to financial statements. F-3 FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) STATEMENTS OF PARTNERS' EQUITY Years Ended December 31: 1997 1996 1995 ---------- ---------- -------- General Partners: Balance, beginning of year $ 3,836 $ 3,688 $ 2,901 Net income (Loss) (451) 148 787 ----------- ------------ ---------- Balance, End of Year 3,385 3,836 3,688 ---------- ------------ ---------- Limited Partners: Balance, beginning of year 2,626,948 2,944,319 3,198,440 Net income (Loss) (44,623) 14,639 77,889 Less: Cash distribution to limited partners (332,010) (332,010) (332,010) ----------- ----------- ---------- Balance, End of Year 2,250,315 2,626,948 2,944,319 ---------- ---------- ---------- Total Partners' Equity $2,253,700 $2,630,784 $2,948,007 ========== ========== ==========
See accompanying notes to financial statements. F-4 FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) STATEMENTS OF CASH FLOWS Years Ended December 31: 1997 1996 1995 ------------ ------------ -------- Cash Flows From Operating Activities: Received from hotel and restaurant operations $3,237,065 $3,255,807 $3,224,408 Expended for hotel and restaurant operations and general and administrative expenses (2,963,719) (2,942,661) (2,878,610) Interest received 8,651 8,216 11,223 ------------ ------------ ----------- Net Cash Provided by Operating Activities 281,997 321,362 357,021 ----------- ----------- ----------- Cash Flows From Investing Activities: Proceeds from sale of property and equipment 230 500 3,060 Purchases of property and equipment (50,387) (29,643) (306,084) ----------- ----------- ---------- Net Cash Used by Investing Activities (50,157) (29,143) (303,024) ----------- ----------- ---------- Cash Flows From Financing Activities: Distributions paid to limited partners (332,010) (332,010) (332,010) ---------- ----------- ---------- Net Cash Used by Financing Activities (332,010) (332,010) (332,010) ---------- ----------- ---------- Net Increase (Decrease) in Cash and Temporary Investments (100,170) (39,791) (278,013) Cash and Temporary Investments: Beginning of year 246,283 286,074 564,087 ---------- ----------- ---------- End of Year $ 146,113 $ 246,283 $ 286,074 ========= ========== ==========
See accompanying notes to financial statements. F-5 FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) STATEMENTS OF CASH FLOWS (Continued) Years Ended December 31: 1997 1996 1995 ----------- ---------- ------- Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities: Net income (loss) $ (45,074) $ 14,787 $ 78,676 ---------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 281,791 299,764 278,574 (Gain) loss on disposition of property and equipment 59,047 (500) 4,170 (Increase) decrease in accounts receivable (8,093) 6,607 21,810 (Increase) decrease in prepaid expenses 1,900 (3,724) 5,210 (Increase) decrease in other assets - - (1,000) Increase (decrease) in accounts payable and accrued liabilities (18,108) 4,106 (18,863) Increase (decrease) in due to related parties 10,534 322 (11,556) ---------- ---------- --------- Total Adjustments 327,071 306,575 278,345 --------- -------- --------- Net Cash Provided By Operating Activities $281,997 $321,362 $357,021 ======== ======== ========
See accompanying notes to financial statements. F-6 FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS NOTE 1 - THE PARTNERSHIP Famous Host Lodging V, L.P. is a limited partnership organized under California law on January 17, 1984, to acquire and/or develop and operate hotel properties in the State of California. The term of the Partnership expires December 31, 2023, and may be dissolved earlier under certain circumstances. On February 13, 1991 the Partnership Agreement was amended to change the name of the Partnership from "Super 8 Lodging V, Ltd." to "Famous Host Lodging V, L.P." The hotel in Barstow, California was opened in December 1985. In 1987 the Partnership commenced operation of a family restaurant and cocktail lounge immediately adjacent to the hotel. The Partnership grants credit to customers, substantially all of which are local businesses. The managing general partner is Grotewohl Management Services, Inc., the fifty percent stockholder and officer of which is Philip B. Grotewohl. In addition, there is one individual associate general partner. The net income or net loss of the Partnership is allocated 1% to the General Partners and 99% to the Limited Partners. Net income (loss) and distributions per partnership unit are based upon 9,022 units outstanding. All partnership units are owned by the Limited Partners. The partnership agreement requires that the Partnership maintain working capital reserves for normal repairs, replacements, working capital and contingencies in an amount of at least 5% of gross proceeds of the public offering of units as adjusted for distributions of sales proceeds ($276,799 at December 31, 1997). As of December 31, 1997, the Partnership had working capital of only $39,834 due to capital renovations made during 1996 and distributions to limited partners in 1996 and 1997. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Items of Partnership income or loss are passed through to the individual partners for income tax purposes, along with any income tax credits. Therefore, no federal or California income taxes are provided for in the financial statements of the Partnership. At December 31, 1997, assets and liabilities on a tax basis were approximately $750,000 lower than on a book basis due to accelerated depreciation methods used for tax purposes. Property and equipment are recorded at cost. Depreciation and amortization are computed using the following estimated useful lives and methods: Description Methods Useful Lives Building and components 150% declining balance 10-25 years and straight-line Furniture and equipment 200% declining balance 4-7 years and straight-line Costs incurred in connection with maintenance and repair are charged to expense. Major renewals and betterments that materially prolong the lives of assets are capitalized. Long-lived assets are revised for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying value of the asset. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. F-7 FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 3 - CASH AND TEMPORARY INVESTMENTS Cash and temporary investments as of December 31, 1997 and 1996 consist of the following: 1997 1996 -------- ------ Cash in bank $ 71,809 $ 57,133 Money market accounts 74,304 89,150 Certificates of deposit - 100,000 -------- -------- Total Cash and Temporary Investments $146,113 $246,283 ======== ======== Temporary investments are recorded at cost, which approximates market value. The Partnership considers temporary investments and all highly liquid marketable securities with original maturities of five months or less to be cash equivalents for purposes of the statement of cash flows. NOTE 4 - RELATED PARTY TRANSACTIONS Property Management Fees The General Partners, or their affiliates, handle the management of the hotel property of the Partnership. The fee for this service is 5% of the gross revenues from Partnership operations, as defined in the partnership agreement, and amounted to $161,840 in 1997, $162,361 in 1996 and $160,089 in 1995. Subordinated Distributions to General Partners During the Partnership's operational stage, the General Partners are to receive an aggregate of 10% of Partnership distributions from cash available for distribution, of which 9% will constitute a fee for managing the Partnership and 1% will be on account of their interest in the income and losses of the Partnership. These distributions are subordinated, however, to payment to each Limited Partner during such year of distributions from cash available for distribution equal to a 14% per annum non-cumulative return on his adjusted capital contribution. Through December 31, 1997, the Limited Partners have not received a 14% non-cumulative return in any year, therefore no distributions have been made or have accrued to the General Partners. Subordinated Incentive Distributions Under the terms of the partnership agreement, the General Partners are to receive an aggregate of 15% of Partnership distributions of net proceeds from the sale or refinancing of Partnership properties. The aggregate distribution of 15% is composed of a 14% subordinated incentive fee as additional compensation for services rendered by the General Partners and the 1% on account of their interest in the income and losses of the Partnership. These distributions are subordinated, however, to net proceeds from the sale or refinancing of Partnership properties remaining after distribution to the Limited Partners of any portion thereof required to cause distributions to the Limited Partners from all sources to be equal to their capital contributions plus 10% per annum cumulative return on their adjusted capital contributions. At December 31, 1997, the Limited Partners had not received the 10% per annum cumulative return, and accordingly, no such proceeds have been distributed to the General Partners. F-8 FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 4 - RELATED PARTY TRANSACTIONS (Continued) Administrative Expenses Shared by the Partnership and Its Affiliates There are certain administrative expenses allocated between the Partnership and other partnerships managed by the General Partners and their affiliates. These expenses, which are allocated based on usage, are telephone, data processing, rent of the administrative office, and administrative salaries. Management believes that the methods used to allocate shared administrative expenses are reasonable. The administrative expenses allocated to the Partnership were approximately $230,000 in 1997, $225,000 in 1996 and $223,000 in 1995 and are included in general and administrative expenses and hotel and restaurant operations expenses in the accompanying statements of operations. Included in administrative salaries are allocated amounts paid to two employees who are related to Philip B. Grotewohl, the fifty percent stockholder of Grotewohl Management Services, Inc. (see Note 1), the General Partner. NOTE 5 - LEASE COMMITMENTS The Partnership leases 3.05 acres of land in Barstow, California for a term of 50 years beginning in 1984. The Partnership has the right to extend the lease for three consecutive periods of ten years each. The base rent payments are subject to annual upward or downward adjustments based on changes in the Consumer Price Index. The Partnership also leases the site adjacent to its Barstow hotel that contains a restaurant and lounge. The lease provides for a 20-year term ending December 31, 2010 with an option to terminate this lease after termination of the Holiday Inn license agreement. The option cannot be exercised before the tenth year of the renewal term and requires six months written notice. Both leases contain provisions requiring the lessee to pay all property taxes and assessments. The leases provide for payment of the excess of percentage rent over the base rent. The percentage rent is 9% of the combined gross hotel room revenues and gross restaurant and lounge sales. Rental expense under these leases incurred by the Partnership amounted to $299,375 in 1997, $299,569 in 1996 and $297,167 in 1995. Such amounts are included in hotel and restaurant operations expense in the accompanying statements of operations. Future lease commitments at December 31, 1997, using the current minimum monthly amounts, are as follows: Years Ended Hotel Land Restaurant December 31: Lease Lease Total 1998 $ 163,428 $ 116,688 $ 280,116 1999 163,428 116,688 280,116 2000 163,428 116,688 280,116 2001 163,428 116,688 280,116 2002 163,428 116,688 280,116 2003-2035 5,147,982 933,504 6,081,486 ---------- ----------- ---------- Total minimum future lease payments $5,965,122 $1,516,944 $7,482,066 ========== ========== ========== F-9 FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 6 - HOTEL AND RESTAURANT OPERATING EXPENSES The following table summarizes the major components of hotel and restaurant operating expenses for the following years: 1997 1996 1995 Hotel operating expenses: Salaries and related expenses $ 473,267 $ 464,624 $ 448,159 Rent 235,753 238,538 235,455 Franchise, advertising and reservation fees 175,932 179,762 177,711 Utilities 151,979 155,573 163,683 Allocated costs, mainly indirect salaries 186,004 184,064 181,607 Renovations and replacements 52,913 40,926 77,384 Maintenance expenses 106,149 125,157 139,443 Property taxes 63,790 65,322 61,697 Property insurance 43,021 41,984 39,776 Other operating expenses 398,014 404,950 265,903 ---------- ----------- -------- Total hotel operating expenses $1,886,822 $1,900,900 $1,790,818 ========== ========== ========== Restaurant operating expenses: Salaries and related expenses $ 393,229 $ 343,962 $ 341,357 Cost of food and beverage 287,070 253,888 231,355 Rent 65,302 63,068 60,818 Utilities 49,693 48,678 52,858 Property taxes 10,504 11,551 10,307 Property insurance 8,595 9,525 9,802 Other operating expenses 73,598 70,145 137,530 --------- ---------- -------- Total restaurant operating expenses $887,991 $800,817 $844,027 ======== ======== ========
NOTE 7 - COMMITMENTS Franchise Fees In February 1991, the Partnership obtained a ten-year franchise agreement with Holiday Inns, Inc. to operate its Barstow hotel and restaurant under the name "Holiday Inn." The Partnership pays monthly franchise fees of 4% of gross room revenues of the hotel and makes monthly contributions of 1 1/2% and 1% of guest room revenues to a marketing fund and reservation fund, respectively. NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and temporary investments approximates fair value because of the short-term maturity of those investments. F-10 FAMOUS HOST LODGING V, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 9 - CONCENTRATION OF CREDIT RISK The Partnership maintains its cash accounts in five commercial banks located in California. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank. A summary of the total uninsured cash balances (not reduced by outstanding checks) as of December 31, 1997 follows: Total cash in all California banks $177,077 Portion insured by FDIC (131,674) Uninsured cash balance $ 45,403 ======== NOTE 10 - LEGAL PROCEEDINGS AND SUBSEQUENT EVENT On October 27, 1997, a complaint was filed in the United States District Court by the Managing General Partner naming as defendants Everest/Madison Investors, LLC, Everest Lodging Investors, LLC, Everest Properties II, LLC, Everest Properties, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre Capital Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citron, Ronald J. Kravit, and Stephen P. Enquist. The complaint alleged that the defendants violated certain provisions of the Security and Exchange Act of 1934 and sought injunctive and declarative relief. On October 28, 1997, a complaint was filed in the Superior Court of the State of California, Sacramento County by Everest Lodging Investors, LLC and Everest/Madison Investors, LLC as plaintiffs against the General Partners of the Partnership and four other partnerships which have common general partners as nominal defendants. The complaint pertained to the receipt by the defendants of franchise fees and reimbursement of expenses, the indications of interest made by the plaintiffs in purchasing the properties of the nominal defendants, and the alleged refusal of the defendants to provide information required by the terms of the Partnership's partnership agreement and California law. On February 20, 1998, the parties entered into a settlement agreement and both of the above complaints were dismissed. Pursuant to the terms of the settlement agreement, the General Partner has agreed to proceed with the marketing for sale of the properties of the Partnerships, among other things, if by June 30, 1998, it receives an offer to purchase one or more properties for a cash price equal to 75% or more of the appraised value. In addition, the General Partner has agreed to submit the offer for approval to the limited partners as required by the partnership agreements and applicable law. The General Partner has also agreed that upon the sale of one or more properties, to distribute promptly the proceeds of the sale after payment of payables and retention of reserves to pay anticipated expenses. The Everest Defendants agreed not to generally solicit the acquisition of any additional units of the Partnerships without first filing the necessary documents with the SEC. Under the terms of the settlement agreement, the Partnerships have agreed to reimburse the Everest Defendants for certain costs not to exceed $60,000, to be allocated among the Partnerships. Of this amount, the Partnership will pay approximately $12,000 during the year ended December 31, 1998. F-11 Famous Host Lodging V, L.P. (A California Limited Partnership) Balance Sheet June 30, 1998 and December 31, 1997 6/30/98 12/31/97 ---------- ---------- ASSETS Current Assets: Cash and temporary investments $ 275,409 $ 146,113 Accounts receivable 37,987 32,624 Prepaid expenses 30,927 37,862 ---------- ---------- Total current assets 344,323 216,599 ---------- ---------- Property and Equipment: Buildings 4,077,604 4,077,604 Furniture and equipment 1,308,121 1,294,151 ---------- ---------- 5,385,725 5,371,755 Accumulated depreciation (3,320,794) (3,190,183) ---------- ---------- Property and equipment, net 2,064,931 2,181,572 ---------- ---------- Other Assets: 32,294 32,294 ---------- ---------- Total Assets $ 2,441,548 $ 2,430,465 ========== ========== LIABILITIES AND PARTNERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 186,967 $ 176,765 ---------- ---------- Total liabilities 186,967 176,765 ---------- ---------- Contingent Liabilities (See Note 1) Partners' Equity: General Partners 4,224 3,385 Limited Partners (9,022 units issued and outstanding) 2,250,357 2,250,315 ---------- ---------- Total partners' equity 2,254,581 2,253,700 ---------- ---------- Total Liabilities and Partners' Equity $ 2,441,548 $ 2,430,465 ========== ========== UNAUDITED The accompanying notes are an integral part of the financial statements. F-12 Famous Host Lodging V, L.P. (A California Limited Partnership) Statement of Operations For the Six Months Ending June 30, 1998 and 1997 Three Months Six Months Three Months Six Months Ended Ended Ended Ended 6/30/98 6/30/98 6/30/97 6/30/97 ---------- ---------- ----------- ---------- Income: Hotel room $ 664,962 $ 1,317,738 $ 587,612 $ 1,291,751 Restaurant 104,095 239,119 165,713 319,948 Telephone and vending 10,949 23,943 12,429 26,909 Interest 857 1,649 4,118 5,810 Other 16,353 29,645 12,936 22,816 ---------- ---------- ----------- ---------- Total Income 797,216 1,612,094 782,808 1,667,234 ---------- ---------- ----------- ---------- Expenses: Motel operating expenses (Note 2) 467,135 922,132 445,874 895,150 Restaurant operations (Note 2) 129,137 311,293 230,450 434,189 General and administrative (68,347) 84,130 17,442 40,198 Depreciation and amortization 65,495 130,611 70,239 139,992 Property management fees 39,527 80,045 38,707 82,920 ---------- ---------- ----------- ---------- Total Expenses 632,947 1,528,211 802,712 1,592,449 ---------- ---------- ----------- ---------- Net Income (Loss) $ 164,269 $ 83,883 $ (19,904) $ 74,785 ========== ========== =========== ========== Net Income (Loss) Allocable to General Partners $1,643 $839 ($199) $748 ========== ========== =========== ========== Net Income (Loss) Allocable to Limited Partners $162,626 $83,044 ($19,705) $74,037 ========== ========== =========== ========== Net Income (Loss) per Partnership Unit $18.03 $9.20 ($2.18) $8.21 ========== ========== =========== ========== Distribution to Limited Partners per Partnership Unit $9.20 $18.40 $9.20 $18.40 ========== ========== =========== ========== UNAUDITED The accompanying notes are an integral part of the financial statements. F-13 Famous Host Lodging V, L.P. (A California Limited Partnership) Statement of Changes in Partners' Equity For the Six Months Ending June 30, 1998 and 1997 1998 1997 ---------- ---------- General Partners: Balance at beginning of year $ 3,385 $ 3,836 Net income (loss) 839 748 ---------- ---------- Balance at end of period 4,224 4,584 ---------- ---------- Limited Partners: Balance at beginning of year 2,250,315 2,626,948 Net income (loss) 83,044 74,037 Distributions to limited partners (83,002) (166,005) ---------- ---------- Balance at end of period 2,250,357 2,534,980 ---------- ---------- Total Partners' Equity $ 2,254,581 $ 2,539,564 ========== ========== UNAUDITED The accompanying notes are an integral part of the financial statements. F-14 Famous Host Lodging V, L.P. (A California Limited Partnership) Statement of Cash Flows For the Six Months Ending June 30, 1998 and 1997 1998 1997 ---------- ---------- Cash flows from operating activities: Received from hotel and restaurant revenues $ 1,605,082 $ 1,662,323 Expended for hotel and restaurant operation and general and administrative expenses (1,380,463) (1,421,142) Interest received 1,649 5,379 ---------- ---------- Net cash provided (used) by operating activities 226,268 246,560 ---------- ---------- Cash flows from investing activities: Purchases of property and equipment (13,970) (27,818) Proceeds from sale of equipment - 230 ---------- ---------- Net cash provided (used) by investing activities (13,970) (27,588) ---------- ---------- Cash flows from financing activities: Distributions paid to limited partners (83,002) (166,005) ---------- ---------- Net cash provided (used) by operating activities (83,002) (166,005) ---------- ---------- Net increase (decrease) in cash and temporary investments 129,296 52,967 Cash and Temporary Investments: Beginning of year 146,113 246,283 ---------- ---------- End of Period $ 275,409 $ 299,250 ========== ========== Reconciliation of net income (loss) to net cash provided (used) by operating activities: Net income (loss) $ 83,883 $ 74,785 ---------- ---------- Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 130,611 139,992 (Gain) loss on disposition of property and equipment - (230) (Increase) decrease in accounts receivable (5,363) 468 (Increase) decrease in prepaid expenses 6,935 3,976 Increase (decrease) in accounts payable and accrued liabilities 10,202 27,569 ---------- ---------- Total adjustments 142,385 171,775 ---------- ---------- Net cash provided (used) by operating activities $ 226,268 $ 246,560 ========== ========== UNAUDITED The accompanying notes are an integral part of the financial statements. F-15 Famous Host Lodging V, L.P. (A California Limited Partnership) Notes to Financial Statements June 30, 1998 and 1997 Note 1: The attached interim financial statements include all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the period presented. Users of these interim financial statements should refer to the audited financial statements for the year ended December 31, 1997 for a complete disclosure of significant accounting policies and practices and other detail necessary for a fair presentation of the financial statements. In accordance with the partnership agreement, the following information is presented related to fees paid to the General Partners or affiliates for the period. Property Management Fees $80,045 In February, 1991 the Partnership terminated its franchise and its affiliation with Super 8 Motels, Inc. and began operating as a Holiday Inn. Accordingly, no franchise or advertising fees have been paid to the General Partners or their affiliates for the period. Partnership management fees and subordinated incentive distributions are contingent in nature and none have been accrued or paid during the current period. Note 2: The following table summarizes the major components of hotel operating expenses for the periods reported: Three Months Six Months Three Months Six Months Ended Ended Ended Ended 6/30/98 6/30/98 6/30/97 6/30/97 ---------- ---------- ----------- ---------- Motel Operating Costs: Salaries and related costs $ 124,283 $ 248,928 $ 119,818 $ 244,224 Rent 64,655 126,450 57,623 123,811 Franchise, advertising and reservation fees 45,045 91,577 42,249 92,095 Utilities 31,657 65,750 35,083 68,291 Allocated costs, mainly indirect salaries 47,755 97,516 44,313 88,423 Maintenance, repairs & replacements 48,003 88,434 38,016 69,097 Property taxes 16,024 32,049 15,870 31,741 Property insurance 10,409 21,063 12,299 23,017 Other operating expenses 79,304 150,365 80,603 154,451 ----------- ---------- ---------- ---------- 467,135 922,132 445,874 895,150 =========== ========== ========== ========== Restaurant Operating Expenses: Salaries and related costs 49,987 125,776 98,333 187,657 Cost of Food and Beverage 37,454 85,093 69,111 129,659 Rent 9,369 22,895 14,914 30,543 Utilities 7,704 16,518 12,139 22,631 Property taxes 2,631 5,259 2,622 5,244 Property insurance 2,286 4,523 2,061 4,655 Other operating expenses 19,706 51,229 31,270 53,800 ----------- ---------- ---------- ---------- 129,137 311,293 230,450 434,189 =========== ========== ========== ========== The following additional material contingencies are required to be restated in interim reports under federal securities law: None. F-16 APPENDIX 1 ACTIONS BY WRITTEN CONSENT OF LIMITED PARTNERS FAMOUS HOST LODGING V, L.P. 2030 J Street Sacramento, California 95814 (916) 442-9183 THIS CONSENT IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND THE MANAGING GENERAL PARTNER. The undersigned hereby acknowledges receipt of the Consent Solicitation Statement dated ______________, 1998 and hereby votes all the units of limited partnership interest of Famous Host Lodging V, L.P. (the "Partnership"), held of record by him, her or it as follows: Proposal #1. An amendment to the Partnership's Certificate and Agreement of Limited Partnership to grant to the General Partners authority to sell the Partnership's motel and related personal property to Tiburon Capital Corporation, or a nominee thereof, as specifically set forth under "Amendments to the Partnership Agreement" in the accompanying Consent Solicitation Statement. FOR [ ] AGAINST [ ] ABSTAIN [ ] Proposal #2. An amendment to the Partnership's Certificate and Agreement of Limited Partnership to grant to the General Partners authority to sell the Partnership's motel and related personal property to a party or parties yet to be identified, as specifically set forth under "Amendments to the Partnership Agreement" in the accompanying Consent Solicitation Statement. FOR [ ] AGAINST [ ] ABSTAIN [ ] This Consent, when properly executed and returned to the Partnership, will be voted in the manner directed herein by the undersigned limited partner. IF NO DIRECTION IS MADE FOR A PROPOSAL, THIS CONSENT, IF SO EXECUTED AND RETURNED, WILL BE VOTED FOR THE PROPOSAL. Please sign exactly as name appears below: When Units are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. DATED: , 1998 ----------------------------------- Signature ----------------------------------- Additional signature, if held jointly PLEASE MARK, SIGN, DATE AND RETURN THIS POSTPAID CONSENT CARD. EX-10.1 2 PURCHASE AND SALE AGREEMENT PURCHASE AND SALE AGREEMENT Dated as of April 30, 1998 By and Between Famous Host Lodging V, Ltd. a California Limited Partnership and Tiburon Capital Corporation a California Corporation TABLE OF CONTENTS SECTION 1: DEFINITIONS .............................................1 SECTION 2: AGREEMENT TO SELL AND PURCHASE ..........................5 SECTION 3: REPRESENTATIONS AND WARRANTIES BY SELLER ...............................................7 SECTION 4: REPRESENTATIONS AND WARRANTIES OF PURCHASER ..........................................15 SECTION 5: OPERATION OF THE PROPERTIES PRIOR TO CLOSING .............................................16 SECTION 6: CONDITIONS TO CLOSING ..................................17 SECTION 7: CLOSING ................................................22 SECTION 8: INDEMNIFICATION .......................................33 SECTION 9: WAIVER .................................................33 SECTION 10: BROKERS ................................................34 SECTION 11: SURVIVAL; FURTHER ASSURANCES ...........................34 SECTION 12: NO THIRD PARTY BENEFITS ................................35 SECTION 13: REMEDIES ...............................................36 SECTION 14: TERMINATION ............................................36 SECTION 15: MISCELLANEOUS ..........................................37 SECTION 16: NOTICES ................................................38 SECTION 17: ATTORNEYS' FEES ........................................39 SECTION 18: CONFIDENTIALITY ........................................40 - i - LIST OF EXHIBITS Exhibit Description Primary Section Reference A Identification of Motel 1 (L) B List of Franchise Agreements 1 (F) C Land Leases 1 (J) D List of Service Contracts 3 (K) E List of Equipment Leases 3 (L) F List of Tenant Leases 3 (M) G List of Labor Contracts 3 (N) H Form of Grant Deed 7 (C)(1)(a) I Bill of Sale and Assignment, Personal Property 7(C)(1)(b) J Assignment of Franchise Agreements 7(C)(1)(c) K Assignment of Land Leases 7(C)(1)(d) L Assignment of Service Contracts 7(C)(1)(e) M Assignment of Tenant Leases 7(C)(1)(f) N Assignment of Equipment Leases 7(C)(1)(g) O Estoppel Certificates 7(C)(1)(i) - ii - PURCHASE AND SALE AGREEMENT THIS AGREEMENT is made as of the 30th day of April, 1998, by and between FAMOUS HOST LODGING V, LTD., a California limited partnership ("Seller"), and TIBURON CAPITAL CORPORATION, a California corporation ("Purchaser"). W I T N E S S E T H WHEREAS, Seller owns and operates one Holiday Inn Motel, as a franchisee of Holiday Inns, Inc., and an adjoining restaurant and cocktail lounge, in the city of Barstow, California, and desires to sell such motel, restaurant, and cocktail lounge to Purchaser on the terms and conditions set forth below; and WHEREAS, the Purchaser desires to purchase such motel, restaurant, and cocktail lounge from Seller on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the premises and the respective undertakings of the parties hereinafter set forth, it is hereby agreed: SECTION 1: DEFINITIONS Wherever used in this Agreement, the words and phrases set forth below shall have the meanings set forth below unless the context clearly requires otherwise. - 1 - A. "Barstow Motel" refers to the Holiday Inn Motel (including adjoining restaurant and cocktail lounge) located at 1511 East Main Street, Barstow, California 92311. B. "Closing" means the closing at which Seller conveys title to the Properties to Purchaser and Purchaser pays Seller the Purchase Price described in Section 2 herein below. C. "Closing Date" means July 15, 1998, or if later, 30 days after satisfaction of the conditions set forth in Section 6(11) hereof, subject to commer cially reasonable extensions, but in no event later than December 31, 1998. D. "Consumables" shall mean all food and beverages (including alcoholic and non-alcoholic), engineering, maintenance, and housekeeping supplies, stationery, printing and other supplies of all kinds (collectively, the "Consumables") used in connection with the ownership, operation and maintenance of the Properties. E. "Financial Statements" means all financial statements and information relating to the Properties which are referred to in Section 3(O) hereof. F. "Franchise Agreements" refers to the franchise agreements between the Seller and Holidays Inn, Inc., as identified on Exhibit B hereto. G. "Furniture, Fixtures, and Equipment" shall mean all tangible personal property, excluding the Consumables, located on the Properties, and used in connection with the ownership, operation and maintenance of the Properties (collectively, the "FF & E"). The FF & E shall include all fixtures, furniture, furnishings, fittings, televisions, vehicles, equipment, computer hardware and nonproprietary software, machinery, apparatus, books and records of Seller pertaining to - 2 - the Properties, appliances, china, glassware, linens, silverware, keys and uniforms owned by Seller and used in connection with the ownership, operation, and maintenance of the Properties. H. "GMS" refers to Grotewohl Management Services, Inc., a California corporation and the general partner of the Seller. I. "Improvements" means all buildings, structures, fixtures and other improvements now or hereafter located or erected on the Leased Land. J. "Land Leases" refers to the leases of the land identified on Exhibit C hereto. K. "Leased Land" refers to the land leased to Seller pursuant to the Land Leases. L. "Motel" refers to the Barstow Motel, including adjoining restaurant and cocktail lounge, as identified on Exhibit A hereto. M. "Personal Property" means all tangible and intangible personal property now or hereafter owned by the Seller and used in connection with the operation of the Properties, including, without limitation, (i) all building and construction materials, equipment, appliances, machinery and other personal property owned by Seller and used in connection with the operation of the Properties, (ii) the Consumables, (iii) the FF & E, (iv) Seller's rights under the Franchise Agreements, (v) all transferable permits, licenses, certificates and approvals issued in connection with the Properties, (vi) the exclusive right to use the name of the Properties and the right to all other names, logos and designs used in connection with the Properties, including the names of restaurants, bars, banquet rooms and meeting rooms, (vii) the right to use the - 3 - Properties' telephone numbers and post office boxes, (viii) all booking agreements, (ix) all service marks and trademarks, (x) all plans and specifications, operating manuals, guaranties and warranties and any other items used in the operation of the Properties, (xi) all documents relating to guests at the Properties, including booking agreements, (xii) all books, records, promotional materials, marketing and leasing materials related to the Properties, and all of Seller's right to receive and utilize water service, sanitary and storm sewer service, electrical and gas service and other utility services presently supplied to the Properties, and (xiii) all documents relating to employees at the Properties. N. "Properties" means the Seller's interest in the Land Leases, the Motel, the Personal Property, and the Improvements. O. "Property Agreement(s)" means, collectively, the Franchise Agree ments, the Land Leases, the Tenant Leases, the Service Contracts, the Permitted Exceptions, the Equipment Leases, and any other lease, rental agreement, loan agreement, loan commitment, mortgage, deed of trust, easement, covenant or agreement affecting Seller's interest in the Properties. P. "Seller's Knowledge," including "to the best of Seller's knowledge," or any similar phrase, shall mean the present actual knowledge of the officers of GMS, without any duty of inquiry or independent investigation of the relevant matter by any of such individuals. Q. "Title Company" means Chicago Title Company, Sacramento, California. /// - 4 - SECTION 2: AGREEMENT TO SELL AND PURCHASE A. Purchase Price. On the Closing Date Seller shall convey the Properties to Purchaser or Purchaser's designee on the terms and conditions set forth herein. On the Closing Date the Purchaser or Purchaser's designee shall accept title to the Properties from Seller on the terms and conditions set forth herein and shall pay to the Seller the Purchase Price ("Purchase Price"), in immediately available funds, of Four Million One Hundred Thousand Dollars ($4,100,000) subject to prorations as set forth below. B. Earnest Money. Upon the later to occur of the completion of the inspection period referred to in Section 6(4) hereof or the date Seller notifies Purchaser that Seller's limited partners have approved this Agreement and all matters related thereto (Section 6(11) hereof), Purchaser shall deposit $21,000 (the "Earnest Money") with the Title Company. The Earnest Money shall be held by the Title Company in accordance with the terms hereof and invested in a money market account with all interest earned thereon payable to Purchaser. If this Agreement is terminated due to Purchaser's default hereunder, the Earnest Money shall be paid to Seller as liquidated damages and as Seller's sole and exclusive remedy. If the Closing occurs hereunder, the Earnest Money shall be paid to Seller and credited against the Purchase Price. If the Closing does not occur hereunder for any reason other than Purchaser's default hereunder, the Earnest Money shall be refunded to Purchaser. /// /// /// - 5 - C. Liquidated Damages. PURCHASER AND SELLER AGREE THAT SELLER'S ECONOMIC DETRIMENT RESULTING FROM THE REMOVAL OF THE PROPERTIES FROM THE REAL ESTATE MARKET FOR AN EXTENDED PERIOD OF TIME AND ANY CARRYING AND OTHER COSTS INCURRED AFTER THE REMOVAL OF THE PROPERTIES FROM THE REAL ESTATE MARKET ARE IMPRACTICABLE OR EXTREMELY DIFFICULT TO ASCER TAIN. PURCHASER AND SELLER AGREE THAT, FROM AND AFTER THE DATE PURCHASER DEPOSITS THE EARNEST MONEY INTO ESCROW WITH THE TITLE COMPANY, THE AMOUNT OF THE EARNEST MONEY IS A REASONABLE ESTIMATE OF THE DAMAGES THAT WILL BE INCURRED BY SELLER IN THE EVENT ESCROW FAILS TO CLOSE ON THE PROPER TIES AS A RESULT OF A BREACH OR DEFAULT OF PURCHASER'S OBLIGATION TO PURCHASE THE PROPERTIES PURSUANT TO THE TERMS OF THIS AGREEMENT BY PURCHASER. PURCHASER AGREES THAT IN THE EVENT OF A MATERIAL BREACH OR DEFAULT BY PURCHASER RESULTING IN A TERMINATION OF THIS AGREEMENT, SELLER SHALL BE ENTITLED TO RECEIVE THE EARNEST MONEY AS LIQUIDATED DAM AGES AND NOT AS A PENALTY. SELLER HEREBY WAIVES THE REMEDY OF SPECIFIC PERFORMANCE WITH RESPECT TO ANY DEFAULT BY PURCHASER OF ITS OBLIGATION TO PURCHASE THE PROPERTIES AND AGREES THAT THE LIQUIDATED DAMAGES SET FORTH HEREIN SHALL BE SELLER'S SOLE REMEDY IN THE EVENT PURCHASER BREACHES OR DEFAULTS IN ITS OBLIGATION TO PURCHASE THE PROPERTIES HEREUN DER. BY INITIALING THIS SECTION 2(C) BELOW, PURCHASER AND SELLER AGREE TO THE TERMS OF THIS SECTION 2(C). Seller's Initials: ________ Purchaser's Initials: ________ - 6 - SECTION 3: REPRESENTATIONS AND WARRANTIES BY SELLER Seller hereby represents and warrants to, and covenants and agrees with, Purchaser as of the date hereof and as of the Closing as follows (all of which representations and warranties shall be deemed automatically remade as of the Closing): A. Due Organization. Seller is a limited partnership duly organized and validly existing under the laws of the State of California. Seller has the full power and authority, and is duly authorized, to execute, enter into, deliver and perform this Agreement and its obligations hereunder. B. Power. This Agreement and all other agreements, instruments and documents required to be executed or delivered by Seller pursuant hereto have been or (if and when executed) will be duly executed and delivered by Seller, and are or will be legal, valid and binding obligations of Seller. No consents and permissions are required to be obtained by Seller for the execution and performance of this Agreement and the other documents to be executed by Seller hereunder; provided, however, that sale of the Properties to Purchaser by Seller requires (i) the consent of the lessor under the Land Leases; (ii) the consent of the franchisors and subfranchisors under the Franchise Agreements; and (iii) the approval of the limited partners of Seller. The consummation of the transactions contemplated herein and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, any agreement or document to which the Seller is a party or by which it is bound, or, to the best of Seller's knowledge, any order, rule or regulation of any court or of any federal or state regulatory body or any administrative agency or any other governmental body having jurisdiction over the Seller or the Properties. - 7 - C. Title. Seller has good and marketable title to the Properties (other than the land leased to Seller pursuant to the Land Leases), subject only to the Tenant Leases, Permitted Exceptions, and those liens and encumbrances which will be released at Closing. D. Condition of Properties. To the best of Seller's knowledge, (i) the Improvements (including, without limitation, all heating, ventilating, air conditioning, electrical, elevator, plumbing and all other building systems (the "Building Systems"), roofs, exterior walls, windows and all other structural elements of the Properties (the "Structural Elements") are structurally sound and have been constructed in a good and workmanlike manner, are free from material defects, and there are no subsurface soil conditions adversely affecting the Properties; (ii) any parking on the Properties is sufficient for its current uses and satisfies all legal requirements, (iii) all streets and driveways necessary for access and utilization of the Properties are complete and available for use, (iv) the Properties include all easements necessary for their current use and there are no off-site facilities or rights needed for their operation or use; (v) all utilities servicing the Properties are adequate for the use and operation of the Properties as currently intended; (vi) the Properties are not located in any wetlands and no geological faults traverse the Properties, and (vii) the Properties are free from infestation by pests. Seller has not received any written notice of unsatisfied requests for repairs, restorations or improvements from any person, entity or authority (including, but not limited to, tenants, insurers, lenders or governmental agencies) with respect to the Properties. Seller has not received any written notice of complaints from adjoining property owners with respect to the Properties. In the event any such requests or complaints are received by Seller between the date of this Agreement and Closing, copies thereof shall be furnished to Purchaser, and if the cost to correct the matters referred to therein exceeds $25,000 then Purchaser may terminate this Agreement if Seller elects not to correct such matters. - 8 - E. Permits and Legal Compliance. To the best of Seller's knowledge, Seller has all licenses, permits and certificates necessary for the use and operation of the Properties, including, without limitation, all certificates of occupancy necessary for the occupancy of the Properties. To the best of Seller's knowledge, the Properties, including the use thereof, comply with all Property Agreements and all applicable laws. F. No Proceedings. There is not now pending or, to the best of Seller's knowledge, threatened, any action, suit or proceeding before any court or governmen tal agency or body against (i) the Seller which might result in any material adverse change in the condition (financial or otherwise), business, prospects, revenue or income of the Properties, or which might have any material adverse result to the Properties, or (ii) the Properties. Without limiting the generality of the foregoing, Seller has not received any written notice of violations or alleged violations of any laws, rules, regulations or codes, including building codes, with respect to the Properties which have not been corrected to the satisfaction of the governmental agency issuing such notices. G. Eminent Domain. Seller has not received written notice of any pending, or to the best of Seller's knowledge, threatened condemnation, eminent domain or similar proceeding relating to the Properties or any portion thereof or any interest (whether legal, beneficial or otherwise) or estate therein. H. Zoning; Taxes. Seller has not received any written notice regarding threatened zoning changes or variances with respect to the Properties; nor has Seller received written notice that anyone initiated any request or application for a zoning change or variance with respect to the Properties. Seller has not received any written notices regarding pending or threatened reassessments or special tax assessments - 9 - against the Properties, and the Properties are separately assessed for real estate tax purposes. I. Franchise Agreements. Exhibit B lists the Franchise Agreements for the Properties pursuant to which Seller operates the Properties as a Holiday Inn Motel. Exhibit B also includes a list of all amendments and modifications thereto. To the best of Seller's knowledge, except as may be shown in said exhibit, all of the Franchise Agreements are in full force and effect and free from default, Seller is current in the payment of all fees due under the Franchise Agreements, and there is no existing event which, with the passage of time or the giving of notice, or both, could become a default under the Franchise Agreements, and there are no disputes, claims, or rights of set-off under the Franchise Agreements. J. Land Leases. Exhibit C lists for the Properties the Land Leases applicable to the Properties. Exhibit C also includes a list of all amendments and modifications thereto. To the best of Seller's knowledge, except as may be shown in said Exhibit, the Land Leases is in full force and effect and free from default, Seller is current in the payment of all rentals and other amounts due under the Land Leases, there is no existing event which, with the passage of time and the giving of notice, or both, could become a default under the Land Leases, there are no disputes, claims, or rights of set-off under the Land Leases, and, subject to obtaining the consent of the lessor under the Land Leases and the limited partners of Seller, Seller has the full right, power, and authority to assign its interest in and to the Land Leases to Purchaser. K. Service Contracts. Attached hereto as Exhibit D is a list of all contracts or agreements to which Seller is a party for the providing of services or supplies to or management of the Properties, including (without limitation) a list of all amendments and modifications thereto and assignments thereon (which contracts and - 10 - agreements, together with the contracts and agreements entered into with respect to the Properties after the date hereof with the consent of Purchaser pursuant to Section 6 below, are herein referred to collectively as the "Service Contracts"). To the best of Seller's knowledge, except as may be shown in said exhibit, all of the Service Contracts are in full force and effect and free from default and there is no existing event which, with the passage of time or giving of notice, or both, could become a default under the Service Contracts, and there are no disputes, claims or rights of set-off under the Service Contracts. Except as may be shown in said exhibit, all management agreements relating to the Properties are terminable by Seller at or prior to Closing, without cost or expense to Purchaser. L. Equipment Leases. Attached hereto as Exhibit E is a list of all equipment leases to which Seller is a party for the leasing of equipment for the Properties, including (without limitation) a list of all amendments and modifications thereto and assignments thereof (which leases, together with the equipment leases entered into with respect to the Properties after the date hereof with the consent of Purchaser pursuant to Section 6 below, are herein referred to collectively as the "Equipment Leases"). To the best of Seller's knowledge, except as may be shown in said exhibit, all of the Equipment Leases are in full force and effect and free from default and there is no existing event which, with the passage of time or giving of notice, or both, could become a default under the Equipment Leases, and there are no disputes, claims or rights of set-off under the Equipment Leases. M. Tenant Leases. Attached hereto as Exhibit F is a list of all outstanding leases or agreements (other than the Land Leases) pursuant to which any person occupies, or has the right to occupy, space in the Properties including (without limitation) all amendments and modifications thereto and assignments and guaranties thereof (which leases, agreements and other documents, together with the lease documents entered into with respect to the Properties after the date hereof with the - 11 - consent of purchaser pursuant to Section 6 below, are herein referred to collectively as the "Tenant Leases"). Except as shown on such exhibit, (a) to the best of Seller's knowledge, there are no defaults under any of the Tenant Leases and the Tenant Leases are in full force and effect, there are no existing events which with the passage of time or giving of notice or both could become a default under the Tenant Leases, and there are no disputes, claims or rights of set-off under the Tenant Leases, (b) there are no security deposits nor any rights to refunds of rents previously paid under the Tenant Leases except as shown on Exhibit F, (c) no person has acquired from Seller any options or rights to lease space in the Properties or extend any Tenant Leases or rights of first refusal or offer for space in the Properties except as set forth in the Tenant Leases, (d) there are no brokerage commissions or fees due now or payable in the future in connection with the Tenant Leases except as set forth in Exhibit F and Seller agrees to pay all such commissions and fees, (e) all of the landlord's obligations to construct tenant improvements or reimburse the tenants for tenant improvements under the Tenant Leases have been paid and performed in full and all concessions (other than any unexpired rent abatement set forth in the Tenant Leases) from the landlord under the Tenant Leases have been paid and performed in full, (f) to the best of Seller's knowledge there are no bankruptcy or insolvency proceedings pending or threatened with respect to any of the tenants under the Tenant Leases, and (g) no tenant has notified Seller in writing of any material, uncured defect or alleged defect in its premises or the common areas of the Properties. In the event any such notices are received by Seller between the date of this Agreement and Closing, copies thereof shall be furnished to Purchaser, and if the cost to correct the matters referred to therein (together with the cost of correcting all other matters requiring correction by Seller under this Agreement prior to Closing) exceeds $50,000 and Seller elects not to correct such matters, then Purchaser may terminate this Agreement (and, in such event, Purchaser shall be entitled to a return of its Earnest Money). - 12 - N. Labor Contracts. Except as disclosed on Exhibit G hereto, there are no employment agreements or union contracts with respect to the Motel that will be binding on Purchaser after Closing, and, other than as disclosed on Exhibit G hereto, and except as provided by Section 7(E) hereof, Purchaser will be under no obligation to use or hire such employees for the Properties after Closing. O. Financial Information. Seller has delivered to Purchaser financial statements of Seller for the calendar year 1997, prepared by Vocker Kristofferson and Co., San Mateo, California. Such financial statements are true, complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles; such financial statements fairly present the financial condition of Seller as of the date thereof, there are no liabilities with respect to the Properties which are required to be shown in accordance with generally accepted accounting principles as of the date thereof and which are not shown on such financial statements. Seller has delivered to Purchaser operating statements for the Properties for the calendar year 1997, which are true, complete and correct, and no material adverse change has occurred in the financial condition of the Properties from the date thereof to the date hereof. P. Hazardous Materials. To Seller's best knowledge, during the period of Seller's ownership, no portion of the Properties has ever been used by Seller as a landfill or as a dump to receive garbage, refuse, waste or fill material whether or not hazardous. Seller, to the best of Seller's knowledge, during the period of Seller's ownership, has not stored, handled, installed or disposed of any Hazardous Substances (as hereinafter defined) in, on or about the Properties or any other location within the vicinity of the Properties; and, to Seller's knowledge, there are no Hazardous Substances in, under, or on the Properties. As used in this Agreement, the terms "Hazardous Substances" means asbestos, polychlorinated biphenyl and such materials, waste, contaminants or other substances defined as toxic, dangerous to - 13 - health or otherwise hazardous by cumulative reference to the following sources as amended from time to time: (i) the Resource Conservation and Recovery Act of 1976, 42 USC Section 6901 et seq. ("RCRA"); (ii) the Hazardous Materials Transportation Act, 49 USC Section 1801, et seq.; (iii) the Comprehensive Environmental Response Compensation and Liability Act of 1980, 42 USC Section 9601 et seq. ("CERCLA"); (iv) applicable laws of the State of California; and (v) any federal, state or local statutes, regulations, ordinances, rules or orders issued or promulgated under or pursuant to any of those laws or otherwise by any department, agency or other administrative, regulatory or judicial body. The term "Hazardous Substances" does not include usual and customary cleaning and other supplies necessary for the normal operations, maintenance and/or occupancy of the Properties. Q. ERISA. The Seller is not and is not acting on behalf of an "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), a "plan" within the meaning of Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any such employee benefit plan or plans. R. Work Under Land Leases or Licenses. To the best of Seller's knowledge, except as may be set forth on Exhibit D hereto, Seller is current in the payment of all fees and expenses incurred by Seller for work conducted by or for Seller under the Land Leases or under any license relating to the Properties, and there is no existing event which, with the passage of time or the giving of notice, or both, could become a default under any contract for the performance of services under the Land Leases or under any such license, and there are no disputes, claims, or rights of set-off under any such contract. /// - 14 - SECTION 4: REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to, and covenants and agrees with, Seller as of the date hereof and as of the Closing as follows (all of which representa tions shall be deemed automatically remade as of the Closing): A. Due Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Purchaser has full power and authority, and is duly authorized, to execute, enter into, deliver and perform this Agreement and its obligations hereunder. B. Power. This Agreement and all other agreements, instruments and documents required to be executed or delivered by Purchaser pursuant hereto have been or (if and when executed) will be duly executed and delivered by Purchaser, and are or will be legal, valid and binding obligations of Purchaser. No consents and permissions are required to be obtained by Purchaser for the execution and performance of this Agreement and the other documents to be executed by Purchaser hereunder. The consummation of the transactions contemplated herein and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, any agreement or document to which Purchaser is a party or by which it is bound, or any order, rule or regulation of any court or of any federal or state regulatory body or any administrative agency or any other governmental body having jurisdiction over Purchaser. C. No Proceedings. There are not now pending or, to the best of Purchaser's knowledge, threatened, any proceeding, legal, equitable or otherwise, against Purchaser which would affect its ability to perform its obligations hereunder. There is not now pending or, to the best of Purchaser's knowledge, threatened any - 15 - action, suit or proceeding before any court or governmental agency or body which might adversely affect Purchaser's ability to perform its obligations hereunder. SECTION 5: OPERATION OF THE PROPERTIES PRIOR TO CLOSING The Seller shall do all of the following, from and after the date hereof through and including the Closing Date: (a) operate and maintain the Properties in the same manner as currently being operated, and shall, subject to damage, destruction or loss to the Properties in which event Purchaser shall have the rights set forth in Section 6(3), cause the Properties to be, on the Closing Date, in the same condition as exists as of the date of this Agreement (normal wear and tear excepted); (b) maintain the FF & E in the same manner as currently being maintained, and not remove any of the FF & E from the Properties unless replaced with FF & E of at least as good a quality as that removed; (c) maintain the Consumables in the same manner and quantity as currently being maintained, and replace any Consumables used at the Properties with new Consumables which are substantially equal in quality and quantity to those that have been used at the Properties; (d) maintain, or cause to be maintained, all existing insurance carried by Seller on the Improvements; (e) without the prior written consent of Purchaser, not enter into any new Property Agreements, or any other agreements affecting the Properties which would be binding on Purchaser after Closing, nor modify, amend, terminate, cancel or grant - 16 - concessions regarding any such existing contracts or agreements which would be binding on the Purchaser after Closing; and (f) without the prior written consent of the Purchaser (except in the case of emergencies), not make, or obligate itself to make, any material alterations or modifications to the Properties. SECTION 6: CONDITIONS TO CLOSING In addition to the conditions provided in other provisions of this Agreement, the parties' obligations to perform their undertakings provided in this Agreement, are each conditioned on the fulfillment of each of the following which is a condition to such party's obligation to perform hereunder (subject to such party's waiver in strict accordance with Section 9 below). (1) Purchaser shall have obtained each of the following at Seller's expense: (i) an ALTA Survey prepared by a licensed surveyor of the Properties (hereinafter, the "Survey") certified to Purchaser, Purchaser's lender, and to the Title Company, (ii) preliminary title report for the Properties (the "Title Report") together with legible copies of all exceptions appearing in such report issued by the Title Company, and (iii) a UCC search (the "UCC Search") of all currently effective financing statements naming Seller as debtor from the California Secretary of State, together with legible copies of all of such financing statements. Purchaser shall have until June 30, 1998 to approve the Survey, the Title Report, and the results of the UCC Search. If Purchaser approves the Survey, the Title Report, and the results of the UCC Search, then all matters showing thereon shall be deemed "Permitted Exceptions." If Purchaser disapproves any matters in the Survey, the Title Report, or the UCC Search, then Seller may either cure such matters, in which case the remaining matters approved by Purchaser shall be deemed Permitted Exceptions, or notify Purchaser - 17 - that it has elected not to cure such matters. Any such notice by Seller shall be given to Purchaser not later than five (5) days following the date Purchaser notifies Seller of any objectionable title matters. If Seller elects not to cure any matter which has been disapproved by Purchaser, then Purchaser may elect either to accept such matter as a Permitted Exception or terminate this Agreement (and, in such event, Purchaser shall be entitled to the return of its Earnest Money). (2) As a condition to each party's obligation to perform hereunder, the due performance by the other of all undertakings and agreements to be performed by the other hereunder and the truth of each representation and warranty as set forth herein made pursuant to this Agreement by the other at the Closing Date. (3) As a condition to Purchaser's obligation to perform hereunder (and not as a default), that there shall not have occurred between the date hereof and the Closing Date, inclusive, destruction of or damage or loss to the Properties (whether or not covered by insurance proceeds) from any cause whatsoever, the cost of which to repair plus any resulting abatement of any rent after Closing under any Tenant Leases and any resulting business interruption exceeds $100,000 in the aggregate; provided, however, that in the event of such destruction or damage, Purchaser may elect to proceed with the Closing in which case Seller shall assign to Purchaser any claims for proceeds from the insurance policies covering such destruction or damage (including any rental loss insurance) and shall pay to Purchaser the amount of any deductibles thereunder. If the cost of repairing the destruction, damage or loss plus any resulting rent abatement and business interruption after Closing is less than $100,000 in the aggregate, the parties shall proceed with the Closing as provided herein, the cost of repair plus the amount of any rent abatement shall be deducted from the Purchase Price and Seller shall retain any insurance proceeds. - 18 - (4) As a condition of Purchaser's obligation to perform hereunder (and not as a default), Purchaser shall be satisfied in its sole and absolute discretion with all aspects of the Properties (including, but not limited to, the physical and environmental condition of the Properties); provided, however, if Purchaser does not notify Seller in writing prior to June 30, 1998 that it is not so satisfied, this condition shall be deemed waived by Purchaser. Purchaser shall not be required to give its reasons for terminating this Agreement pursuant to this Paragraph, and Purchaser's notice shall be conclusive evidence that it is dissatisfied with the Properties. It is understood and agreed, and Purchaser hereby acknowledges, that the period of time afforded by this section of the Agreement (the "Inspection Period") should be ample time to review and inspect the condition of the Properties and that if, for any reason, it is dissatisfied with the condition of the Properties or with the information provided or available to Purchaser within the Inspection Period, it has the unrestricted right to terminate this Agreement and receive a return of its Earnest Money. Accordingly, in the event that Purchaser does not terminate this Agreement and proceeds beyond the expiration of the Inspection Period, it is understood and agreed that the Properties are being sold "as is," "where is" and "with all faults," except as set forth in Section 3. Purchaser further agrees and confirms that it is not relying on information other than the financial statements and other information supplied during the Inspection Period and Seller makes no representation or warranty whatsoever as to the condition or value of the Properties or otherwise except as set forth in Section 3. (5) As a condition of Purchaser's obligation to perform hereunder (and not as a default), Purchaser shall have until June 30, 1998 to obtain a commitment (the "Lender's Commitment") from a third-party lender to provide financing in an amount of not less than 90% of the Purchase Price of the Properties on terms deemed satisfactory by Purchaser, and such lender shall have until July 15, 1998 (i) to perform its due diligence (including, without limitation, reviewing the Survey, the Title Report, and the results of the UCC Search, and to otherwise satisfy itself that all - 19 - conditions to loan funding are satisfied), (ii) to prepare and approve loan documenta tion acceptable to the lender and Purchaser, and (iii) to satisfy itself that all conditions to loan funding have been satisfied (conditions (i), (ii) and (iii) referred to as the "Lender's Conditions"). If Purchaser does not notify Seller in writing on or prior to July 15, 1998 that it has not obtained the Lender's Commitment, or that Purchaser's lender has not satisfied the Lender's Conditions, then the conditions of this subsection (5) shall be deemed waived by Purchaser. If Purchaser notifies Seller in writing on or prior to July 15, 1998 that it has not obtained the Lender's Commitment or that Purchaser's lender has not satisfied the Lender's Conditions, then this Agreement shall become null and void and terminated, with neither Purchaser nor Seller having any further obligation to consummate this Agreement or any liability to the other party for the failure of this Agreement. On any such termination of this Agreement, Purchaser shall be entitled to a return of its Earnest Money. (6) As a condition to Purchaser's obligation to perform hereunder (and not as a default), that there shall not have occurred at any time or times on or before the Closing Date any taking or threatened taking of the Properties or any part thereof or any interest or estate therein by condemnation, eminent domain or similar proceed ings; provided, however, Purchaser may elect to waive such condition in which case Seller shall assign to Purchaser at Closing all of Seller's right, title and interest in and to any proceeds resulting from any such proceeding. (7) As a condition to Purchaser's obligation to perform hereunder, that as of the Closing Date, the Property Agreements shall be in full force and effect, unmodified and unwaived, and in good standing and free from default, and there shall be no material changes in the operation of the Properties. (8) As a condition to Purchaser's obligation to perform hereunder (and not as a default), Seller shall obtain the consent or approval, at its sole cost and expense, - 20 - of all necessary consents to assign all of Seller's right, title, and interest in and to the Land Leases to Purchaser (or its designee), and to assign all of Seller's right, title, and interest in and to the Franchise Agreements to Purchaser (or its designee) provided, however, that Purchaser, not Seller, shall be responsible for paying any application or related fee imposed by the franchisor under the franchise agreement chargeable to new franchisees. Seller shall further obtain assurance, reasonably satisfactory to Purchaser, from any lender whose loan is secured by the land subject to the Land Leases, that such lender will not disturb the possessory rights of Purchaser under the Land Leases as long as Purchaser is not in default under the Land Leases. The consents and approvals required under this paragraph shall be in a form reasonably satisfactory to Purchaser. (9) Seller covenants and agrees, and it shall be a condition to Purchaser's obligation to perform its undertakings hereunder, that from and after the date hereof, at all reasonable times, Purchaser (and its agents) shall be permitted access to the Properties and to all books, records and reports relating to the Properties for the purpose of inspecting same, and Purchaser (and its agents) shall have the right to photocopy any and all such books, records and information. All information relating to the Properties made available to Purchaser and its agents shall be treated as confidential. Purchaser (and its agents) shall also have the right to meet with GMS and its officers and employees to discuss any matters relating to the operation of the Properties. Any entry by Purchaser and its agents on the Properties shall be upon reasonable prior notice to Seller, and the Purchaser will indemnify and hold Seller harmless against any and all injuries, claims, losses, damages and expenses arising out of its negligence in the performance of any such entry, inspection or other activities. (10) As a condition to Purchaser's obligation to perform hereunder (and not as a default), no written notices of any violation of building codes or other govern mental regulations have been issued. - 21 - (11) As a condition to Seller's obligation to perform hereunder, Seller shall have obtained the approval by Seller's limited partners (1) to sell the Properties to Purchaser pursuant to the terms of this Agreement, and (2) to take all other actions necessary or appropriate to consummate the transaction contemplated by this Agreement. (12) As a condition to Seller's obligation to perform hereunder, Seller shall have received, in a form satisfactory to GMS, on or before June 30, 1998, a fairness opinion from PKF Consulting, San Francisco, or other qualified independent real estate advisory or investment banking firm, to the effect that the sale of the Properties to Purchaser pursuant to the terms and conditions of this Agreement is fair, from a financial point of view, to Seller. If Seller notifies Purchaser in writing on or prior to June 30, 1998, that is has not obtained a fairness opinion satisfactory to GMS, then this Agreement shall become null and void, with neither Purchaser nor Seller having any further obligation to consummate this Agreement or any liability to the other party for the failure of this Agreement. If the Agreement is terminated as aforesaid, then Purchaser shall be entitled to a return of its Earnest Money. SECTION 7: CLOSING A. Time. The Closing hereunder shall occur on the Closing Date at the offices of the Title Company. B. Actions. At the Closing, each party shall satisfy itself that the other is then in position to deliver the items specified in Section 7(C) below and that the conditions contained herein have been satisfied. Upon being so satisfied and concurrently with the delivery of the documents described below, the following, subject to the terms and conditions hereof, shall occur: - 22 - (1) Seller shall convey the Properties to Purchaser; and (2) Purchaser shall pay to Seller the Purchase Price by wire transfer of immediately available funds, plus or minus prorations as set forth herein. Purchaser shall receive full possession of the Properties at Closing, subject only to the Land Leases, Tenant Leases, Permitted Exceptions, Service Contracts, Franchise Agreements, and Equipment Leases. The Closing shall be held at the same time as the closings of the other Purchase and Sale Agreements referred to in Section 14(iii) hereof. C. Deliveries. (1) At the Closing, Purchaser shall receive all of the following, in form and substance reasonably satisfactory to Purchaser (it being agreed by Purchaser that the documents attached hereto as exhibits are satisfactory in form to Purchaser): (a) grant deed in the form attached hereto as Exhibit H executed by the Seller; (b) bill of sale and assignment for the Personal Property in the form of Exhibit I, executed by Seller; (c) an assignment of the Franchise Agreements, in the form of Exhibit J attached hereto (the "Assignment of Franchise Agree ments"), executed by Seller, assigning to Purchaser the Franchise Agreements, and the consents of the franchisors to such assignments in form and content reasonably acceptable to Purchaser; - 23 - (d) an assignment of Land Leases, in the form of Exhibit K attached hereto (the "Assignment of Land Leases"), executed by Seller, assigning to Purchaser the Land Leases, and consents of the lessor to such assignments in form and content reasonably acceptable to Purchaser; (e) an assignment of the Service Contracts, in the form of Exhibit L attached hereto (the "Assignment of Service Contracts"), executed by Seller, assigning to Purchaser the Service Contracts; (f) an assignment of the Tenant Leases, in the form of Exhibit M hereto (the "Assignment of Tenant Leases"), executed by Seller, assigning the Tenant Leases to Purchaser; (g) an assignment of the Equipment Leases, in the form of Exhibit N hereto (the "Assignment of Equipment Leases"), executed by Seller, assigning to Purchaser the Equipment Leases; (h) a certificate from Seller that each of the representations and warranties contained in Section 3 hereof is true and correct as set forth herein as of the Closing Date. (i) written acknowledgments reasonably acceptable to Purchaser (the "Estoppel Certificates") from the parties (other than the Seller) obligated on the Tenant Leases (said estoppels from tenants to be in the form of Exhibit O hereto), dated as of a date not more than thirty (30) days prior to Closing, with no material omissions from the form of estoppel certificate set forth in Exhibit O. - 24 - (j) all assignable licenses, permits, approvals, zoning exceptions and approvals, consents and orders of governmental, municipal or regulatory authorities in Seller's possession or control which have been obtained in connection with the ownership, operation and use of the Properties, including, without limitation, certificates of occupancy for the Properties; (k) notices to each of the tenants under the Tenant Leases, notifying them of the sale of the Properties and directing them to pay all future rent as Purchaser may direct, and notices to the other parties under the Service Agreements and Equipment Leases notifying them of the sale of the Properties to Purchaser; (l) a closing statement setting forth all prorations and credits required hereunder; (m) UCC searches showing no financing statements on file with respect to the Personal Property; (n) an affidavit from Seller that it is not a "foreign person" or subject to withholding requirements under the Foreign Investment in Real Property Tax Act of 1980, as amended, and a comparable affidavit or form under California law; (o) any documents reasonably required of Seller by the Title Company; - 25 - (p) evidence satisfactory to Purchaser that Seller has the right to assign to Purchaser the exclusive right to use the names of the Properties; (q) the original of all Property Agreements to the extent they are in the possession of Seller or its agents; (r) all keys and combinations to locks located at the Properties; (s) all soil reports, engineering studies, maintenance records, consultant reports, plans and specifications and books and records relating to the Properties which are in the possession of Seller or its General Partner; (t) a complete set of all guest registration cards, guest transcripts, guests' histories and all other guest information; (u) a complete list of all advance room reservations and functions in reasonable detail so as to enable Purchaser to honor them; and (v) evidence that the Seller has terminated all existing management agreements for the Motel (unless Purchaser has notified Seller, no later than thirty (30) days prior to the Closing Date, that it has elected to continue such management agreements in force). - 26 - (2) Seller shall have received from Purchaser all of the following, in form and substance reasonably satisfactory to Seller (it being agreed by Seller that the documents attached hereto as exhibits are satisfactory in form to the Seller): (a) payment of the Purchase Price, plus or minus prorations; (b) a certificate from Purchaser that each of the representa tions and warranties contained in Section 4 is true and correct as of the Closing Date; and (c) copies of the Assignment of Franchise Agreements, the Assignment of Land Leases, the Assignment of Tenant Leases, the Assignment of Service Contracts, and the Assignment of Equipment Leases executed by Purchaser, pursuant to which Purchaser assumes the obligations of Seller accruing from and after the Closing Date under the Franchise Agreements, the Land Leases, Tenant Leases, Service Contracts, and Equipment Leases. D. Prorations. The Purchase Price for the Properties shall be subject to prorations and credits as follows to be determined as of 12:01 a.m. on the Closing Date: 1. Rents Payable Under Tenant Leases. Any portion of any rents collected subsequent to the Closing Date and properly allocable to periods prior to the Closing Date, net of Purchaser's third-party costs of collection, if any, shall be paid, promptly after receipt, to the Seller, but subject to all of the provisions of this Section; and any portion thereof properly allocable to periods subsequent to the Closing Date, if any, shall be paid to Purchaser. Any amount collected from a tenant shall first be applied to such tenant's current monthly rental and then to past due amounts in the - 27 - reverse order in which they were due. Any advance rental payments or deposits paid by tenants prior to the Closing Date and applicable to the periods of time subsequent to the Closing Date and any security deposits or other amounts paid by tenants, together with any interest on both thereof to the extent such interest is due to tenants, shall be credited to Purchaser on the Closing Date. No credit shall be given the Seller for accrued and unpaid rent or any other non-current sums due from tenants until said sums are paid. 2. Motel Room, Restaurant and Bar Revenues. Purchaser shall be entitled to all food service, bar, beverage and liquor revenues and charges and all revenues and charges from restaurant operations, Motel banquet and conference facility operations, and all other revenue of any kind attributable to any of the same for the period on and after 12:01 a.m. on the Closing Date. Purchaser shall pay over to Seller all collections of accounts receivable in connection with the Properties which have accrued as of Closing (the "Closing Accounts Receivable"). By no later than sixty (60) days after Closing, Purchaser shall pay to Seller an amount equal to the remaining Closing Accounts Receivable, minus those uncollectible Closing Accounts Receivable as agreed upon by Purchaser and Seller. Seller shall deliver to Purchaser or provide Purchaser a credit against the Purchase Price for the Properties in an amount equal to all guest reservation deposits held by the Motels for Motel guests arriving or staying after check-out time for the Motel on the Closing Date. All collections of Motel receivables from any party after Closing shall be applied first to receivables due from such party which have accrued prior to Closing and second to receivables due from such party which have accrued after Closing. 3. Cash. Purchaser shall give Seller a credit at Closing for all petty cash funds at the Properties and all cash in any operating accounts for the Properties to the extent such petty cash and operating accounts are transferred to Purchaser at Closing. Purchaser and Seller shall make mutually satisfactory arrangements for - 28 - counting such cash and determining the balances in the operating accounts as of 12:01 a.m. on the Closing Date. 4. Motel Consumables. Seller shall not be entitled to any credit for Consumables located on the Properties as of the Closing Date. 5. Trade Payables. Trade payables shall mean (for all purposes) under this Agreement open accounts payable to trade vendors or suppliers of the Properties. Except for trade payables for Consumables, Seller agrees to give Purchaser a credit at Closing for all trade payables from the Properties which have accrued on or prior to 12:01 a.m. on the Closing Date, and Purchaser shall be obligated to pay (i) such payables to the extent it has received a credit from Seller at Closing and (ii) trade payables or the Consumables. Purchaser agrees to pay all trade payables from the Properties which have accrued after 12:01 a.m. on the Closing Date and shall and hereby does indemnify and hold Seller harmless from payment of the same. The indemnities contained or provided for in this section survive Closing. 6. Banquet and Event Deposits. Purchaser shall receive and be entitled to a credit against the Purchase Price for all prepaid deposits for banquets and other functions that are scheduled to take place at any of the Properties on or after the Closing Date. 7. Franchise Agreements, Land Leases, Service Contracts, and Equipment Leases. Subject to the provisions of Section 6(8) hereof, any amounts prepaid or payable under any Franchise Agreement, Land Leases, Service Contract, or Equipment Lease shall be prorated at the Closing as of the Closing Date with Seller obligated for all sums accrued prior to 12:01 a.m. on the Closing Date and Purchaser obligated for all sums accrued after 12:01 a.m. on the Closing Date. - 29 - 8. Sales Tax. Seller hereby agrees to indemnify and hold Purchaser harmless from the payment of any and all sales, occupancy, use or other taxes due in connection with the operation of the Properties prior to the Closing Date. The indemnification set forth herein shall survive the Closing. 9. Taxes. Purchaser shall receive a credit for any accrued but unpaid real estate taxes imposed in respect of the Properties for the portion of the current year which has elapsed prior to the Closing Date (and, to the extent unpaid, for prior years). Seller shall also give Purchaser a credit for any special assessments which are due and payable in connection with the Properties prior to Closing. 10. Utilities. Utilities and fuel, including, without limitation, water, electricity, and gas shall be prorated as of Closing. The Seller shall cause the meters, if any, for utilities to be read the day on which the Closing Date occurs and to pay the bills rendered on the basis of such readings. If any such meter reading for any utility is not available, then adjustment therefor shall be made on the basis of the most recently issued bills therefor which are based on meter readings no earlier than thirty (30) days prior to the Closing Date; and such adjustment shall be prorated when the next utility bills are received. 11. Employee Expenses. Purchaser shall not be responsible for any wages or benefits payable to employees of the Motel accruing prior to the Closing Date and Purchaser shall not be required to assume any obligation with respect to any employee benefits that were incurred prior to the Closing Date; and Seller shall indemnify Purchaser against any claim in connection therewith. The indemnity provided herein shall survive the Closing. In addition, Seller shall comply with all obligations imposed on Seller by applicable federal or California laws regarding continuation coverage rights, to the extent that it is required to do so under applicable - 30 - laws; provided, however, Purchaser acknowledges that Seller is not giving any notice under the Worker Adjustment and Retraining Act and agrees to indemnify Purchaser and hold Purchaser harmless from and against any and all costs and expenses incurred by Purchaser as a result of Seller's failure to give such notice. 12. Purchaser shall receive a credit for any reduction in the brokerage commission payable pursuant to Section 10 hereof. E. Staff. Seller shall terminate or arrange for the termination of all Motel employees as of the Closing Date and shall pay all wages and fringe benefits (including, but not limited to, accrued vacation pay and payroll taxes) through the Closing Date. Purchaser shall not be obligated to employ any such Motel employee, but may do so on such terms and for such compensation as Purchaser (and any such employee) deems appropriate. Prior to Closing, Seller shall deliver to Purchaser copies of all information and records necessary to support the prorations hereunder. In the event any prorations made pursuant hereto shall prove incorrect for any reason whatsoever, either party shall be entitled to an adjustment to correct the same. F. Expenses. The Seller shall pay (1) for all documentary transfer taxes, (2) the premium attributable to the standard coverage portion of the "Owner's Policy" (defined below), (3) the sales taxes arising in connection with the sale of the Personal Property, Consumables, and FF & E by Seller to Purchaser, and (4) one-half of escrow fees and costs. Purchaser shall pay (1) all costs associated with its due diligence investigation, (2) all recording costs, (3) the premium attributable to the extended coverage portion of the Owner's Policy (and any endorsements or affirmative coverages), (4) one-half of escrow fees and costs. Purchaser shall - 31 - reimburse Seller at Closing for the costs of any appraisal of the Properties obtained by Seller subsequent to the appraisals of PKF Consulting of December 4, 1997 and for the costs incurred by Seller in obtaining any engineering or environmental studies or reports of the Properties in preparation for their sale. Each party shall pay its own attorneys' fees. Seller and Purchaser shall execute and deliver such transfer and sales tax returns as may be required by law. G. Title. It shall be a condition of Closing that the Title Company issue to Purchaser, in form and substance acceptable to Purchaser, an owner's policy of title insurance for the Properties (the "Owner's Policy") with Purchaser named as insured, dated as of the Closing Date, with a liability limit equal to the Purchase Price allocable to the Properties, insuring that fee title to the Improvements and the leasehold estate created by the Land Leases are vested in Purchaser, subject only to the Permitted Exceptions and Tenant Leases. Except with the prior written approval of Purchaser, Seller shall not deliver (nor cause or permit to be delivered) to the Title Company, on behalf of the Seller, any indemnities of the Seller relating to the issuance of the Owner's Policy. If the Owner's Policy discloses any liens or encumbrances which are not Permitted Exceptions, Purchaser may remove such liens at Closing by paying so much of the Purchase Price to the holders of the liens as is necessary to do so. H. Guest Property. The parties shall arrange for Motel guests to sign new deposit box or other appropriate receipts on the day before the Closing Date with respect to baggage, personal property, laundry, valet packages and other property of Motel guests checked or left in the care of Seller by Motel guests or tenants; and, to the extent such receipts are not obtained, such property shall be sealed, listed in an inventory prepared and signed jointly by the parties as of the Closing Date, and Purchaser shall be responsible from and after the Closing Date for all such property - 32 - listed in said inventory. Seller shall be responsible for all items allegedly left at the Properties by guests prior to Closing and not listed on such inventory. SECTION 8: INDEMNIFICATION Seller shall hold harmless, indemnify and defend the Purchaser from and against: (i) any and all obligations to, liabilities to or claims by third parties, whether direct, contingent or consequential and no matter how arising, in any way related to or arising from the Properties prior to the Closing Date, including, but not limited to, for any injury to or death of any person or damage to any property of third parties; (ii) any claims for brokerage, commissions or fees in connection with leases of the Properties executed prior to the Closing except to the extent Seller gives Purchaser a credit for such commissions at Closing; (iii) any wages, salaries, pension liabilities or fringe benefits accruing prior to the Closing for those employees at the Motel; (iv) any and all obligations to, and liabilities to or claims by third parties, whether direct, contingent, or consequential and no matter how arising, in any way related to or arising from the sale or transfer of the Properties by Seller to Purchaser, including, but not limited to, by any limited partner of Seller; and (v) all costs and expenses of Purchaser, including reasonable attorneys' fees, related to any actual or threatened actions, suits or judgments incident to any of the foregoing. SECTION 9: WAIVER Each party hereto may, at any time or times, at its election, waive any of the conditions to its obligations hereunder by a written waiver expressly detailing the extent of such waiver (and no other waiver or alleged waiver by such party shall be effective for any purpose). No such waiver shall reduce the rights or remedies of such party by reason of any breach by the other party of any of its or their obligations hereunder. - 33 - SECTION 10: BROKERS Seller has retained Everest Financial, Inc. as its broker in connection with this transaction and shall be responsible for the payment of a brokerage commission equal to 2.75% of the Purchase Price of the Properties (before prorations) to Everest in connection with the sale of the Properties to Purchaser. Everest has agreed to reallow 1.25% of the Purchase Price of the Properties (before proration) to Purchaser's broker or, at Purchaser's option, Purchaser shall be entitled to a credit, pursuant to the provisions of Section 7(D)(12) hereof, equal to 1.25 % of the Purchase Price of the Properties (before prorations). Other than as aforesaid, each party represents to the other that it has not retained any broker or finder in connection with the transaction contemplated by this Agreement, and agrees to indemnify and hold the other party harmless from and against any claim of any broker or finder claiming a brokerage commission or finder's fee by or through the party. SECTION 11: SURVIVAL; FURTHER ASSURANCES All warranties, representations, covenants, obligations and agreements contained in or made pursuant to this Agreement shall survive the Closing hereunder and the transfers and conveyances and other transactions hereunder for twelve (12) months from the Closing Date. All warranties, representations, covenants, obligations, and agreements contained in or made pursuant to this Agreement shall terminate and be of no further force or effect on the first anniversary of the Closing Date, unless an action is brought with respect to such applicable warranty, representa tion, covenant, obligation, or agreement within such 12-month period. Purchaser understands that, promptly after the Closing, Seller will make a distribution of the net proceeds realized by Seller with respect to the sale of the Properties to Purchaser to Seller's partners, and that Seller's limited partners shall have no liability or responsi bility to return distributions made to them. Purchaser further understands and agrees - 34 - that the liability of GMS, as General Partner of Seller, for any obligation of Seller pursuant to Section 8 hereof, shall be limited as set forth in this Section 11 and shall be further limited in an amount equal to GMS' share of any distribution made by Seller to its partners of the proceeds from sale of the Properties to Purchaser hereunder. Each party agrees to use such party's best efforts to cause the conditions to consummation of this Agreement to be satisfied and implemented as soon as practicable. Each party will, whenever and as often as it shall be requested so to do by the other, cause to be executed, acknowledged or delivered any and all such further instruments and documents as may be necessary or proper, in the reasonable opinion of the requesting party, in order to carry out the intent and purpose of this Agreement and as is consistent with this Agreement. SECTION 12: NO THIRD PARTY BENEFITS This Agreement is made for the sole benefit of Purchaser and Seller (and Seller's partners) and their respective successors and assigns (subject to the limitation on assignment set forth in Section 15 below), and no other person or persons shall have any right or remedy or other legal interest of any kind under or by reason of this Agreement. Whether or not either party hereto elects to employ any or all the rights, powers, or remedies available to it hereunder, such party shall have no obligation or liability of any kind to any third party by reason of this Agreement or by reason of any of such party's actions or omissions pursuant hereto or otherwise in connection with this Agreement or the transactions contemplated hereby. /// /// - 35 - SECTION 13: REMEDIES If Seller shall default hereunder prior to Closing, Purchaser shall be entitled, as its sole and exclusive remedies, to (i) sue for specific performance of this Agreement, or (ii) terminate this Agreement, receive a refund of the Earnest Money and recover damages in an amount not to exceed $50,000; provided, however, in exercising its right of specific performance, Purchaser may not require Seller to spend in excess of $50,000 to correct any matter which Seller did not deliberately cause. After Closing, Purchaser shall be entitled to any other rights and remedies it may have at law or equity, subject to the restrictions thereon set forth in this Agreement. If Purchaser shall default hereunder, Seller's sole and exclusive remedy shall be to retain the Earnest Money as liquidated damages. SECTION 14: TERMINATION This Agreement may be terminated -- (i) By mutual written consent of Seller and Purchaser; (ii) By either Seller or Purchaser by written notice to the other party if the transaction contemplated hereby has not been consummated on or before the Closing Date as defined in Section 1(B) hereof; provided, however, that the right to terminate this Agreement under this Section 14 shall not be available to any party whose failure to fulfill any of its obligations under this Agreement has been the cause of or has resulted in the failure of the transaction contemplated hereby being consummated on or before the Closing Date; or (iii) By Purchaser or by Seller if one or more of the Purchase and Sale Agreements entered concurrently herewith by Purchaser for the purchase of the motel - 36 - properties from Super 8 Motels, Ltd., Super 8 Motels II, Ltd., Super 8 Motels III, Ltd., and Super 8 Economy Lodging IV, Ltd., is terminated for any reason other than Purchaser's or Seller's (as the case may be) breach thereof. If this Agreement is terminated pursuant to the provisions of this Section 14, then and in such event this Agreement shall be null and void, neither party shall have any obligation or liability to the other, and Purchaser shall be entitled to the return of its Earnest Money. SECTION 15: MISCELLANEOUS This Agreement (including all Exhibits hereto) contains the entire agreement between the parties respecting the matters herein set forth and supersedes all prior agreements between the parties hereto respecting such matters. The table of contents and section headings shall not be used in construing this Agreement. Except as otherwise provided in Section 13 above, no remedy conferred upon a party in this Agreement is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Except as herein expressly provided, no waiver by a party of any breach of this Agreement or of any warranty or representation hereunder by the other party shall be deemed to be a waiver of any other breach by such other party (whether preceding or succeeding and whether or not of the same or similar nature) and no acceptance of payment or performance by a party after any breach by the other party shall be deemed to be a waiver of any breach of this Agreement or of any representation or warranty hereunder by such other party whether or not the first party knows of such breach at the time it accepts such payment or performance. No failure or delay by a party to exercise any right it may have by reason of the default of the other party shall operate as a waiver of default or modification of this Agreement or shall prevent the - 37 - exercise of any right by the first party while the other party continues to be so in default. This Agreement shall be construed and enforced in accordance with the laws of the State of California. Purchaser may assign its rights under this Agreement to an affiliate of Purchaser without the prior written consent of Seller (in which event the transferee shall assume in writing all of the transferor's obligations hereunder). Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. The provisions of this Agreement may not be amended, changed or modified orally, but only by an agreement in writing signed by the party against whom any amend ment, change or modification is sought. SECTION 16: NOTICES All notices and other communications which either party is required or desires to send to the other shall be in writing and shall be sent by (i) messenger, (ii) a nationally recognized overnight delivery service or (iii) registered or certified mail, postage prepaid, return receipt requested. Notices and other communications shall be deemed to have been given on the earlier of actual receipt or the third business day after the date so mailed. Notices shall be addressed as follows: (a) To Seller: c/o Grotewohl Management Services, Inc. 2030 "J" Street Sacramento, California 95814 Attention: Philip B. Grotewohl Fax: (916) 442-9253 /// /// - 38 - with a copy to: James F. Fotenos, Esq. Fotenos & Suttle, P.C. 50 California Street, Suite 700 San Francisco, California 94111 Fax: (415) 398-1869 (b) To Purchaser: Tiburon Capital Corporation 160 Sansome Street, 11th Floor San Francisco, California 94104 Attention: William R. Dixon, Jr. Fax: (415) 989-1204 with a copy to: Samuel L. Farb, Esq. Berliner Cohen Ten Almaden Boulevard, 11th Floor San Jose, California 95113 Fax: (408) 998-5388 or to such other person and/or address as shall be specified by either party in a notice given to the other pursuant to the provisions of this Section. SECTION 17: ATTORNEYS' FEES In the event either party institutes legal proceedings to enforce its rights hereunder, the prevailing party in such litigation shall be paid all reasonable expenses of the litigation by the losing party, including its attorneys' fees. /// /// - 39 - SECTION 18: CONFIDENTIALITY Seller and Purchaser agree to keep this Agreement confidential and not disclose or make any public announcements with respect to the subject matter hereof without the consent of the other party except for any disclosures required by federal or state securities laws or as required by legal process or other law. Notwithstanding the foregoing, each party may disclose the provisions of this Agreement to such parties' advisors as long as such advisors agree to maintain in confidence the provisions of this Agreement pursuant to this Section 18. /// /// /// /// /// /// /// /// /// /// - 40 - IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. FAMOUS HOST LODGING V, LTD. By Grotewohl Management Services, Inc. Its General Partner By /s/ PHILIP B. GROTEWOHL Philip B. Grotewohl Chairman And /s/ DAVID P. GROTEWOHL David P. Grotewohl President TIBURON CAPITAL CORPORATION By /s/ JOHN F. DIXON John F. Dixon President And /s/ WILLIAM R. DIXON, JR. William R. Dixon, Jr. Vice President - 41 - IDENTIFICATION OF MOTEL Barstow Motel Property Motel, including adjoining restaurant and cocktail lounge, 1511 East Main Street, Barstow, California 92311 A-1 LIST OF FRANCHISE AGREEMENTS Date of Franchisor Description Agreement Holiday Inns, Inc. License agreement relating to 2/91 the Barstow Motel property B-1 LAND LEASES BARSTOW MOTEL PROPERTY Hotel Lease: original lease by and between Fred Rosenberg, as lessor, and Dennis A. Brown and Philip B. Grotewohl, as lessees, dated as of 5/10/84, as amended: Expiration Date 5/9/34 Restaurant Lease: original lease by and between Fred Rosenberg, as lessor, and Super 8 Lodging V, Ltd., dated as of 6/15/87, as amended: Expiration Date 12/31/10 Combined Rent for Hotel and Restaurant Leases: Base rent of $275,556 plus 9% of combined annual gross sales from hotel and restaurant operations that exceeds base rent C-1 LIST OF SERVICE CONTRACTS The Barstow Motel property is subject to the following service contract: Management Agreement by and between Famous Host Lodging V, Ltd., and Super 8 Management, Inc., as amended. Barstow Motel Property Vendor Description Expiration Date The Walker Group Billboard Service 30 days notice Martin Outdoor Billboard Service 12/15/98 Martin Outdoor Billboard Service 10/20/00 Otis Elevator Elevator Service 9/1/98 Young Electric Sign Sign Service 4/8/03 Time Warner Cable Cable Service 30 days notice World Cinema Cable Service 30 days notice Hi Desert Alarm Alarm & Fire Sprinkler Services 12/5/00 Hi Desert Alarm Alarm & Fire Sprinkler Services 12/5/00 Bob Clemmer Mechanical Service 30 days notice Ducommon Turf and Grounds Landscape Service 30 days notice Ducommon Turf and Grounds Landscape Service 30 days notice Prinova Laundry and Cleaning Service 8/1/98 D-1 LIST OF EQUIPMENT LEASES None E-1 LIST OF TENANT LEASES None F-1 LIST OF LABOR CONTRACTS None G-1 FORM OF GRANT DEEDS Subject to completion H-1 BILL OF SALE AND ASSIGNMENT PERSONAL PROPERTY For valuable consideration, the receipt and sufficiency of which are hereby acknowl edged, FAMOUS HOST LODGING V, LTD., a California limited partnership ("Seller") hereby assigns and transfers to TIBURON CAPITAL CORPORATION, a California corpora tion ("Purchaser"), all of Seller's right, title and interest in and to any and all fixtures, machin ery, apparatus, equipment and other personal property (the "Personal Property") used in the ownership, operation, repair and maintenance of any and all of the Seller's interest in the Land Leases, the Personal Property, and the Improvements (the "Properties"), including without limitation, (i) all building and construction materials, equipment, appliances, machinery and other personal property owned by Seller and used in connection with the operation of the Properties, (ii) the Consumables, (iii) the FF & E, (iv) Seller's rights under the Franchise Agreements, (v) all transferable permits, licenses, certificates and approvals issued in connec tion with the Properties, (vi) the exclusive right to use the name of the Properties and the right to all other names, logos and designs used in connection with the Properties, including the names of restaurants, bars, banquet rooms and meeting rooms, (vii) the right to use the Properties's telephone numbers and post office boxes, (viii) all booking agreements, (ix) all service marks and trademarks, (x) all plans and specifications, operating manuals, guaranties and warranties and any other items used in the operation of the Properties, (xi) all documents relating to guests at the Properties, including booking agreements, and (xii) all documents relating to employees at the Properties. All terms used herein but not defined herein shall have the same meaning as set forth in that certain Purchase and Sale Agreement, dated as of April 30, 1998, between Seller and Purchaser for the Properties. I-1 TO HAVE AND TO HOLD the Personal Property, subject as aforesaid, unto Purchaser, its successors and assigns. Seller, for itself, its successors and assigns, does hereby warrant and will forever defend title to the Personal Property unto Purchaser, its successors and assigns, against the lawful claims of all persons, claiming by, through or under Seller, but not otherwise. IN WITNESS WHEREOF, Seller has caused this instrument to be executed as of the ____ day of ____________, 1998. SELLER: FAMOUS HOST LODGING V, LTD., By Grotewohl Management Services, Inc. Its General Partner By ______________________________ Philip B. Grotewohl Chairman And ______________________________ David P. Grotewohl President I-2 ASSIGNMENT OF FRANCHISE AGREEMENTS THIS ASSIGNMENT dated ______________, 1998 (the "Assignment"), is entered into by and between FAMOUS HOST LODGING V, LTD., a California limited partnership ("Assignor"), and TIBURON CAPITAL CORPORATION, a California corporation ("As signee"). WITNESSETH: WHEREAS, Assignor is party to those certain franchise agreements executed with respect to that certain real property known as the Barstow Motel property, which franchise agreements are described in Exhibit A attached hereto (the "Agreements"); and WHEREAS, Assignor desires to assign its interest in the Agreements to Assignee, and Assignee desires to accept the assignment thereof and assume the obligations of Assignor thereunder; NOW, THEREFORE, in consideration of the promises and conditions contained herein, the parties hereby agree as follows: 1. Effective as of the date hereof, Assignor hereby assigns to Assignee all of its right, title and interest in and to the Agreements. 2. Assignee hereby assumes all of the Assignor's obligations under the Agreements accruing after the date hereof. 3. This Assignment shall be binding on and inure to the benefit of the parties hereto, their heirs, executors, administrators, successors in interest and assigns. J-1 4. Assignor hereby agrees to indemnify Assignee against and hold Assignee harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing prior to the date hereof and arising under the Agreements. Assignee hereby agrees to indemnify Assignor against and hold Assignor harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing on or subsequent to the date hereof and arising under the Agreements. IN WITNESS WHEREOF, the Assignor and Assignee have executed this assignment the day and year first above written. ASSIGNOR: FAMOUS HOST LODGING V, LTD., By Grotewohl Management Services, Inc. Its General Partner By ______________________________ Philip B. Grotewohl Chairman And______________________________ David P. Grotewohl President ASSIGNEE: TIBURON CAPITAL CORPORATION By ______________________________ William R. Dixon, Jr. Vice President J-2 EXHIBIT A Schedule of Franchise Agreements Date of Franchisor Description Agreement Holiday Inns, Inc. License agreement relating to 2/91 the Barstow Motel property J-3 ASSIGNMENT OF LAND LEASES THIS ASSIGNMENT dated ______________, 1998 (the "Assignment"), is entered into by and between FAMOUS HOST LODGING V, LTD., a California limited partnership ("Assignor"), and TIBURON CAPITAL CORPORATION, a California corporation ("Assignee"). WITNESSETH: WHEREAS, Assignor is the lessee under certain leases executed with respect to that certain real property known as the Barstow Motel property, which leases are described in Exhibit A attached hereto (the "Leases"); and WHEREAS, Assignor desires to assign its interest as lessee in the Leases to Assignee, and Assignee desires to accept the assignment thereof and assume the obligations of Assignor thereunder; NOW, THEREFORE, in consideration of the promises and conditions contained herein, the parties hereby agree as follows: 1. Effective as of the date hereof, Assignor hereby assigns to Assignee all of its right, title and interest in and to the Leases. 2. Assignee hereby assumes all of the lessee's obligations under the Leases accruing after the date hereof. 3. This Assignment shall be binding on and inure to the benefit of the parties hereto, their heirs, executors, administrators, successors in interest and assigns. K-1 4. Assignor hereby agrees to indemnify Assignee against and hold Assignee harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing prior to the date hereof and arising under the Leases. Assignee hereby agrees to indemnify Assignor against and hold Assignor harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing on or subsequent to the date hereof and arising under the Leases. IN WITNESS WHEREOF, the Assignor and Assignee have executed this Assignment the day and year first above written. ASSIGNOR: FAMOUS HOST LODGING V, LTD., By Grotewohl Management Services, Inc. Its General Partner By ______________________________ Philip B. Grotewohl Chairman And______________________________ Philip B. Grotewohl President ASSIGNEE: TIBURON CAPITAL CORPORATION By ______________________________ William R. Dixon, Jr. Vice-President K-2 EXHIBIT A Schedule of Land Leases BARSTOW MOTEL PROPERTY Hotel Lease: original lease by and between Fred Rosenberg, as lessor, and Dennis A. Brown and Philip B. Grotewohl, as lessees, dated as of 5/10/84, as amended: Expiration Date 5/9/34 Restaurant Lease: original lease by and between Fred Rosenberg, as lessor, and Super 8 Lodging V, Ltd., dated as of 6/15/87, as amended: Expiration Date 12/31/10 Combined Rent for Hotel and Restaurant Leases: Base rent of $275,556 plus 9% of combined annual gross sales from hotel and restaurant operations that exceeds base rent K-3 ASSIGNMENT OF SERVICE CONTRACTS THIS ASSIGNMENT dated ______________, 1998 (the "Assignment"), is entered into by and between FAMOUS HOST LODGING V, LTD., a California limited partnership ("Assignor"), and TIBURON CAPITAL CORPORATION, a California corporation ("Assignee"). WITNESSETH: WHEREAS, Assignor is party to those certain contracts executed with respect to that certain real property known as the Barstow Motel property, which contracts are described in Exhibit A attached hereto (the "Contracts"); and WHEREAS, Assignor desires to assign its interest in the Contracts to Assignee, and Assignee desires to accept the assignment thereof and assume the obligations of Assignor thereunder; NOW, THEREFORE, in consideration of the promises and conditions contained herein, the parties hereby agree as follows: 1. Effective as of the date hereof, Assignor hereby assigns to Assignee all of its right, title and interest in and to the Contracts. 2. Assignee hereby assumes all of the Assignor's obligations under the Contracts accruing after the date hereof. 3. This Assignment shall be binding on and inure to the benefit of the parties hereto, their heirs, executors, administrators, successors in interest and assigns. L-1 4. Assignor hereby agrees to indemnify Assignee against and hold Assignee harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing prior to the date hereof and arising under the Contracts. Assignee hereby agrees to indemnify Assignor against and hold Assignor harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing on or subsequent to the date hereof and arising under the Contracts. IN WITNESS WHEREOF, the Assignor and Assignee have executed this Assignment the day and year first above written. ASSIGNOR: FAMOUS HOST LODGING V, LTD., By Grotewohl Management Services, Inc. Its General Partner By ______________________________ Philip B. Grotewohl Chairman And______________________________ David P. Grotewohl President ASSIGNEE: TIBURON CAPITAL CORPORATION By ______________________________ William R. Dixon, Jr. Vice President L-2 EXHIBIT A Schedule of Service Contracts The Barstow Motel property is subject to the following service contract: Management Agreement by and between Famous Host Lodging V, Ltd., and Super 8 Management, Inc., as amended. Barstow Motel Property Vendor Description Expiration Date The Walker Group Billboard Service 30 days notice Martin Outdoor Billboard Service 12/15/98 Martin Outdoor Billboard Service 10/20/00 Otis Elevator Elevator Service 9/1/98 Young Electric Sign Sign Service 4/8/03 Time Warner Cable Cable Service 30 days notice World Cinema Cable Service 30 days notice Hi Desert Alarm Alarm & Fire Sprinkler Services 12/5/00 Hi Desert Alarm Alarm & Fire Sprinkler Services 12/5/00 Bob Clemmer Mechanical Service 30 days notice Ducommon Turf and Grounds Landscape Service 30 days notice Ducommon Turf and Grounds Landscape Service 30 days notice Prinova Laundry and Cleaning Service 8/1/98 L-3 ASSIGNMENT OF TENANT LEASES THIS ASSIGNMENT dated ______________, 1998 (the "Assignment"), is entered into by and between FAMOUS HOST LODGING V, LTD., a California limited partnership ("Assignor"), and TIBURON CAPITAL CORPORATION, a California corporation ("Assignee"). WITNESSETH: WHEREAS, Assignor is the lessor under certain leases executed with respect to that certain real property known as the Barstow Motel property, including adjoining restaurant and cocktail lounge, located at 1511 East Main Street, Barstow, California 92311, which leases are described in Exhibit A attached hereto (the "Leases"); and WHEREAS, Assignor desires to assign its interest as lessor in the Leases to Assignee, and Assignee desires to accept the assignment thereof and assume the obligations of Assignor thereunder; NOW, THEREFORE, in consideration of the promises and conditions contained herein, the parties hereby agree as follows: 1. Effective as of the date hereof, Assignor hereby assigns to Assignee all of its right, title and interest in and to the Leases. 2. Assignee hereby assumes all of the lessor's obligations under the Leases accruing after the date hereof. 3. This Assignment shall be binding on and inure to the benefit of the parties hereto, their heirs, executors, administrators, successors in interest and assigns. M-1 4. Assignor hereby agrees to indemnify Assignee against and hold Assignee harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing prior to the date hereof and arising under the Leases. Assignee hereby agrees to indemnify Assignor against and hold Assignor harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing on or subsequent to the date hereof and arising under the Leases. IN WITNESS WHEREOF, the Assignor and Assignee have executed this Assignment the day and year first above written. ASSIGNOR: FAMOUS HOST LODGING V, LTD., By Grotewohl Management Services, Inc. Its General Partner By ______________________________ Philip B. Grotewohl Chairman And______________________________ David P. Grotewohl President ASSIGNEE: TIBURON CAPITAL CORPORATION By ______________________________ William R. Dixon, Jr. Vice President M-2 EXHIBIT A Schedule of Tenant Leases None M-3 ASSIGNMENT OF EQUIPMENT LEASES THIS ASSIGNMENT dated ______________, 1998 (the "Assignment"), is entered into by and between FAMOUS HOST LODGING V, LTD., a California limited partnership ("Assignor"), and TIBURON CAPITAL CORPORATION, a California corporation ("Assignee"). WITNESSETH: WHEREAS, Assignor is the lessee under certain equipment leases executed with respect to that certain real property known as the Barstow Motel property, which leases are described in Exhibit A attached hereto (the "Leases"); and WHEREAS, Assignor desires to assign its interest as lessee in the Leases to Assignee, and Assignee desires to accept the assignment thereof and assume the obligations of Assignor thereunder; NOW, THEREFORE, in consideration of the promises and conditions contained herein, the parties hereby agree as follows: 1. Effective as of the date hereof, Assignor hereby assigns to Assignee all of its right, title and interest in and to the Leases. 2. Assignee hereby assumes all of the lessee's obligations under the Leases accruing after the date hereof. 3. This Assignment shall be binding on and inure to the benefit of the parties hereto, their heirs, executors, administrators, successors in interest and assigns. N-1 4. Assignor hereby agrees to indemnify Assignee against and hold Assignee harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing prior to the date hereof and arising under the Leases. Assignee hereby agrees to indemnify Assignor against and hold Assignor harmless from any and all cost, liability, loss, damage or expense, including without limitation, reasonable attorneys' fees, accruing on or subsequent to the date hereof and arising under the Leases. IN WITNESS WHEREOF, the Assignor and Assignee have executed this Assignment the day and year first above written. ASSIGNOR: FAMOUS HOST LODGING V, LTD., By Grotewohl Management Services, Inc. Its General Partner By ______________________________ Philip B. Grotewohl Chairman And______________________________ David P. Grotewohl President ASSIGNEE: TIBURON CAPITAL CORPORATION By ______________________________ William R. Dixon, Jr. Vice President N-2 EXHIBIT A Schedule of Equipment Leases None N-3 ESTOPPEL CERTIFICATE To: TIBURON CAPITAL CORPORATION 160 Sansome Street, 11th Floor San Francisco, California 94104 Re: Barstow Motel property, including adjoining restaurant and cocktail lounge, located at 1511 East Main Street, Barstow, California 92311 (the "Property") - -------------------------------------------------------------------------- The undersigned tenant (the "Tenant") hereby certifies to you (the "Purchaser") as follows: 1) Tenant is a tenant under a lease, dated ______________, 19____ (the "Lease"); the Lease has not been cancelled, modified, assigned, extended or amended; and there are no other agreements, written or oral, affecting or relating to Tenant's sublease of the premises described in the Lease (the "Premises"). 2) All rent under the Lease has been paid through ______________, 19____. There is no prepaid rent, except $______, and the amount of security deposit is $______. Rent is currently payable in the amount of $______ per month. 3) The Lease terminates on ______________, 19____, and Tenant has the following renewal option(s): _____________________. 4) All work to be performed for Tenant under the Lease has been performed as required and has been accepted by Tenant, and all allowances to be paid to Tenant have been paid. 5) The Lease is: (a) in full force and effect; (b) free from default and free from any event which with the giving of notice or passage of time or both could become O-1 a default under the Lease; and (c) Tenant has no claims against the sublandlord or offsets against rent, and there are no disputes with the sublandlord. 6) The Tenant has received no notice of prior sale, transfer or assignment, hypothecation or pledge of the Lease or of the rents payable thereunder, except __________________________. 7) The Tenant has not assigned the sublease or sublet any part of the Premises. 8) The Tenant has no right to remove any property from the Premises except for its personal property and trade fixtures. 9) The Tenant has not placed any hazardous or dangerous materials on the Premises, and the Tenant's use of the Premises complies with all applicable environmental laws. The undersigned has executed this Estoppel Certificate with the knowledge and understanding that the Purchaser is acquiring the Property in reliance on this Estoppel Certificate and that the undersigned will be bound by this Estoppel Certificate. The statements contained herein may be relied upon by Purchaser and its successors and assigns. Dated this ____ day of __________, 19____. ------------------------------------- By _________________________________ Title: ___________________________ O-2 EX-10.2 3 AGREEMENT AGREEMENT This Agreement is made as of April 21, 1998. Everest Properties II, LLC and its affiliates listed below ("Everest") are prepared to cooperate with Mark Grotewohl and his affiliated entity (the "Buyer") to complete a purchase of the properties (the "Properties") owned by the 5 Super 8 partnerships listed below (the "Partnerships") on the following conditions: (1) The Partnerships will execute and deliver, concurrently with execution of the Purchase Agreement referred to below, the Exclusive Sales Agency Contract in the form attached hereto as Exhibit A. (2) Not later than April 30, 1998, Buyer executes a Purchase Agreement (in a commercially reasonable from acceptable to Everest, incorporating the terms set forth in this paragraph) to acquire all of the Properties for the appraised values, payable in cash at closing. The Purchase Agreement will provide that the Properties will be acquired by Buyer in an "as is" condition and customary representations and warranties by the Buyer and the Partnerships. The Purchase Agreement will include the following terms: (a) all due diligence and receipt of a financing commitment (the "Buyer's Contingencies") will be satisfied not later than June 30, 1998; (b) Buyer will make a deposit (the "Deposit") of $150,000 to secure its performance under the Purchase Agreement on the later to occur of the date the Buyer's Contingencies are satisfied or the date Buyer is notified that the limited partners of the Partnerships have approved the transaction (the "LP Approval Date"); and (c) the Closing will occur on or before the later of July 15, 1998 or 30 days after the LP Approval Date. The dates referred to in 2(a) and 2(c) will be subject to commercially reasonable extensions. The Deposit will be non-refundable if Buyer fails to complete the Closing as set forth above, except if Buyer's lender fails to fund as permitted by the terms of the financing commitment, the Deposit will be refunded to Buyer. (3) Buyer agrees to permit Everest to attempt to provide financing for acquisition of the Properties on terms which are to be provided to Everest by Buyer (such terms being comparable to the terms otherwise available to Buyer). Everest shall have 5 days following receipt of Buyer's term sheet, to produce a written proposal from a qualified lender accepting all key terms set forth by Buyer. If Everest's recommended lender provides financing for the acquisition of the Properties, Everest Financial, Inc. will be paid a 0.75% loan brokerage fee by Buyer at the Closing. (4) The Partnerships will work diligently to file the proxy materials for the limited partners' approval of the transaction with Buyer with the SEC not later than April 30, 1998 and the Partnerships will work diligently to get the proxy materials approved, mailed to limited partners and obtain the affirmative vote of the limited partners to the transaction. If the above conditions are satisfied, Everest will (a) vote the limited partnerships units owned in the Partnerships in favor of a sale to Buyer and (b) not inhibit, delay or discourage the Partnerships from obtaining limited partners' approval or the consummation of the proposed transaction. The terms set forth herein shall be an amendment to our settlement agreement dated February 20, 1998. Grotewohl Management Services, Inc. By: /s/ PHILIP B. GROTEWOHL ----------------------------- Philip B. Grotewohl, Chairman As General Partner of Super 8 Motels, Ltd., Super 8 Motels II, Ltd., Super 8 Motels III, Ltd., Super 8 Economy Lodging IV, Ltd., Famous Host Lodging V, Ltd. /s/ MARK GROTEWOHL -------------------------------- Mark Grotewohl, as an individual Everest Properties II, LLC Everest Properties, LLC By: /s/ W. ROBERT KOHORST ---------------------------- W. Robert Kohorst, President for itself and as a Manager of Everest Madison Investors, LLC Everest Lodging Investors, LLC KM Investments, LLC Everest Financial, Inc. By: /s/ W. ROBERT KOHORST ---------------------------- W. Robert Kohorst, President EXHIBIT A EXCLUSIVE SALES AGENCY CONTRACT Super 8 Motel, Ltd., a California limited partnership, Super 8 Motels II, Ltd., a California limited partnership, Super 8 Motels III, Ltd., a California limited partnership, Super 8 Economy Lodge IV, Ltd., a California limited partnership, and Famous Host Lodging V, Ltd., a California limited partnership (each a "Seller"), and each of them, hereby appoint Everest Financial, Inc., a California corporation and licensed California real estate broker ("Broker"), as their sole agent and grant Broker the exclusive right to negotiate a sale of the properties described on Exhibit A attached hereto (each a "Property" and collectively the "Properties"). Broker's appointment as the sole and exclusive agent shall be upon the following terms and conditions, in addition to those contained in the attached Commission Schedule: 1. The term of this agreement shall commence on the date of Seller's execution hereof and continue for a period of six (6) months (the "Term"). 2. Broker agrees that it will use reasonable efforts to market the Properties in order to secure a satisfactory purchasers of the Properties. Broker will report to Sellers on its marketing activities, including all submissions to potential purchasers of the Properties. Notwithstanding the foregoing, Broker shall not engage in such marketing activities so long as the purchaser represented by Mark Grotewohl is negotiating or under contract to purchase the Properties. 3. Broker, at Broker's cost, shall prepare all necessary marketing material, and shall provide copies to Sellers not less than 5 days prior to using them. 4. Sellers will refer to Broker all inquiries and offers received by Sellers with respect to any Property, regardless of the source thereof, and all negotiations shall be conducted jointly by Broker and Sellers. Sellers will retain under this agreement the sole and absolute right in their sole judgment and discretion to accept or reject any proposals for any reason or for no reason, without liability hereunder for any commission, fee or other compensation whatsoever. 5. Sellers agree to pay Broker the commission provided in the Commission Schedule if: (i) during the Term, a sale to any purchaser of any or all of the Properties is completed or any agreement or option is entered into with any purchaser pursuant to which a sale of any or all of the Properties is completed, whether or not Broker submitted any Properties to such purchaser, (ii) during the Term or up to one (1) year thereafter, any Seller enters into any agreement or option pursuant to which a sale of any or all of the Properties is completed with any purchaser to whom Broker had submitted any Property. A Property shall be deemed to be submitted to any person that is contacted by or contacts Broker concerning the sale of the Property, or that receives from the Broker any sales information about the Property. Broker shall provide Sellers with a list of persons to whom any Property was submitted within fifteen (15) days after the Term expires. 6. Except as may be provided in the Commission Schedule, no other licensed real estate broker ("Outside Broker") is entitled to any compensation under this agreement. However, Broker shall cooperate with and share its commission with an Outside Broker to the extent customary in the industry. 7. Sellers shall be responsible for providing Broker with information on each Property, including architectural and structural plans. Sellers hereby represent and warrant that all information relating to the Properties which is prepared by Sellers or their representatives and which is delivered to Broker for its use in marketing the Properties is and shall be true and correct. 8. Sellers hereby agree to indemnify and defend Broker and its affiliates, shareholders, officers, directors, employees and representatives (the "Broker Parties"), with counsel selected by the Broker Parties, and hold the Broker Parties harmless, from any and all liabilities, damages, expenses and costs, including reasonable attorney fees, resulting from any claim or proceeding based on, related to or arising from the sale or proposed sale of any of the Properties. Broker shall not be indemnified against its negligence or other misconduct. Broker shall hold Sellers and their affiliates harmless from any and all liabilities, damages, expenses and costs, including reasonable attorney fees, resulting from Broker's negligence or misconduct related to the sale or proposed sale of the Properties. 9. This agreement shall be binding upon the parties hereto and their respective successors and assigns. In any action or proceeding to enforce the provisions of this agreement, the losing party shall pay the prevailing party's costs and expenses, including reasonable attorney fees. IN WITNESS WHEREOF, the undersigned authorized representatives of each Seller and Broker have executed and delivered this agreement on behalf of each party, as of the date indicated below. Dated: May 8, 1997 SUPER 8 MOTEL, LTD. EVEREST FINANCIAL, INC. By: /S/PHILIP B. GROTEWOHL By: /S/W. ROBERT KOHORST Name: Name: W. Robert Kohorst Title: Title: President SUPER 8 MOTELS II, LTD. By: /S/PHILIP B. GROTEWOHL Name: Title: SUPER 8 MOTELS III, LTD. By: /S/PHILIP B. GROTEWOHL Name: Title: SUPER 8 ECONOMY LODGE IV, LTD. By: /S/PHILIP B. GROTEWOHL Name: Title: FAMOUS HOST LODGING V, LTD. By: /S/PHILIP B. GROTEWOHL Name: Title: EX-99.1 4 APPRAISAL =============================================================== APPRAISAL OF THE FEE SIMPLE AND LEASEHOLD ESTATES IN THE EIGHT HOTEL PROPERTIES CONTROLLED BY THE FAMOUS HOST COMPANIES EFFECTIVE DATE OF THE APPRAISAL: JANUARY 1, 1998 PREPARED FOR: MR. PHILIP GROTEWOHL THE FAMOUS HOST COMPANIES 2030 J STREET SACRAMENTO, CALIFORNIA 95814 PREPARED BY: PKF CONSULTING SAN FRANCISCO, CALIFORNIA DATE OF THE REPORT: FEBRUARY 20, 1998 =============================================================== February 20, 1998 Mr. Philip Grotewohl The Famous Host Companies 2030 J Street Sacramento, California 95814 Re: Appraisal of the Eight Company-Owned Hotels Dear Mr. Grotewohl: In accordance with your request, we have completed our appraisal of the seven company-owned Super 8 Lodges and one Holiday Inn operated by the Famous Host Companies in California. The purpose of this appraisal is to estimate the "as is" market value of the fee simple or leasehold interest in these eight properties. The function of the appraisal is for use by the Famous Host Companies for asset evaluation purposes. The scope of work included inspection of each properties, analysis of local economic and market conditions, analysis of the historical operating results of each hotel, estimation of future operating performance of the properties, and derivation of a value estimate using the Sales Comparison and Income Capitalization Approaches to valuation. The Cost Approach was not considered to be a meaningful indicator of value for these properties. The properties were valued on a going-concern basis including all rights of realty, personalty, and intangible value. The effective date of this appraisal is January 1, 1998. To develop our opinion of value, we have performed a complete appraisal process, as defined by the Uniform Standards of Professional Appraisal Practice. However, at the request of our client, this appraisal is communicated in a summary report format. This report is intended to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary Appraisal Report. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop our opinion of value. Supporting documentation concerning the data, reasoning and analysis is retained in our files. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated above. PKF Consulting is not responsible for unauthorized use of this report. To the best of our belief, this appraisal report conforms to requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) established by the Appraisal Foundation. This report is subject to the Certification and General Statement of Assumptions and Limiting Conditions presented in the Addenda. Based on the scope outlined and our experience as real estate analysts and appraisers, we are of the opinion that the "as is" market value of the fee simple or leasehold interest in each of the eight hotels, as of January 1, 1998, is: Property Rights Valuation Property Appraised Conclusion - ------------------------ ----------------- -------------------- Super 8 Bakersfield, CA Fee Simple $1,300,000 - ------------------------ ----------------- -------------------- Holiday Inn Barstow, CA Leasehold $4,100,000 - ------------------------ ----------------- -------------------- Super 8 Modesto, CA Leasehold $1,800,000 - ------------------------ ----------------- -------------------- Super 8 Pleasanton, CA Fee Simple $7,600,000 - ------------------------ ----------------- -------------------- Super 8 Sacramento, CA Leasehold $2,700,000 - ------------------------ ----------------- -------------------- Super 8 San Bernardino, CA Fee Simple $1,600,000 - ------------------------ ----------------- -------------------- Super 8 South San Francisco, CA Leasehold $7,600,000 - ------------------------ ----------------- -------------------- Super 8 Santa Rosa, CA Leasehold $2,200,000 ========================================== ==================== Sum of Individual Values $28,900,000 ========================================== ==================== 2 PKF Consulting appreciates this opportunity to be of service to you. Should you have any questions or if we can be of further assistance, please do not hesitate to contact us. Yours sincerely, PKF Consulting /s/ THOMAS E. CALLAHAN By Thomas E. Callahan, CPA, CRE, MAI Executive Vice President California Certified General Appraiser AG9618 /s/ KENNETH KUCHMAN By Kenneth Kuchman Vice President California Certified General Appraiser AG22842 3 SECTION I INTRODUCTION A. IDENTIFICATION OF THE PROPERTIES TO BE APPRAISED The subject of this appraisal are the following eight lodging properties. ================================================= Summary of Properties Appraised ================================================= Number of Hotel Name and City Rooms - --------------------------------- --------------- Super 8 Bakersfield, CA 90 - --------------------------------- --------------- Holiday Inn Barstow, CA 148 - --------------------------------- --------------- Super 8 Modesto, CA 80 - --------------------------------- --------------- Super 8 Pleasanton, CA 102 - --------------------------------- --------------- Super 8 Sacramento, CA 121 - --------------------------------- --------------- Super 8 San Bernardino, CA 81 - --------------------------------- --------------- Super 8 South San Francisco, CA 117 - --------------------------------- --------------- Super 8 Santa Rosa, CA 100 - --------------------------------- --------------- A more detailed description of each hotel is presented within the appropriate sections of the attached report. B. PURPOSE AND USE OF THE APPRAISAL The purpose of this appraisal is to estimate the "as is" market value of the fee simple interest in each hotel. The function of the appraisal is for use by the Famous Host Companies in asset monitoring and assessment. C. PROPERTY RIGHTS APPRAISED The property rights appraised represent the fee simple interest or leasehold interest in each hotel as applicable. A fee simple interest is defined as: 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.1 1 Apparisal Institute, The Dictionary of Real Estate Appraisal, 3rd ed (Chicago: Appraisal Institute, 1993) pg. 140. I-1 A leasehold interest is defined as: 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.2 D. IMPORTANT DATES The effective date of this appraisal is January 1, 1998. The eight hotels were inspected by members of PKF Consulting, on various dates in 1997 and 1998. These inspections included a random sampling of guestrooms, all public areas, and all back-of-the-house facilities. E. SUMMARY OF OWNERSHIP AND SALES HISTORY The eight hotels under review are owned by one of four limited partnerships. The Famous Host Companies, or an affiliate, is the general partner in each of these four partnerships. We understand that all of these properties have been owned by the same entities since their construction. We are not aware of any other transactions involving these hotels which have occurred during the past three years. F. DEFINITION OF VALUES 1. Market Value "Market value" means 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 sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1) Buyer and seller are typically motivated; 2) Both parties are well informed or well advised, and acting in what they consider their own best interests; 3) A reasonable time is allowed for exposure in the open market; 2 Ibid, p. 204 I-2 4) Payment is made in terms of case in U.S. dollars or in terms of financial arrangements comparable thereto; and, 5) 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.3 Market value "as is" on the appraisal date means an estimate of the market value of a property in the conditions observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date the appraisal is prepared.4 2. Going Concern Value The value created by a proven property operation; considered as a separate entity to be valued with a specific business establishment.5 G. SCOPE AND METHODOLOGY OF THE APPRAISAL The scope of this appraisal included a detailed analysis of the competitive market position of each of the eight properties. More specifically, the market analysis for each property included the following work program. 1) In-depth analysis of the historical operating performance of each property. 2) Detailed inspection of each property, focused on identifying areas of deferred maintenance and/or functional obsolescence. 3) Evaluation of the economic environment of each property's local market, focusing on economic factors which impact the demand for hotel rooms such as changes in employment, office space absorption, airport utilization, attendance at tourist attractions and convention facilities, etc. 4) Primary market research in each market area, including interviews with key demand generators, inspection and evaluation of competitive hotels 3 Federal Register, Vol. 55, 165, Friday, August 24, 1990, Rules and Regulations, 12CFR Part 34.42(F). 4 Appraisal Policies and Practicies of Insured Institutionas and Services Corporation Federal Home Loan Bank Board, "Final Rule", 12 CFR Parts 563 and 571, December 31, 1987. 5 Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd ed (Chicago: Appraisal Institute, 1993) I-3 and discussions with persons familiar with the development patterns of each local market. 5) Analysis of each property's future market position. This analysis included a projection of the current and future demand for hotel accommodations in each market, including an assessment of existing and potential future competitive supply, and the share of the market that each hotel could reasonably be able to capture over the next five to ten years. Based on the foregoing scope of work, it was concluded that the Highest and Best Use of each property is as currently improved. In developing a value conclusion for each hotel, two of the three traditional approaches to valuation have been used: the Sales Comparison and Income Capitalization Approaches. In the Sales Comparison Approach, the value of the subject properties were estimated based on an analysis of the sales of other similar facilities using a unit indicator of price per room or multiple of rooms revenue. In the Income Capitalization Approach, the value of each property is estimated based on an analysis of the historical and projected income and expenses generated by each facility during a typical holding period. Both direct capitalization and yield capitalization (discounted cash flow analysis) methods were employed. The earnings stream most commonly used as the basis for the Income Capitalization method of valuation is the projected net operating income (NOI) from operations after the deduction of real estate taxes and insurance, but before the deduction of interest, depreciation, amortization and taxes on income. Also deducted from the profit from operations is a reserve for capital improvements for each property. The projected operating income for each property was based on a review of local market conditions and the historical operating results of each hotel, coupled with an analysis of the historical operating results of comparable hotels as compiled in PKF Consulting's 1997 issue of "Trends in the Hotel Industry". Under the direct capitalization method, the NOI for a typical or stabilized year of operation is converted into a value estimate by dividing it by an appropriate income capitalization rate. The capitalization rate represents the relationship between income and value observed in the market and is derived through an analysis of comparable sales as well as other analyses. In yield capitalization, the value of a property is the present value of the net operating income of each property in each year of a holding period (typically ten years) plus the present value of the property as if sold at the end of the holding period (the "reversion"). The present value of these elements is obtained by applying a market-derived discount rate. The value of the reversion is obtained through the capitalization of the adjusted income at the end of the holding period, which should be a normalized or typical year, with a deduction for the costs of sale. I-4 In our analysis, the discount rates used to value the subject hotels ranged from 13.0 to 14.5 percent; going-in capitalization rates ranged from 10.0 to 11.5 percent; and reversionary capitalization rates ranged from 10.5 to 12.0 percent. Differences in the discount and capitalization rates applied to individual properties were based on a combination of factors, including the age and condition of the hotels, local market conditions, durability of the projected income stream, and the ownership rights appraised (fee simple interest or leasehold interest). The Cost Approach has not been included in the estimate of the value of the subject properties. The Cost Approach is most applicable in the valuation of special use properties, properties which are proposed or under construction, and aged properties, in which the value of the improvements may be nominal and the value of the property as a whole approaches land value. The subject properties are all going concerns and the existing improvements contribute significant value to the property. The costs to replace these facilities are of little more than historical significance and are not used by the typical investor interested in the purchase of an existing property. A brief discussion of the research, methodology, analysis and conclusions pertaining to each property are presented in the following sections of this report. ============================================= Summary of Property Sections ============================================= City Section - ------------------------------ -------------- Bakersfield II - ------------------------------ -------------- Barstow III - ------------------------------ -------------- Modesto IV - ------------------------------ -------------- Pleasanton V - ------------------------------ -------------- Sacramento VI - ------------------------------ -------------- San Bernardino VII - ------------------------------ -------------- Santa Rosa VIII - ------------------------------ -------------- South San Francisco IX - ------------------------------ -------------- The Addenda includes the Statement of Assumptions and Limiting Conditions, Certification of the Appraisers, and Qualifications of the Appraisers. I-5 SECTION II SUPER 8 MOTEL BAKERSFIELD, CALIFORNIA =============================================================================== Summary of Important Facts and Conclusions =============================================================================== Property Address Super 8 Motel 901 Real Road Bakersfield, California 93309 Telephone (805) 322-1012 - ---------------------------------------------- -------------------------------- Owner Super 8 Motels III, Ltd. - ---------------------------------------------- -------------------------------- Assessor's Parcel Numbers 020-120-29-00-6 - ---------------------------------------------- -------------------------------- Effective Date of Appraisal January 1, 1998 - ---------------------------------------------- -------------------------------- Property Rights Appraised Fee Simple =============================================================================== Highest and Best Use =============================================================================== Highest and Best Use As if Vacant Limited-service hotel As Improved Limited-service hotel =============================================================================== Property Description =============================================================================== Existing Improvements Year Built 1982 Gross Building Area 33,560 square feet Number of Hotel Guest Rooms 90 Parking 91 spaces (including two for disabled persons) Number of Floors Two Hotel Amenities Swimming pool and whirlpool Compliance with ADA In compliance - ---------------------------------------------- -------------------------------- Site Area 2.32 acres (101,059 square feet) Zoning C-2 (Commercial) Flood Zone Zone C, Panel #060077-0027B, dated May 1, 1985 Wetlands Zone No Alquist Priolo Special Studies Zone No Historic, Natural , Cultural, Recreational, or Scientific Value None =============================================================================== Valuation Conclusion =============================================================================== Cost Approach Not Used - ---------------------------------------------- -------------------------------- Sales Comparison Approach $1,350,000 - ---------------------------------------------- -------------------------------- Income Capitalization Approach Stabilized Occupancy 75.0% Average Daily Room Rate $33.50 (1998 value dollars) - ---------------------------------------------- -------------------------------- Stabilized Net Operating Income $137,000 (1998 value dollars) - ---------------------------------------------- -------------------------------- Overall Capitalization Rate 11.0% Terminal Capitalization Rate 11.5% Discount Rate 14.0% - ---------------------------------------------- -------------------------------- Indicated Market Values Direct Capitalization Technique $1,250,000 Discounted Cash Flow Analysis $1,300,000 - ---------------------------------------------- -------------------------------- Final Estimate of Market Value $1,300,000 - ---------------------------------------------- -------------------------------- Marketing and Exposure Period Six months or less - ---------------------------------------------- -------------------------------- II-1 (Photograph Deleted) View of the Subject Property (Photograph Deleted) View of a Typical Queen-Bed Guestroom II-2 A. AREA AND NEIGHBORHOOD REVIEW 1. Introduction The subject property is located at 901 Real Road in Bakersfield, California, the seat of Kern County. The City of Bakersfield lies in the southern portion of the San Joaquin Valley of Central California, approximately 110 miles north of Los Angeles and 290 miles south of San Francisco. Bakersfield is an important farming and oil-producing area, supplying approximately 61.0 percent of California's oil production and 9.0 percent of the U.S.'s production. One of the most important agricultural counties in the United States, Kern County is a major supplier of table grapes, wine grapes, cotton, almonds, and field crops. Bakersfield is the largest city between Fresno and Los Angeles, providing governmental, financial, distribution, and transportation services for the southern part of the San Joaquin Valley. A map highlighting the subject site's location in relation to the surrounding area is shown on the following page. 2. Economic Data Presented in the following text is a brief overview of selected economic data that characterizes the local area. Population: In 1996, Bakersfield's population was 212,700, compared to 180,200 in 1991, indicating a compound average annual growth rate (CAAG) of 3.4 percent. This growth rate indicates the underlying economic stability in Bakersfield. Demand Generators: Apart from convention demand generated by the city's convention center, and local commercial demand, Bakersfield has been largely an "overnight stop" for highway travelers. Coach tours along Interstate 5 and commercial traffic along Highway 99 generate a substantial portion of demand. Convention Center: The Bakersfield Convention Center, located in downtown Bakersfield, is the largest and complete event facility in southern San Joaquin Valley. The center offers over 51,000 square feet of meeting space. Retail Sales: Retail sales for Bakersfield totaled over $2.1 billion in 1996, representing more than half of the total retail sales for Kern County. Income: The average household Effective Buying Income (EBI) for Kern County was approximately $35,000 for 1996, and is expected to increase to $40,000 in 2002, reflecting a CAAG of 2.3 percent. II-3 (Street map of Bakersfield and surrounding area deleted) Regional Map II-4 Transportation: Kern County has approximately 6,000 miles of extensive roadway systems. Three state highways run through the city (99, 58, and 178), as well as Interstate 5 which is located 15 miles west of Bakersfield. Kern County's Meadows Field Airport services the area's air transportation and provides commercial airline service via several carriers. Employment: In 1996, Kern County was the nation's leading oil-producing county, and the fourth most productive agricultural county in the nation. Grapes, Cotton, Almonds & Market Milk are the principal crops. The major employers in the area are highlighted in the following table. ============================================================== Major Employers in Bakersfield ============================================================== ------------------------------- ------------------------------ Number of Company Employees ------------------------------- ------------------------------ Sunworld/Superior Farms 3,000 Grimmway Farms 2,700 Giumarra Vineyards 2,500 Bolthouse Farms, Inc. 1,600 Kern Medical Hospital 1,600 Mercy Health Care 1,500 Memorial Hospital 1,200 Dole Bakersfield, Inc. 1,000 Chevron USA 1,000 ============================================================== Source: Bakersfield Chamber of Commerce ============================================================== 3. Neighborhood Review The subject property is located in one of the commercial areas of Bakersfield. Surrounding improvements include: five restaurants (Pizza Hut, Wendy, Carl's Jr., Sizzler, and McDonald's); three hotels (the Radisson Suites, California Inn, and the Regency Inn); two gasoline stations (Texaco and Shell); car dealerships; and a shopping mall. State Highway 99 is situated approximately 500 yards to the east. 4. Conclusion Kern County remains highly dependent on its agriculture and oil industries. The populations of Kern County and Bakersfield continue to grow at levels higher than the state average. Overall, we view that the area will be experiencing stable growth levels in the near future, positively impacting the lodging industry. II-5 B. PROPERTY DESCRIPTION 1. Introduction The subject property is a limited-service hotel with 90 guestrooms. Amenities at the property include an outdoor swimming pool and a whirlpool. The property includes one main building containing the guest rooms and the lobby. The subject property was constructed in 1982 and is currently owned in fee simple by Super 8 Motels III, Ltd. We are not aware of any transactions relating to the site or the improvements since the date of opening. 2. Site Description and Zoning The subject property is located at 901 Real Road, and is bounded by California Avenue to the north, Wendy's, Carl's Jr., and the California Inn to the south, Real Road to the east, and a small canal to the west. The land area is 2.32 acres (101,059 square feet), and the property has approximately 150 feet of frontage along Real Road. The site has good visibility to traffic, and is also easily accessible from Highway 99. The subject site is attractively landscaped with lawn bushes and palm trees. The subject property is zoned C-2 (Commercial) by Kern County. The present use of the property is permitted with this zoning designation, and the subject is, therefore, a legal, conforming use. We are aware of no easements or covenants which would adversely affect the value of the subject property. 3. Improvements Description The subject property of this appraisal is improved with a 90-room limited-service hotel. The exterior-corridor property includes a lobby area, an outdoor swimming pool, and a whirlpool, and has a port cochere with a blue-tile roof. The second floor corridors have wrought iron railings, and there are stair towers located at the corners of the building. Parking for 91 automobiles, including two for disabled persons, is provided. 4. Basic Construction and Mechanical Systems The subject building is a two-story wood-framed structure, with white stucco finish. The hotel building forms an approximate L-shape, with the inner portion of the L-shape forming a courtyard area. The courtyard is landscaped and is also the site of the pool. The hotel offers exterior corridors with no elevators. The entire building is fire sprinklered, and has a flat, built-up roof with concrete-barrel access areas. The exterior of the building is comprised of white II-6 stucco. The total interior square footage of the hotel is 33,560 square feet with the average interior space of a typical guestroom being approximately 282 square feet. The Super 8 Motel provides 90 guestrooms, configured as 37 single-queen bedrooms, 33 double-queen, and 20 suite rooms. The guestrooms are furnished with a color television, desk, two chairs, nightstand, lamp, and dresser. Overall the property is in good condition and has been maintained on a regular basis. Presented in the following table is a summary of the basic construction and mechanical systems of the hotel. =============================================================================== Super 8 Motel - Bakersfield Summary of Basic Construction and Mechanical Systems =============================================================================== Foundation: Concrete slab on-grade with spread footings - ------------------------------------- ----------------------------------------- Frame: Wood - ------------------------------------- ----------------------------------------- Exterior Walls: Stucco - ------------------------------------- ----------------------------------------- Floor: Wood trusses, 5/8" plywood, and 3/4" gypsum board - ------------------------------------- ----------------------------------------- Roof: Concrete barrel tile and built-up tar and gravel - ------------------------------------- ----------------------------------------- Ceiling Heights: 8'- 0" - ------------------------------------- ----------------------------------------- Doors: Guest Room and Bathroom: 1 3/4" thick solid core wood Exterior: 13/4" thick solid core wood; aluminum store-front door - ------------------------------------- ----------------------------------------- Windows: Sliding bronze anodized double pane aluminum - ------------------------------------- ----------------------------------------- Heating and Cooling: GE Zoneline III for guest rooms and lobby; Carrier Model 50YQ060 in laundry room - ------------------------------------- ----------------------------------------- Elevators: One Otis passenger hydraulic elevator - ------------------------------------- ----------------------------------------- Electrical: 120-280V; 2,000 AMPS; 42,000 A system - ------------------------------------- ----------------------------------------- Plumbing: Water Pipes: Copper type M above-grade; type L below- grade Sewer Pipes: No-hub cast iron in building; ABS outside building - ------------------------------------- ----------------------------------------- Domestic Hot Water: Two boilers and holding tank - ------------------------------------- ----------------------------------------- Laundry Facilities: Two washers and three dryers - ------------------------------------- ----------------------------------------- Sprinkler System: Entire building is sprinklered - ------------------------------------- ----------------------------------------- Life Safety: Fire Alarm Stations: At reception desk area Smoke Detectors: Hard-wired dual ionization smoke detectors Emergency Illumination: Yes =============================================================================== Source: Famous Host Companies =============================================================================== 5. Assessed Value and Property Taxes The subject property is assessed by the Kern County on a tax year commencing July 1 of every year. Under the provisions of Article 13-A of the State of California (Proposition 13), properties are assessed based on their fair market value as of the change of ownership date. The assessed value can be increased by a maximum of 2.0 percent per year until such date as the property is II-7 subsequently sold, substantial new construction takes place, or the use of the property is substantially changed. The current assessed value of the property is presented in the following table. =================================================================== Assessor's Parcel Number 020-120-29-00-6 1997/98 Assessed Value =================================================================== Land $802,053 Personal Property $83,592 Improvements $1,487,832 - -------------------------------------- ---------------------------- Total Assessed Value $2,373,477 - -------------------------------------- ---------------------------- For fiscal year 1997/1998, total property taxes were $31,027.67 on the subject property. The effective tax rate, therefore, is 1.3073 percent of the total assessed value. 6. Renovation and Capital Improvements We understand that $33,000 have been allocated as part of capital expenditures for a new roof during 1998. 7. Summary of Functional Utility and Condition Overall, the subject property is well-maintained. The grounds are neat and well-trimmed, and the paint both inside and outside the building is in good condition. As noted previously, $33,000 will be spent on a new roof in 1998. C. HOTEL MARKET ANALYSIS 1. Competitive Supply The competitive hotel market for the Super 8 is comprised of 14 properties, including the subject, with a total of 1,205 rooms, comprising nearly all of the limited-service levels in the market The selection of the competitive supply was based on location, room count, facilities and amenities, room rate structure, and market orientation. These properties are all affiliated with national chains and cater to the area's commercial, leisure, and government demand. II-8 ================================================================================================================= Super 8 Motel -- Bakersfield Census of Competitive Properties ================================================================================================================= Published Room Rates Year Number AAA Property Opened of Rooms Single Double Amenities Rating - -------------------------- ----------- ----------- -------------- -------------- ----------------- -------------- Super 8 Motel 1982 90 $38.00 $47.00 F,G,H Not Rated Comfort Inn Central 1989 53 $35.00 $40.00 F,G 1 star (Motel) La Quinta Inn 1986 129 $49.00 $56.00 D,F,H 3 star (Motel) Motel 6 1962 107 $35.00 $45.00 F,G,H Not Rated Motel 6 - North 1983 109 $35.00 $45.00 F,G,H Not Rated TraveLodge-- South 1987 60 $38.00 $50.00 F,G,H 2 star (Motel) Quality Inn 1992 89 $42.00 $61.00 D,F,G,H 3 star (Motel) Radisson Suites 1993 80 $69.00 $79.00 D,F,G 3 star (Motel) California Inn 1983 74 $39.00 $49.00 F,G,H 2 star (Motel) Motel 6 - East 1981 111 $35.00 $45.00 F,G,H Not Rated Econolodge 1989 53 $35.00 $40.00 F,G,H Not Rated Holiday Inn Express 1994 108 $45.00 $49.00 D,F,G 3 star (Motel) Hampton Inn 1998 95 $65.00 $75.00 D,F,G,H 3 star Motel) Best Western Heritage 1995 47 $50.00 $57.00 F,H 3 star (Motel) - -------------------------- ----------- ----------- -------------- -------------- ----------------- -------------- Total 1,205 - - -------------------------- ----------- ----------- -------------- -------------- ----------------- -------------- Amenities Codes AAA Rating A - Restaurant 5 star - Renowned; exceptional property recognized for B - Bar/Lounge market superiority of facilities and service C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations as well as extra amenities D - Meeting Rooms 3 star - Offers very comfortable and attractive E - Exercise Room accommodations F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some physical G - Whirlpool and operational categories H - Adjacent Restaurant 1 star - Meets AAA basic requirements for recommendation - -------------------------------------- ----------- -------------- ------------------------------------------------- Source: Management of Individual Properties and 1998 American Automobile Association Tour Book ===================================================================================================================
As can be noted above, there is a considerable number of competitive lodging facilities in the market, characterized by smaller, budget-oriented, national brand-affiliated products. The 95-room Hampton Inn has just been completed, at the intersection of Oak Street and Park Way, on the opposite side of Highway 99 from the subject. According to our discussions with the Kern County Planning Department, no additional hotels are planned in the surrounding area. 2. Historical Market Performance The following table presents a summary of the historical market performance of the selected competitive hotels, together with the subject, over the period 1994 to 1996, as well as our estimate for 1997. II-9 ======================================================================================================================== Super 8 Motel -- Bakersfield Competitive Hotel Market Historical Occupancy and Room Rate 1994 to 1997 (Estimated) ======================================================================================================================== Annual Rooms Percent Percent Average Daily Percent Year Available Change Occupancy Change Room Rate Change - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------ 1994 396,223 - 64.9% - $36.58 - - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------ 1995 402,595 1.6% 59.8% (6.3%) $38.59 5.5% - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------ 1996 405,150 0.6% 59.5% 0.1% $38.53 (0.1%) - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------ 1997 (Estimated) 405,150 0.0% 61.0% 2.6% $38.50 (0.1%) - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------ CAAG 0.7% - - - 1.7% - ======================================================================================================================== Source: PKF Consulting and Smith Travel Research ========================================================================================================================
As can be noted, over the past four years the number of available rooms within the competitive market has changed only slightly. During the same period, demand has decreased slightly. This decrease in demand is primarily attributed to the addition of new hotels in outlying sub-markets within Bakersfield, which captured a portion of the competitive market demand. In terms of ADR, the competitive market has experienced below-inflation growth, indicating a CAAG of 1.7 percent between 1994 and 1997. 3. Demand Segmentation The competitive market is oriented towards attracting commercial, leisure, and contract demand. Commercial demand includes employees and visitors to local companies, such as Chevron and Dole. The majority of leisure travelers to the area are typically on their way to, or returning from, other cities, and stop at the area's lodging facilities for a one night stay. Most of the leisure demand is generated between Memorial Day and Labor Day. Contract demand is primarily generated by Santa Fe and Amtrak railroad companies, which help bolster occupancy levels yet are highly rate-sensitive. 4. Projected Future Supply and Demand Over the past four years (1994 to 1997), demand for hotel accommodations in the competitive market has decreased slightly. However, based on our review of the local market, we project overall demand for hotel rooms will increase at a modest rate of 2.0 percent per year over the next five years. In deriving this growth rate, we have specifically analyzed the overall growth in manufacturing and services, retail sales, and the historical CAAG of this market. Further, this growth rate reflects the impact of the opening of the New Hampton Inn, which is envisioned to induce demand into the competitive market. Presented in the following table is a summary of the projected growth in supply, demand, and the resulting occupancy levels for the competitive market for the period 1998 to 2002. II-10 ======================================================================================================= Super 8 Motel -- Bakersfield Estimated Growth In Supply and Demand Competitive Hotel Market ======================================================================================================= Daily Annual Total Year Available Rooms Available Rooms Demand Occupancy - ------------------------ -------------------- --------------------- ---------------- ------------------ Actual 1994 1,085 396,223 257,137 64.9% 1995 1,103 402,595 240,751 59.8% 1996 1,110 405,150 240,918 59.5% 1997 (Estimated) 1,110 405,150 247,142 61.0% - ------------------------ -------------------- --------------------- ---------------- ------------------ Projected 1998(1) 1,197 436,905 252,000 58.0% 1999 1,205 439,825 257,000 59.0% 2000 1,205 439,825 262,000 60.0% 2001 1,205 439,825 268,000 61.0% 2002 1,205 439,825 273,000 62.0% - ------------------------ -------------------- --------------------- ---------------- ------------------ CAAG 1994 to 1997 0.7% - (1.3%) - 1998 to 2002 0.2% - 2.0% - ======================================================================================================= (1) 95-room Hampton Inn opened at the beginning of February (annualized). Source: PKF Consulting and Smith Travel Research =======================================================================================================
As can be noted above, we project demand in the overall market to grow at a CAAG of 2.0 percent over the five year period. Given the addition of the 95-room Hampton Inn, the competitive market's occupancy is projected to decrease to 58.0 percent in 1998, and then increase gradually to 62.0 percent by 2002. 5. Market Performance of the Subject The following table summarizes the historical occupancy levels and ADR for the Super 8 Motel over the past four years. =============================================================================== Super 8 Motel -- Bakersfield Historical Occupancy and Room Rate 1994 to 1997 (Estimated) =============================================================================== Average Daily Year Occupancy % Change Room Rate % Change - ------------------- ---------- ---------------- ----------------- ------------- 1994 89.9% - $30.73 - - ------------------- ---------- ---------------- ----------------- ------------- 1995 85.6% (4.8%) $30.87 0.5% - ------------------- ---------- ---------------- ----------------- ------------- 1996 87.2% 1.9% $30.28 (1.9%) - ------------------- ---------- ---------------- ----------------- ------------- 1997 (Estimated) 84.0% (3.7%) $32.50 7.3% - ------------------- ---------- ---------------- ----------------- ------------- CAAG (2.2%) - 1.9% - =============================================================================== Source: Famous Host Companies =============================================================================== II-11 As can be noted, the subject is estimated to have had experienced a nearly 6.0 percentage point drop in occupancy between 1994 and 1997, attributed to the addition of new supply, such as the indirectly-competitive Extended Stay America which opened in 1997. The growth in ADR has been less-than-market, equating to a CAAG of 1.9 percent, generally similar to the market's 1.7 percent. The subject property's market penetration rate (subject's occupancy divided by the market's occupancy) has fluctuated from 138.5 percent in 1994 to an estimated 137.7 percent in 1997. It should be noted that the subject property achieves a much higher annual occupancy compared to the market, as a result of significant contract business with both Amtrack and Santa Fe railroads. On the other hand, this contract business is negotiated at an ADR lower than the market ADR. The subject property's 1997 year-to-date occupancy (ending September) was 84.6 percent, compared to 87.5 percent in 1996, indicating the impact of the opening of the Extended Stay America. Based on our analysis of the local market in the Bakersfield area, coupled with our discussions with management at the subject property, we are of the opinion that the subject will achieve an occupancy level of approximately 80.0 percent in 1998, below that estimated for 1997 (84.0 percent). In 1999, we estimate that the subject property will continue to be impacted by the addition of the nearby 95-room Hampton Inn, and will achieve an occupancy of 78.0 percent, and then will stabilize in 2000 at an estimated level of 75.0 percent. Based on our market research, we project the hotel to achieve an ADR of $33.50 in 1998, or an increase of 3.0 percent over 1997. Over the balance of our projection period, we project the hotel's ADR to increase at the anticipated long-term level of inflation (3.0 percent per year). We believe that this is realistic given the supply and demand dynamics of the San Bernardino hotel market. =============================================================================== Super 8 Motel -- Bakersfield Projected Occupancy and Average Daily Room Rate - 1998 to 2002 =============================================================================== Market Average Percent Year Occupancy Penetration Daily Room Rate Change - ---------- --------------- --------------- ------------------------- ---------- - ---------- --------------- --------------- ------------------------- ---------- 1998 80.0% 138.0% $33.50 3.0% 1999 78.0% 132.0% $34.50 3.0% 2000 75.0% 125.0% $35.50 3.0% 2001 75.0% 123.0% $36.50 3.0% 2002 75.0% 121.0% $37.75 3.0% - ---------- --------------- --------------- ------------------------- ---------- - ---------- --------------- --------------- ------------------------- ---------- CAAG (1.6%) - 3.0% - - ---------- --------------- --------------- ------------------------- ---------- =============================================================================== Source: PKF Consulting =============================================================================== D. HIGHEST AND BEST USE Based on our analysis, we are of the opinion that the existing improvements contribute significant overall value to the site. There is no alternative, legal II-12 use that could economically justify the restructuring or removal of the existing improvements at this time. Therefore, the subject property, as improved, represents the highest and best use of the site. E. VALUATION -- SALES COMPARISON APPROACH 1. Introduction We have reviewed a number of recent sales and have focused on those considered most comparable in providing support for the market value of the subject. Our search for sales was initially focused on Bakersfield; however, due to the limited number of comparable transactions, our search for sales was extended to include surrounding areas, such as Colton, Bishop, and Kingsburg. Based on this search, five sales were identified to use as the basis for our valuation of the subject under this approach. Presented in the following table is a summary of the selected comparable hotel sales. As can be noted, these sales have occurred between November 1996 and October 1997. ===================================================================================================================== Comparable Hotel Sales ===================================================================================================================== Rooms Overall Sale Sale Year Number of Price Revenue Capitalization No. Hotel Name Location Date Built Rooms Per Room Multiplier Rate - ----- --------------------------- -------------- --------- --------- ------------ ---------- ---------- ============= 1 Econolodge Colton 10/97 1972 51 $19,601 2.4 NA 2 Days Inn Colton 8/97 1985 147 $19,932 2.6 NA 3 Bishop Lodge Bishop 7/97 1979 52 $28,846 3.9 8.9% 4 Swedish Inn Kingsburg 1/97 1988 47 $31,195 2.9 NA 5 Super 8 Ontario 11/96 1985 53 $22,925 2.2 NA ===================================================================================================================== Source: PKF Consulting =====================================================================================================================
2. Analysis of the Hotel Sales In reviewing the preceding table, it can be noted that the sale prices per room ranged between $19,601 for the 51-room Econolodge and $31,195 for the 47-room Swedish Inn in Kingsburg. Because of the many differences between the comparable hotel sales and the subject property, we are of the opinion that an analysis using a rooms revenue multiplier (RRM) is the most approiate unit of comparison to value the subject. A RRM measures the total revenue generated from room rentals in relation to the sale price. RRMs do not require subjective adjustments since most variances in properties are considered to be reflected in ADRs and annual occupancies achieved in the market. As can be noted, the indicated RRMs range from 2.2 to 3.9, with an average of 2.8. II-13 The subject property's location within the highly competitive Bakersfield market, which is characterized by lower ADRs due to the presence of rate-sensitive contract demand, applies a ceiling on the subject's upside potential. Accordingly, we are of the opinion that a RRM in the order of 1.5 (which is lower than the indicated comparable sales) is appropriate in valuing the subject property. Based on this multiplier, and assuming a stabilized occupancy level of 75.0 percent at an ADR of $33.50 (stated in 1998 dollars), the indicated value per room for the subject is as follows: Rooms Stabilized Stabilized Indicated Value Revenue Average Rate Occupancy Per Room Multiplier Level Days/Year (Rounded) - ---------------- --- --------------- --- ----------------- --- ---------------- --- ----------------------- 1.5 X $33.50 X 75.0% X 365 = $14,000 - ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
As noted above, the RRM analysis produced a value indication of $14,000 per available room. This value unit is converted into a total value estimate by multiplying the indicated value per room by the total number of rooms. Based on 90 rentable rooms, the indicated stabilized value of the fee simple interest in the Super 8 Motel is $1,300,000 as calculated below: - ----------------------- ---- ---------------- ----- --------------------------- $14,000 X 90 Rooms = $1,300,000 (Rounded) - ----------------------- ---- ---------------- ----- --------------------------- F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH After concluding to our estimate of the stabilized value of the subject, the next step in our analysis is to develop an estimate of the "as is" market value of the subject property. The first step to develop the value estimate is to add the income gain, or surplus, projected to occur until the property is stabilized (as will be discussed in the Income Capitalization section). =================================================================== Sales Comparison Approach "As Is" Fee Simple Value =================================================================== Stabilized value Indication $1,300,000 Plus: Income Gain Until Stabilization 51,000 - ---------------------------------------------- -------------------- "As Is" Fee Simple Value (Rounded) $1,350,000 - ---------------------------------------------- ==================== II-14 As a result of the foregoing analysis, we estimate the "as is" market value of the fee simple interest in the subject as of January 1, 1998, through the Sales Comparison Approach to be: =============================================================================== ONE MILLION THREE HUNDRED FIFTY THOUSAND DOLLARS =============================================================================== $1,350,000 =============================================================================== G. VALUATION -- INCOME CAPITALIZATION APPROACH 1. Basis for Cash Flow Projection In order to develop an estimate of the net operating income (NOI) for the subject for both a stabilized year of operation (direct capitalization) and each year of the aforementioned holding period (yield capitalization), the following have been analyzed: 1. The historical operating results for the subject for year-end 1994, 1995, 1996, year-to-date September 1997, and management's operating budget for 1997; 2. The previously discussed market performance (occupancy levels and ADR) of the competitive hotels; and, 3. The operating results of the category "Limited-Service Hotels" from the 1997 issue of PKF Consulting's Trends in the Hotel Industry. The historical operating results of the subject are presented at the end of this section of the report. 2. Stabilized Year Operating Estimate We first developed an estimate of the performance of the subject for a stabilized year of operation stated in current value, 1998 dollars. This estimate is based on our review of the historical operating results of the subject hotel coupled with an analysis of the operating results of the selected PKF Consulting's "Trends" category. Additional key assumptions used in preparing this stabilized year estimate are summarized as follows: a) The stabilized annual occupancy of the hotel is projected to be 75.0 percent at a $33.50 ADR (in 1998 value dollars); b) A franchise fee of 8.0 percent of rooms revenue; II-15 c) A management fee of 5.0 percent of total revenues as well as a reserve for capital replacements of 4.0 percent of total revenue have been deducted to establish the net operating income of the subject; d) The projection of expense for taxes on real and personal property is a function of the market value of the property. The subject property is in the real estate taxing jurisdiction of the Kern County Tax Assessor's Office. Our estimate of the property taxes for the subject is based on the provisions of Proposition 13. Proposition 13 limits ad valorem property taxes to 1.0 percent of the assessed value plus assessment for city, special district, and county bonds. The current effective tax rate is 1.3073 percent of market value. This appraisal assumes a sale of the subject property on the effective date of the appraisal, which will initiate a reassessment of real estate for tax purposes. For the purpose of this analysis, the reassessment is based on the value estimate of the subject property as determined using the Income Capitalization Approach. Based on the estimated value of the hotel, a tax rate of 1.3073 per $100 of assessed value is utilized, resulting in real estate taxes of $17,000, rounded, in the representative or stabilized year. Presented in the following table is our estimate of the subject hotel's stabilized year operating results. As can be noted, on a stabilized basis the Super 8 Motel will generate approximately $861,000 in total revenues, with a net operating income of $137,000 in 1998 value dollars. II-16 =============================================================================== Super 8 Motel -- Bakersfield Stabilized Year Operating Results (Stated in 1998 Value Dollars) =============================================================================== Occupancy Level 75.0% - ------------------------------------------------ ------------------------------ Average Room Rate $33.50 - ------------------------------------------------ ------------------------------ REVPAR $25.12 - ------------------------------------------- ---------- ------------ ----------- Total Ratios PAR (1) POR (2) - ------------------------------------------- ---------- ------------ ----------- Revenues Rooms $825,000 95.8% $9,167 $33.50 Telephone 35,000 4.1% 389 1.42 Other Operated Departments 1,000 0.1% 11 0.04 - -------------------------------------------- ---------- ------------ ---------- Total Revenues 861,000 100.0% 9,568 34.95 - -------------------------------------------- ---------- ------------ ---------- Departmental Expenses (3) Rooms 236,000 28.6% 2,621 10.00 Telephone 29,000 80.0% 320 1.17 - -------------------------------------------- ---------- ------------ ---------- Total Departmental Expenses 265,000 30.7% 2,941 10.74 - -------------------------------------------- ---------- ------------ ---------- Departmental Income 596,000 69.3% 6,626 24.21 - -------------------------------------------- ---------- ------------ ---------- Undistributed Operating Expenses Administrative and General 126,000 14.6% 1,396 5.10 Franchise Fees 66,000 7.7% 733 2.68 Marketing 24,000 2.8% 263 0.96 Property Maintenance 67,000 7.8% 744 2.72 Energy and Utilities 65,000 7.5% 721 2.63 - -------------------------------------------- ---------- ------------ ---------- Total Undistributed Expenses 347,000 40.3% 3,858 14.09 - -------------------------------------------- ---------- ------------ ---------- Income Before Fixed Charges 249,000 28.9% 2,769 10.11 - -------------------------------------------- ---------- ------------ ---------- Management Fees and Fixed Charges Base Management Fees 43,000 5.0% 478 1.75 Property Taxes 17,000 2.0% 189 0.69 Insurance 19,000 2.2% 206 0.75 - -------------------------------------------- ---------- ------------ ---------- Total 79,000 9.1% 873 3.19 - -------------------------------------------- ---------- ------------ ---------- Income Before Reserve 171,000 19.8% 1,896 6.93 - -------------------------------------------- ---------- ------------ ---------- Reserve for Replacement 34,000 4.0% 378 1.38 - -------------------------------------------- ---------- ------------ ---------- Income Before Other Charges (4) $137,000 15.9% $1,500 $5.55 =============================================================================== (1) PAR - Per Available Room (2) POR - Per Occupied Room (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Income before interest, taxes, depreciation, and amortization Source: PKF Consulting =============================================================================== 3. Ten Year Statement of Estimated Annual Operating Results Presented at the end of this section of the appraisal report is our estimate of the operating results for the subject for the ten-year period beginning January 1, 1998. This forecast is based on the preceding stabilized year estimate, adjusted to reflect effects of inflation and the impact of fixed and variable components of each revenue and expense item. Selected key assumptions used to develop this forecast are summarized as follows: II-17 a) With the exception of property taxes, all other revenues and expenses are projected to increase at 3.0 percent throughout the holding period. Property taxes are projected to increase at a rate of 2.0 percent per year as allowed by California law, and growth in ADR is expected to grow at inflation throughout the analysis period as a result of market-driven factors. b) For the first five years of this forecast, the occupancy and ADR of the hotel were projected as previously discussed. Thereafter, the hotel's occupancy was assumed to remain at 75.0 percent, with the ADR increasing at 3.0 percent per year. 4. Valuation using Direct Capitalization Based on our evaluation of the subject, it was concluded that an overall capitalization rate (OAR) of 11.0 percent is appropriate to value the subject, and properly reflects the risks associated with this hotel given the property's age, physical features, location, and market position. Based on the projection of net operating income for a stabilized year of operation, and the selected overall rate of 11.0 percent, the value of the subject as if stabilized is calculated to be as follows. - -------------------------------------------------- ===================== Projected Stabilized Net Operating Income $137,000 Overall Capitalization Rate 11.0% - -------------------------------------------------- --------------------- Stabilized Value Indication (Rounded) $1,200,000 - -------------------------------------------------- ===================== From this derived stabilized value, an adjustment must be made for any income surplus until the property stabilizes. This adjustment is typically referred to as an "income gain". Income gain is the difference in projected cash flows and the cash flow which would result if the property were stabilized. This amount must be added to the stabilized value to reflect the higher occupancy in the first two years of the projection period. Based on our market research and analysis, it is estimated that the subject will achieve a stabilized level of operation by 2000. A calculation of the income gain associated with the two years prior to stabilization is presented in the following table. II-18 ======================================================================================================== Income Gain to Stabilization ======================================================================================================== Estimated Stabilized Year Net Operating Net Operating Estimated Present Value Year Income Income(1) Income Gain @ 14.0% - --------------------- ------------------- -------------------- ------------------ ---------------------- 1998 $175,000 $137,000 $38,000 $33,000 1999 $164,000 $141,000 $23,000 $18,000 - --------------------- ------------------- -------------------- ------------------ ---------------------- Total Rounded $61,000 $51,000 ======================================================================================================== (1)Inflated to future value dollars at 3.0 percent. ========================================================================================================
Based upon the preceding calculation, the cumulative income gain over the stabilization period is estimated to be approximately $61,000. Investors typically discount the estimated income gain at the market-derived discount rate for the property. Consequently, if the estimated income gain, or surplus, is discounted at a rate of 14.0 percent, the present value of this additional income is projected to be approximately $51,000. Presented below is our calculation of the "as is" market value of the subject taking into account the above estimate of income gain during the projected stabilization period. ======================================================================= Value Conclusion -- Direct Capitalization ======================================================================= Stabilized Value $1,200,000 Plus: Income Gain During Stabilization Period $51,000 - ------------------------------------------------------ ---------------- "As Is" Value $1,251,000 - ------------------------------------------------------ ---------------- Rounded $1,250,000 - ------------------------------------------------------ ---------------- Therefore, the estimated "as is" market value of the leasehold interest in the subject using the Direct Capitalization Approach, as of January 1, 1998, is: ============================================================================== ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS - ------------------------------------------------------------------------------ $1,250,000 ============================================================================== 5. Discounted Cash Flow Valuation Analysis To estimate the value of the subject using a discounted cash flow analysis, it is assumed that the property will be sold at the end of a ten-year holding period. The value of the property at that time is estimated by capitalizing the expected or anticipated net operating income of the property in the eleventh year. From this value estimate, an estimate of sales costs is deducted to arrive at the net proceeds upon sale. II-19 Based on our market research, we are of the opinion that a reversionary capitalization rate of 11.5 percent and a 14.0 percent discount rate are appropriate to value the subject. The following table indicates the present value of the projected net operating income for the subject for the ten-year holding period, along with the present value of the reversion, deriving a value estimate. =============================================================================== Discounted Cash Flow Analysis =============================================================================== Cash Flow Present Present From Value Value Year Operations Factor @ 14.0% - ----------------- -------------------- ----------------------- ---------------- 1998 $175,000 0.8772 $154,000 1999 $164,000 0.7695 $126,000 2000 $145,000 0.6750 $98,000 2001 $149,000 0.5921 $88,000 2002 $156,000 0.5194 $81,000 2003 $160,000 0.4556 $73,000 2004 $165,000 0.3996 $66,000 2005 $172,000 0.3506 $60,000 2006 $178,000 0.3075 $55,000 2007 $183,000 0.2697 $49,000 - ----------------- -------------------- ----------------------- ---------------- Reversion $1,600,000 0.2697 $433,000 - ----------------- -------------------- ----------------------- ---------------- Present Value $1,284,000 - ----------------- -------------------- ----------------------- ---------------- Value (Rounded) $1,300,000 =============================================================================== 6. Income Capitalization Approach Valuation Conclusion The value conclusion under the Income Capitalization Approach is based on both a direct capitalization and a discounted cash flow analysis. Direct capitalization indicated a value of $1,250,000 and the discounted cash flow analysis indicated a value of $1,300,000. Placing primary reliance on the discounted cash flow approach, our conclusion as to the "as is" market value of the fee simple interest of the subject using the Income Capitalization Approach, as of January 1, 1998, is: ============================================================================== ONE MILLION THREE HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $1,300,000 ============================================================================== II-20 G. RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the two valuation methodologies applied, considering the property type and the requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the two approaches are as follows: ============================================ ====================== Sales Comparison Approach $1,350,000 Income Capitalization Approach Direct Capitalization $1,250,000 Discounted Cash Flow Analysis $1,300,000 ============================================ ====================== In the Sales Comparison Approach we compared five recently sold hotels to the subject. The selected sales indicated a relatively wide range in value. Furthermore, the sales were located in varying sub-market areas in the surrounding region, and no property was identical to the subject. These factors make this approach less meaningful, but act as a reference checkpoint for the value derived from the Income Approaches. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized two methods of analysis: The direct capitalization method and the discounted cash flow method (yield capitalization). There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a value estimate. Both income methods resulted in similar values, heightening our confidence in this approach. Accordingly, the primary reliance was placed on this approach. Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the "as is" market value of the fee simple interest in the subject property, as of January 1, 1998, is reasonably represented as: =============================================================================== ONE MILLION THREE HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $1,300,000 =============================================================================== II-21 SUPER 8 MOTEL -- BAKERSFIELD, CALIFORNIA HISTORICAL OPERATING RESULTS Super 8, Bakersfield Historical Operating Results --------------------------------------------------------------------------------------------------- 1994 1995 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 90 90 Occupancy 89.93% 85.59% Average Daily Room Rate (ADR) $30.73 $30.87 REVPAR $27.64 $26.42 REVENUES ROOMS $ 907,692 98.7% $ 10,085 30.73 $ 867,818 98.4% $ 9,642 30.87 TELEPHONE 11,433 1.2% 127 0.39 13,718 1.6% 152 0.49 MISCELLANEOUS 242 0.0% 3 0.01 725 0.1% 8 0.03 ------------------------------- --------------------------------------- TOTAL REVENUE 919,367 100.0% 10,215 31.12 882,261 100.0% 9,803 31.38 DEPT. COSTS & EXPENSES (3) ROOMS 242,961 26.8% 2,700 8.22 230,851 26.6% 2,565 8.21 TELEPHONE 8,425 73.7% 94 0.29 9,292 67.7% 103 0.33 MISCELLANEOUS 192 79.3% 2 0.01 295 40.7% 3 0.01 ------------------------------- --------------------------------------- TOTAL COST & EXP. 251,578 27.4% 2,795 8.52 240,438 27.3% 2,672 8.55 TOTAL OPER. DEPTS. INCOME 667,789 72.6% 7,420 22.60 641,823 72.7% 7,131 22.83 ------------------------------- --------------------------------------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 127,790 13.9% 1,420 4.33 118,784 13.5% 1,320 4.22 MARKETING 22,466 2.4% 250 0.76 19,150 2.2% 213 0.68 FRANCHISE FEES 45,225 4.9% 503 1.53 43,391 4.9% 482 1.54 UTILITIES 67,544 7.3% 750 2.29 61,984 7.0% 689 2.20 PROPERTY OPERATIONS 87,218 9.5% 969 2.95 79,236 9.0% 880 2.82 ------------------------------- --------------------------------------- TOTAL 350,243 38.1% 3,892 11.86 322,545 36.6% 3,584 11.47 INC. BEFORE MGMT. FEES AND FIXED CHARGES 317,546 34.5% 3,528 10.75 319,278 36.2% 3,548 11.36 ------------------------------- --------------------------------------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 45,808 5.0% 509 1.55 44,113 5.0% 490 1.57 PROPERTY TAXES 30,324 3.3% 337 1.03 30,504 3.5% 339 1.08 INSURANCE 17,352 1.9% 193 0.59 17,137 1.9% 190 0.61 RENT - 0.0% - - - 0.0% - - ------------------------------- --------------------------------------- TOTAL 93,484 10.2% 1,039 3.16 91,754 10.4% 1,019 3.26 INCOME BEFORE OTHER (4) $ 224,062 24.4% 2,490 7.58 $ 227,524 25.8% 2,528 8.09 =============================== ======================================= FIXED CHARGES RENOVATION PAYMENT $ 35,940 $ 44,120 - ------------------------------------------------------------------------------- 1996 ------------------------------------------------- $ % PAR (1) POR (2) ------------------------------------------------- Number of Keys 90 Occupancy 87.19% Average Daily Room Rate (ADR) $30.28 REVPAR $26.40 REVENUES ROOMS $ 869,509 98.2% $ 9,661 $ 30.27 TELEPHONE 14,203 1.6% 158 0.49 MISCELLANEOUS 1,691 0.2% 19 0.06 --------- ------ ------- ------- TOTAL REVENUE 885,403 100.0% 9,838 30.83 DEPT. COSTS & EXPENSES (3) ROOMS 238,365 27.4% 2,649 8.30 TELEPHONE 10,657 75.0% 118 0.37 MISCELLANEOUS 351 20.8% 4 0.01 --------- ------ ------- ------- TOTAL COST & EXP. 249,373 28.2% 2,771 8.68 TOTAL OPER. DEPTS. INCOME 636,030 71.8% 7,067 22.15 --------- ------ ------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 118,784 13.4% 1,320 4.14 MARKETING 19,150 2.2% 213 0.67 FRANCHISE FEES 43,391 4.9% 482 1.51 UTILITIES 61,984 7.0% 689 2.16 PROPERTY OPERATIONS 79,236 8.9% 880 2.76 --------- ------ ------ ------- TOTAL 330,810 37.4% 3,676 11.52 INC. BEFORE MGMT. FEES AND FIXED CHARGES 305,220 34.5% 3,391 10.63 --------- ------ ------ ------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 44,283 5.0% 492 1.54 PROPERTY TAXES 31,267 3.5% 347 1.09 INSURANCE 21,455 2.4% 238 0.75 RENT - 0.0% - - --------- ------ ------ ------- TOTAL 97,005 11.0% 1,078 3.38 INCOME BEFORE OTHER (4) $ 208,215 23.5% 2,314 7.25 ========= ====== ====== ======== FIXED CHARGES RENOVATION PAYMENT $ 43,080 - -------------------------------------------------
Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. =============================================================================== Source: The Famous Host Company =============================================================================== Super 8, Bakersfield Year-to-Date September 1997 and Full Year 1997 Budget ---------------------------------------------------------------------------------------------------- September 1997 Budget 1997 ---------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ---------------------------------------------------------------------------------------------------- Number of Keys 90 89 Occupancy 84.58% 86.70% Average Daily Room Rate (ADR) $32.48 $31.26 REVPAR $27.47 $27.10 REVENUES ROOMS $ 672,525 98.8% $10,028 $ 32.48 $ 880,455 98.7% $ 9,893 $ 31.26 TELEPHONE 7,579 1.2% 113 0.37 11,017 1.2% 124 0.39 MISCELLANEOUS 427 0.1% 6 0.02 282 0.0% 3 0.01 ------------------------------------------------ --------------------------------------------- TOTAL REVENUE 680,531 100.0% 10,148 32.87 891,754 100.0% 10,020 31.66 DEPT. COSTS & EXPENSES (3) ROOMS 175,112 26.0% 2,611 8.46 220,282 25.0% 2,475 7.82 TELEPHONE 6,138 81.0% 92 0.30 7,980 72.4% 90 0.28 MISCELLANEOUS 525 123.0% 8 0.03 200 70.9% 2 0.01 ------------------------------------------------ --------------------------------------------- TOTAL COST & EXP. 181,775 26.7% 2,711 8.78 228,462 25.6% 2,567 8.11 TOTAL OPER. DEPTS. INCOME 498,756 73.3% 7,437 24.09 663,292 74.4% 7,453 23.55 ------------------------------------------------ --------------------------------------------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 96,593 14.2% 1,440 4.67 125,128 14.0% 1,406 4.44 MARKETING 7,411 1.1% 111 0.36 12,300 1.4% 138 0.44 FRANCHISE FEES 33,626 4.9% 501 1.62 44,023 4.9% 495 1.56 UTILITIES 45,795 6.7% 683 2.21 60,548 6.8% 680 2.15 PROPERTY OPERATIONS 59,295 8.7% 884 2.86 71,604 8.0% 805 2.54 ------------------------------------------------ --------------------------------------------- TOTAL 242,720 35.7% 3,619 11.72 313,603 35.2% 3,524 11.13 INC. BEFORE MGMT. FEES AND FIXED CHARGES 256,036 37.6% 3,818 12.37 349,689 39.2% 3,929 12.42 ------------------------------------------------ --------------------------------------------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 34,027 5.0% 507 1.64 44,588 5.0% 501 1.58 PROPERTY TAXES 23,167 3.4% 345 1.12 30,996 3.5% 348 1.10 INSURANCE 14,737 2.2% 220 0.71 18,000 2.0% 202 0.64 RENT - 0.0% - - - 0.0% - - ------------------------------------------------ --------------------------------------------- TOTAL 71,931 10.6% 1,073 3.47 93,584 10.5% 1,052 3.32 INCOME BEFORE OTHER (4) $ 184,105 27.1% 2,745 8.89 $ 256,105 28.7% 2,878 9.09 ================================================ ============================================= FIXED CHARGES RENOVATION PAYMENT $ 37,622 $ 26,753 - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. =================================================================================================================================== Source: The Famous Host Company ===================================================================================================================================
SUPER 8 MOTEL - BAKERSFIELD, CALIFORNIA TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS =================================================================================================================================== Super 8 Bakersfield, California Projected Operating Results ---------------------------------------------------------------------------------------------- Calendar Year Beginning January 1 1998 1999 ---------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ---------------------------------------------------------------------------------------------- Number of Keys 90 90 Occupancy 80.00% 78.00% Average Daily Room Rate $33.50 $34.50 Revenues Rooms $ 880,000 95.8% $ 9,778 $ 33.49 $ 884,000 95.8% $ 9,822 $ 34.50 Food - 0.0% - - - 0.0% - - Beverage - 0.0% - - - 0.0% - - Telephone 38,000 4.1% 422 1.45 38,000 4.1% 422 1.48 Other Operated Departments 1,000 0.1% 11 0.04 1,000 0.1% 11 0.04 ------------- -------- --------- --------- ------------- -------- --------- ------ Total Revenues 919,000 100.0% 10,211 34.97 923,000 100.0% 10,256 36.02 Departmental Expenses (3) Rooms 244,000 27.7% 2,711 9.28 248,000 28.1% 2,756 9.68 Food & Beverage - 0.0% - - - 0.0% - - Telephone 30,000 78.9% 333 1.14 30,000 78.9% 333 1.17 Other Operated Departments - 0.0% - - - 0.0% - - ------------- -------- --------- --------- ------------- -------- --------- --------- Total Departmental Expenses 274,000 29.8% 3,044 10.43 278,000 30.1% 3,089 10.85 ------------- -------- --------- --------- ------------- -------- --------- --------- Departmental Profit 645,000 70.2% 7,167 24.54 645,000 69.9% 7,167 25.17 Undistributed Expenses Administrative & General 126,000 13.7% 1,400 4.79 130,000 14.1% 1,444 5.07 Franchise Fee 70,000 7.6% 778 2.66 71,000 7.7% 789 2.77 Marketing 23,000 2.5% 256 0.88 24,000 2.6% 267 0.94 Property Operations & Maintenance 67,000 7.3% 744 2.55 69,000 7.5% 767 2.69 Energy & Utilities 65,000 7.1% 722 2.47 67,000 7.3% 744 2.61 ------------- -------- --------- --------- ------------- -------- --------- --------- Total Undistributed Expenses 351,000 38.2% 3,900 13.36 361,000 39.1% 4,011 14.09 ------------- -------- --------- --------- ------------- -------- --------- --------- Gross Operating Profit 294,000 32.0% 3,267 11.19 284,000 30.8% 3,156 11.08 Fixed Charges & Management Fee Base Management Fee 46,000 5.0% 511 1.75 46,000 5.0% 511 1.80 Property Taxes 17,000 1.8% 189 0.65 18,000 2.0% 200 0.70 Insurance 19,000 2.1% 211 0.72 19,000 2.1% 211 0.74 Total Fixed Charges 82,000 8.9% 911 3.12 83,000 9.0% 922 3.24 ------------- -------- --------- --------- ------------- -------- --------- --------- Income Before Reserves 212,000 23.1% 2,356 8.07 201,000 21.8% 2,233 7.84 Reserves for Replacements 37,000 4.0% 411 1.41 37,000 4.0% 411 1.44 ------------- -------- --------- --------- ------------- -------- --------- --------- Net Operating Income (4) $ 175,000 19.0% $ 1,944 $ 6.66 $ 164,000 17.8% $ 1,822 $ 6.40 ============= ======== ========= ========= ============= ======== ========= ========= ------------------------------------------------- Calendar Year Beginning January 1 2000 ------------------------------------------------- $ % PAR (1) POR (2) ------------------------------------------------- Number of Keys 90 Occupancy 75.00% Average Daily Room Rate $35.50 Revenues Rooms $ 875,000 95.7% $ 9,722 $ 35.51 Food - 0.0% - - Beverage - 0.0% - - Telephone 38,000 4.2% 422 1.54 Other Operated Departments 1,000 0.1% 11 0.04 ------------- ------- --------- ---------- Total Revenues 914,000 100.0% 10,156 37.10 Departmental Expenses (3) Rooms 250,000 28.6% 2,778 10.15 Food & Beverage - 0.0% - - Telephone 30,000 78.9% 333 1.22 Other Operated Departments - 0.0% - - ------------- ------- --------- ---------- Total Departmental Expenses 280,000 30.6% 3,111 11.36 ------------- ------- --------- ---------- Departmental Profit 634,000 69.4% 7,044 25.73 Undistributed Expenses Administrative & General 133,000 14.6% 1,478 5.40 Franchise Fee 70,000 7.7% 778 2.84 Marketing 25,000 2.7% 278 1.01 Property Operations & Maintenance 71,000 7.8% 789 2.88 Energy & Utilities 69,000 7.5% 767 2.80 ------------- ------- --------- ---------- Total Undistributed Expenses 368,000 40.3% 4,089 14.94 ------------- ------- --------- ---------- Gross Operating Profit 266,000 29.1% 2,956 10.80 Fixed Charges & Management Fee Base Management Fee 46,000 5.0% 511 1.87 Property Taxes 18,000 2.0% 200 0.73 Insurance 20,000 2.2% 222 0.81 Total Fixed Charges 84,000 9.2% 933 3.41 ------------- ------- --------- ---------- Income Before Reserves 182,000 19.9% 2,022 7.39 Reserves for Replacements 37,000 4.0% 411 1.50 ------------- ------- --------- ---------- Net Operating Income (4) $ 145,000 15.9% $ 1,611 $ 5.89 ============= ======= ========= ========== - ------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. =================================================================================================================================== Source:PKF Consulting ===================================================================================================================================
=============================================================================== Super 8 Bakersfield, California Projected Operating Results ------------------------------------------------------------------------------------------------ Calendar Year Beginning January 1 2001 2002 ------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ------------------------------------------------------------------------------------------------ Number of Keys 90 90 Occupancy 75.00% 75.00% Average Daily Room Rate $36.50 $37.75 Revenues Rooms $ 899,000 95.7% $ 9,989 $ 36.49 $ 930,000 95.8% $ 10,333 $ 37.75 Food - 0.0% - - - 0.0% - - Beverage - 0.0% - - - 0.0% - - Telephone 39,000 4.2% 433 1.58 40,000 4.1% 444 1.62 Other Operated Departments 1,000 0.1% 11 0.04 1,000 0.1% 11 0.04 ------------- ------ -------- ----------- ------------- ------- --------- --------- Total Revenues 939,000 100.0% 10,433 38.11 971,000 100.0% 10,789 39.41 Departmental Expenses (3) Rooms 258,000 28.7% 2,867 10.47 265,000 28.5% 2,944 10.76 Food & Beverage - 0.0% - - - 0.0% - - Telephone 31,000 79.5% 344 1.26 32,000 80.0% 356 1.30 Other Operated Departments - 0.0% - - - 0.0% - - ------------- ------ -------- ----------- ------------- ------- --------- --------- Total Departmental Expenses 289,000 30.8% 3,211 11.73 297,000 30.6% 3,300 12.05 ------------- ------ -------- ----------- ------------- ------- --------- --------- Departmental Profit 650,000 69.2% 7,222 26.38 674,000 69.4% 7,489 27.36 Undistributed Expenses Administrative & General 137,000 14.6% 1,522 5.56 141,000 14.5% 1,567 5.72 Franchise Fee 72,000 7.7% 800 2.92 74,000 7.6% 822 3.00 Marketing 25,000 2.7% 278 1.01 26,000 2.7% 289 1.06 Property Operations & Maintenance 73,000 7.8% 811 2.96 76,000 7.8% 844 3.08 Energy & Utilities 71,000 7.6% 789 2.88 73,000 7.5% 811 2.96 ------------- ------ -------- ----------- ------------- ------- --------- --------- Total Undistributed Expenses 378,000 40.3% 4,200 15.34 390,000 40.2% 4,333 15.83 ------------- ------ -------- ----------- ------------- ------- --------- --------- Gross Operating Profit 272,000 29.0% 3,022 11.04 284,000 29.2% 3,156 11.53 Fixed Charges & Management Fee Base Management Fee 47,000 5.0% 522 1.91 49,000 5.0% 544 1.99 Property Taxes 18,000 1.9% 200 0.73 19,000 2.0% 211 0.77 Insurance 20,000 2.1% 222 0.81 21,000 2.2% 233 0.85 Total Fixed Charges 85,000 9.1% 944 3.45 89,000 9.2% 989 3.61 ------------- ------- -------- ----------- ------------- ------- --------- --------- Income Before Reserves 187,000 19.9% 2,078 7.59 195,000 20.1% 2,167 7.91 Reserves for Replacements 38,000 4.0% 422 1.54 39,000 4.0% 433 1.58 ------------- ------- -------- ----------- ------------- ------- --------- --------- Net Operating Income (4) $ 149,000 15.9% $ 1,656 $ 6.05 $ 156,000 16.1% $ 1,733 $ 6.33 ============= ========= ======== =========== ============= ======= ========= ========= - ------------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------- Calendar Year Beginning January 1 2003 ---------------------------------------------------- $ % PAR (1) POR (2) ---------------------------------------------------- Number of Keys 90 Occupancy 75.00% Average Daily Room Rate $38.75 Revenues Rooms $ 955,000 95.8%$ 10,611 $ 38.76 Food - 0.0% - - Beverage - 0.0% - - Telephone 41,000 4.1% 456 1.66 Other Operated Departments 1,000 0.1% 11 0.04 ---------------- ---------- --------- --------- Total Revenues 997,000 100.0% 11,078 40.47 Departmental Expenses (3) Rooms 273,000 28.6% 3,033 11.08 Food & Beverage - 0.0% - - Telephone 33,000 80.5% 367 1.34 Other Operated Departments - 0.0% - - ---------------- ---------- --------- --------- Total Departmental Expenses 306,000 30.7% 3,400 12.42 ---------------- ---------- --------- --------- Departmental Profit 691,000 69.3% 7,678 28.05 Undistributed Expenses Administrative & General 145,000 14.5% 1,611 5.89 Franchise Fee 76,000 7.6% 844 3.08 Marketing 27,000 2.7% 300 1.10 Property Operations & Maintenance 78,000 7.8% 867 3.17 Energy & Utilities 75,000 7.5% 833 3.04 ---------------- ---------- --------- --------- Total Undistributed Expenses 401,000 40.2% 4,456 16.28 ---------------- ---------- --------- --------- Gross Operating Profit 290,000 29.1% 3,222 11.77 Fixed Charges & Management Fee Base Management Fee 50,000 5.0% 556 2.03 Property Taxes 19,000 1.9% 211 0.77 Insurance 21,000 2.1% 233 0.85 Total Fixed Charges 90,000 9.0% 1,000 3.65 ---------------- ---------- --------- --------- Income Before Reserves 200,000 20.1% 2,222 8.12 Reserves for Replacements 40,000 4.0% 444 1.62 ---------------- ---------- --------- --------- Net Operating Income (4) $ 160,000 16.0% $ 1,778 $ 6.49 ================ ========== ========= ========= - --------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. ================================================================================================================================== Source:PKF Consulting ==================================================================================================================================
================================================================================================================================ Super 8 Bakersfield, California Projected Operating Results ------------------------------------------------------------------------------------------------- Calendar Year Beginning January 1 2004 2005 ------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ------------------------------------------------------------------------------------------------- Number of Keys 90 90 Occupancy 75.00% 75.00% Average Daily Room Rate $40.00 $41.25 Revenues Rooms $ 986,000 95.7%$ 10,956 $ 40.02 $1,016,000 95.7%$ 11,289 $ 41.24 Food - 0.0% - - - 0.0% - - Beverage - 0.0% - - - 0.0% - - Telephone 42,000 4.1% 467 1.70 44,000 4.1% 489 1.79 Other Operated Departments 2,000 0.2% 22 0.08 2,000 0.2% 22 0.08 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Revenues 1,030,000 100.0% 11,444 41.81 1,062,000 100.0% 11,800 43.10 Departmental Expenses (3) Rooms 282,000 28.6% 3,133 11.45 290,000 28.5% 3,222 11.77 Food & Beverage - 0.0% - - - 0.0% - - Telephone 34,000 81.0% 378 1.38 35,000 79.5% 389 1.42 Other Operated Departments - 0.0% - - - 0.0% - - ------------- -------- --------- --------- ------------ -------- --------- --------- Total Departmental Expenses 316,000 30.7% 3,511 12.83 325,000 30.6% 3,611 13.19 ------------- -------- --------- --------- ------------ -------- --------- --------- Departmental Profit 714,000 69.3% 7,933 28.98 737,000 69.4% 8,189 29.91 Undistributed Expenses Administrative & General 150,000 14.6% 1,667 6.09 154,000 14.5% 1,711 6.25 Franchise Fee 79,000 7.7% 878 3.21 81,000 7.6% 900 3.29 Marketing 28,000 2.7% 311 1.14 29,000 2.7% 322 1.18 Property Operations & Maintenance 80,000 7.8% 889 3.25 83,000 7.8% 922 3.37 Energy & Utilities 77,000 7.5% 856 3.13 80,000 7.5% 889 3.25 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Undistributed Expenses 414,000 40.2% 4,600 16.80 427,000 40.2% 4,744 17.33 ------------- -------- --------- --------- ------------ -------- --------- --------- Gross Operating Profit 300,000 29.1% 3,333 12.18 310,000 29.2% 3,444 12.58 Fixed Charges & Management Fee Base Management Fee 52,000 5.0% 578 2.11 53,000 5.0% 589 2.15 Property Taxes 20,000 1.9% 222 0.81 20,000 1.9% 222 0.81 Insurance 22,000 2.1% 244 0.89 23,000 2.2% 256 0.93 Total Fixed Charges 94,000 9.1% 1,044 3.82 96,000 9.0% 1,067 3.90 ------------- -------- --------- --------- ------------ -------- --------- --------- Income Before Reserves 206,000 20.0% 2,289 8.36 214,000 20.2% 2,378 8.69 Reserves for Replacements 41,000 4.0% 456 1.66 42,000 4.0% 467 1.70 ------------- -------- --------- --------- ------------ -------- --------- --------- Net Operating Income (4) $ 165,000 16.0% $ 1,833 $ 6.70 $ 172,000 16.2% $ 1,911 $ 6.98 ============= ======== ========= ========= ============ ======== ========= ========= - ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------ Calendar Year Beginning January 1 2006 ------------------------------------------------ $ % PAR (1) POR (2) ------------------------------------------------ Number of Keys 90 Occupancy 75.00% Average Daily Room Rate $42.50 Revenues Rooms $1,047,000 95.7%$ 11,633 $ 42.50 Food - 0.0% - - Beverage - 0.0% - - Telephone 45,000 4.1% 500 1.83 Other Operated Departments 2,000 0.2% 22 0.08 ------------ -------- --------- --------- Total Revenues 1,094,000 100.0% 12,156 44.40 Departmental Expenses (3) Rooms 299,000 28.6% 3,322 12.14 Food & Beverage - 0.0% - - Telephone 36,000 80.0% 400 1.46 Other Operated Departments - 0.0% - - ----------- -------- --------- --------- Total Departmental Expenses 335,000 30.6% 3,722 13.60 ----------- -------- --------- --------- Departmental Profit 759,000 69.4% 8,433 30.81 Undistributed Expenses Administrative & General 159,000 14.5% 1,767 6.45 Franchise Fee 84,000 7.7% 933 3.41 Marketing 29,000 2.7% 322 1.18 Property Operations & Maintenanc 85,000 7.8% 944 3.45 Energy & Utilities 82,000 7.5% 911 3.33 ---------- -------- --------- --------- Total Undistributed Expenses 439,000 40.1% 4,878 17.82 ---------- -------- --------- --------- Gross Operating Profit 320,000 29.3% 3,556 12.99 Fixed Charges & Management Fee Base Management Fee 55,000 5.0% 611 2.23 Property Taxes 20,000 1.8% 222 0.81 Insurance 23,000 2.1% 256 0.93 Total Fixed Charges 98,000 9.0% 1,089 3.98 ------------ -------- --------- --------- Income Before Reserves 222,000 20.3% 2,467 9.01 Reserves for Replacements 44,000 4.0% 489 1.79 ------------ -------- --------- --------- Net Operating Income (4) 178,000 16.3% $ 1,978 $ 7.22 =========== ======== ========= ========= - ------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. =================================================================================================================================== Source:PKF Consulting ===================================================================================================================================
Super 8 Bakersfield, California Projected Operating Results Calendar Year Beginning January 1 2007 2008 ------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ------------------------------------------------------------------------------------------------- Number of Keys 90 90 Occupancy 75.00% 75.00% Average Daily Room Rate $43.75 $45.00 Revenues Rooms $1,078,000 95.7% $ 11,978 $ 43.75 $1,109,000 95.7% $ 12,322 $ 45.01 Food - 0.0% - - - 0.0% - - Beverage - 0.0% - - - 0.0% - - Telephone 46,000 4.1% 511 1.87 48,000 4.1% 533 1.95 Other Operated Departments 2,000 0.2% 22 0.08 2,000 0.2% 22 0.08 ------------- ------- --------- --------- ---------- ------- --------- -------- Total Revenues 1,126,000 100.0% 12,511 45.70 1,159,000 100.0% 12,878 47.04 Departmental Expenses (3) Rooms 308,000 28.6% 3,422 12.50 317,000 28.6% 3,522 12.87 Food & Beverage - 0.0% - - - 0.0% - - Telephone 37,000 80.4% 411 1.50 38,000 79.2% 422 1.54 Other Operated Departments - 0.0% - - - 0.0% - - -------- ------- ------- -------- ---------- -------- ------- -------- Total Departmental Expenses 345,000 30.6% 3,833 14.00 355,000 30.6% 3,944 14.41 -------- ------- ------- -------- ---------- -------- ------- -------- Departmental Profit 781,000 69.4% 8,678 31.70 804,000 69.4% 8,933 32.63 Undistributed Expenses Administrative & General 163,000 14.5% 1,811 6.62 168,000 14.5% 1,867 6.82 Franchise Fee 86,000 7.6% 956 3.49 89,000 7.7% 989 3.61 Marketing 30,000 2.7% 333 1.22 31,000 2.7% 344 1.26 Property Operations & Maintenance 88,000 7.8% 978 3.57 90,000 7.8% 1,000 3.65 Energy & Utilities 85,000 7.5% 944 3.45 87,000 7.5% 967 3.53 --------- ------- ------- ---------- --------- ------- --------- ---------- Total Undistributed Expenses 452,000 40.1% 5,022 18.35 465,000 40.1% 5,167 18.87 --------- ------- ------- ---------- --------- ------- --------- ---------- Gross Operating Profit 329,000 29.2% 3,656 13.35 339,000 29.2% 3,767 13.76 Fixed Charges & Management Fee Base Management Fee 56,000 5.0% 622 2.27 58,000 5.0% 644 2.35 Property Taxes 21,000 1.9% 233 0.85 21,000 1.8% 233 0.85 Insurance 24,000 2.1% 267 0.97 25,000 2.2% 278 1.01 Total Fixed Charges 101,000 9.0% 1,122 4.10 104,000 9.0% 1,156 4.22 --------- ------- ------- ---------- --------- ------- --------- ---------- Income Before Reserves 228,000 20.2% 2,533 9.25 235,000 20.3% 2,611 9.54 Reserves for Replacements 45,000 4.0% 500 1.83 46,000 4.0% 511 1.87 --------- ------- ------- ---------- ---------- ------- --------- ---------- Net Operating Income (4) $ 183,000 16.3% $ 2,033 $ 7.43 $ 189,000 16.3% $ 2,100 $ 7.67 ========= ======= ======= ========== ========== ======= ========= ========== ------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. ============================================================================================================================ Source: PKF Consulting ============================================================================================================================
SECTION III HOLIDAY INN BARSTOW, CALIFORNIA HOLIDAY INN -- BARSTOW =============================================================================== Summary of Important Facts and Conclusions =============================================================================== Property Address Holiday Inn 1511 East Main Street Barstow, California 92311 Telephone (760) 256-5673 - ----------------------------------------- ------------------------------------- Owner Leased Fee Fred Rosenberg Leasehold Famous Host Lodging V, Ltd. - ----------------------------------------- ------------------------------------- Assessor's Parcel Numbers 0181-851-13/18/28/30-L-001 - ----------------------------------------- ------------------------------------- Effective Date of Appraisal January 1, 1998 - ----------------------------------------- ------------------------------------- Property Rights Appraised Leasehold =============================================================================== Highest and Best Use =============================================================================== Highest and Best Use As if Vacant Full-service hotel As Improved Full-service hotel =============================================================================== Property Description =============================================================================== Existing Improvements Year Built 1986 Gross Building Area 83,095 square feet Number of Hotel Guest Rooms 148 Parking: 140 spaces (including six for disabled persons) Number of Floors Three Hotel Amenities Restaurant, heated swimming pool, whirlpool, and meeting rooms Compliance with ADA In compliance - ----------------------------------------- ------------------------------------- Site Area 3.12 acres (135,884 square feet) Zoning HC (Highway Commercial) Flood Zone Zone XC, Panel #060271-3919F, dated February 1, 1980 Wetlands Zone No Alquist Priolo Special Studies Zone No Historic, Natural , Cultural, Recreational, or Scientific None Value =============================================================================== Valuation Conclusion =============================================================================== Cost Approach Not Used - ----------------------------------------- ------------------------------------- Sales Comparison Approach $4,100,000 - ----------------------------------------- ------------------------------------- Income Capitalization Approach Stabilized Occupancy 70.0% Average Daily Room Rate $69.00 (1998 value dollars) - ----------------------------------------- ------------------------------------- Stabilized Net Operating Income $459,000 (1998 value dollars) - ----------------------------------------- ------------------------------------- Overall Capitalization Rate 11.0% Terminal Capitalization Rate 12.0% Discount Rate 14.0% - ----------------------------------------- ------------------------------------- Indicated Market Values Direct Capitalization Technique $4,200,000 Discounted Cash Flow Analysis $4,100,000 - ----------------------------------------- ------------------------------------- Final Estimate of Market Value $4,100,000 - ----------------------------------------- ------------------------------------- Marketing and Exposure Period Six months or less - ----------------------------------------- ------------------------------------- III-1 (Photograph deleted) View of the Subject Property Looking North (Photograph deleted) View of a Typical Double-Queen-Bed Guestroom III-2 A. AREA AND NEIGHBORHOOD REVIEW 1. Introduction The subject property is located in Barstow, San Bernardino County, the largest county in the United States. Barstow is at the mid point between Los Angeles, 134 miles to the west, and Las Vegas, 152 miles to the northeast. Located in the high-desert terrain, Barstow is a former frontier town that has become one of the fastest-growing cities in San Bernardino County. Barstow is strategically located at the intersection of Interstates 15 and 40, and State Highways 58 and 247, which provide links to major market areas throughout Southern California and, more specifically, the Mojave Desert. Barstow revolves around the local military institutions that anchor the city's economy, and its $15 million tourist sector. A map highlighting the subject's location in relation to the surrounding area is shown on the following page. 2. Economic Data Presented in the following text is a brief overview of selected economic data that characterizes the local market area. Population: The population of Barstow was 22,250 in January 1997, a 0.9 compound average annual growth rate (CAAG) over 1990. The corresponding population of San Bernardino County was 1.6 million, representing a CAAG of approximately 1.1 percent over the 1990 figure of 1.4 million. Population in the San Bernardino County area is expected to increase at a CAAG of 1.2 percent by 2002, up to 1.7 million. Retail Sales: Total retail sales for San Bernardino County were $11.4 billion in 1996. Retail sales are projected to increase to $13.4 billion by 2002, representing a 2.7 percent CAAG increase. Retail sales per household in 1996 were $22,000, and are expected to increase to $25,000 by 2002. Income: Average household effective buying income (EBI) for San Bernardino County was $36,700. Total EBI was $18.9 billion in 1996 and is expected to increase to $22.4 billion by 2002, a 2.9 percent CAAG increase. Employment: In November 1997, the total number of persons employed in the Riverside-San Bernardino MSA, which includes Riverside and San Bernardino Counties, was approximately 853,300; this represents a 3.6 percent increase over 1996. The corresponding unemployment rate was 6.0 percent during this period, and 7.2 percent in 1996. The Barstow unemployment rate was 6.9 percent in 1997. Overall, the largest increases in employment were experienced in the retail trade sector. III-3 (Regional map of southern California deleted) Regional Map III-4 The following table presents a listing of the major employers in Barstow. ============================================================== Major Employers in Barstow ============================================================== Number of Company Employees - ------------------------------- ------------------------------ Fort Irwin Training Center 2,729 Marine Corps Logistics Base 2,215 Factory Merchants Barstow 1,200 ITT Federal Services 840 Burlington Northern Santa Fe 820 Yellow Freight 720 Barstow Unified School District 680 Johnson Controls 400 Hughes Technical 385 Barstow Community Hospital 241 ============================================================== Source: Barstow Chamber of Commerce ============================================================== Transportation: Barstow is a transportation hub for Southern California with complete railroad, truck, bus, air, and highway systems. Santa Fe and Union Pacific railway systems provide major rail service, while the interstate highways provide links to cities throughout California. The expanding Barstow/Daggett Airport, 16 miles east of the city, is an economic resource for Barstow. Ontario International Airport, 90 miles to the southwest, also services Barstow. Military Bases: Fort Irwin, located 37 miles northeast of Barstow, is the largest employer in the area. The Marine Corps Logistics Base is the second largest employer in Barstow, while the closing of George Air Force Base has prompted improvements and expansions to the Barstow/Daggett Airport. This expansion increases the possibility of having a commercial-scheduled airline operating from the airport, which should increase traffic counts. Commercial/Industrial Developments: In Barstow there are over 1,200 acres within the city limits zoned for light and heavy industry. Approximately 60.0 percent of the land is vacant and available for development; included in this are three industrial parks. Barstow's retail shopping facilities have experienced major growth with the expansion of two outlet malls, and the city is projected to have strong commercial and industrial developments in the near future. Tourism: Barstow offers many activities for residents and visitors. Tourist attractions include the Calico Ghost Town, Mojave River Valley Museum, Afton Canyon, Rainbow Basin, Owl Canyon, and the Early Man Site. III-5 3. Neighborhood Review The subject property is located on the north side of East Main Street, approximately one-tenth of a mile from the northbound and southbound on-ramps for Interstate 15, and one-half mile from the eastbound on-ramp for Interstate 40. The area surrounding the subject is predominately commercial in character, with residential uses along the secondary thoroughfares. The commercial character of East Main Street is a result of this roadway being Route 66, the renowned thoroughfare linking Los Angeles to Chicago. The predominant usage along this thoroughfare is corporate-owned or franchise-operated restaurants and hotels which capture demand off of Interstate 15. This area is also a stopping point for many travelers and bus tours for either overnight accommodations or for meals. Some of the predominant restaurants within this area include a McDonald's, Burger King, Carl's Jr., Long John Silver, Taco Bell, and Sizzler. A number of limited and full-service lodging facilities have been developed within the subject's immediate neighborhood over the last decade. With the exception of the Quality Inn, Best Western Desert Villa, Vagabond Inn, and Holiday Inn Express, all of the lodging facilities along East Main Street represent motor hotels which do not compete with the subject property. Included in this group of lodging facilities are the Days Inn, Motel 6, and Desert Inn, among others. Further west on East Main Street is a variety of old, limited-service motor hotels that were constructed over 30 years ago when Route 66 was still a major roadway. Northeast of the subject is the location of the Union Pacific and Santa Fe railroads, and their related facilities. Due to the highly commercial nature of East Main Street, there is generally limited land available for development, yet there is still a vacant lot located to the north of the subject site, beyond the railroad tracks. Situated east of the subject is the Barstow Station, a tourist-oriented retail complex. Barstow Station primarily contains a general store, a bakery, a deli, a gift shop, and a Baskin Robbins ice cream parlor. Other commercial developments in the area include the four-plex, 714-seat Wallace Theater, two Union 76 gasoline stations, a Smart and Final store, and an RV overnight park. The aforementioned improvements all contribute to an economic environment which is suitable for a lodging facility located near a highway. 4. Conclusion The City of Barstow is a well-known, identifiable area along Interstate 15. The area is truly a stopping point for many travelers on their way to Las Vegas or Los Angeles. The growth that has recently occurred is located approximately six miles south of the subject, at the Lenwood Road interchange off of Interstate Highway 15. The city is highly dependant on the two military installations, Fort III-6 Irwin and the U.S. Marine Corps Logistics Base, as they are the two largest employers in the area, generating room nights for the local hotel market. The Holiday Inn is well-positioned within the Barstow market with good visibility and access, and should continue to benefit from demand by the commercial, leisure, and military segments. Overall, we anticipate that Barstow will continue to experience modest growth levels over the next few years. B. PROPERTY DESCRIPTION 1. Introduction The subject property is a full-service hotel with 148 guestrooms. Amenities at the property include an adjacent 160-seat restaurant (Cactus Club Bar & Grill); four meeting rooms with a total of 4,000 square feet; furnished lobby; an outdoor swimming pool and Jacuzzi within a courtyard area; and a spa and whirlpool. The property includes one main building containing guest rooms off an interior courtyard area, the lobby, and a connecting, one-story addition which contains the meeting facilities. The subject property, previously named the Barstow Station Inn, was constructed in 1985, and is currently owned in leasehold by Philip B. Grotewhol and Dennis A. Brown. We are not aware of any transactions relating to the site or the improvements since the date of opening. 2. Site Description and Zoning The subject property is located at 1511 East Main Street, and is bounded by Eastgate Road to the northwest, Main Street to the southwest, and Interstate 15 to the southeast. The land area is 3.12 acres (153,884 square feet), and the property has 835 feet of frontage along Eastgate Road. The site has good visibility to traffic from both Interstates 40 and 15, and is also easily accessible from the two highways. The subject site is attractively landscaped with lawn, bushes, palm, and olive trees. The subject property is zoned HC (Highway Commercial) by San Bernardino County. The present use of the property is permitted with this zoning designation, and the subject is, therefore, a legal, conforming use. We are aware of no easements or covenants which would adversely affect the value of the subject property. 3. Improvements Description The subject property of this appraisal is improved with a 148-room hotel and an adjacent restaurant, lounge, and approximately 4,000 square feet of meeting space. The hotel is known as the Holiday Inn, while the adjacent restaurant and III-7 lounge are known as the Cactus Club Bar & Grill. The adjacent Cactus Club Bar & Grill has 160 seats in the restaurant and 50 seats in the lounge. The restaurant is open 24 hours a day, seven days per week. The bar is also operated seven days per week, with live entertainment on Friday and Saturday nights. The Cactus Club is an attractively decorated restaurant with a stucco exterior, tile roof, and a Spanish-style appearance. There are four meeting rooms at the property with a banquet capacity of 328. The property includes a large, attractively-furnished lobby area decorated in pastel colors. Each floor of the three-story property is serviced by the lobby elevators. Parking for 150 automobiles, including six for disabled persons, is provided on-grade. The subject property includes an outdoor swimming pool and Jacuzzi within an attractively-landscaped courtyard. A spa and whirlpool are also located within this area. 4. Basic Construction and Mechanical Systems The subject building is a three-story wood-framed structure, with stucco finish painted in two-tone colors. The roof of the building is of Spanish tile, and the hotel has decorative towers at the corners that render a Spanish mission ambiance. The hotel has a large roadside electronic signboard facing Main Street, and has a decorative porte cochere, to the west of which is a one-story addition that contains the meeting rooms. The swimming pool area is attractively landscaped with a concrete walkway surrounding it. Presented in the following table is a summary of the basic construction and mechanical systems of the hotel. =============================================================================== Holiday Inn -- Barstow Summary of Basic Construction and Mechanical Systems =============================================================================== Foundation: Concrete slab-on-grade with spread footings - ------------------------------- ----------------------------------------------- Frame: Wood - ------------------------------- ----------------------------------------------- Exterior Walls: Stucco - ------------------------------- ----------------------------------------------- Floor: Tile in the lobby; otherwise carpeted - ------------------------------- ----------------------------------------------- Roof: Tile - ------------------------------- ----------------------------------------------- Doors: Guest Room and Bathroom: Metal with metal frames - ------------------------------- ----------------------------------------------- Windows: Dark anodized aluminum (sliding with screen) - ------------------------------- ----------------------------------------------- Heating and Cooling: GE through-the-wall heat pump - ------------------------------- ----------------------------------------------- Elevators: Hydraulically-operated with 2,500-pound capacity - ------------------------------- ----------------------------------------------- Laundry Facilities: Located on ground floor and include three washers and four dryers - ------------------------------- ----------------------------------------------- Sprinkler System: All guest rooms, corridors, public areas, and back-of-the-house facilities have sprinklers - ------------------------------- ----------------------------------------------- Life Safety: Smoke Detectors: Hard-wired detectors in all guest rooms Emergency Illumination: Installed in all corridors =============================================================================== Source: Famous Host Companies =============================================================================== III-8 5. Assessed Value and Property Taxes The subject property is assessed by the San Bernardino County on a tax year commencing July 1 of every year. Under the provisions of Article 13-A of the State of California (Proposition 13), properties are assessed based on their fair market value as of the change of ownership date. The assessed value can be increased by a maximum of 2.0 percent per year until such date as the property is subsequently sold, substantial new construction takes place, or the use of the property is substantially changed. The current assessed value of the property is presented in the following table. =================================================================== Assessor's Parcel Numbers 0181-851-13/18/28/30-L-001 1996/97 Assessed Value =================================================================== Land $840,355 Improvements $5,939,692 - -------------------------------------- ---------------------------- Total Assessed Value $6,780,047 - -------------------------------------- ---------------------------- For fiscal year 1997/1998, total property taxes were $73,402.29 on the subject property, which included $5,601.82 for special assessments. The effective tax rate including the special assessments, therefore, is 1.0826 percent of the total assessed value. 6. Land Lease The property upon which the Holiday Inn and adjacent Cactus Club Bar & Grill are built is owned in leased fee by Fred Rosenberg and Dennis A. Brown. The lease started on December 31, 1984 with a monthly base rent of $10,000 ($120,000 per annum), or 8.0 percent of combined rooms and food and beverage revenue, whichever is greater. The lease provides for a term of 15 years, ending on December 31, 1999, and offering three, ten-year extension options. Adjustments to the rent are made in proportion to increases in the consumer price index (CPI) every year. 7. Management and Affiliation It should be noted that we were not provided with copies of the franchise agreement with Holiday Inn or the management agreement. However, based on our review of the subject property's historical financial statements, the management fees have been in the order of 4.0 percent of gross revenue, while franchise fees have been approximately 4.5 percent of total revenue. III-9 8. Renovation and Capital Improvements We understand that $130,000 have been allocated as part of capital expenditures for a new roof to be installed at the subject during 1998. This is due to leaking experienced with the current roofing. 9. Summary of Functional Utility and Condition Overall, the subject property is well-maintained. The grounds are neat and well-trimmed, and the paint both inside and outside the building is in good condition. The roof, which has been experiencing leakage, will be replaced in 1998. C. HOTEL MARKET ANALYSIS 1. Competitive Supply Route 66's historical importance of being a major thoroughfare from Los Angeles to Chicago led to the development of many motels along East and West Main Street in Barstow during the 1950's and 1960's. However, with the construction of superhighway systems (Interstates 15 and 40), and the resulting change in traffic patterns, many of these motels have become residential motels, and, as such, do not compete in the subject's market. The competitive hotel market for the Holiday Inn is comprised of five properties, including the subject, with a total of 475 rooms. The selection of the competitive supply was based on facilities and amenities, room rate structure, and market orientation. These properties are all affiliated with national chains and cater to the area's commercial, leisure, government, and tour group demand. III-10 ==================================================================================================================== Holiday Inn -- Barstow Census of Competitive Properties ==================================================================================================================== Published Room Rates ----------------------------- Year Number AAA Property Opened of Rooms Single Double Amenities Rating - -------------------------- ----------- ----------- -------------- -------------- ----------------- ================= Holiday Inn 1986 148 $68.00 $68.00 A,B,D,F,G 3 star (Motor Inn) Holiday Inn Express 1994 65 $67.00 $67.00 F 3 star (Motel) Vagabond Inn 1978 67 $65.00 $65.00 C,F Not Rated Quality Inn 1965 100 $65.00 $65.00 A,D,F Not Rated Best Western Desert Villa 1985 95 $62.00 $$67.00 A,F,G 3 star (Motel) - -------------------------- ----------- ----------- -------------- -------------- ----------------- ================= Total 475 - - -------------------------- ----------- ----------- -------------- -------------- ----------------- ================= Amenities Codes AAA Rating A - Restaurant 5 star - Renowned; exceptional property recognized for B - Bar/Lounge market superiority of facilities and service C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations as well as extra amenities D - Meeting Rooms 3 star - Offers very comfortable and attractive E - Exercise Room accommodations F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some G - Whirlpool physical and operational categories 1 star - Meets AAA basic requirements for recommendation Source: Management of Individual Properties and 1998 American Automobile Association Tour Book ====================================================================================================================
As can be noted above, the competitive market is characterized by smaller, budget-oriented, national brand-affiliated products. The subject property is in the upper-tier of the competitive market as a full service hotel. The property offers modern furnishings and interior-corridor room entrances, with ample meeting space and an adjacent restaurant. As such, the Holiday Inn captures a significant amount of the market's commercial and government demand. The Quality Inn is positioned in the middle-tier of the competitive market, offering food and beverage facilities, meeting space, and exterior-corridor room entrances. The Best Western Desert Villa is also positioned at the middle-tier as it offers a level of furnishings and fixtures similar to the Quality Inn. The Vagabond Inn and Holiday Inn Express, in turn, are in the lower-tier due to their limited services, and level of furnishings and fixtures. With regard to future supply in the market, we understand that a proposed 200-room Clarion Hotel has been approved at the intersection of Interstate 58 and West Main Street. According to our discussions with the City of Barstow Planning Department, the potential date for ground-breaking is August 1998; however, this project is viewed as being highly speculative at this point in time, and has not been incorporated into the future supply projections. 2. Historical Market Performance The following table presents a summary of the historical market performance of the five selected competitive hotels, together with the subject, over the period 1994 to 1996, as well as our estimate for 1997. III-11 ======================================================================================================================== Holiday Inn -- Barstow Competitive Hotel Market Historical Occupancy and Room Rate 1994 to 1997 (Estimated) ======================================================================================================================== Annual Rooms Percent Percent Average Daily Percent Year Available Change Occupancy Change Room Rate Change - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ 1994 173,375 - 65.4% - $49.64 - - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ 1995 173,375 0.0% 67.8% 3.7% $53.77 8.3% - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ 1996 173,375 0.0% 62.3% (8.1%) $56.87 5.8% - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ 1997 (Estimated) 173,375 0.0% 66.0% 5.9% $59.00 3.7% - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ CAAG 0.0% - - - 5.9% - ======================================================================================================================== Source: PKF Consulting ========================================================================================================================
As can be noted, over the past four years the number of available rooms within the competitive market has remained stable. During the same period, demand has increased slightly, with a decrease in demand experienced in 1996, due to the conversion of the 64-room Barstow Lodge into a Comfort Inn, as well as the cut backs in military exercises at the nearby bases, the Marine Corps Logistics Base and Fort Irwin. However, year-to-date 1997 occupancy levels are approximately three percentage points above last year, indicating that the market has started to re-stabilize. In terms of ADR, the competitive market has experienced above-inflation growth, indicating a CAAG of 5.9 percent between 1994 and 1997. 3. Demand Segmentation The competitive market is oriented towards attracting commercial, leisure, and government demand. It is important to note that within the Barstow market, the commercial and government segments are closely integrated in that a significant portion of commercial demand consists of corporations doing contract work at the military installations in the area. The base-related demand consists of civilian contractors who are entitled to the Federal Government per diem of $60.00, families of staff relocating to the bases, and observers of the units at Fort Irwin. Commercial demand also includes companies involved in regional distribution, namely Santa Fe Rail, Union Pacific, and Yellow Freight Trucking. The majority of leisure travelers to the area are typically on their way to, or returning from, another destination such as Los Angeles, Anaheim, Las Vegas, Arizona, or San Diego, and stop at the area's lodging facilities for a one night stay. Most of the leisure demand is generated between Memorial Day and Labor Day. In addition, the local area attractions previously discussed can be visited within one day. III-12 4. Projected Future Supply and Demand Over the past four years (1994 to 1997), demand for hotel accommodations in the competitive market has increased only slightly, reflecting the stable nature of this market. Based on our review of the local market, we project overall demand for hotel rooms will increase at a CAAG of approximately 1.0 percent over the next five years. In deriving this growth rate, we have specifically analyzed the overall growth in manufacturing and services, employment, the flux pertinent to the military bases, and the historical CAAG of this market. Presented in the following table is a summary of the projected growth in supply, demand, and the resulting occupancy levels for the competitive market for the period 1998 to 2002. ======================================================================================================= Holiday Inn -- Barstow Estimated Growth In Supply and Demand Competitive Hotel Market ======================================================================================================= Daily Annual Total Year Available Rooms Available Rooms Demand Occupancy - ------------------------ -------------------- --------------------- ---------------- ------------------ Actual 1994 475 173,375 113,314 65.4% 1995 475 173,375 117,465 67.8% 1996 475 173,375 108,003 62.3% 1997 (Estimated) 475 173,375 114,000 66.0% - ------------------------ -------------------- --------------------- ---------------- ------------------ Projected 1998 475 173,375 117,000 67.0% 1999 475 173,375 119,000 69.0% 2000 475 173,375 121,000 70.0% 2001 475 173,375 121,000 70.0% 2002 475 173,375 121,000 70.0% - ------------------------ -------------------- --------------------- ---------------- ------------------ CAAG 1994 to 1997 0.0% - 0.2% - 1997 to 2002 0.0% - 1.2% - ======================================================================================================= Source: PKF Consulting and Smith Travel Research =======================================================================================================
As can be noted above, although we project demand in the overall market to grow at a CAAG of 1.2 percent over the five year period, due to demand timing and capacity constraints, the competitive market occupancy is not projected to exceed 70.0 percent. 5. Market Performance of the Subject The following table summarizes the historical occupancy levels and ADR for the Holiday Inn over the past four years. III-13 =============================================================================== Holiday Inn -- Barstow Historical Occupancy and Room Rate 1994 to 1997 (Estimated) =============================================================================== Average Daily Year Occupancy % Change Room Rate % Change - --------------------- ------------- ------------ ----------------- ------------ 1994 79.7% - $59.16 - - --------------------- ------------- ------------ ----------------- ------------ 1995 74.9% (6.0%) $61.79 4.4% - --------------------- ------------- ------------ ----------------- ------------ 1996 71.1% (4.8%) $65.32 5.7% - --------------------- ------------- ------------ ----------------- ------------ 1997 (Estimated) 69.0% (3.2%) $67.00 2.6% - --------------------- ------------- ------------ ----------------- ------------ CAAG (4.7%) - 4.2% - =============================================================================== Source: Famous Host Companies =============================================================================== As can be noted, the subject has experienced a nearly ten percentage point drop in occupancy, contributed to the impact of the Holiday Inn Express, the conversion of the Barstow Lodge to a Comfort Inn brand, and the recent cut backs at the military bases. The growth in ADR has been less-than-market, equating to a CAAG of 4.2 percent, compared to the market's 5.9 percent. The subject property's market penetration rate (subject's occupancy divided by the market's occupancy) has decreased from 122.0 percent in 1994 to an estimated 105.0 percent in 1997. Based on our analysis of the local market in the Barstow area, we are of the opinion that the subject will achieve an occupancy level of approximately 69.0 percent in 1998, similar to that estimated in 1997. In 1999 and onwards, we estimate that the subject property will stabilize its occupancy at 70.0 percent. Based on our market research, we project the hotel to achieve an ADR of $69.00 in 1998, or an increase of 3.0 percent over 1997. Over the balance of our projection period, we project the hotel's ADR to increase at the anticipated long-term level of inflation (3.0 percent per year). We believe that this is realistic given the supply and demand dynamics of the Barstow hotel market. =============================================================================== Holiday Inn -- Barstow Projected Occupancy and Average Daily Room Rate -- 1998 to 2002 =============================================================================== Market Average Percent Year Occupancy Penetration Daily Room Rate Change - ----------- -------------- --------------- ------------------------- ---------- 1998 69.0% 103.0% $69.00 3.0% 1999 70.0% 101.0% $71.00 3.0% 2000 70.0% 100.0% $73.00 3.0% 2001 70.0% 100.0% $75.00 3.0% 2002 70.0% 100.0% $78.00 3.0% - ----------- -------------- --------------- ------------------------- ---------- CAAG 0.4% - 3.0% - =============================================================================== Source: PKF Consulting =============================================================================== III-14 D. HIGHEST AND BEST USE Based on our analysis, we are of the opinion that the existing improvements contribute significant overall value to the site. There is no alternative, legal use that could economically justify the restructuring or removal of the existing improvements at this time. Therefore, the subject property, as improved, represents the highest and best use of the site. E. VALUATION -- SALES COMPARISON APPROACH 1. Introduction We have reviewed a number of recent sales and have focused on those considered most comparable in providing support for the market value of the subject. Our search for sales was initially focused on Barstow; however, due to the limited number of comparable transactions, our search for sales was extended to include the surrounding area, namely Colton and Ontario. Based on this search, four sales were identified to use as the basis for our valuation of the subject under this approach. Presented in the following table is a summary of the selected comparable hotel sales. As can be noted, these sales have occurred between November 1996 and October 1997. ===================================================================================================================== Comparable Hotel Sales ===================================================================================================================== Rooms Overall Sale Sale Year Number of Price Revenue Capitalization No. Hotel Name Location Date Built Rooms Per Room Multiplier Rate - ------ --------------------------- ------------- --------- --------- ------------ ---------- ---------- ------------- 1 Econolodge Colton 10/97 1972 51 $19,601 2.4 NA 2 Days Inn Colton 8/97 1985 147 $19,932 2.6 NA 3 Motel 6 Barstow 2/97 1985 121 $25,674 NA NA 4 Super 8 Ontario 11/96 1985 53 $22,925 2.2 NA ===================================================================================================================== Source: PKF Consulting =====================================================================================================================
2. Analysis of the Hotel Sales In reviewing the preceding table, it can be noted that the sale prices per room ranged between $19,601 for the 51-room Econolodge and $25,674 for the 121-room Motel 6; no overall capitalization rates were attainable from the principals of these hotel sales. Because of the many differences between the comparable hotel sales and the subject property, we are of the opinion that an analysis using a rooms revenue multiplier (RRM) is the most approiate unit of comparison to value the subject. A RRM measures the total revenue generated from room rentals in relation to the sale price. RRMs do not require subjective adjustments since most variances in properties are considered to be reflected in ADRs and annual occupancies III-15 achieved in the market. As can be noted, the three indicated RRMs (out of the four sales) range from 2.2 to 2.6. We consider that the subject property is superior to the indicated comparable hotel sales, and that it would command a higher price per room if it were sold. This is attributed to the fact that the subject is a full-service lodging product. Accordingly, we are of the opinion that a RRM in the order of 2.6 (at the high end of the three indicated comparable sales' RRMs) is appropriate in valuing the fee simple interest in the subject property. Based on this multiplier, and assuming a stabilized occupancy level of 70.0 percent at an ADR of $69.00 (stated in 1998 dollars), the indicated value per room for the subject is as follows: Rooms Stabilized Stabilized Indicated Value Revenue Average Rate Occupancy Per Room Multiplier Level Days/Year (Rounded) - ---------------- --- --------------- --- ----------------- --- ---------------- --- ----------------------- 2.6 X $69.00 X 70.0% X 365 = $46,000 - ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
As noted above, the RRM analysis produced a value indication of $46,000 per available room. This value unit is converted into a total value estimate by multiplying the indicated value per room by the total number of rooms. Based on 148 rentable rooms, the indicated stabilized value of the fee simple interest in the Holiday Inn is $6,800,000 as calculated below. - ----------------------- ---- ---------------- ----- --------------------------- $46,000 X 148 Rooms = $6,800,000 (Rounded) - ----------------------- ---- ---------------- ----- --------------------------- F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH After concluding to our estimate of the stabilized value of the fee simple interest in the subject, the next step in our analysis is to develop an estimate of the "as is" leasehold market value of the subject property. 1. Valuation of Leased Fee Interest After having developed an estimate of the "as is" fee simple value of the subject under the Sales Comparison Approach, the next step is to develop an estimate of the value of the leased fee interest in the property. This represents the position of the ground lessor, who benefits from the income derived from the ground lease payments during the term of the lease, as well as the ownership of the property in fee at the termination of the lease (the reversion). The estimated leased fee interest in the hotel is then subtracted from the fee simple value to arrive at our estimate of the value of the leasehold interest. III-16 This deduction is derived by capitalizing the land lease payment for a stabilized year ($245,000) by an appropriate capitalization rate (9.0 percent). This capitalization rate of 200 basis points less than the rate used to capitalize the revenue stream from the hotel operations (as will be discussed in the Income Capitalization Approach) is reflective of the more secure position of the landlord as compared to the lessee. This calculation results in a leased fee interest of $2,700,000 ($245,000 / 9.0 percent). The following table summarizes the deduction made from the stabilized fee simple value indication. ============================================================== Sales Comparison Approach "As Is" Leasehold Value ============================================================== Fee Simple Value Estimate $6,800,000 Less: Leased Fee Land Value $(2,700,000) - ------------------------------------- ------------------------ Leasehold Value $4,100,000 ===================================== ======================== As a result of the foregoing analysis, we estimate the "as is" market value of the leasehold interest in the subject as of January 1, 1998, through the Sales Comparison Approach to be: =============================================================================== FOUR MILLION ONE HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $4,100,000 =============================================================================== G. VALUATION -- INCOME CAPITALIZATION APPROACH 1. Basis for Cash Flow Projection In order to develop an estimate of the net operating income (NOI) for the subject for both a stabilized year of operation (direct capitalization) and each year of the aforementioned holding period (yield capitalization), the following have been analyzed: 1. The historical operating results for the subject for year-end 1994, 1995, 1996, year-to-date September 1997, and management's operating budget for 1997; 2. The previously discussed market performance (occupancy levels and ADR) of the competitive hotels; and 3. The operating results of the category "Full-Service Hotels" from the 1997 issue of PKF Consulting's Trends in the Hotel Industry. III-17 The historical operating results of the subject are presented at the end of this section of the report. 2. Stabilized Year Operating Estimate We first developed an estimate of the performance of the subject for a stabilized year of operation stated in current value, 1998 dollars. This estimate is based on our review of the historical operating results of the subject hotel coupled with an analysis of the operating results of the selected PKF Consulting's "Trends" category. Additional key assumptions used in preparing this stabilized year estimate are summarized as follows: a) The stabilized annual occupancy of the hotel is projected to be 70.0 percent at a $69.00 ADR (in 1998 value dollars); b) A franchise fee of approximately 5.5 percent of rooms revenue; c) A management fee of 3.0 percent of total revenues as well as a reserve for capital replacements of 4.0 percent of total revenue have been deducted to establish the net operating income of the subject; d) The food and beverage department, which is comprised of revenue generated from the Cactus Club Bar & Grill, has historically been operating at a loss. In 1994, the departmental expense was 127.8 percent; in 1995, 132.7 percent; in 1996, 127.4 percent; and for year-to-date ending September 1997, it was 136.6 percent. We have estimated that for a stabilized year of operation, the subject property's food and beverage departmental expense would be in the order of 120.0; and, e) The projection of expense for taxes on real and personal property is a function of the market value of the property. The subject property is in the real estate taxing jurisdiction of the San Mateo County Tax Assessor's Office. Our estimate of the property taxes for the subject is based on the provisions of Proposition 13. Proposition 13 limits ad valorem property taxes to 1.0 percent of the assessed value plus assessment for city, special district, and county bonds. The current effective tax rate is 1.0826 percent of market value. This appraisal assumes a sale of the subject property on the effective date of the appraisal, which will initiate a reassessment of real estate for tax purposes. For the purpose of this analysis, the reassessment is based on the value estimate of the subject property as determined using the Income Capitalization Approach. Based on the estimated value of the hotel, a tax rate of 1.0826 per $100 of assessed value is utilized, resulting in real estate taxes of $68,000, rounded, in the representative or stabilized year. III-18 Presented in the following table is our estimate of the subject hotel's stabilized year operating results. As can be noted, on a stabilized basis the Holiday Inn will generate approximately $3.1 million in total revenues, with a net operating income of $459,000, in 1998 value dollars. =================================================================================================== Holiday Inn -- Barstow Stabilized Year Operating Results (Stated in 1998 Value Dollars) =================================================================================================== Occupancy Level 70.0% - ------------------------------------------------ -------------------------------------------------- Average Room Rate $69.00 - ------------------------------------------------ -------------------------------------------------- REVPAR $48.30 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Ratios PAR (1) POR (2) - ------------------------------------------------ -------------- ---------- ------------ ----------- Revenues Rooms $2,610,000 78.0% $17,635 $69.00 Food & Beverage 662,000 19.8% 4,475 17.51 Telephone 63,000 1.9% 425 1.66 Other Operated Departments 11,000 0.3% 77 0.30 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Revenues 3,346,000 100.0% 22,611 88.50 - ------------------------------------------------ -------------- ---------- ------------ ----------- Departmental Expenses (3) Rooms 428,000 16.4% 2,895 11.00 Food & Beverage 795,000 120.0% 5,372 21.00 Telephone 31,000 50.0% 209 0.82 Other Operated Departments 1,000 10.0% 7 0.03 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Departmental Expenses 1,225,000 37.5% 8,483 33.20 - ------------------------------------------------ -------------- ---------- ------------ ----------- Departmental Income 2,091,000 62.5% 14,129 55.30 - ------------------------------------------------ -------------- ---------- ------------ ----------- Undistributed Operating Expenses Administrative and General 382,000 11.4% 2,582 10.11 Franchise Fees 141,000 4.2% 953 3.73 Marketing 152,000 4.6% 1,030 4.03 Property Maintenance 198,000 5.9% 1,336 5.23 Energy and Utilities 168,000 5.0% 1,134 4.44 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Undistributed Expenses 1,041,000 31.1% 7,035 27.54 - ------------------------------------------------ -------------- ---------- ------------ ----------- Income Before Fixed Charges 1,050,000 31.4% 7,094 27.76 - ------------------------------------------------ -------------- ---------- ------------ ----------- Management Fees and Fixed Charges Base Management Fees 100,000 3.0% 676 2.64 Property Taxes 68,000 2.0% 459 1.80 Land Lease 245,000 7.3% 1,655 6.48 Insurance 44,000 1.3% 299 1.17 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total 457,000 13.7% 3,090 12.09 - ------------------------------------------------ -------------- ---------- ------------ ----------- Income Before Reserve 593,000 17.7% 4,000 15.67 - ------------------------------------------------ -------------- ---------- ------------ ----------- Reserve for Replacement 134,000 4.0% 905 3.54 - ------------------------------------------------ -------------- ---------- ------------ ----------- Income Before Other Charges (4) $459,000 13.7% $3,100 $12.15 =================================================================================================== (1) PAR - Per Available Room (2) POR - Per Occupied Room (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Income before interest, taxes, depreciation, and amortization Source: PKF Consulting ===================================================================================================
III-19 3. Ten Year Statement of Estimated Annual Operating Results Presented at the end of this section of the appraisal report is our estimate of the operating results for the subject for the ten-year period beginning January, 1, 1998. This forecast is based on the preceding stabilized year estimate, adjusted to reflect effects of inflation, variations in occupancy and rate, and the impact of fixed and variable components of each revenue and expense item. Selected key assumptions used to develop this forecast are summarized below. a) With the exception of property taxes, all other revenues and expenses are projected to increase at 3.0 percent throughout the holding period. Property taxes are projected to increase at a rate of 2.0 percent per year as allowed by California law, and growth in ADR is expected to grow at inflation throughout the analysis period as a result of market-driven factors. b) For the first five years of this forecast, the occupancy and ADR of the hotel were projected as previously discussed. Thereafter, the hotel's occupancy was assumed to remain at 70.0 percent, with the ADR increasing at 3.0 percent per year. 4. Valuation using Direct Capitalization Based on our evaluation of the subject, it was concluded that an overall capitalization rate (OAR) of 11.0 percent is appropriate to value the subject, and properly reflects the risks associated with this hotel given the property's age, physical features, location, and market position. Based on the projection of net operating income for a stabilized year of operation, and the selected overall rate of 11.0 percent, the value of the subject as if stabilized is calculated to be as follows. - -------------------------------------------------- --------------------- Projected Stabilized Net Operating Income $459,000 Overall Capitalization Rate 11.0% - -------------------------------------------------- --------------------- Stabilized Value Indication (Rounded) $4,200,000 - -------------------------------------------------- --------------------- Therefore, the estimated "as is" market value of the leasehold interest in the subject using the Direct Capitalization Approach, as of January 1, 1998, is: ============================================================================== FOUR MILLION TWO HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $4,200,000 ============================================================================== III-20 5. Discounted Cash Flow Valuation Analysis To estimate the value of the subject using a discounted cash flow analysis, it is assumed that the property will be sold at the end of a ten-year holding period. The value of the property at that time is estimated by capitalizing the expected or anticipated net operating income of the property in the eleventh year. From this value estimate, an estimate of sales costs is deducted to arrive at the net proceeds upon sale. Based on our market research, we are of the opinion that a reversionary capitalization rate of 12.0 percent and a 14.0 percent discount rate are appropriate to value the subject. The following table indicates the present value of the projected net operating income for the subject for the ten-year holding period, along with the present value of the reversion, deriving a value estimate. =============================================================================== Discounted Cash Flow Analysis =============================================================================== Cash Flow Present Present From Value Value Year Operations Factor @ 14.0% - ------------------ -------------------- -------------------- ------------------ 1998 $432,000 0.8772 $379,000 1999 $470,000 0.7695 $362,000 2000 $481,000 0.6750 $325,000 2001 $492,000 0.5921 $291,000 2002 $529,000 0.5194 $275,000 2003 $539,000 0.4556 $246,000 2004 $542,000 0.3996 $217,000 2005 $575,000 0.3506 $202,000 2006 $577,000 0.3075 $177,000 2007 $602,000 0.2697 $162,000 - ------------------ -------------------- -------------------- ------------------ Reversion $5,378,000 0.2697 $1,451,000 - ------------------ -------------------- -------------------- ------------------ Present Value $4,086,000 - ------------------ -------------------- -------------------- ------------------ Value (Rounded) $4,100,000 - ------------------ -------------------- -------------------- ------------------ III-21 6. Income Capitalization Approach Valuation Conclusion The value conclusion under the Income Capitalization Approach is based on both a direct capitalization and a discounted cash flow analysis. Direct capitalization indicated a value of $4,200,000 and the discounted cash flow analysis indicated a value of $4,100,000. Placing most weight on the discounted cash flow method, our conclusion as to the "as is" market value of the leasehold interest of the subject using the Income Capitalization Approach, as of January 1, 1998, is: ============================================================================== FOUR MILLION ONE HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $4,100,000 ============================================================================== G. RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the two valuation methodologies applied, considering the property type and the requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the two approaches are as follows: ============================================ ====================== Sales Comparison Approach $4,100,000 Income Capitalization Approach Direct Capitalization $4,200,000 Discounted Cash Flow Analysis $4,100,000 ============================================ ====================== In the Sales Comparison Approach we compared four recently sold hotels to the subject. The selected sales indicated a relatively wide range in value. Furthermore, the sales were located in varying sub-market areas within the Barstow area, and no property was identical to the subject. These factors make this approach less meaningful, but act as a reference checkpoint for the value derived from the Income Approaches. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized two methods of analysis: The direct capitalization method and the discounted cash flow method (yield capitalization). There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a value estimate. Both income methods resulted in a close range in values, III-22 heightening our confidence in this approach. Accordingly, the primary reliance was placed on this approach, with more reliance put on the discounted cash flow analysis. Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the "as is" market value of the leasehold interest in the subject property, as of January 1, 1998, is reasonably represented as: =============================================================================== FOUR MILLION ONE HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $4,100,000 =============================================================================== III-23 HOLIDAY INN -- BARSTOW, CALIFORNIA HISTORICAL OPERATING RESULTS Holiday Inn, Barstow Historical Operating Results --------------------------------------------------------------------------------------------------- 1994 1995 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 148 148 Occupancy 79.72% 74.90% Average Daily Room Rate (ADR) $59.16 $61.79 REVPAR $47.16 $46.28 REVENUES ROOMS $ 2,547,733 76.6% $ 17,214 $ 59.16 $ 2,500,011 78.1% $ 16,892 $ 61.79 RESTAURANT 701,900 21.1% 4,743 16.30 636,141 19.9% 4,298 15.72 TELEPHONE 58,572 1.8% 396 1.36 53,213 1.7% 360 1.32 MISCELLANEOUS 15,890 0.5% 107 0.37 12,412 0.4% 84 0.31 ------------ ------- -------- ------- ----------- ------- -------- ---------- TOTAL REVENUE 3,324,095 100.0% 22,460 77.19 3,201,777 100.0% 21,634 79.13 DEPT. COSTS & EXPENSES (3) ROOMS 409,071 16.1% 2,764 9.50 406,172 16.2% 2,744 10.04 RESTAURANT 897,293 127.8% 6,063 20.84 844,027 132.7% 5,703 20.86 TELEPHONE 47,739 81.5% 323 1.11 40,417 76.0% 273 1.00 MISCELLANEOUS 5,562 35.0% 38 0.13 884 7.1% 6 0.02 ------------ ------- -------- ------- ----------- ------- -------- ---------- TOTAL COST & EXP. 1,359,665 40.9% 9,187 31.57 1,291,500 40.3% 8,726 31.92 TOTAL OPER. DEPTS. INCOME 1,964,430 59.1% 13,273 45.62 1,910,277 59.7% 12,907 47.21 ------------ ------- -------- ------- ----------- ------- -------- ---------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 305,020 9.2% 2,061 7.08 302,990 9.5% 2,047 7.49 MARKETING 156,559 4.7% 1,058 3.64 135,424 4.2% 915 3.35 FRANCHISE FEES 138,970 4.2% 939 3.23 135,649 4.2% 917 3.35 UTILITIES 177,296 5.3% 1,198 4.12 163,683 5.1% 1,106 4.05 PROPERTY OPERATIONS 185,369 5.6% 1,252 4.30 221,419 6.9% 1,496 5.47 ------------ ------- ------- ------- ------------ ------- -------- ---------- TOTAL 963,214 29.0% 6,508 22.37 959,165 30.0% 6,481 23.71 INC. BEFORE MGMT. FEES AND FIXED CHARGES 1,001,216 30.1% 6,765 23.25 951,112 29.7% 6,426 23.51 ------------ ------- -------- ------- ----------- ------- -------- ---------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 131,110 3.9% 886 3.04 128,282 4.0% 867 3.17 PROPERTY TAXES 63,622 1.9% 430 1.48 63,372 2.0% 428 1.57 INSURANCE 37,623 1.1% 254 0.87 39,776 1.2% 269 0.98 RENT 239,751 7.2% 1,620 5.57 235,455 7.4% 1,591 5.82 ------------ ------ -------- ------- ------------ ------- -------- ---------- TOTAL 472,106 14.2% 3,190 10.96 466,885 14.6% 3,155 11.54 INCOME BEFORE OTHER (4) FIXED CHARGES $ 529,110 15.9% 3,575 12.29 $ 484,227 15.1% 3,272 11.97 ============ ====== ======== ======= ============ ======= ======== ========== RENOVATION PAYMENT $ 188,487 $ 383,468 - ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------- 1996 ----------------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------------- Number of Keys 148 Occupancy 71.12% Average Daily Room Rate (ADR) $65.32 REVPAR $46.46 REVENUES ROOMS $ 2,516,420 77.5% $ 17,003 $ 65.32 RESTAURANT 655,746 20.2% 4,431 17.02 TELEPHONE 63,705 2.0% 430 1.65 MISCELLANEOUS 11,340 0.3% 77 0.29 ------------- ------- -------- ------- TOTAL REVENUE 3,247,211 100.0% 21,941 84.29 DEPT. COSTS & EXPENSES (3) ROOMS 418,444 16.6% 2,827 10.86 RESTAURANT 835,267 127.4% 5,644 21.68 TELEPHONE 42,194 66.2% 285 1.10 MISCELLANEOUS 2,477 21.8% 17 0.06 ------------- ------- -------- ------- TOTAL COST & EXP. 1,298,382 40.0% 8,773 33.70 TOTAL OPER. DEPTS. INCOME 1,948,829 60.0% 13,168 50.59 ------------- ------- --------- -------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 385,011 11.9% 2,601 9.99 MARKETING 154,921 4.8% 1,047 4.02 FRANCHISE FEES 137,068 4.2% 926 3.56 UTILITIES 157,189 4.8% 1,062 4.08 PROPERTY OPERATIONS 210,789 6.5% 1,424 5.47 ------------- ------- --------- -------- TOTAL 1,044,978 32.2% 7,061 27.13 INC. BEFORE MGMT. FEES AND FIXED CHARGES 903,851 27.8% 6,107 23.46 ------------- ------- --------- -------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 129,638 4.0% 876 3.37 PROPERTY TAXES 67,002 2.1% 453 1.74 INSURANCE 41,984 1.3% 284 1.09 RENT 226,479 7.0% 1,530 5.88 ------------- ------- --------- -------- TOTAL 465,103 14.3% 3,143 12.07 INCOME BEFORE OTHER (4) FIXED CHARGES $ 438,748 13.5% 2,965 11.39 ============= ======= ========= ======== RENOVATION PAYMENT $ 59,420 - ----------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. ================================================================================================================================ Source:The Famous Host Company ================================================================================================================================
Holiday Inn, Barstow Operating Results Year-to-Date September 1997 and September 1996 -------------------------------------------------------------------------------------------- September 30, 1997 September 30, 1996 -------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR(1) POR(2) -------------------------------------------------------------------------------------------- Number of Keys 148 148 Occupancy 72.00% 74.00% Average Daily Room Rate (ADR) $66.23 $64.56 REVPAR $47.69 $47.77 REVENUES ROOMS $ 1,949,557 78.0% $ 17,612 $ 66.98 $ 1,956,497 78.1% $ 17,610 $65.19 RESTAURANT 497,360 19.9% 4,493 17.09 491,946 19.6% 4,428 16.39 TELEPHONE 43,253 1.7% 391 1.49 47,770 1.9% 430 1.59 MISCELLANEOUS 8,726 0.3% 79 0.30 8,586 0.3% 77 0.29 ----------------------------------------------- --------------------------------------- TOTAL REVENUE 2,498,896 100.0% 22,574 85.86 2,504,799 100.0% 22,545 83.46 DEPT. COSTS & EXPENSES (3) ROOMS 310,255 15.9% 2,803 10.66 309,855 15.8% 2,789 10.32 RESTAURANT 679,156 136.6% 6,135 23.33 618,569 125.7% 5,568 20.61 TELEPHONE 24,810 57.4% 224 0.85 33,187 69.5% 299 1.11 MISCELLANEOUS 863 9.9% 8 0.03 1,505 17.5% 14 0.05 ----------------------------------------------- --------------------------------------- TOTAL COST & EXP. 1,015,084 40.6% 9,170 34.88 963,116 38.5% 8,669 32.09 TOTAL OPER. DEPTS. INCOME 1,483,812 59.4% 13,404 50.98 1,541,683 61.5% 13,876 51.37 ----------------------------------------------- --------------------------------------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 268,944 10.8% 2,430 9.24 287,017 11.5% 2,583 9.56 MARKETING 100,475 4.0% 908 3.45 120,938 4.8% 1,089 4.03 FRANCHISE FEES 116,060 4.6% 1,048 3.99 106,670 4.3% 960 3.55 UTILITIES 123,827 5.0% 1,119 4.25 119,104 4.8% 1,072 3.97 PROPERTY OPERATIONS 134,332 5.4% 1,214 4.62 160,856 6.4% 1,448 5.36 ----------------------------------------------- --------------------------------------- TOTAL 743,638 29.8% 6,718 25.55 794,585 31.7% 7,152 26.48 INC. BEFORE MGMT. FEES AND FIXED CHARGES 740,174 29.6% 6,687 25.43 747,098 29.8% 6,724 24.89 ----------------------------------------------- --------------------------------------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 100,077 4.0% 904 3.44 100,781 4.0% 907 3.36 PROPERTY TAXES 49,217 2.0% 445 1.69 51,123 2.0% 460 1.70 INSURANCE 32,185 1.3% 291 1.11 31,266 1.2% 281 1.04 RENT 183,375 7.3% 1,657 6.30 183,945 7.3% 1,656 6.13 ----------------------------------------------- --------------------------------------- TOTAL 364,854 14.6% 3,296 12.54 367,115 14.7% 3,304 12.23 INCOME BEFORE OTHER (4) FIXED CHARGES $ 375,320 15.0% 3,391 12.90 $ 379,983 15.2% $ 3,420 $ 12.66 =============================================== ======================================= RENOVATION PAYMENT $ 69,888 $ 36,352 - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. ============================================================================================ Source:The Famous Host Company ============================================================================================
HOLIDAY INN -- BARSTOW, CALIFORNIA TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS Holiday Inn Barstow, California Projected Operating Results ---------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 1998 1999 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ---------------------------------------------------------------------------------------------------- Number of Keys 148 148 Occupancy 69.00% 70.00% Average Daily Room Rate $69.00 $71.00 Revenues Rooms $ 2,572,000 78.0%$ 17,378 $ 69.00 $ 2,685,000 78.0%$ 18,142 $ 71.01 Restaurant 653,000 19.8% 4,412 17.52 682,000 19.8% 4,608 18.04 Telephone 61,000 1.8% 412 1.64 64,000 1.9% 432 1.69 Other Operated Departments 12,000 0.4% 81 0.32 12,000 0.3% 81 0.32 ------------- -------- --------- --------- ------------- -------- --------- --------- Total Revenues 3,298,000 100.0% 22,284 88.48 3,443,000 100.0% 23,264 91.05 Departmental Expenses (3) Rooms 425,000 16.5% 2,872 11.40 441,000 16.4% 2,980 11.66 Restaurant 788,000 120.7% 5,324 21.14 818,000 119.9% 5,527 21.63 Telephone 31,000 50.8% 209 0.83 32,000 50.0% 216 0.85 Other Operated Departments 1,000 8.3% 7 0.03 1,000 8.3% 7 0.03 ------------- -------- --------- --------- ------------- -------- --------- --------- Total Departmental Expenses 1,245,000 37.8% 8,412 33.40 1,292,000 37.5% 8,730 34.17 ------------- -------- --------- --------- ------------- -------- --------- --------- Departmental Profit 2,053,000 62.2% 13,872 55.08 2,151,000 62.5% 14,534 56.88 Undistributed Expenses Administrative & General 380,000 11.5% 2,568 10.19 392,000 11.4% 2,649 10.37 Franchise Fee 139,000 4.2% 939 3.73 145,000 4.2% 980 3.83 Marketing 152,000 4.6% 1,027 4.08 157,000 4.6% 1,061 4.15 Property Operations & Maintenance 198,000 6.0% 1,338 5.31 204,000 5.9% 1,378 5.39 Energy & Utilities 168,000 5.1% 1,135 4.51 173,000 5.0% 1,169 4.58 ------------- -------- --------- --------- ------------- -------- --------- --------- Total Undistributed Expenses 1,037,000 31.4% 7,007 27.82 1,071,000 31.1% 7,236 28.32 ------------- -------- --------- --------- ------------- -------- --------- --------- Gross Operating Profit 1,016,000 30.8% 6,865 27.26 1,080,000 31.4% 7,297 28.56 Fixed Charges & Management Fee Base Management Fee 99,000 3.0% 669 2.66 103,000 3.0% 696 2.72 Property Taxes 68,000 2.1% 459 1.82 70,000 2.0% 473 1.85 Land Lease 242,000 7.3% 1,635 6.49 253,000 7.3% 1,709 6.69 Insurance 44,000 1.3% 297 1.18 46,000 1.3% 311 1.22 Total Fixed Charges 453,000 13.7% 3,061 12.15 472,000 13.7% 3,189 12.48 ------------- -------- --------- --------- ------------- -------- --------- --------- Income Before Reserves 563,000 17.1% 3,804 15.10 608,000 17.7% 4,108 16.08 Reserves for Replacements 131,000 4.0% 885 3.51 138,000 4.0% 932 3.65 ------------- -------- --------- --------- ------------- -------- --------- --------- Net Operating Income (4) $ 432,000 13.1% $ 2,919 $ 11.59 $ 470,000 13.7% $ 3,176 $ 12.43 ============= ======== ========= ========= ============= ======== ========= ========= - ---------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------- Calendar Year Beginning January 1 2000 ----------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------- Number of Keys 148 Occupancy 70.00% Average Daily Room Rate $73.00 Revenues Rooms $ 2,760,000 78.0%$ 18,649 $ 72.99 Restaurant 702,000 19.8% 4,743 18.56 Telephone 66,000 1.9% 446 1.75 Other Operated Departments 12,000 0.3% 81 0.32 ------------- ------- --------- ---------- Total Revenues 3,540,000 100.0% 23,919 93.62 Departmental Expenses (3) Rooms 454,000 16.4% 3,068 12.01 Restaurant 843,000 120.1% 5,696 22.29 Telephone 33,000 50.0% 223 0.87 Other Operated Departments 1,000 8.3% 7 0.03 ------------- ------- --------- ---------- Total Departmental Expenses 1,331,000 37.6% 8,993 35.20 ------------- ------- --------- ---------- Departmental Profit 2,209,000 62.4% 14,926 58.42 Undistributed Expenses Administrative & General 403,000 11.4% 2,723 10.66 Franchise Fee 149,000 4.2% 1,007 3.94 Marketing 162,000 4.6% 1,095 4.28 Property Operations & Maintenance 210,000 5.9% 1,419 5.55 Energy & Utilities 178,000 5.0% 1,203 4.71 ------------- ------- --------- ---------- Total Undistributed Expenses 1,102,000 31.1% 7,446 29.14 ------------- ------- --------- ---------- Gross Operating Profit 1,107,000 31.3% 7,480 29.27 Fixed Charges & Management Fee Base Management Fee 106,000 3.0% 716 2.80 Property Taxes 71,000 2.0% 480 1.88 Land Lease 260,000 7.3% 1,757 6.88 Insurance 47,000 1.3% 318 1.24 Total Fixed Charges 484,000 13.7% 3,270 12.80 ------------- ------- --------- ---------- Income Before Reserves 623,000 17.6% 4,209 16.48 Reserves for Replacements 142,000 4.0% 959 3.76 ------------- ------- --------- ---------- Net Operating Income (4) $ 481,000 13.6% $ 3,250 $ 12.72 ============= ======= ========= ========== - -------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. =================================================================================================================================== Source:PKF Consulting ===================================================================================================================================
Holiday Inn Barstow, California Projected Operating Results -------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 2001 2002 -------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) -------------------------------------------------------------------------------------------------- Number of Keys 148 148 Occupancy 70.00% 70.00% Average Daily Room Rate $75.00 $78.00 Revenues Rooms $ 2,836,000 77.9% $ 19,162 $ 75.00 $ 2,949,000 78.1%$ 19,926 $ 77.99 Restaurant 724,000 19.9% 4,892 19.15 745,000 19.7% 5,034 19.70 Telephone 68,000 1.9% 459 1.80 70,000 1.9% 473 1.85 Other Operated Departments 13,000 0.4% 88 0.34 13,000 0.3% 88 0.34 ------------- ------- ---------- --------- ------------- ------- --------- --------- Total Revenues 3,641,000 100.0% 24,601 96.29 3,777,000 100.0% 25,520 99.88 Departmental Expenses (3) Rooms 468,000 16.5% 3,162 12.38 482,000 16.3% 3,257 12.75 Restaurant 869,000 120.0% 5,872 22.98 894,000 120.0% 6,041 23.64 Telephone 34,000 50.0% 230 0.90 35,000 50.0% 236 0.93 Other Operated Departments 1,000 7.7% 7 0.03 1,000 7.7% 7 0.03 ------------- ------- ---------- --------- ------------- ------- --------- --------- Total Departmental Expenses 1,372,000 37.7% 9,270 36.28 1,412,000 37.4% 9,541 37.34 ------------- ------- ---------- --------- ------------- ------- --------- --------- Departmental Profit 2,269,000 62.3% 15,331 60.00 2,365,000 62.6% 15,980 62.54 Undistributed Expenses Administrative & General 415,000 11.4% 2,804 10.97 428,000 11.3% 2,892 11.32 Franchise Fee 153,000 4.2% 1,034 4.05 159,000 4.2% 1,074 4.20 Marketing 167,000 4.6% 1,128 4.42 172,000 4.6% 1,162 4.55 Property Operations & Maintenance 217,000 6.0% 1,466 5.74 223,000 5.9% 1,507 5.90 Energy & Utilities 183,000 5.0% 1,236 4.84 189,000 5.0% 1,277 5.00 ------------- ------- ---------- --------- ------------- ------- --------- --------- Total Undistributed Expenses 1,135,000 31.2% 7,669 30.02 1,171,000 31.0% 7,912 30.97 ------------- ------- ---------- --------- ------------- ------- --------- --------- Gross Operating Profit 1,134,000 31.1% 7,662 29.99 1,194,000 31.6% 8,068 31.58 Fixed Charges & Management Fee Base Management Fee 109,000 3.0% 736 2.88 113,000 3.0% 764 2.99 Property Taxes 72,000 2.0% 486 1.90 74,000 2.0% 500 1.96 Land Lease 267,000 7.3% 1,804 7.06 277,000 7.3% 1,872 7.33 Insurance 48,000 1.3% 324 1.27 50,000 1.3% 338 1.32 Total Fixed Charges 496,000 13.6% 3,351 13.12 514,000 13.6% 3,473 13.59 ------------- ------- ---------- --------- ------------- ------- --------- --------- Income Before Reserves 638,000 17.5% 4,311 16.87 680,000 18.0% 4,595 17.98 Reserves for Replacements 146,000 4.0% 986 3.86 151,000 4.0% 1,020 3.99 ------------- ------- ---------- --------- ------------- ------- --------- --------- Net Operating Income (4) $ 492,000 13.5% $ 3,324 $ 13.01 $ 529,000 14.0% $ 3,574 $ 13.99 ============= ======= ========== ========= ============= ======= ========= ========= - ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------ Calendar Years Beginning January 1 2003 ------------------------------------------------ $ % PAR (1) POR (2) ------------------------------------------------ Number of Keys 148 Occupancy 70.00% Average Daily Room Rate $80.00 Revenues Rooms $ 3,025,000 78.0%$ 20,439 $ 80.00 Restaurant 768,000 19.8% 5,189 20.31 Telephone 72,000 1.9% 486 1.90 Other Operated Departments 14,000 0.4% 95 0.37 ------------- -------- --------- --------- Total Revenues 3,879,000 100.0% 26,209 102.58 Departmental Expenses (3) Rooms 496,000 16.4% 3,351 13.12 Restaurant 921,000 119.9% 6,223 24.36 Telephone 36,000 50.0% 243 0.95 Other Operated Departments 1,000 7.1% 7 0.03 ------------- -------- --------- --------- Total Departmental Expenses 1,454,000 37.5% 9,824 38.45 ------------- -------- --------- --------- Departmental Profit 2,425,000 62.5% 16,385 64.13 Undistributed Expenses Administrative & General 441,000 11.4% 2,980 11.66 Franchise Fee 163,000 4.2% 1,101 4.31 Marketing 177,000 4.6% 1,196 4.68 Property Operations & Maintenance 230,000 5.9% 1,554 6.08 Energy & Utilities 194,000 5.0% 1,311 5.13 ------------- -------- --------- --------- Total Undistributed Expenses 1,205,000 31.1% 8,142 31.87 ------------- -------- --------- --------- Gross Operating Profit 1,220,000 31.5% 8,243 32.26 Fixed Charges & Management Fee Base Management Fee 116,000 3.0% 784 3.07 Property Taxes 75,000 1.9% 507 1.98 Land Lease 284,000 7.3% 1,919 7.51 Insurance 51,000 1.3% 345 1.35 Total Fixed Charges 526,000 13.6% 3,554 13.91 ------------- -------- --------- --------- Income Before Reserves 694,000 17.9% 4,689 18.35 Reserves for Replacements 155,000 4.0% 1,047 4.10 ------------- -------- --------- --------- Net Operating Income (4) $ 539,000 13.9% $ 3,642 $ 14.25 ============= ======== ========= ========= - ------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. =================================================================================================================================== Source:PKF Consulting ===================================================================================================================================
Holiday Inn Barstow, California Projected Operating Results ---------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 2004 2005 ---------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ---------------------------------------------------------------------------------------------------- Number of Keys 148 148 Occupancy 70.00% 70.00% Average Daily Room Rate $82.00 $85.00 Revenues Rooms $ 3,101,000 77.9%$ 20,953 $ 82.01 $3,214,000 78.0%$ 21,716 $ 84.99 Restaurant 791,000 19.9% 5,345 20.92 814,000 19.8% 5,500 21.53 Telephone 74,000 1.9% 500 1.96 77,000 1.9% 520 2.04 Other Operated Departments 14,000 0.4% 95 0.37 14,000 0.3% 95 0.37 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Revenues 3,980,000 100.0% 26,892 105.25 4,119,000 100.0% 27,831 108.93 Departmental Expenses (3) Rooms 511,000 16.5% 3,453 13.51 526,000 16.4% 3,554 13.91 Restaurant 949,000 120.0% 6,412 25.10 977,000 120.0% 6,601 25.84 Telephone 37,000 50.0% 250 0.98 38,000 49.4% 257 1.00 Other Operated Departments 1,000 7.1% 7 0.03 1,000 7.1% 7 0.03 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Departmental Expenses 1,498,000 37.6% 10,122 39.61 1,542,000 37.4% 10,419 40.78 ------------- -------- --------- --------- ------------ -------- --------- --------- Departmental Profit 2,482,000 62.4% 16,770 65.64 2,577,000 62.6% 17,412 68.15 Undistributed Expenses Administrative & General 454,000 11.4% 3,068 12.01 468,000 11.4% 3,162 12.38 Franchise Fee 167,000 4.2% 1,128 4.42 174,000 4.2% 1,176 4.60 Marketing 182,000 4.6% 1,230 4.81 187,000 4.5% 1,264 4.95 Property Operations & Maintenance 237,000 6.0% 1,601 6.27 244,000 5.9% 1,649 6.45 Energy & Utilities 200,000 5.0% 1,351 5.29 206,000 5.0% 1,392 5.45 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Undistributed Expenses 1,240,000 31.2% 8,378 32.79 1,279,000 31.1% 8,642 33.82 ------------- -------- --------- --------- ------------ -------- --------- --------- Gross Operating Profit 1,242,000 31.2% 8,392 32.84 1,298,000 31.5% 8,770 34.33 Fixed Charges & Management Fee Base Management Fee 119,000 3.0% 804 3.15 124,000 3.0% 838 3.28 Property Taxes 77,000 1.9% 520 2.04 78,000 1.9% 527 2.06 Land Lease 292,000 7.3% 1,973 7.72 302,000 7.3% 2,041 7.99 Insurance 53,000 1.3% 358 1.40 54,000 1.3% 365 1.43 Total Fixed Charges 541,000 13.6% 3,655 14.31 558,000 13.5% 3,770 14.76 ------------- -------- --------- --------- ------------ -------- --------- --------- Income Before Reserves 701,000 17.6% 4,736 18.54 740,000 18.0% 5,000 19.57 Reserves for Replacements 159,000 4.0% 1,074 4.20 165,000 4.0% 1,115 4.36 ------------- -------- --------- --------- ------------ -------- --------- --------- Net Operating Income (4) $ 542,000 13.6% $ 3,662 $ 14.33 $ 575,000 14.0% $ 3,885 $ 15.21 ============= ======== ========= ========= ============ ======== ========= ========= ----------------------------------------------- Calendar Years Beginning January 1 2006 ----------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------- Number of Keys 148 Occupancy 70.00% Average Daily Room Rate $87.00 Revenues Rooms $3,290,000 77.9%$ 22,230 $ 87.00 Restaurant 839,000 19.9% 5,669 22.19 Telephone 79,000 1.9% 534 2.09 Other Operated Departments 15,000 0.4% 101 0.40 ----------- -------- --------- --------- Total Revenues 4,223,000 100.0% 28,534 111.68 Departmental Expenses (3) Rooms 542,000 16.5% 3,662 14.33 Restaurant 1,007,000 120.0% 6,804 26.63 Telephone 39,000 49.4% 264 1.03 Other Operated Departments 1,000 6.7% 7 0.03 ----------- -------- --------- --------- Total Departmental Expenses 1,589,000 37.6% 10,736 42.02 ----------- -------- --------- --------- Departmental Profit 2,634,000 62.4% 17,797 69.66 Undistributed Expenses Administrative & General 481,000 11.4% 3,250 12.72 Franchise Fee 178,000 4.2% 1,203 4.71 Marketing 193,000 4.6% 1,304 5.10 Property Operations & Maintenance 251,000 5.9% 1,696 6.64 Energy & Utilities 212,000 5.0% 1,432 5.61 ----------- -------- --------- --------- Total Undistributed Expenses 1,315,000 31.1% 8,885 34.78 ----------- -------- --------- --------- Gross Operating Profit 1,319,000 31.2% 8,912 34.88 Fixed Charges & Management Fee Base Management Fee 127,000 3.0% 858 3.36 Property Taxes 80,000 1.9% 541 2.12 Land Lease 310,000 7.3% 2,095 8.20 Insurance 56,000 1.3% 378 1.48 Total Fixed Charges 573,000 13.6% 3,872 15.15 ----------- -------- --------- --------- Income Before Reserves 746,000 17.7% 5,041 19.73 Reserves for Replacements 169,000 4.0% 1,142 4.47 ----------- -------- --------- --------- Net Operating Income (4) $ 577,000 13.7% $ 3,899 $ 15.26 =========== ======== ========= ========= - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. =================================================================================================================================== Source:PKF Consulting ===================================================================================================================================
Holiday Inn Barstow, California Projected Operating Results ------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 2007 2008 ------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ------------------------------------------------------------------------------------------------- Number of Keys 148 148 Occupancy 70.00% 70.00% Average Daily Room Rate $90.00 $93.00 Revenues Rooms $3,403,000 78.0%$ 22,993 $ 89.99 $3,517,000 78.0%$ 23,764 $ 93.01 Restaurant 864,000 19.8% 5,838 22.85 890,000 19.7% 6,014 23.54 Telephone 81,000 1.9% 547 2.14 84,000 1.9% 568 2.22 Other Operated Departments 15,000 0.3% 101 0.40 16,000 0.4% 108 0.42 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Total Revenues 4,363,000 100.0% 29,480 115.38 4,507,000 100.0% 30,453 119.19 Departmental Expenses (3) Rooms 558,000 16.4% 3,770 14.76 575,000 16.3% 3,885 15.21 Restaurant 1,037,000 120.0% 7,007 27.42 1,068,000 120.0% 7,216 28.24 Telephone 41,000 50.6% 277 1.08 42,000 50.0% 284 1.11 Other Operated Departments 2,000 13.3% 14 0.05 2,000 12.5% 14 0.05 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Total Departmental Expenses 1,638,000 37.5% 11,068 43.32 1,687,000 37.4% 11,399 44.61 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Departmental Profit 2,725,000 62.5% 18,412 72.06 2,820,000 62.6% 19,054 74.58 Undistributed Expenses Administrative & General 496,000 11.4% 3,351 13.12 511,000 11.3% 3,453 13.51 Franchise Fee 184,000 4.2% 1,243 4.87 190,000 4.2% 1,284 5.02 Marketing 199,000 4.6% 1,345 5.26 205,000 4.5% 1,385 5.42 Property Operations & Maintenance 259,000 5.9% 1,750 6.85 266,000 5.9% 1,797 7.03 Energy & Utilities 219,000 5.0% 1,480 5.79 225,000 5.0% 1,520 5.95 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Total Undistributed Expenses 1,357,000 31.1% 9,169 35.89 1,397,000 31.0% 9,439 36.94 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Gross Operating Profit 1,368,000 31.4% 9,243 36.18 1,423,000 31.6% 9,615 37.63 Fixed Charges & Management Fee Base Management Fee 131,000 3.0% 885 3.46 135,000 3.0% 912 3.57 Property Taxes 82,000 1.9% 554 2.17 84,000 1.9% 568 2.22 Land Lease 320,000 7.3% 2,162 8.46 331,000 7.3% 2,236 8.75 Insurance 58,000 1.3% 392 1.53 59,000 1.3% 399 1.56 Total Fixed Charges 591,000 13.5% 3,993 15.63 609,000 13.5% 4,115 16.11 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Income Before Reserves 777,000 17.8% 5,250 20.55 814,000 18.1% 5,500 21.53 Reserves for Replacements 175,000 4.0% 1,182 4.63 180,000 4.0% 1,216 4.76 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Net Operating Income (4) $ 602,000 13.8% $ 4,068 $ 15.92 $ 634,000 14.1% $ 4,284 $ 16.77 ============= ======= ========= ========== ============ ======= ========= ========== - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. ==================================================================================================================================== Source:PKF Consulting ====================================================================================================================================
SECTION IV SUPER 8 MOTEL MODESTO, CALIFORNIA =============================================================================== Summary of Important Facts and Conclusions =============================================================================== Property Address Super 8 Motel 2025 West Orangeburg Avenue Modesto, California 95350 Telephone (209) 557-8008 - -------------------------------------------- ---------------------------------- Owner Leased Fee Interest Allen R. Grant and Carolyn M. Grant Leasehold Interest Super 8 Motels, Ltd. - -------------------------------------------- ---------------------------------- Assessor's Parcel Number 029-0237-531 and 029-0237-150 - -------------------------------------------- ---------------------------------- Effective Date of Appraisal January 1, 1998 - -------------------------------------------- ---------------------------------- Property Rights Appraised Leasehold Interest =============================================================================== Highest and Best Use =============================================================================== Highest and Best Use As if Vacant Limited-service hotel As Improved Limited-service hotel or highway commercial use =============================================================================== Property Description =============================================================================== Existing Improvements Year Built 1980 Gross Building Area 30,862 square feet Number of Hotel Guest Rooms 80 Parking 95 spaces Number of Floors Three above ground (no basement) Hotel Amenities Pool and spa, complimentary coffee Compliance with ADA Partial - -------------------------------------------- ---------------------------------- Site Area 2.188 acres (95,309 square feet) Zoning C-3 (Highway Frontage Commercial) Flood Zone C, Panel Number 060387-0005C dated August 17, 1982 Wetlands Zone No Alquist Priolo Special Studies Zone No Historic, Natural , Cultural, Recreational, or Scientific Value None =============================================================================== Valuation Conclusion =============================================================================== Cost Approach Not Applicable - -------------------------------------------- ---------------------------------- Sales Comparison Approach $1,800,000 - -------------------------------------------- ---------------------------------- Income Capitalization Approach Stabilized Occupancy 68.0% Average Daily Room Rate $46.25 (1998 value dollars) Stabilized Net Income $212,000 (1998 value dollars) Overall Capitalization Rate 11.5% Terminal Capitalization Rate 12.0% Discount Rate 14.5% Indicated Market Values Direct Capitalization Technique $1,800,000 Discounted Cash Flow Analysis $1,800,000 - -------------------------------------------- ---------------------------------- Final Estimate of Market Value $1,800,000 - -------------------------------------------- ---------------------------------- Marketing and Exposure Period Six months or less ============================================ ================================== IV-1 (Photograph deleted) View of Hotel Looking Northeast from West Orangeburg Avenue (Photograph deleted) View of Typical Queen-Bed Guestroom IV-2 A. AREA AND NEIGHBORHOOD REVIEW 1. Introduction The subject property is located in downtown Modesto. Situated within the San Joaquin Valley along State Highway 99, Modesto is located 77 miles south of Sacramento, 75 miles east of San Jose and Silicon Valley, 91 miles southeast of San Francisco, and 316 miles north of Los Angeles. It is one of the largest cities in Stanislaus County and is the hub of one of the world's most productive agricultural areas. The rich, fertile soil, combined with a long growing season, produces a large portion of the nation's food supply. Modesto is best known as the home of the Gallo Winery, the world's leading vintner, producing 25.0 percent of all wine sold in the United States. In addition, Tri Valley Growers operates the world's largest cannery, while the California Almond Growers Exchange (Blue Diamond) has the world's second largest almond-producing facility in Modesto. Agribusiness is still the dominant force in the Modesto area, with most of the 250 manufacturing plants in the area devoted to some facet of this industry. Modesto is also a regional medical center, serving the northern San Joaquin Valley with three hospitals. A map showing the location of the subject in relation to the surrounding area is shown on the following page. 2. Economic Data Presented in the following text is a brief overview of selected economic data that characterizes the local market area. Population: The population of the City of Modesto was 179,800 persons in 1997. The corresponding population of the Modesto MSA (Stanislaus County) was 419,500 persons. Over the last five years, the population of the MSA has increased at a compound average annual growth rate (CAAG) of 1.9 percent. The MSA population is projected to increase to 549,400, with 249,400 for Modesto itself, by the year 2005. This equates to a CAAG of 1.2 percent. This rate of growth is slightly above that projected for the state as a whole for the same period. Retail Sales: Total taxable retail sales for the Modesto MSA was approximately $2.6 billion in 1996. This equates to a 3.2 percent CAAG over the past five years. For the next ten years, forecasters are projecting retail sales for this area to outpace the state as a whole, yet increasing at a more moderate rate of 1.6 percent per year. IV-3 (Street map of a portion of Modesto area deleted) Regional Map IV-4 Income: Over the past five years, the income per capita of the Modesto market area increased at an annual rate of 0.6 percent. This is above the change in per capita income for the State of California as a whole, which decreased during this period. Over the next ten years, the per capita income of residents in this region is expected to increase by 1.3 percent per year, which mirrors the rate forecasted for the state. Currently, per capita income for Modesto is $13,572 with an average household income of $38,064. Employment: In 1997, the total number of persons employed in the Modesto MSA was approximately 150,000. This figure represents a 1.1 percent annual increase over the employment level in 1990. Over the next ten years, the employment base of the MSA is projected to increase to approximately 197,000 persons. This equates to a 1.2 percent annual growth. Presented in the following table is a summary of the largest public and private employers in Stanislaus County. =============================================================================== Major Employers in Stanislaus County =============================================================================== Employer Type Number of Employees - --------------------------------- ------------------------ ------------------- Stanislaus County Government 3,600 Modesto City Schools Education 2,720 Tri Valley Growers Food Products 2,400 E&J Gallo Winery Wines 2,000 Doctors Medical Center Health Care 1,827 Modesto Junior College/ Yosemite Community College Education 1,680 Foster Farms Poultry Products 1,500 Memorial Hospital Health Care 1,432 Emanuel Medical Health Care 1,100 Turlock Schools Education 1,100 City of Modesto Government 1,090 Gallo Glass Co. Glass Bottles 950 Ceres Schools Education 900 Patterson Frozen Foods Frozen Foods 900 Hershey Chocolate Chocolate 750 Butterball Turkey Poultry Products 750 =============================================================================== Source: Modesto Chamber of Commerce =============================================================================== Commercial Development: Modesto's commercial development is primarily industrial oriented, with office and retail being relatively minor components. Major corporations in Modesto typically have their office and industrial installations in centralized, company-owned complexes. Thus, most office and industrial tenants are smaller companies and service establishments. In 1996, the Modesto City Council approved an additional 5,000 acres for industrial/commercial use within the General IV-5 Plan area. There are approximately 4,000 acres now zoned for industry in the current sewer service area; included in this acreage are a variety of industrial parks. More than 3,800 additional acres in the urban area outside the city of Modesto are zoned for industry. Agriculture and food processing industries are important to Modesto's economic success. However, the growing commercial, industrial, and service sectors provide a diversified base for the area's labor force. 3. Neighborhood Review The subject property is located near the major freeway intersection of Highway 99 and Briggsmore Avenue, in the suburban, northwestern area of Modesto. West Orangeburg Avenue is reached by turning off Briggsmore Avenue and heading south. The area surrounding the subject property is a combination of highway commercial and residential. A number of other hotel properties, such as the Holiday Inn, Ramada Inn, and Motel 6 are also located near the subject property, giving an identifiable hotel focus to the area. Further, a number of restaurants are also located in the vicinity of the subject property, an added attraction given that the Super 8 offers no food and beverage service of its own. The immediate neighboring uses surrounding the subject are predominantly hotels and restaurants; farther east and south of the subject is primarily retail and residential use; farther north and west of the subject is primarily hotel, restaurant, and retail use. Specific developments adjoining the subject property comprise a Ramada Inn hotel to the south and a California Highway Patrol impound office to the north and east. To the west, across West Orangeburg Avenue, a Denny's, Burger King, International House of Pancakes restaurant, a local bar known as the Tree Frog Tavern, and a Dunne-Edwards paint store, are located. The trend in development in Modesto is for new growth and new construction to occur in the northwestern portion of the city, outside of the downtown area. The subject property is located in the northwestern region of Modesto and therefore is well positioned in terms of location. 4. Conclusion In summary, we are of the opinion that the subject property is well located in the northwest area of the city of Modesto. Growth in nearly all economic indicators has been positive over the past several years and we forecast continued modest growth for the foreseeable future. IV-6 B. PROPERTY DESCRIPTION 1. Introduction The subject property is a limited-service hotel comprising 80 guestrooms. Additional amenities at the property include an outdoor swimming pool, 24-hour coffee service, and large vehicle parking. The hotel comprises a wood-framed structure of three floors. The hotel building houses guestrooms, the lobby, the hotel laundry, service areas, and various mechanical and electrical equipment. The hotel was constructed in 1980, the first year of operation. The hotel is currently owned in leasehold by Super 8 Motels, Ltd., a related company to the Famous Host Companies. We are not aware of any transactions relating to the site or the improvements since the date of opening. 2. Site Description and Zoning The subject property is located at 2025 West Orangeburg Avenue. The subject site comprises 2.188 acres, or 95,309 square feet. The site is triangular in shape with the angle side fronting West Orangeburg Avenue and the straight sides forming the property boundaries with adjoining parcels. The property is level and is at grade with West Orangeburg Avenue, with 533 feet of frontage along the street side of the property. The subject property is zoned C-3 (Highway Frontage Commercial). This zoning allows a variety of commercial development in a highway setting and a hotel is a permitted use in this zone. We are aware of no easements or covenants affecting the subject property, which would negatively impact the market value of the subject property. 3. Improvements Description The hotel building forms an approximate U-shape with the interior of the U-shape forming a courtyard area. The courtyard is landscaped and is also the site of the pool. The hotel offers interior corridors and one hydraulic elevator. The building is fire sprinklered. The building has a composition shingle roof which appears to be in good condition. The exterior of the building is comprised of off-white stucco with dark brown trim. A coordinated stucco wall lines the rear sides of the perimeter of the property. The total interior square footage of the hotel is 30,862 square feet with the average interior space of a typical guestroom being approximately 225 square feet. The Super 8 Motel provides 80 guestrooms, configured as 32 queen-size bedrooms, 44 double, queen-size bedrooms, and four suite rooms. The guestrooms are furnished with a color television, desk, two chairs, nightstand, lamp, and IV-7 dresser. The lobby is wood paneled with contemporary wood furniture. Overall, the property is in good condition and has been maintained on a regular basis. With regard to parking, the hotel has 95 surface parking spaces located on the paved parking lot which surrounds the hotel building. Three of these spaces are designated for physically challenged persons. Also located on-site for guest use are an ice machine, soft-drink vending machine, and a snack vending machine. 4. Basic Construction and Mechanical Systems The subject building is a wood-framed structure having foundations of poured-in-place concrete. The exterior walls are composed of stucco and dark-brown painted wood. The exterior colors and styling of the hotel convey an update Old English style of decor. The interior walls are sheet rock and are primarily painted or have vinyl wall covering. The roof is a composition shingle roof which appears to be in good condition. Presented in the following table is a summary of the basic construction and mechanical systems of the hotel. =============================================================================== Super 8 Motel -- Modesto Summary of Basic Construction and Mechanical Systems =============================================================================== Foundation: Concrete slab on grade - ------------------------------------- ----------------------------------------- Frame: Wood-frame construction, type V-1 hour fire rating. - ------------------------------------- ----------------------------------------- Walls: Exterior: stucco. Interior: gypsum board covering an airspace between 2x4 studs. The walls in the guestrooms are painted gypsum board and partially papered. Lobby walls are wood paneled and painted gypsum board. - ------------------------------------- ----------------------------------------- Floor: Floors are carpeted in guestrooms and corridor areas. Bathrooms have vinyl tile. The lobby area is carpeted and the vending area has ceramic tile flooring. - ------------------------------------- ----------------------------------------- Roof: Slightly pitched with red concrete Spanish-style roofing tiles - ------------------------------------- ----------------------------------------- Ceiling Heights: 8.0 feet. Ceilings are painted gypsum board and painted wood. In the public areas the lighting is set in incandescent light fixtures. In the guestrooms, are table lamps. - ------------------------------------- ----------------------------------------- Windows: Window and door sashes are bronzed anodized aluminum. Window trim is painted wood. - ------------------------------------- ----------------------------------------- Heating and Cooling: Each room had individual electric heating and air conditioning units located in the wall under a window - ------------------------------------- ----------------------------------------- Laundry Facilities: Laundry equipment consists of two washers and three dryers, commercial grade. - ------------------------------------- ----------------------------------------- Sprinkler System: All public areas and guest rooms are fire sprinklered. - ------------------------------------- ----------------------------------------- Life Safety: There are two individual fire systems in the guest rooms: fire sensitive sensors and independent smoke alarms. =============================================================================== Source: Famous Host Companies =============================================================================== IV-8 5. Assessed Value and Property Taxes The subject property is assessed by Stanislaus County on a tax year commencing July 1 of every year. Under the provisions of Article 13-A of the State of California (Proposition 13), properties are assessed based on their fair market value as of the change of ownership date. The assessed value can be increased by a maximum of 2.0 percent per year until such date as the property is subsequently sold, substantial new construction takes place, or the use of the property is substantially changed. The current assessed value of the property is presented in the following table. ============================================================ Assessor's Parcel Numbers 029-0237-531 and 029-0237-150 1997/98 Assessed Value ============================================================ Land and Improvements $1,865,379 Personal Property 101,823 - -------------------------------------- --------------------- Net Taxable Value $1,967,202 ====================================== ===================== For 1997/1998, total property taxes and direct assessments are $21,656.90 on the subject property. The indicated tax rate, therefore, is 1.1009 percent. 6. Land Lease The subject property is encumbered by a lease, with the underlying land owned by Allen R. Grant and Carolyn M. Grant, husband and wife, who acquired the property on October 29, 1978. Mr. and Mrs. Grant leased the property to Dennis A. Brown and Philip B. Grotewohl on March 7, 1979. The lease was then assigned to Super 8 Motels as recorded on July 15, 1980. The term of the lease extends until September 15, 2029, with three renewal options of ten years each. The base rent was set at $2,530 monthly, and is adjusted every three years to reflect changes in the Consumer Price Index. The current rent is $5,827.66 per month as of December 31, 1997 ($69,931.92 annually). 7. Renovation and Capital Improvements Identified renovation plans include the replacement of the sub-flooring of the ground floor guest corridors as well as the carpeting of these hallways. Further, as the through-the wall air conditioning units in each guestroom continue to age, these units will need to be replaced. As the guestroom doors are secured with standard key locks, an upgrade to more contemporary electronic door locks is also necessary. Given that the cost of such renovation work, on a project-by-project basis, is not unusually large, annual funding for such projects on a phased-basis is IV-9 considered to be possible through an annual reserve for capital replacement of 4.0 percent of total revenue. 8. Summary of Functional Utility and Condition It is our opinion that the hotel is adequately designed and maintained to service the hotel market demands of the suburban Modesto community. C. HOTEL MARKET ANALYSIS 1. Competitive Supply There are a wide variety of lodging facilities currently located in Modesto, ranging from limited-service motels such as the Motel 6 to full-service properties such as the downtown Doubletree. Of these various hotels and motels, we have identified six hotels, including the subject, with a total of 649 available rooms as comprising the current competitive set of the Super 8 Motel. The selection of the competitive supply was based on location, facilities and amenities, room rate structure, and market orientation. The competitive properties are summarized in the following table. =============================================================================== Super 8 Motel -- Modesto Census of Competitive Properties =============================================================================== Published Room Rates --------------------------- Year Number AAA Property Opened of Rooms Single Double Amenities Rating - --------------------------- ---------- ----------- -------------- -------------- ----------------- =============== Super 8 Motel 1980 80 $41 - $46 $44 - $52 F,G,H 1 star (Motel) Ramada Modesto 1991 115 $64 - $94 $72 - $102 D,F,G,H 3 star (Motel) Motel 6 Modesto North 1977 100 $35 $41 F Not Listed Holiday Inn Modesto 1973 186 $88 $98 A,B,D,E,F,G 2 star (Motor Inn) Holiday Inn Express Modesto 1993 65 $65 - $75 $70 - $80 C,F,G 3 star (Motel) Days Inn Modesto 1968 103 $60 $65 C,D,F,G,H 3 star (Motel) - --------------------------- ---------- ----------- -------------- -------------- ----------------- --------------- Total 649 - -------------------------------------- ----------- -------------- -------------- ----------------- --------------- Amenities Codes AAA Rating A - Restaurant 5 star - Renowned; exceptional property recognized for B - Bar/Lounge market superiority of facilities and service C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations as well as extra amenities D - Meeting Rooms 3 star - Offers very comfortable and attractive E - Exercise Room accommodations F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some G - Whirlpool physical and operational categories H - Adjacent Restaurant 1 star - Meets AAA basic requirements for recommendation N/L Not listed ================================================================================================================== Source: Management of Individual Properties and 1998 American Automobile Association Tour Book ==================================================================================================================
With regard to future lodging supply, there are no hotels currently under construction in the area, and we are aware of none that are planned or approved. IV-10 The current state of the Modesto hotel market is such that we do not anticipate any new lodging properties entering the market in the foreseeable future. Therefore, no additions to the competitive supply are projected during the next five-year period. 2. Historical Market Performance The following table presents a summary of the historical market performance of the five selected competitive hotels, together with the subject, over the period 1992 to 1996, as well as our estimate for 1997. ==================================================================================================================== Competitive Hotel Market Historical Occupancy and Room Rate 1992 to 1997 (Estimated) ==================================================================================================================== Daily Rooms Available Percent Percent Average Daily Percent Year Change Occupancy Change Room Rate Change - --------------------- -------------- ------------ ----------------- ------------- --------------------- ============ 1992 584 - 58.1% - $50.72 - - --------------------- -------------- ------------ ----------------- ------------- --------------------- ============ 1993 649 11.1% 59.5% 2.4% $46.28 (8.8)% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ============ 1994 649 0.0% 57.2% (3.9)% $47.38 2.4% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ============ 1995 649 0.0% 59.0% 3.1% $50.28 6.1% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ============ 1996 649 0.0% 54.4% (7.8)% $51.25 1.9% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ============ 1997 (Estimated) 649 0.0% 55.9% 2.7% $54.46 6.3% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ============ CAAG 0.0%. - - - 1.4% - ==================================================================================================================== Source: PKF Consulting and Smith Travel Research ====================================================================================================================
As can be noted, over the past five years, the number of available rooms within the competitive market increased with the opening of the Holiday Inn Express in 1993, and has remained stable since that time. During the same period, demand has declined in general, with occupancy showing a biennial fluctuation, attributed to a citywide bowling league that meets in Modesto every other summer. However, in general, with the addition of the Holiday Inn Express to the competitive market in 1993, occupancy has declined from a high of 59.5 percent that year to an estimated 55.9 percent as of year-end 1997. In terms of the competitive market's average room rate, we estimate that the six competitive hotels will achieve a weighted average rate of $54.46 in 1997. This equates to CAAG of 1.4 percent over the past six years. 3. Demand Segmentation The primary demand segments in the Modesto market are corporate, group, and leisure demand. Business and leisure travel are the two largest demand segments on an annual basis. On a more seasonal basis, such as the biennial summer bowling leagues, group demand is the third demand segment in the Modesto market. IV-11 Each hotel penetrates these three demand segments based on the appeal of the property to the various types of travelers in each segment. The current mix of demand at the subject property is primarily composed of leisure travelers (52.0%) who are attracted to the subject property because of its convenient location and clean, well-priced rooms. The second largest component of demand (44.8%) is from corporate and government travelers who are visiting businesses and agencies in the area, as well as truckers who stay at the hotel. The balance of demand is generated by group travelers (3.2%) such as athletic and school groups. 4. Projected Future Supply and Demand Over the past six years (1992 to 1997) demand for hotel accommodations in Modesto has increased at a CAAG of 1.3 percent. This reflects the mature nature of the lodging industry in Modesto and the seasonal nature of both agribusiness and tourism to the area. Based on our review of the local market, we project overall demand for hotel rooms will continue to stabilize and perhaps show limited growth over the next five years. Presented in the table below is a summary of the projected growth in supply, demand, and the resulting occupancy levels for the competitive market for the period 1998 to 2002. ======================================================================================================= Super 8 Motel -- Modesto Estimated Growth In Supply and Demand Competitive Hotel Market ======================================================================================================= Daily Annual Total Year Available Rooms Available Rooms Demand Occupancy - --------------------- ----------------------- --------------------- ---------------- ------------------ Actual 1992 584 213,160 123,846 58.1% 1993 649 236,855 140,947 59.5% 1994 649 236,855 135,498 57.2% 1995 649 236,855 139,762 59.0% 1996 649 236,855 128,865 54.4% 1997 (Estimated) 649 236,855 132,412 55.9% - --------------------- ----------------------- --------------------- ---------------- ------------------ Projected 1998 649 236,855 135,000 57.0% 1999 649 236,855 138,000 58.3% 2000 649 236,855 141,000 59.5% 2001 649 236,855 143,000 60.4% 2002 649 236,855 146,000 61.6% - --------------------- ----------------------- --------------------- ---------------- ------------------ CAAG 1992 to 1997 2.1% - 1.3% - 1997 to 2002 0.0% 2.0% ======================================================================================================= Source: PKF Consulting and Smith Travel Research =======================================================================================================
IV-12 As can be noted above, the number of rooms available in the market grew slightly, at 2.1 percent, with the entry of the Holiday Inn Express into the competitive market in 1993. During that period, demand grew at a relatively modest pace of 1.3 percent annually. No change in the number of rooms in the competitive market is forecast during the next five years. With no growth in supply, modest growth in occupancy is forecast, and occupancy is expected to grow from 55.9 percent as of year-end 1997 to 61.6 percent as of year-end 2002. This represents a CAAG of 2.0 percent. From 2002 onwards, a stable, composite average annual occupancy of 62.0 percent is foreseen. 5. Market Performance of the Subject The following table summarizes the historical occupancy levels and average room rate for the Super 8 Motel over the past four years =============================================================================== Super 8 Motel -- Modesto Historical Occupancy and Room Rate 1994 to 1997 (Estimated) =============================================================================== Average Daily Year Occupancy % Change Room Rate % Change - ------------------- --------------- ------------- ----------------- ----------- 1994 71.0% - $41.02 - - ------------------- --------------- ------------- ----------------- ----------- 1995 73.2% 3.1% $41.06 0.0% - ------------------- --------------- ------------- ----------------- ----------- 1996 66.8% (8.7)% $41.63 1.4% - ------------------- --------------- ------------- ----------------- ----------- 1997 (Estimated) 62.0% (7.2)% $45.00 8.1% - ------------------- --------------- ------------- ----------------- ----------- CAAG (4.4)% - 3.1% - =============================================================================== Source: Famous Host Companies =============================================================================== As can be noted, occupancy rates at the subject property have been trending downward from a high of 73.2 percent achieved in 1995 to 66.8 percent achieved in 1996. A further-declined occupancy level of 62.0 percent is estimated for year-end 1997. A portion of the decline in occupancy is attributed to management's efforts to raise ADR, thus turning away some rate-sensitive demand. Occupancy rates are expected to climb from the year-end 1997 level in future years. With regard to room rates, after remaining comparably flat for three years from 1994 to 1996, room rates jumped 8.1 percent to an estimated $45.00 for year-end 1997. This increase in ADR is a reflection of some economic strength in the local market. Based on our analysis of the local market, we are of the opinion the subject will achieve a stable occupancy level of approximately 62.0 percent in 1998, an increased occupancy of 65.0 percent in 1999, and an increased occupancy to 68.0 percent for 1999. For the balance of the projection period, from 2000 to 2007, a stable occupancy level of 68.0 percent is projected. IV-13 Based on our market analysis, we project the hotel to achieve an average room rate of $46.25 in 1998, a 3.0 percent increase from 1997. Over the balance of our projection period, we project the hotel's average room rates to increase at the anticipated long-term level of inflation (3.0 percent per year). We believe that this is realistic given the projected limited growth in demand combined with no new additions to supply. The following table summarizes our projections for the subject property over the first five years of the ten-year analysis period from January 1, 1998 to December 31, 2002. =============================================================================== Super 8 Motel -- Modesto Projected Occupancy and Average Daily Room Rate 1998 to 2002 =============================================================================== Average Market Daily Percent Year Occupancy Penetration Room Rate Change - --------------- --------------- ------------------- ---------------- ---------- 1997 62.0% 111% $45.00 - (Estimated) - --------------- --------------- ------------------- ---------------- ---------- 1998 62.0% 109% $46.25 3.0% 1999 65.0% 111% $47.75 3.0% 2000 68.0% 114% $49.25 3.0% 2001 68.0% 113% $50.75 3.0% 2002 68.0% 110% $52.25 3.0% - --------------- --------------- ------------------- ---------------- ---------- CAAG 2.3% - 3.0% - (1998-2002) =============================================================================== Source: PKF Consulting =============================================================================== D. HIGHEST AND BEST USE Based on our analysis, we are of the opinion that the existing improvements contribute significant overall value to the site. There is no alternative, legal use that could economically justify the restructuring or removal of the existing improvements at this time. Therefore, the subject property, as improved, represents the highest and best use of the site. E. VALUATION -- SALES COMPARISON APPROACH 1. Introduction We have reviewed a number of recent sales and have focused on those sales considered most comparable in providing support for the market value of the subject. However, due to the limited number of recent comparable hotel sales in the region immediately surrounding Modesto, we have expanded our search to include other limited-service hotels located elsewhere in the Central Valley. Based on this search, five sales were identified to use as the basis for our valuation of the hotel component of the subject under this approach. IV-14 Presented in the following table is a summary of the selected comparable hotel sales. As can be noted, these sales have occurred between October 1995 and January 1997. ===================================================================================================================== Comparable Hotel Sales ===================================================================================================================== Rooms Overall Sale Sale Year Number of Price Per Revenue Capitalization No. Hotel Name Location Date Built Rooms Room Multiplier Rate - -------- ----------------- ------------------ --------- --------- ----------- ------------ ----------- -------------- 1 Best Western Tracey 1/97 1994 60 $58,750 3.6 11.0% 2 Comfort Inn Stockton 8/96 1970s 66 $20,145 2.2 N/A 3 Motel 6 Modesto 7/96 1985 70 $22,857 4.2 N/A 4 Acorn Inn Stockton 10/95 1965 56 $23,214 2.8 N/A 5 Holiday Inn Modesto 10/95 1973 186 $16,667 1.9 10.7% ===================================================================================================================== Source: PKF Consulting =====================================================================================================================
2. Analysis of the Hotel Sales In reviewing the preceding table, it can be noted that the sales price per room indicates a range in value on a per-room basis from $16,667 to $58,750. Because of the many differences between these hotels and the subject hotel, we are of the opinion that an analysis using a rooms revenue multiplier is the most appropriate units of comparison to value the subject. A rooms revenue multiplier measures the total revenue generated from room rentals, the major revenue source for this type of hotel property, in relation to the sales price. Rooms revenue multipliers do not require subjective adjustments since most variance in properties are considered to be reflected in average daily room rates and annual occupancies as achieved in the market. As can be noted, indicated rooms revenue multipliers for the five sales ranged from a low of 1.9 to a high of 4.2, with an average of 2.9. Based on our analysis, we are of the opinion that a rooms revenue multiplier close to the average indicated by the comparable sales is appropriate in valuing the subject property. Based on this multiplier, and assuming a stabilized occupancy level of 68.0 percent at an average daily room rate of $46.25 (stated in 1998 dollars), the indicated value for available rooms for the subject is as follows: Rooms Stabilized Stabilized Indicated Value Revenue Average Rate Occupancy Per Room Multiplier Level Days/Year (Rounded) - ---------------- --- --------------- --- ----------------- --- ---------------- --- ----------------------- 2.9 X $46.25 X 68.0% X 365 = $33,300 - ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
As noted above, the rooms revenue multiplier analysis produced a value indication of $33,300 per available room. This value unit is converted into a IV-15 total value estimate by multiplying the indicated value per room by the total number of rooms. Based on 80 rentable rooms, the indicated stabilized value of the fee simple interest in the Super 8 Motel is $2,700,000 as calculated below: - ----------------------- ---- ---------------- ----- --------------------------- $33,300 X 80 Rooms = $2,700,000(Rounded) - ----------------------- ---- ---------------- ----- --------------------------- F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH After concluding to our estimate of the stabilized value of the subject, the next step in our analysis is to develop an estimate of the "as is" leasehold market value of the subject property. 1. Income Loss The first step to develop the value estimate is to deduct the income loss projected to occur until the property is stabilized (as discussed in the Income Capitalization section). =================================================================== Sales Comparison Approach "As Is" Fee Simple Value =================================================================== Stabilized value Indication $2,700,000 Less: Income Loss Until Stabilization (77,000) - ---------------------------------------------- -------------------- "As Is" Fee Simple Value $2,623,000 - ---------------------------------------------- -------------------- 2. Valuation of Leased Fee Interest After having developed an estimate of the "as is" fee simple value of the subject under the Sales Comparison Approach, the next step is to develop an estimate of the value of the leased fee interest in the property. This represents the position of the ground lessor, who benefits from the income derived from the ground lease payments during the term of the lease, as well as the ownership of the property in fee at the termination of the lease (the reversion). The estimated leased fee interest in the hotel is then subtracted from the fee simple value to arrive at our estimate of the value of the leasehold interest. This deduction is derived by capitalizing the land lease payment for a stabilized year ($72,000) by an appropriate capitalization rate (9.0 percent). This capitalization rate of 250 basis points less than the rate used to capitalize the revenue stream from the hotel operations (as will be discussed in the Income Capitalization Approach) is reflective of the more secure position of IV-16 the landlord as compared to the lessee. This calculation results in a leased fee interest of $800,000 ($72,000 / 9.0 percent). The following table summarizes the deduction made from the stabilized fee simple value indication. ============================================================== Sales Comparison Approach "As Is" Leasehold Value ============================================================== Fee Simple Value Estimate $2,623,000 Less: Leased Fee Land Value (800,000) - ------------------------------------- ------------------------ Leasehold Value $1,823,000 - ------------------------------------- ------------------------ Rounded $1,800,000 ===================================== ======================== As a result of the foregoing analysis, we estimate the "as is" market value of the leasehold interest in the subject as of January 1, 1998, through the Sales Comparison Approach to be: =============================================================================== ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $1,800,000 =============================================================================== G. VALUATION -- INCOME CAPITALIZATION APPROACH 1. Basis for Cash Flow Projection In order to develop an estimate of the net operating income (NOI) for the subject for both a stabilized year of operation (direct capitalization) and each year of the aforementioned holding period (yield capitalization), the following have been analyzed: 1. The historical operating results for the subject for year-end 1994, 1995, 1996, year-to-date September 1997, and management's operating budget for 1997. 2. The operating results of the category "Limited-Service Hotels" from the 1997 issue of PKF Consulting's Trends in the Hotel Industry. The historical operating results of the subject are presented at the end of this section of the report. 2. Stabilized Year Operating Estimate We first developed an estimate of the performance of the subject for a stabilized year of operation stated in current value, 1998 dollars. This IV-17 estimate is based on our review of the historical operating results of the subject hotel coupled with an analysis of the operating results of the selected PKF Consulting "Trends" category. Additional key assumptions used in preparing this stabilized year estimate are summarized below. a) The stabilized annual occupancy of the hotel is projected to be 68.0 percent at an average daily room rate of $46.25 as stated in 1998 dollars; b) A management fee of 5.0 percent of total revenues, a franchise fee of 8.0 percent of room revenues, and a reserve for capital replacements of 4.0 percent of total revenue have been deducted to establish the net operating income of the subject. c) The projection of expense for taxes on real and personal property is a function of the market value of the property. The subject property is in the real estate taxing jurisdiction of the Stanislaus County Tax Assessor's Office. Our estimate of the property taxes for the subject is based on the provisions of Proposition 13. Proposition 13 limits ad valorem property taxes to 1.0 percent of the assessed value plus assessment for city, special district, and county bonds. The current effective tax rate is 1.1009 percent of market value. This appraisal assumes a sale of the subject property on the effective date of the appraisal, which will initiate a reassessment of real estate for tax purposes. For the purpose of this analysis, the reassessment is based on the value estimate of the subject property as determined using the Income Capitalization Approach as if owned in fee simple. Based on that estimated value of the hotel, a tax rate of 1.1009 per $100 of assessed value is utilized, resulting in real estate taxes of $28,000, rounded, in the representative or stabilized year. Presented below is our estimate of the subject hotel's stabilized year operating results. As can be noted, on a stabilized basis, the subject property will generate approximately $945,000 in total revenue, with a net operating income of $212,000, or 22.4 percent of total revenue. IV-18 ============================================================================================== Super 8 Motel -- Modesto Stabilized Year Operating Results (Stated in 1998 Value Dollars) ============================================================================================== Occupancy Level 68.0% - -------------------------------------------- ------------------------------------------------- Average Room Rate $46.25 - -------------------------------------------- ------------------------------------------------- REVPAR $31.45 - -------------------------------------------- -------------- ---------- ----------- ----------- Total Ratios POR (1) POR (2) - -------------------------------------------- -------------- ---------- ----------- ----------- Revenues Rooms $918,000 97.2% $11,475 $46.25 Telephone 24,000 2.5% 300 1.17 Other Operated Departments 3,000 0.3% 38 0.15 - -------------------------------------------- -------------- ---------- ----------- ----------- Total Revenues 945,000 100.0% 11,813 47.57 - -------------------------------------------- -------------- ---------- ----------- ----------- Departmental Expenses (3) Rooms 186,000 20.3% 2,325 9.38 Telephone 11,000 45.8% 138 0.56 Other Operated Departments 1,000 33.3% 13 0.05 - -------------------------------------------- -------------- ---------- ----------- ----------- Total Departmental Expenses 198,000 21.0% 2,476 9.99 - -------------------------------------------- -------------- ---------- ----------- ----------- Departmental Income 747,000 79.0% 9,337 37.58 - -------------------------------------------- -------------- ---------- ----------- ----------- Undistributed Operating Expenses Administrative and General 120,000 12.7% 1,500 6.04 Franchise Fees 74,000 7.8% 925 3.73 Marketing 25,000 2.6% 310 1.26 Property Maintenance 60,000 6.3% 745 3.02 Energy and Utilities 54,000 5.7% 670 2.72 - -------------------------------------------- -------------- ---------- ----------- ----------- Total Undistributed Expenses 333,000 35.2% 4,150 16.77 - -------------------------------------------- -------------- ---------- ----------- ----------- Income Before Fixed Charges 414,000 43.8% 5,187 20.85 - -------------------------------------------- -------------- ---------- ----------- ----------- Management Fees and Fixed Charges Management Fees 47,000 5.0% 587 2.37 Property Taxes 28,000 3.0% 350 1.41 Insurance 16,000 1.7% 206 0.81 Land Lease 72,000 7.6% 900 3.63 - -------------------------------------------- -------------- ---------- ----------- ----------- Total 163,000 17.3% 2,043 8.22 - -------------------------------------------- -------------- ---------- ----------- ----------- Income Before Reserve 251,000 26.6% 3,137 12.64 - -------------------------------------------- -------------- ---------- ----------- ----------- Reserve for Replacement 39,000 4.0% 487 1.96 - -------------------------------------------- -------------- ---------- ----------- ----------- Income Before Other Charges(4) $212,000 22.4% $2,650 $10.68 ============================================================================================== (1) PAR -- Per Available Room (2) POR -- Per Occupied Room (3) Departmental expense ratios are based on the respective department's revenue, not total revenue (4) Income before interest, taxes, depreciation, and amortization Source: PKF Consulting ==============================================================================================
3. Ten Year Statement of Estimated Annual Operating Results Presented at the end of this section of the appraisal report is our estimate of the operating results for the subject for the ten-year period beginning January 1, 1998. This forecast is based on the preceding stabilized year estimate, adjusted to reflect effects of inflation, variations in occupancy and rate and the impact of fixed and variable components of each revenue and expense item. Selected key assumptions used to develop this forecast are summarized below. IV-19 a) With the exception of property taxes, all other revenues are expenses are projected to increase at 3.0 percent throughout the holding period. Property taxes are projected to increase at a rate of 2.0 percent per year as allowed by California law, and growth in average daily room rate is expected to be depressed for the first four years of the analysis period as a result of market-driven factors. b) For the first two years of this forecast, the occupancy and rates of the hotel were projected as previously discussed. Thereafter, the hotel's occupancy was assumed to remain at 68.0 percent, with the average rate increasing at 3.0 percent per year. 4. Valuation Using Direct Capitalization Based on our evaluation of the subject, it is was concluded that an overall capitalization rate (OAR) of 11.5 percent is appropriate to value the subject, and properly reflects the risks associated with this hotel given the property's age, physical features, location, market position, and leasehold estate status. Based on the projection of net operating income for a stabilized year of operation, and the selected overall rate of 11.5 percent, the value of the subject as if stabilized is calculated to be as follows. ================================================== ===================== Projected Stabilized Net Operating Income $212,000 Overall Capitalization Rate 11.5% - -------------------------------------------------- --------------------- Stabilized Value Indication $1,843,478 Rounded $1,850,000 ================================================== ===================== From this derived stabilized value, a deduction is made for the cost required for the hotel to achieve the projected stabilized level of income. This cost is typically referred to as "income loss". Income loss is the difference in projected cash flows and the cash flow which would be available if the property were stabilized. This amount must be subtracted from the stabilized value to reflect the risk associated with the loss of income of a hotel property during the stabilization period. Based on our market research and analysis, it is estimated that the subject will achieve a stabilized level of operation in 2000. A calculation of the income loss associated for the two years prior to that period is presented on the following table. IV-20 =============================================================================== Income Loss to Stabilization =============================================================================== Estimated Stabilized Year Net Operating Net Operating Estimated Present Value Year Income Income (1) Income Loss @ 6.5% - -------------- ----------------- ----------------- ---------------- ----------- 1998 $155,000 $212,000 $57,000 $55,072 1999 193,000 218,360 25,360 22,539 - -------------- ----------------- ----------------- ---------------- ----------- Total 82,360 77,611 - -------------- ----------------- ----------------- ---------------- ----------- Rounded $82,000 $78,000 =============================================================================== (1)Inflated to future value dollars at 3.0 percent. =============================================================================== Based upon the preceding calculation, the cumulative income loss over the stabilization period is estimated to be approximately $82,000. Investors typically discount the estimated income loss at either the internal rate of return for the property or at a "safe rate" such as AAA bonds or short-term treasury bills. For the purpose of this analysis, we have chosen to discount the income loss at the safe rate, or a rate which easily could be achieved if this additional cash flow were available for short-term reinvestment. Consequently, if the sum of the income losses were discounted at a safe rate of 6.5 percent, the present value of the estimated income loss would be roundly $78,000. Presented below is our calculation of the "as is" market value of the subject taking into account the above estimate of income loss during the projected stabilization period. ======================================================================= Value Conclusion -- Direct Capitalization ======================================================================= Stabilized Value $1,850,000 Less: Income Loss During Stabilization Period (78,000) - ---------------------------------------------------- ------------------ "As Is" Value $1,772,000 - ---------------------------------------------------- ------------------ Rounded $1,800,000 - ---------------------------------------------------- ------------------ Therefore, the estimated "as is" market value of the leasehold interest in the subject using the Direct Capitalization Approach, as of January 1, 1998, is: ============================================================================== ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $1,800,000 ============================================================================== 5. Discounted Cash Flow Valuation Analysis To estimate the value of the subject using a discounted cash flow analysis, it is assumed that the property will be sold at the end of a ten-year holding IV-21 period. The value of the property at that time is estimated by capitalizing the expected or anticipated net operating income of the property in the eleventh year. From this value estimate, an estimate of sales costs is deducted to arrive at the net proceeds upon sale. Based on our market research, we are of the opinion that a reversionary capitalization rate of 12.0 percent and a 14.5 percent discount rate are appropriate to value the subject on a discounted cash flow basis. The following table shows the present value of the projected net operating income for the subject for the ten-year holding period, along with the present value of the reversion, deriving a value estimate. =============================================================================== Discounted Cash Flow Analysis =============================================================================== Cash Flow Present Present From Value Value Year Operations Factor @ 14.5% - ----------------- -------------------- ----------------------- ---------------- 1998 $155,000 0.8734 $135,371 1999 $193,000 0.7628 $147,213 2000 $235,000 0.6662 $156,549 2001 $239,000 0.5818 $139,052 2002 $245,000 0.5081 $124,491 2003 $253,000 0.4438 $112,276 2004 $261,000 0.3876 $101,158 2005 $269,000 0.3385 $91,056 2006 $279,000 0.2956 $82,481 2007 $286,000 0.2582 $73,843 - ----------------- -------------------- ----------------------- ---------------- Reversion $2,421,000 0.2582 $625,086 - ----------------- -------------------- ----------------------- ---------------- Present Value $1,788,578 - ----------------- -------------------- ----------------------- ---------------- Value, Rounded $1,800,000 - ----------------- -------------------- ----------------------- ---------------- 6. Income Capitalization Approach Valuation Conclusion The value conclusion under the Income Capitalization Approach is based on both a direct capitalization and a discounted cash flow analysis. Both methods resulted in the same value. Our conclusion as to the "as is" market value of the leasehold interest of the subject using the Income Capitalization Approach, as of January 1, 1998, is: ============================================================================== ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $1,800,000 ============================================================================== IV-22 H. RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the two valuation methodologies applied, considering the property type and the requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the two approaches are as follows: ============================================ ====================== Sales Comparison Approach $1,800,000 Income Capitalization Approach Direct Capitalization $1,800,000 Discounted Cash Flow Analysis $1,800,000 ============================================ ====================== In the Sales Comparison Approach we compared five recent hotel transactions to the subject. The selected sales indicated a relatively wide range in value. Furthermore, the sales were located in varying market areas throughout the Central Valley of California and no property was identical to the subject. These factors make this approach less meaningful, but act as a reference checkpoint for the value derived from the Income Capitalization Approach methods. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized two methods of analysis: The direct capitalization method and the discounted cash flow method (yield capitalization). There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a value estimate. Both income methods resulted in a close range in values, within 2.0 percent of each other, heightening our confidence in this approach. Accordingly, the primary reliance was placed on this method. Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the "as is" market value of the leasehold interest in the subject property, as of January 1, 1998, is reasonably represented as: =============================================================================== ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $1,800,000 =============================================================================== IV-23 SUPER 8 MOTEL -- MODESTO, CALIFORNIA HISTORICAL OPERATING RESULTS Super 8, Modesto Historical Operating Results --------------------------------------------------------------------------------------------------- 1994 1995 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 80 80 Occupancy 71.00% 73.20% Average Daily Room Rate (ADR) $41.02 $41.06 REVPAR $29.12 $30.06 REVENUES ROOMS $ 849,946 97.9% $ 10,624 $ 41.00 $ 877,096 97.8% $ 10,964 $ 41.03 TELEPHONE 15,964 1.8% 200 0.77 16,718 1.9% 209 0.78 MISCELLANEOUS 2,566 0.3% 32 0.12 2,966 0.3% 37 0.14 ------------ ------- -------- ------- ---------- ------- -------- ------- TOTAL REVENUE 868,476 100.0% 10,856 41.89 896,780 100.0% 11,210 41.96 DEPT. COSTS & EXPENSES (3) ROOMS 180,136 21.2% 2,252 8.69 177,268 20.2% 2,216 8.29 TELEPHONE 11,395 71.4% 142 0.55 10,668 63.8% 133 0.50 MISCELLANEOUS 196 7.6% 2 0.01 547 18.4% 7 0.03 ------------ ------- -------- ------- ---------- -------- -------- ------- TOTAL COST & EXP. 191,727 22.1% 2,397 9.25 188,483 21.0% 2,356 8.82 TOTAL OPER. DEPTS. INCOME 676,749 77.9% 8,459 32.64 708,297 79.0% 8,854 33.14 ------------ ------- -------- ------- ---------- -------- -------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 123,464 14.2% 1,543 5.96 128,563 14.3% 1,607 6.01 MARKETING 24,932 2.9% 312 1.20 26,088 2.9% 326 1.22 FRANCHISE FEES 42,399 4.9% 530 2.05 43,855 4.9% 548 2.05 UTILITIES 48,267 5.6% 603 2.33 56,054 6.3% 701 2.62 PROPERTY OPERATIONS 73,496 8.5% 919 3.55 74,930 8.4% 937 3.51 ------------ ------- ------ ------- ----------- -------- -------- ------- TOTAL 312,558 36.0% 3,907 15.08 329,490 36.7% 4,119 15.42 INC. BEFORE MGMT. FEES AND FIXED CHARGES 364,191 41.9% 4,552 17.57 378,807 42.2% 4,735 17.72 ------------ ------- ------ ------- ------------ --------- -------- ------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 43,325 5.0% 542 2.09 44,839 5.0% 560 2.10 PROPERTY TAXES 29,876 3.4% 373 1.44 20,990 2.3% 262 0.98 INSURANCE 15,474 1.8% 193 0.75 16,235 1.8% 203 0.76 RENT 66,885 7.7% 836 3.23 66,637 7.4% 833 3.12 ------------ -------- ------ ------- ------------ --------- -------- ------- TOTAL 155,560 17.9% 1,945 7.50 148,701 16.6% 1,859 6.96 INCOME BEFORE OTHER (4) FIXED CHARGES $ 208,631 24.0% 2,608 10.06 $ 230,106 25.7% 2,876 10.77 ============ ======== ====== ======= ============= ========= ======== ======= RENOVATION PAYMENT $ 38,662 $ 59,099 ----------------------------------------------------- 1996 ----------------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------------- Number of Keys 80 Occupancy 66.83% Average Daily Room Rate (ADR) $41.63 REVPAR $27.82 REVENUES ROOMS $ 814,510 97.1% $ 10,181 $ 41.62 TELEPHONE 21,127 2.5% 264 1.08 MISCELLANEOUS 2,943 0.4% 37 0.15 ---------- ------- -------- ------- TOTAL REVENUE 838,580 100.0% 10,482 42.86 DEPT. COSTS & EXPENSES (3) ROOMS 173,376 21.3% 2,167 8.86 TELEPHONE 13,018 61.6% 163 0.67 MISCELLANEOUS 598 20.3% 7 0.03 ---------- ------- -------- ------- TOTAL COST & EXP. 186,992 22.3% 2,337 9.56 TOTAL OPER. DEPTS. INCOME 651,588 77.7% 8,145 33.30 ---------- ------- -------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 136,249 16.2% 1,703 6.96 MARKETING 22,325 2.7% 279 1.14 FRANCHISE FEES 40,760 4.9% 510 2.08 UTILITIES 50,704 6.0% 634 2.59 PROPERTY OPERATIONS 68,119 8.1% 851 3.48 ---------- ------- -------- -------- TOTAL 318,157 37.9% 3,977 16.26 INC. BEFORE MGMT. FEES AND FIXED CHARGES 333,431 39.8% 4,168 17.04 ---------- ------- -------- -------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 41,952 5.0% 524 2.14 PROPERTY TAXES 24,321 2.9% 304 1.24 INSURANCE 8,175 1.0% 102 0.42 RENT 67,896 8.1% 849 3.47 ---------- ------- -------- -------- TOTAL 142,344 17.0% 1,779 7.27 INCOME BEFORE OTHER (4) FIXED CHARGES $ 191,087 22.8% 2,389 9.77 ========== ======= ======== ======== RENOVATION PAYMENT $ 16,191 - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. =================================================================================================================================== Source:The Famous Host Company ===================================================================================================================================
Super 8, Modesto Operating Results Year-To-Date Septmber 1997 and 1997 Budget --------------------------------------------------------------------------------------------------- September 1997 Budget 1997 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 80 80 Occupancy 64.80% 69.62% Average Daily Room Rate (ADR) $44.83 $43.74 REVPAR $29.05 $30.45 REVENUES ROOMS $ 634,906 97.3% $10,611 $ 44.83 $ 889,160 97.7% $ 11,115 $ 43.74 TELEPHONE 16,228 2.5% 271 1.15 16,228 1.8% 203 0.80 MISCELLANEOUS 1,481 0.2% 25 0.10 2,449 0.3% 31 0.12 ------------ ------- ------- ------- --------- ------- --------- ------- TOTAL REVENUE 652,615 100.0% 10,907 46.08 909,980 100.0% 11,375 44.76 DEPT. COSTS & EXPENSES (3) ROOMS 128,935 20.3% 2,155 9.10 178,173 20.0% 2,227 8.76 TELEPHONE 8,093 49.9% 135 0.57 9,461 58.3% 118 0.47 MISCELLANEOUS 333 22.5% 6 0.02 200 8.2% 3 0.01 ------------ -------- ------- -------- --------- ------- -------- ------- TOTAL COST & EXP. 137,361 21.0% 2,296 9.70 187,834 20.6% 2,348 9.24 TOTAL OPER. DEPTS. INCOME 515,254 79.0% 8,611 36.38 722,146 79.4% 9,027 35.52 ------------ -------- ------- -------- --------- ------- -------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 99,505 15.2% 1,663 7.03 128,416 14.1% 1,605 6.32 MARKETING 7,586 1.2% 127 0.54 16,896 1.9% 211 0.83 FRANCHISE FEES 31,745 4.9% 531 2.24 44,458 4.9% 556 2.19 UTILITIES 43,382 6.6% 725 3.06 52,014 5.7% 650 2.56 PROPERTY OPERATIONS 49,837 7.6% 833 3.52 55,811 6.1% 698 2.75 ------------ ------- ------ -------- ---------- ------- -------- ------- TOTAL 232,055 35.6% 3,878 16.39 297,595 32.7% 3,720 14.64 INC. BEFORE MGMT. FEES AND FIXED CHARGES 283,199 43.4% 4,733 20.00 424,551 46.7% 5,307 20.88 ------------ ------- ------- -------- ----------- -------- -------- ------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 32,631 5.0% 545 2.30 45,499 5.0% 569 2.24 PROPERTY TAXES 17,856 2.7% 298 1.26 30,000 3.3% 375 1.48 INSURANCE 12,461 1.9% 208 0.88 15,900 1.7% 199 0.78 RENT 53,215 8.2% 889 3.76 67,000 7.4% 838 3.30 ------------ ------- ------- -------- ------------ --------- -------- ------- TOTAL 116,163 17.8% 1,941 8.20 158,399 17.4% 1,980 7.79 INCOME BEFORE OTHER (4) FIXED CHARGES $ 167,036 25.6% 2,792 11.79 $ 266,152 29.2% $ 3,327 $ 13.09 ============ ======= ======= ======== ============= ========== ======== ======= RENOVATION PAYMENT $ 21,086 $ 27,299 - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. ==================================================================================================================================== Source:The Famous Host Company ====================================================================================================================================
SUPER 8 MOTEL -- MODESTO, CALIFORNIA TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS Super 8 Modesto, California Projected Operating Results ----------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 1998 1999 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 80 80 Occupancy 62.00% 65.00% Average Daily Room Rate $46.25 $47.75 Revenues Rooms $ 837,000 97.2% $10,463 $46.23 $ 906,000 97.2% $11,325 $47.73 Telephone 21,000 2.4% 263 1.16 23,000 2.5% 288 1.21 Other Operated Departments 3,000 0.3% 38 0.17 3,000 0.3% 38 0.16 ----------- ------- ------- --------- --------- ------- ------- ------- Total Revenues 861,000 100.0% 10,763 47.56 932,000 100.0% 11,650 49.10 Departmental Expenses (3) Rooms 178,000 21.3% 2,225 9.83 188,000 20.8% 2,350 9.91 Telephone 11,000 52.4% 138 0.61 12,000 52.2% 150 0.63 Other Operated Departments 1,000 33.3% 13 0.06 1,000 33.3% 13 0.05 ----------- ------- ------ --------- ---------- ------ ------ ------- Total Departmental Expenses 190,000 22.1% 2,375 10.49 201,000 21.6% 2,513 10.59 ----------- ------- ------ --------- ---------- ------ ------ ------- Departmental Profit 671,000 77.9% 8,388 37.06 731,000 78.4% 9,138 38.51 Undistributed Expenses Administrative and General 118,000 13.7% 1,475 6.52 122,000 13.1% 1,525 6.43 Franchise Fees 67,000 7.8% 838 3.70 72,000 7.7% 900 3.79 Marketing 25,000 2.9% 313 1.38 25,000 2.7% 313 1.32 Property Operations and Maintenance 60,000 7.0% 750 3.31 62,000 6.7% 775 3.27 Energy and Utilities 54,000 6.3% 675 2.98 55,000 5.9% 688 2.90 ----------- ------- ------ --------- ---------- ------ ------- ------- Total Undistributed Expenses 324,000 37.6% 4,050 17.90 336,000 36.1% 4,200 17.70 ----------- ------- ------ --------- ---------- ------ ------ ------- Gross Operating Profit 347,000 40.3% 4,338 19.17 395,000 42.2% 4,938 20.81 Fixed Charges and Management Fees Base Management Fees 43,000 5.0% 538 2.38 47,000 5.0% 588 2.48 Property Taxes 27,000 3.1% 338 1.49 27,000 2.9% 338 1.42 Insurance 16,000 1.9% 200 0.88 17,000 1.8% 213 0.90 Land Lease 72,000 8.4% 900 3.98 74,000 7.9% 925 3.90 ----------- ------- ------ --------- ---------- ------- ------ ------- Total Fixed Charges 158,000 18.4% 1,975 8.73 165,000 17.7% 2,063 8.69 ----------- ------- ------ --------- ---------- ------- ------ ------- Income Before Reserves 189,000 22.0% 2,363 10.44 230,000 24.7% 2,875 12.12 Reserves for Replacements 34,000 3.9% 425 1.88 37,000 4.0% 463 1.95 ----------- ------- ------ --------- ---------- ------- ------ ------- Net Operating Income (4) $ 155,000 18.0% $ 1,938 $ 8.56 $ 193,000 20.7% $ 2,413 $10.17 =========== ======= ====== ========= ========= ======= ====== ======= ------------------------------------------------ Calendar Years Ending December 31: 2000 ------------------------------------------------ $ % PAR (1) POR (2) ------------------------------------------------ Number of Keys 80 Occupancy 68.00% Average Daily Room Rate $49.25 Revenues Rooms $ 981,000 97.2% $12,263 $49.27 Telephone 25,000 2.5% 313 1.26 Other Operated Departments 3,000 0.3% 38 0.15 ----------- ------- ------ -------- Total Revenues 1,009,000 100.0% 12,613 50.68 Departmental Expenses (3) Rooms 198,000 20.2% 2,475 9.94 Telephone 13,000 52.0% 163 0.65 Other Operated Departments 1,000 33.3% 13 0.05 ----------- ------- ------ -------- Total Departmental Expenses 212,000 21.0% 2,650 10.65 ----------- ------- ------ -------- Departmental Profit 797,000 79.0% 9,963 40.03 Undistributed Expenses Administrative and General 127,000 12.6% 1,588 6.38 Franchise Fees 78,000 7.7% 975 3.92 Marketing 26,000 2.6% 325 1.31 Property Operations and Maintenance 63,000 6.2% 788 3.16 Energy and Utilities 57,000 5.6% 713 2.86 ----------- ------- ------ -------- Total Undistributed Expenses 351,000 34.8% 4,388 17.63 ----------- ------- ------ -------- Gross Operating Profit 446,000 44.2% 5,575 22.40 Fixed Charges and Management Fees Base Management Fees 50,000 5.0% 625 2.51 Property Taxes 28,000 2.8% 350 1.41 Insurance 17,000 1.7% 213 0.85 Land Lease 76,000 7.5% 950 3.82 ----------- ------- ------ -------- Total Fixed Charges 171,000 16.9% 2,138 8.59 ----------- ------- ------ -------- Income Before Reserves 275,000 27.3% 3,438 13.81 Reserves for Replacements 40,000 4.0% 500 2.01 ----------- ------- ------ -------- Net Operating Income (4) $ 235,000 23.3% $ 2,938 $11.80 =========== ======= ======= ======== - ------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Modesto, California Projected Operating Results ----------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2001 2002 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 80 80 Occupancy 68.00% 68.00% Average Daily Room Rate $50.75 $52.25 Revenues Rooms $1,008,000 97.2% $12,600 $50.77 $1,037,000 97.3% $12,963 $52.23 Telephone 26,000 2.5% 325 1.31 26,000 2.4% 325 1.31 Other Operated Departments 3,000 0.3% 38 0.15 3,000 0.3% 38 0.15 ----------- ------- ------- -------- --------- ------- ------- -------- Total Revenues 1,037,000 100.0% 12,963 52.23 1,066,000 100.0% 13,325 53.69 Departmental Expenses (3) Rooms 204,000 20.2% 2,550 10.27 210,000 20.3% 2,625 10.58 Telephone 13,000 50.0% 163 0.65 13,000 50.0% 163 0.65 Other Operated Departments 1,000 33.3% 13 0.05 1,000 33.3% 13 0.05 ----------- ------- ------ -------- --------- ------- ------ -------- Total Departmental Expenses 218,000 21.0% 2,725 10.93 224,000 21.0% 2,800 11.28 ----------- ------- ------ -------- --------- ------- ------ -------- Departmental Profit 819,000 79.0% 10,238 41.25 842,000 79.0% 10,525 42.41 Undistributed Expenses Administrative and General 130,000 12.5% 1,625 6.55 134,000 12.6% 1,675 6.75 Franchise Fees 81,000 7.8% 1,013 4.08 83,000 7.8% 1,038 4.18 Marketing 27,000 2.6% 338 1.36 28,000 2.6% 350 1.41 Property Operations and Maintenance 65,000 6.3% 813 3.27 67,000 6.3% 838 3.37 Energy and Utilities 59,000 5.7% 738 2.97 60,000 5.6% 750 3.02 ----------- ------- ------ -------- -------- ------- ------ -------- Total Undistributed Expenses 362,000 34.9% 4,525 18.23 372,000 34.9% 4,650 18.73 ----------- ------- ------ -------- -------- ------- ------ -------- Gross Operating Profit 457,000 44.1% 5,713 23.02 470,000 44.1% 5,875 23.67 Fixed Charges and Management Fees Base Management Fees 52,000 5.0% 650 2.62 53,000 5.0% 663 2.67 Property Taxes 28,000 2.7% 350 1.41 29,000 2.7% 363 1.46 Insurance 18,000 1.7% 225 0.91 19,000 1.8% 238 0.96 Land Lease 79,000 7.6% 988 3.98 81,000 7.6% 1,013 4.08 ----------- ------- ------ -------- -------- ------- ------ -------- Total Fixed Charges 177,000 17.1% 2,213 8.91 182,000 17.1% 2,275 9.17 ----------- ------- ------ -------- -------- ------- ------ -------- Income Before Reserves 280,000 27.0% 3,500 14.10 288,000 27.0% 3,600 14.50 Reserves for Replacements 41,000 4.0% 513 2.06 43,000 4.0% 538 2.17 ----------- ------- ------ -------- -------- ------- ------ -------- Net Operating Income (4) $ 239,000 23.0% $ 2,988 $12.04 $ 245,000 23.0% $ 3,063 $12.34 =========== ======= ======= ======== ========= ======= ======= ======== ----------------------------------------------- Calendar Years Ending December 31: 2003 ----------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------- Number of Keys 80 Occupancy 68.00% Average Daily Room Rate $53.75 Revenues Rooms $1,067,000 97.2% $13,338 $53.74 Telephone 27,000 2.5% 338 1.36 Other Operated Departments 4,000 0.4% 50 0.20 ----------- -------- ------- -------- Total Revenues 1,098,000 100.0% 13,725 55.30 Departmental Expenses (3) Rooms 216,000 20.2% 2,700 10.88 Telephone 14,000 51.9% 175 0.71 Other Operated Departments 1,000 25.0% 13 0.05 ----------- -------- ------ -------- Total Departmental Expenses 231,000 21.0% 2,888 11.63 ----------- -------- ------ -------- Departmental Profit 867,000 79.0% 10,838 43.66 Undistributed Expenses Administrative and General 138,000 12.6% 1,725 6.95 Franchise Fees 85,000 7.7% 1,063 4.28 Marketing 29,000 2.6% 363 1.46 Property Operations and Maintenance 69,000 6.3% 863 3.48 Energy and Utilities 62,000 5.6% 775 3.12 ----------- -------- ------ -------- Total Undistributed Expenses 383,000 34.9% 4,788 19.29 ----------- -------- ------ -------- Gross Operating Profit 484,000 44.1% 6,050 24.38 Fixed Charges and Management Fees Base Management Fees 55,000 5.0% 688 2.77 Property Taxes 29,000 2.6% 363 1.46 Insurance 19,000 1.7% 238 0.96 Land Lease 84,000 7.7% 1,050 4.23 ----------- -------- ------ -------- Total Fixed Charges 187,000 17.0% 2,338 9.42 ----------- -------- ------ -------- Income Before Reserves 297,000 27.0% 3,713 14.96 Reserves for Replacements 44,000 4.0% 550 2.22 ----------- -------- ------ -------- Net Operating Income (4) $ 253,000 23.0% $ 3,163 $12.74 =========== ======== ======= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Modesto, California Projected Operating Results ------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2004 2005 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 80 80 Occupancy 68.00% 68.00% Average Daily Room Rate $55.25 $57.00 Revenues Rooms $1,100,000 97.2% $13,750 $55.25 $1,132,000 97.2% $14,150 $57.01 Telephone 28,000 2.5% 350 1.41 29,000 2.5% 363 1.46 Other Operated Departments 4,000 0.4% 50 0.20 4,000 0.3% 50 0.20 ----------- ------- ------ -------- ---------- ------- ------- -------- Total Revenues 1,132,000 100.0% 14,150 56.86 1,165,000 100.0% 14,563 58.67 Departmental Expenses (3) Rooms 223,000 20.3% 2,788 11.20 229,000 20.2% 2,863 11.53 Telephone 14,000 50.0% 175 0.70 14,000 48.3% 175 0.71 Other Operated Departments 1,000 25.0% 13 0.05 1,000 25.0% 13 0.05 ----------- ------- ------ -------- --------- ------- ------ -------- Total Departmental Expenses 238,000 21.0% 2,975 11.95 244,000 20.9% 3,050 12.29 ----------- ------- ------ -------- --------- ------- ------ -------- Departmental Profit 894,000 79.0% 11,175 44.90 921,000 79.1% 11,513 46.38 Undistributed Expenses Administrative and General 142,000 12.5% 1,775 7.13 147,000 12.6% 1,838 7.40 Franchise Fees 88,000 7.8% 1,100 4.42 91,000 7.8% 1,138 4.58 Marketing 30,000 2.7% 375 1.51 30,000 2.6% 375 1.51 Property Operations and Maintenance 71,000 6.3% 888 3.57 73,000 6.3% 913 3.68 Energy and Utilities 64,000 5.7% 800 3.21 66,000 5.7% 825 3.32 ----------- ------- ------ -------- --------- ------- ------ -------- Total Undistributed Expenses 395,000 34.9% 4,938 19.84 407,000 34.9% 5,088 20.50 ----------- ------- ------ -------- --------- ------- ------ -------- Gross Operating Profit 499,000 44.1% 6,238 25.06 514,000 44.1% 6,425 25.89 Fixed Charges and Management Fees Base Management Fees 57,000 5.0% 713 2.86 58,000 5.0% 725 2.92 Property Taxes 30,000 2.7% 375 1.51 31,000 2.7% 388 1.56 Insurance 20,000 1.8% 250 1.00 20,000 1.7% 250 1.01 Land Lease 86,000 7.6% 1,075 4.32 89,000 7.6% 1,113 4.48 ----------- ------- ------ -------- --------- ------- ------ -------- Total Fixed Charges 193,000 17.0% 2,413 9.69 198,000 17.0% 2,475 9.97 ----------- ------- ------ -------- --------- ------- ------ -------- Income Before Reserves 306,000 27.0% 3,825 15.37 316,000 27.1% 3,950 15.91 Reserves for Replacements 45,000 4.0% 563 2.26 47,000 4.0% 588 2.37 ----------- ------- ------ -------- --------- ------- ------- -------- Net Operating Income (4) $ 261,000 23.1% $ 3,263 $13.11 $ 269,000 23.1% $ 3,363 $13.55 =========== ======= ======= ======== ========= ======= ======= ======== ----------------------------------------------- Calendar Years Ending December 31: 2006 ----------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------- Number of Keys 80 Occupancy 68.00% Average Daily Room Rate $58.75 Revenues Rooms $1,167,000 97.2% $14,588 $58.77 Telephone 30,000 2.5% 375 1.51 Other Operated Departments 4,000 0.3% 50 0.20 ---------- -------- ------ -------- Total Revenues 1,201,000 100.0% 15,013 60.49 Departmental Expenses (3) Rooms 236,000 20.2% 2,950 11.89 Telephone 15,000 50.0% 188 0.76 Other Operated Departments 1,000 25.0% 13 0.05 ----------- -------- ------ -------- Total Departmental Expenses 252,000 21.0% 3,150 12.69 ----------- -------- ------ -------- Departmental Profit 949,000 79.0% 11,863 47.79 Undistributed Expenses Administrative and General 151,000 12.6% 1,888 7.60 Franchise Fees 93,000 7.7% 1,163 4.68 Marketing 31,000 2.6% 388 1.56 Property Operations and Maintenance 76,000 6.3% 950 3.83 Energy and Utilities 68,000 5.7% 850 3.42 ----------- -------- ------ -------- Total Undistributed Expenses 419,000 34.9% 5,238 21.10 ----------- -------- ------ -------- Gross Operating Profit 530,000 44.1% 6,625 26.69 Fixed Charges and Management Fees Base Management Fees 60,000 5.0% 750 3.02 Property Taxes 31,000 2.6% 388 1.56 Insurance 21,000 1.7% 263 1.06 Land Lease 91,000 7.6% 1,138 4.58 ----------- -------- ------ -------- Total Fixed Charges 203,000 16.9% 2,538 10.22 ----------- -------- ------ -------- Income Before Reserves 327,000 27.2% 4,088 16.47 Reserves for Replacements 48,000 4.0% 600 2.42 ----------- -------- ------ -------- Net Operating Income (4) $ 279,000 23.2% $ 3,488 $14.05 =========== ======== ======= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Modesto, California Projected Operating Results ----------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2007 2008 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 80 80 Occupancy 68.00% 68.00% Average Daily Room Rate $60.50 $62.25 Revenues Rooms $1,201,000 97.2% $15,013 $ 60.49 $1,236,000 97.2% $15,450 $ 62.25 Telephone 31,000 2.5% 388 1.56 32,000 2.5% 400 1.61 Other Operated Departments 4,000 0.3% 50 0.20 4,000 0.3% 50 0.20 ----------- ------- ------ --------- ---------- -------- ------ --------- Total Revenues 1,236,000 100.0% 15,450 62.25 1,272,000 100.0% 15,900 64.06 Departmental Expenses (3) Rooms 243,000 20.2% 3,038 12.24 250,000 20.2% 3,125 12.59 Telephone 15,000 48.4% 188 0.76 16,000 50.0% 200 0.81 Other Operated Departments 1,000 25.0% 13 0.05 1,000 25.0% 13 0.05 ----------- ------- ------ --------- --------- -------- ------ -------- Total Departmental Expenses 259,000 21.0% 3,238 13.04 267,000 21.0% 3,338 13.45 ----------- ------- ------ --------- --------- -------- ------ --------- Departmental Profit 977,000 79.0% 12,213 49.20 1,005,000 79.0% 12,563 50.61 Undistributed Expenses Administrative and General 156,000 12.6% 1,950 7.86 160,000 12.6% 2,000 8.06 Franchise Fees 96,000 7.8% 1,200 4.83 99,000 7.8% 1,238 4.99 Marketing 32,000 2.6% 400 1.61 33,000 2.6% 413 1.66 Property Operations and Maintenance 78,000 6.3% 975 3.93 80,000 6.3% 1,000 4.03 Energy and Utilities 70,000 5.7% 875 3.53 72,000 5.7% 900 3.63 ----------- ------- ------ --------- --------- -------- ------ --------- Total Undistributed Expenses 432,000 35.0% 5,400 21.76 444,000 34.9% 5,550 22.36 ----------- ------- ------ --------- --------- -------- ------ --------- Gross Operating Profit 545,000 44.1% 6,813 27.45 561,000 44.1% 7,013 28.25 Fixed Charges and Management Fees Base Management Fees 62,000 5.0% 775 3.12 64,000 5.0% 800 3.22 Property Taxes 32,000 2.6% 400 1.61 32,000 2.5% 400 1.61 Insurance 22,000 1.8% 275 1.11 22,000 1.7% 275 1.11 Land Lease 94,000 7.6% 1,175 4.73 97,000 7.6% 1,213 4.89 ----------- ------- ------ --------- -------- -------- ------ --------- Total Fixed Charges 210,000 17.0% 2,625 10.58 215,000 16.9% 2,668 10.83 ----------- ------- ------ --------- -------- -------- ------ --------- Income Before Reserves 335,000 27.1% 4,188 16.87 346,000 27.2% 4,325 17.43 Reserves for Replacements 49,000 4.0% 613 2.47 51,000 4.0% 638 2.57 ----------- ------- ------ --------- -------- -------- ------ --------- Net Operating Income (4) $ 286,000 23.1% $ 3,575 $ 14.40 $ 295,000 23.2% $ 3,668 $ 14.86 =========== ======= ======= ========= ========= ======== ======= ========= - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
SECTION V SUPER 8 MOTEL PLEASANTON, CALIFORNIA =============================================================================== Summary of Important Facts and Conclusions =============================================================================== Property Address Super 8 Motel 5375 Owens Court Pleasanton, California 94566 Telephone (510) 463-1300 - -------------------------------------------- ---------------------------------- Owner Super 8 Economy Lodging IV, Ltd. - -------------------------------------------- ---------------------------------- Assessor's Parcel Number 941-1301-18 and 941-2771-2 - -------------------------------------------- ---------------------------------- Effective Date of Appraisal January 1, 1998 - -------------------------------------------- ---------------------------------- Property Rights Appraised Fee Simple Interest =============================================================================== Highest and Best Use =============================================================================== Highest and Best Use As if Vacant Limited-service hotel As Improved Limited-service hotel or highway commercial use =============================================================================== Property Description =============================================================================== Existing Improvements Year Built 1984 Gross Building Area 35,984 square feet Number of Hotel Guest Rooms 102 Parking 105 spaces Number of Floors Three above ground (no basement) Hotel Amenities Pool and whirlpool, complimentary coffee Compliance with ADA Partial - -------------------------------------------- ---------------------------------- Site Area 2.04 acres (88,715 square feet) Zoning PUD-C (Planned Unit Development - Commercial) Flood Zone B, Panel Number 060012-0001E dated September 30, 1997 Wetlands Zone No Alquist Priolo Special Studies Zone No Historic, Natural , Cultural, Recreational, or Scientific Value None =============================================================================== Valuation Conclusion =============================================================================== Cost Approach Not Applicable - -------------------------------------------- ---------------------------------- Sales Comparison Approach $7,400,000 - -------------------------------------------- ---------------------------------- Income Capitalization Approach Stabilized Occupancy 75.0% Average Daily Room Rate $65.00 Stabilized Net Income $795,000 Overall Capitalization Rate 10.0% Terminal Capitalization Rate 10.5% Discount Rate 13.0% Indicated Market Values Direct Capitalization Technique $8,000,000 Discounted Cash Flow Analysis $7,600,000 - -------------------------------------------- ---------------------------------- Final Estimate of Market Value $7,600,000 - -------------------------------------------- ---------------------------------- Marketing and Exposure Period Six months or less - -------------------------------------------- ---------------------------------- V-1 (Photograph deleted) View of Hotel Looking Northwest from Owens Court Driveway to Site (Photograph deleted) View of Typical Double Queen-Bed Guestroom V-2 A. AREA AND NEIGHBORHOOD REVIEW 1. Introduction The subject property is located in the city of Pleasanton, Alameda County. Pleasanton is located 15 miles southeast of Oakland and approximately 30 miles east of San Francisco. Alameda County has extensive transportation facilities including a major port that is accessible to ocean-going vessels, an airport, railroads, freeways, and rapid transit lines connecting the region with the entire Bay Area. The southern portion of the county, with its proximity to the Silicon Valley, contains much of the county's high-tech industry. Over the past few years, biotech firms have moved into the northern portion of Alameda County, to Emeryville and Berkeley. The eastern section of the county, on the other hand, has developed from a suburban area into a more commercial and financial headquarters center. Pleasanton has developed from a farming community to a residential and business center due to relatively low land costs, its proximity to San Francisco, and the development of the large Hacienda Business Park to attract corporate tenants. As such, the Pleasanton economy is directly involved with the neighboring economies of San Ramon, Livermore, and central Contra Costa County. A map highlighting the location of the subject property in relation to the surrounding area is shown on the following page. 2. Economic Data Presented in the following text is a brief overview of selected economic data that characterizes the local market area. Population: The population of Pleasanton was 59,800 in January 1997, a 3.5 percent increase from 1996. The corresponding population of Alameda County was 1,375,900. This figure represents a compound average annual growth rate (CAAG) of 1.1 percent over the 1990 figure of 1,291,700. In comparison, the CAAG increase in the population of the State of California as 1.3 percent since 1990. Population in the Pleasanton area is expected to grow at a faster rate than Alameda County overall. Retail Sales: Total taxable retail sales for Alameda County totaled over $9.5 billion in 1996. This county figure represented a CAAG increase of 2.4 percent over the past six years. V-3 (Street map of the Pleasanton area deleted) Regional Map V-4 Income: Median household effective buying income (EBI) has increased at a CAAG rate of 1.2 percent over the 1990 to 1996 period for Alameda County, while EBI for the City of Pleasanton has increased at a 5.4 percent rate. Based on the 1990 census, income per capita for Pleasanton is $24,812 with an average household income of $66,867. Employment: In 1997, the total number of persons employed in the Oakland MSA, which is composed of Alameda and Contra Costa Counties, was approximately 94,000 persons. This is about a 2.0 percent increase over 1996 which was approximately 92,000 persons. The Oakland MSA unemployment rate was 6.4 percent through mid-year 1997 and 7.2 percent in 1996. Moderate job growth is projected through 2010 for the Bay Area, with the largest growth projected to be in the areas of services and manufacturing. The following table presents a listing of the major private industry employers in Pleasanton as of year-end 1997. ======================================================= Major Private Industry Employers in Pleasanton 1997 ======================================================= Number of Company Employees - -------------------------- ============================ AT&T 1,900 Providian Bancorp 1,600 People Soft 1,400 Pacific Bell Mobile Services 1,000 Macy's 800 Valley Care Medical Center 600 Farmers Insurance 580 Nellcor Puritan Bennett 500 Clorox Technical Center 500 Safeway Co. 500 Nordstrom 500 Pacific Bell Communications 410 Unisource Worldwide 400 GTE Mobilnet 400 ======================================================= Source: City of Pleasanton Chamber of Commerce ======================================================= Commercial Office Space: Over the past seven years, the total net rentable area within Pleasanton has increased from approximately 6.2 million square feet to 7.4 million square feet. Of the total 7.4 million square feet of space in Pleasanton, the majority is located in Hacienda Business Park. Over the next few years, new office construction is likely to be limited to built-to-suit buildings. As the regional economy strengthens, the East Bay office market is projected to benefit from tightening markets in San Francisco and V-5 Silicon Valley. As a result, vacancy rates are expected to decline further, and effective rental rates should rise over the next few years. Tourism: The East Bay is not generally considered to be a tourist destination in its own right, but benefits from its relationship to the San Francisco Bay Area. Leisure travel to the Pleasanton area is generated primarily from friends and relatives visiting local residents, as well as special events. In 1995, the City was successful in attracting the Scottish Rites and Games, an annual festival bringing thousands of participants and onlookers. Pleasanton is also the home of the annual Alameda County Fair which takes place from the end of June through early July each year. More than 465,000 people attend this event each year. Transportation: Transportation within Alameda County includes an efficient and expanding freeway system, various railroad lines, public transportation featuring the Bay Area Rapid Transit System (BART), and the Port of Oakland International Airport. The subject's market area is primarily served by the Oakland International Airport with additional service provided by the major San Francisco International Airport, located on the opposite side of San Francisco Bay. Oakland International Airport is located approximately 30 miles southwest of the subject site and is easily accessible via major freeways. 3. Neighborhood Review The subject property is located near the major freeway intersection of Interstate 580 and Hopyard Road. The surrounding area is comprised of office, commercial, restaurant, and lodging uses oriented to the freeway nature of the neighborhood. The subject site is in proximity to the major freeway interchange of Interstates 680 (north-south) and 580 (east-west). The Hopyard Road interchange is one interchange north of the aforementioned freeway intersection. The new Pleasanton BART station is a short distance east of the subject property and can be reached by foot. Surrounding uses proximate to the subject site include: (facing the subject site across Hopyard Road) a large CompUSA retail store, a Candlewood extended-stay lodging facility, and an office building housing the Prudential Company; (surrounding the site) a Buttercup Pantry restaurant, a Burger King fast food facility, the Pleasant Asian restaurant, Schroeber's Athletic Club, Ski World USA; and (south of the site) Hacienda Motors, a Mercedes dealership. 4. Conclusion In summary, we are of the opinion that the subject property is well located in the city of Pleasanton. Growth in nearly all economic indicators has been positive over the past several years and we forecast continued growth in the foreseeable future. V-6 B. PROPERTY DESCRIPTION 1. Introduction The subject property is a limited-service hotel comprising 102 guestrooms. Additional amenities at the property include an outdoor swimming pool and 24-hour coffee service. The hotel is proximate to several restaurants and fast-food establishments, a full-service health club, and is within walking distance of the new Pleasanton BART station. The hotel comprises a wood-frame structure of three floors. The hotel building houses guestrooms, the lobby, the hotel laundry, service areas, and various mechanical and electrical equipment. The hotel was constructed in 1984, the first year of operation. The hotel is currently owned by Super 8 Economy Lodging IV, Ltd., a related company to the Famous Host Companies. We are not aware of any transactions relating to the site or the improvements since the date of opening. 2. Site Description and Zoning The subject property is located at 5375 Owens Court, off Owens Drive and Hopyard Road, in Pleasanton, California. The subject site comprises 2.04 acres, or 88,715 square feet. The site is irregular in shape and has excellent frontage facing Interstate 580 and Hopyard Road. The entry to the parcel is set back from Owens Court, and the subject site adjoins two neighboring parcels, Schroeber's Athletic Club and Ski World USA in this area. The property is level and is at grade with the surrounding streets and parcels, although Hopyard Road elevates above the subject parcel in a upward sloping direction as Hopyard Road overpasses the Interstate 580 freeway. The subject property is zoned PUD-C (Planned Unit Development - Commercial). This zoning allows a variety of commercial development in a planned development setting, and a hotel is a permitted use in this zone. We are aware of no easements or covenants affecting the subject property which would negatively affect the market value of the subject property. 3. Improvements Description The hotel building forms a rectangular shape with the guestrooms opening outward to covered, exterior corridors on all levels. The perimeter of the parcel and the perimeter of the building are landscaped. Chain link fencing lines the portions of the perimeter of the property adjoining Hopyard Road and Interstate 580. A portion of the site is more intensively landscaped and is also the site of the outdoor pool and whirlpool. The hotel offers various corridor staircases and one hydraulic elevator, and is fire sprinklered. The exterior of the building is comprised of tan stucco with maroon red trim, and, in combination with the Spanish tile, conveys a contemporary California Mission style of architecture. V-7 The total interior square footage of the hotel is 35,984 square feet and the average size of a typical guest room is 282 square feet. The Super 8 Motel provides 102 guestrooms, configured as 68 queen-size bedrooms, 21 double, queen-size bedrooms, and 13 suite rooms (with queen sized beds). Four rooms are equipped for disabled persons. The guestrooms are furnished with a color television, desk, two chairs, nightstand, lamp, and dresser. The lobby is wood paneled with contemporary wood furniture. Overall, the property is in good condition and has been maintained on a regular basis. With regard to parking, the hotel has 105 surface parking spaces located on the paved parking lot which surrounds the hotel building. Five of these spaces are designated for physically challenged persons. Also located on-site for guest use are an ice machine, soft-drink vending machine, and a snack vending machine. 4. Basic Construction and Mechanical Systems The subject building is a wood-framed structure having foundations of poured-in-place concrete slab on-grade. The exterior walls are composed of stucco. The exterior colors of the hotel are a one-tone paint beige scheme with a contrasting maroon accent coloration. The interior walls are sheet rock and are primarily painted or have vinyl wall covering. The roof is a flat, rolled, built-up tar paper-type over wood framing with Spanish tile mansard accenting, all of which appear to be in good condition. Presented in the following table is a summary of the basic construction and mechanical systems of the hotel. V-8 =============================================================================== Super 8 Motel -- Pleasanton Summary of Basic Construction and Mechanical Systems =============================================================================== Foundation: Concrete slab on-grade with spread footings - ------------------------------- ----------------------------------------------- Frame: Wood - ------------------------------- ----------------------------------------------- Walls: Stucco - ------------------------------- ----------------------------------------------- Floor: Wood trusses, 5/8" plywood, and 3/4" gypcrete - ------------------------------- ----------------------------------------------- Roof: Built-up tar and gravel with concrete tile - ------------------------------- ----------------------------------------------- Ceiling Heights: 8' - ------------------------------- ----------------------------------------------- Doors: Guest Room and Bathroom: 1 3/4" metal door with 20 minute label and 1 3/8" wood with no rating Exterior: 1 3/4" metal with 20 minute label and also aluminum store-front - ------------------------------- ----------------------------------------------- Windows: Sliding bronze anodized aluminum with double glazing - ------------------------------- ----------------------------------------------- Heating and Cooling: Guestrooms: GE Zoneline through-the-wall heat pumps Lobby: Carrier package system - ------------------------------- ----------------------------------------------- Elevators: US Elevator hydraulic lift - ------------------------------- ----------------------------------------------- Electrical: 120 - 20 BV, 2,000 amps - ------------------------------- ----------------------------------------------- Plumbing: Water Pipes: Copper type "M" above grade; type "L" below grade Sewer Pipes: No hub cast iron Gas Pipes: Black steel inside; wrapped steel outside of building - ------------------------------- ----------------------------------------------- Domestic Hot Water: 2 boilers and 1 holding tank - ------------------------------- ----------------------------------------------- Laundry Facilities: 2 Uni-Wash washers 2 Huebsch dryers 1 Uni-Wash dryer - ------------------------------- ----------------------------------------------- Sprinkler System: Entire building is sprinklered - ------------------------------- ----------------------------------------------- Life Safety: Fire Alarm Stations: Main fire alarm is located at the front desk Smoke Detectors: Hard-wired dual ionization smoke detectors Emergency Illumination: Provided =============================================================================== Source: Famous Host Companies =============================================================================== 5. Assessed Value and Property Taxes The subject property is assessed by Alameda County on a tax year commencing July 1 of every year. Under the provisions of Article 13-A of the State of California (Proposition 13), properties are assessed based on their fair market value as of the change of ownership date. The assessed value can be increased by a maximum of 2.0 percent per year until such date as the property is subsequently sold, substantial new construction takes place, or the use of the property is substantially changed. The current assessed value of the property is presented in the following table. V-9 ============================================================ Assessor's Parcel Numbers 941-1301-18 and 941-2771-2 1997/98 Assessed Value ============================================================ Land and Improvements $3,650,289 Personal Property 203,125 - -------------------------------------- --------------------- Net Taxable Value $3,853,414 - -------------------------------------- --------------------- For 1997/1998, total property taxes and direct assessments are $46,472.75 on the subject property. The indicated tax rate, therefore, is 1.2061 percent. 6. Renovation and Capital Improvements The property has been maintained in good condition and no renovation projects are currently identified other than typical maintenance work. A consideration to upgrade the landscaping at the site entrance has been made, but we understand that one of the adjoining owners, Schroeber's Athletic Club, is not interested in this project, so plans have been dropped. As the through-the-wall air conditioning units in each guestroom continue to age, these units will need to be replaced. Further, as the guestroom doors are secured with standard key locks, an upgrade to more contemporary electronic door locks is also necessary. Given that the cost of such renovation work, on a project-by-project basis, is not unusually large, annual funding for such projects on a phased-basis is considered to be possible through an annual reserve for capital replacement of 4.0 percent of total revenue. 7. Summary of Functional Utility and Condition It is our opinion that the hotel is adequately designed and maintained to service the limited-service hotel market demand of suburban Pleasanton. C. HOTEL MARKET ANALYSIS 1. Competitive Supply There are a wide variety of lodging facilities currently located in Pleasanton ranging from limited-service motels such as the subject property to full-service properties such as the Pleasanton Hilton. With regard to future lodging supply, there are a number of new facilities planned. At the top end of the market, the Pleasanton Hilton is reviewing proposals to add 150 rooms to the existing facility. More competitive to the subject property, the following table highlights hotel development occurring in the Pleasanton market area, comprising a total of 593 rooms. V-10 ========================================================================================================== Super 8 Motel -- Pleasanton New Hotel Supply ========================================================================================================== Development Expected Product Location Rooms Status Opening Date ------------------------------------ --------------- ----------- ---------------- ======================== Summerfield Suites Pleasanton 128 Construction July 1, 1998 Sierra Suites Pleasanton 113 Construction July 1, 1998 AmeriSuites Dublin 128 In Escrow January 1, 1999 Holiday Inn Express & Suites Dublin 89 Approved January 1, 1999 Residence Inn Pleasanton 135 Approved January 1, 1999 ========================================================================================================== Source: PKF Consulting and the Dublin and Pleasanton Planning Departments ==========================================================================================================
It should also be noted that in San Ramon, a 138-room Courtyard by Marriott and a 147-unit Homestead Village are currently under construction, and there is also talk of Starwood Lodging Corporation building a hotel. In Livermore, an 80-room Hampton Inn opened in July of this year, and a 125-unit Extended-stay America is undergoing construction. Additionally, the Livermore City Council has approved the development of a 122-room Courtyard by Marriott, and a 100-room Hilton Garden Inn. The opening of these two hotels is tentatively scheduled for the first quarter of 1998. Directly opposite the subject property, on the west side of Hopyard Road, a 126-unit Candlewood Suites hotel opened in November 1997. In total, the identified new rooms in the Pleasanton market area are anticipated to open by 1999, resulting in a significant increase in supply. Therefore, additions to the competitive supply are projected during the next five-year period, and we have taken such new supply into account in our estimation of the future operating performance of the subject property. 2. Historical Market Performance The following table presents a summary of the historical market performance of the Pleasanton market area as compiled by PKF Consulting. The following market statistics, which include the subject property, cover the period 1992 to 1996, as well as our estimate for 1997. V-11 ==================================================================================================================== Competitive Hotel Market Historical Occupancy and Room Rate 1992 to 1997 (Estimated) ==================================================================================================================== Daily Rooms Available Percent Percent Average Daily Percent Year Change Occupancy Change Room Rate Change - --------------------- -------------- ------------ ----------------- ------------- --------------------- ============ 1992 1,068 - 67.9% - $67.71 - - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ 1993 1,068 0.0% 71.0% 4.6% $70.08 3.5% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ 1994 1,068 0.0% 70.7% (0.5)% $72.58 3.6% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ 1995 1,068 0.0% 75.0% 6.1% $76.85 5.9% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ 1996 1,068 0.0% 77.3% 3.0% $85.04 10.7% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ 1997 (Estimated) 1,089 (1) 2.0% 78.2% 3.2% $98.37 15.7% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ CAAG 0.4% - - - 7.7% - ==================================================================================================================== Notes: (1) Addition of Candlewood Suites as of November 1, 1997 Source: PKF Consulting ====================================================================================================================
As can be noted, over the five-year period 1992 to 1996, the number of available rooms within the competitive market has remained stable. In 1997, the introduction of the Candlewood Suites increased the supply of available rooms. As the hotel opened in late 1997 (November), the full effect of the new hotel will occur in 1998. During the 1992 to 1997 period, demand has increased year-by-year, attributed the strong local economy and from spill-over demand from other regions of the East Bay such as Livermore and San Ramon. Overall, occupancy has increased from 67.9 percent in 1992 to an estimate 78.2 percent as of year-end 1997. In terms of the competitive market's average daily room rate (ADR), we estimate that the composite hotel market will achieve an ADR of $98.37 in 1997, another year of steady room rate growth. From an ADR of $67.71 in 1992, the market has shown a CAAG of 7.7 percent, with much stronger growth occurring most recently in 1996 and 1997 as occupancy levels have stabilized in the high 70s percent range. 3. Demand Segmentation The primary demand segments in the Pleasanton market are corporate (including government and military travelers), group, and leisure demand. Business and leisure travel are the two largest demand segments on an annual basis. On a more seasonal basis, group demand is the third demand segment in the Pleasanton market. Each hotel penetrates these three demand segments based on the appeal of the property to the various types of travelers in each segment. The current mix of demand at the subject property is primarily composed of primarily of leisure travelers (52.1%) who are attracted to the subject property because of its convenient location and clean, well-priced rooms. The second V-12 largest component of demand (46.6%) is from corporate, government, and military travelers who are visiting businesses and agencies in the area. The balance of demand is generated by group travelers (1.3%) such as athletic and school groups. 4. Projected Future Supply and Demand Over the past six years (1992 to 1997) demand for hotel accommodations in Pleasanton has increased at a CAAG of 3.3 percent in a generally stable supply market. This reflects the increase in demand for lodging in Pleasanton generated by the growth in the regional and local economy. As indicated, this growth has not gone unnoticed by developers, and a number of new hotels are planned to come on-line by the end of 1999 to accommodate the expected continued growth in demand. Based on our review of the local market, we project overall demand for hotel rooms will continue to stabilize and will show growth over the next five years. While demand will grow in general, occupancy rates at hotels in specific should decline as a result of additions to supply. Presented in the table below is a summary of the projected growth in supply, demand, and the resulting occupancy levels for the competitive market for the period 1998 to 2002. ======================================================================================================= Super 8 Motel -- Pleasanton Estimated Growth In Supply and Demand Competitive Hotel Market ======================================================================================================= Daily Annual Total Year Available Rooms Available Rooms Demand Occupancy - --------------------- ----------------------- --------------------- ---------------- ------------------ Actual 1992 1,068 389,820 264,688 67.9% 1993 1,068 389,820 276,772 71.0% 1994 1,068 389,820 275,603 70.7% 1995 1,068 389,820 292,365 75.0% 1996 1,068 389,820 301,331 77.3% 1997 (Estimated) 1,089 397,485 310,833 78.2% - --------------------- ----------------------- --------------------- ---------------- ------------------ Projected 1998 1,314 479,610 350,100 73.0% 1999 1,787 652,255 417,400 64.0% 2000 1,787 652,255 443,500 68.0% 2001 1,787 652,255 463,100 71.0% 2002 1,787 652,255 476,100 73.0% - --------------------- ----------------------- --------------------- ---------------- ----------------- CAAG 1992 to 1997 0.4% - 3.3% - 1997 to 2002 10.4% 8.9% ======================================================================================================= Source: PKF Consulting =======================================================================================================
As can be noted above, the number of rooms available in the market will increase significantly in 1998 and 1999, with a CAAG of 10.4 percent over the period 1997 to 2002. Along with the growth in supply, growth in demand is forecast at a CAAG V-13 of 8.9 percent over the 1997 to 2002 period. With the growth in demand forecast to be lower than the growth in supply, declining occupancy is forecast, and we predict the current level of occupancy in the high 70s percent to stabilize, after a period of lowered occupancy, in the low 70s percent by 2002. 5. Market Performance of the Subject The following table summarizes the historical occupancy levels and average room rate for the Super 8 Motel over the past four years =============================================================================== Super 8 Motel -- Pleasanton Historical Occupancy and Room Rate 1994 to 1997 (Estimated) =============================================================================== Average Daily Year Occupancy % Change Room Rate % Change - --------------------- -------------- ------------ ----------------- ----------- 1994 73.2% - $50.08 - - --------------------- -------------- ------------ ----------------- ----------- 1995 76.0% 3.8% $52.63 5.1% - --------------------- -------------- ------------ ----------------- ----------- 1996 77.9% 2.5% $57.69 9.6% - --------------------- -------------- ------------ ----------------- ----------- 1997 (Estimated) 80.0% 2.7% $63.00 9.2% - --------------------- -------------- ------------ ----------------- ----------- CAAG 3.0% - 7.9% - =============================================================================== Source: Famous Host Companies =============================================================================== As can be noted, occupancy rates at the subject property have been trending upward from 73.2 percent achieved in 1995 to 80.0 percent estimated for year-end 1997. This steady increase in occupancy is attributed to the strength of the Tri-Valley market combined with, up to the present, limited additions to the supply of hotel rooms. However, due to numerous upcoming additions to supply, occupancy rates are expected to decline in future years. With regard to room rates, from 1994 to 1997, room rates increased at a CAAG of 7.9 percent, from $50.08 as of year-end 1994 to an estimated $63.00 for year-end 1997. This increase in ADR is a reflection of the economic strength in the local market. Based on our analysis of the local market, we are of the opinion the subject will achieve an average occupancy of 75.0 percent over the ten-year analysis period discussed in this report. From the 80.0 percent occupancy achieved in 1997, occupancy will remain at that level in 1998. With additions to supply, a decreased occupancy of 77.0 percent will be achieved in 1999, followed by three years of occupancy at 75.0 percent for 2000, 2001, and 2002, respectively. For the balance of the projection period, from 2003 to 2007, an occupancy level of 73.0 percent is projected due to the threat of additional new competition in the limited-service market. However, it should be noted that the derived stabilized occupancy of 75.0 percent for the subject property is the average for the ten-year period (1998-2007). V-14 Based on our market analysis, we project the hotel to achieve an average room rate of $65.00 in 1998, a 3.0 percent increase over 1997. Over the balance of our projection period, we project the hotel's average room rates to increase at the anticipated long-term level of inflation (3.0 percent per year). We believe that this is realistic given the expected growth in demand in the market dampened by competitive new additions to supply. The following table summarizes our projections for the subject property over the first five years of the ten-year analysis period from January 1, 1998 to December 31, 2002. =============================================================================== Super 8 Motel -- Pleasanton Projected Occupancy and Average Daily Room Rate 1998 to 2002 =============================================================================== Average Market Daily Percent Year Occupancy Penetration Room Rate Change - ------------- --------------- ---------------- ----------------- -------------- 1997 80.0% 102.3% $63.00 - - ------------- --------------- ---------------- ----------------- -------------- 1998 80.0% 110.0% $65.00 3.0% 1999 77.0% 120.0% $66.75 3.0% 2000 75.0% 110.0% $68.75 3.0% 2001 75.0% 106.0% $71.00 3.0% 2002 75.0% 103.0% $73.00 3.0% - ------------- --------------- ---------------- ----------------- -------------- CAAG (1.3)% - 3.0% - (1998-2002) =============================================================================== Source: PKF Consulting =============================================================================== D. HIGHEST AND BEST USE Based on our analysis, we are of the opinion that the existing improvements contribute significant overall value to the site. There is no alternative, legal use that could economically justify the restructuring or removal of the existing improvements at this time. Therefore, the subject property, as improved, represents the highest and best use of the site. E. VALUATION -- SALES COMPARISON APPROACH 1. Introduction The Sales Comparison Approach is based on the premise that knowledgeable investors will pay no more for a specific property than the cost of acquiring a substitute property of equal utility. The basis for this analysis is a comparison of the subject to the sale of other facilities. V-15 We have reviewed a number of Alameda County hotel sales and focused on those sales considered most comparable in providing support for the market value of the subject. Based on this review, we have identified five recent hotel sales in the local region. The sales occurred between February 1996 and February 1997. The sales are all of a fee simple interest in the respective properties. ============================================================================================================== Comparable Hotel Sales ============================================================================================================== Rooms Overall Sale Sale Year Number Price Revenue Capitalization No. Hotel Name Location Date Built Of Rooms Per Room Multiplier Rate - ----- ------------------------ ----------- ------- ------- ------------ ----------- ----------- -------------- 1 Days Inn Bay Bridge Emeryville 2/97 1985 153 $60,784 3.07 9.3% 2 Days Inn Oakland 2/97 1975 142 $44,366 3.03 14.1% 3 Sheraton Four Points Pleasanton 1/97 1985 214 $109,000 4.85 9.7% 4 Best Western Dublin Dublin 7/96 1974 235 $34,480 3.46 5.0% 5 Park Hilton Pleasanton 2/96 1985 294 $78,912 3.32 11.1% ============================================================================================================== Source: PKF Consulting ==============================================================================================================
2. Analysis of Hotel Sales Because of the many differences between the selected transactions and the subject property, we are of the opinion that an analysis using a rooms revenue multiplier is a more appropriate unit of comparison to value the subject. A rooms revenue multiplier measures the total revenue generated from room rentals in relation to the sales price. Rooms revenue multipliers do not require subjective adjustments since most price variance in quality of properties is reflected in occupancy and average daily room rate achievement as determined by the market. As can be noted, the indicated rooms revenue multipliers for the five sales ranges from a low of 3.03 to a high of 4.85 with an average of 3.55. Based on our evaluation of the Super 8 Motel, we are of the opinion that a rooms revenue multiple at high end of this range, but below the Sheraton Four Points, is appropriate to value the subject. The Sheraton Four Points has a leased restaurant which adds additional value compared to the subject property. Sale number 5 took place nearly two years ago under different market conditions thus its value may have been lower than if it were sold today. Accordingly, we have selected a multiple of 4.00 to value the subject. Based on this multiplier, and assuming a stabilized occupancy level of 75.0 percent at an average daily room rate of $65.00 (stated in 1999 value dollars), the indicated value per available room for the subject is as follows. Rooms Revenue Stabilized Stabilized Indicated Value Multiplier Average Occupancy Per Room Rate Level Days/Year (Rounded) - --------------- ---- ------------- ---- --------------- ---- -------------- ---- -------------------- 4.00 x $65.00 x 75.0% x 365 = $71,175 - --------------- ---- ------------- ---- --------------- ---- -------------- ---- --------------------
V-16 As noted above, the rooms revenue multiplier analysis produced a value indication of approximately $71,200 per available room. This value per room is converted into a total value estimate by multiplying the indicated value per room by the total number of rooms. Based on the current configuration of 102 rentable rooms, the indicated stabilized value of the fee simple interest in the hotel is $7,300,000 (rounded) as calculated below. - ------------- ----- -------------- ----- ---------------- $71,200 x 102 Rooms = $7,300,000 - ------------- ----- -------------- ----- ---------------- C. INDICATED VALUE VIA THE SALES COMPARISON APPROACH 1. Conclusion of "As Is" Market Value After concluding to our estimate of the stabilized value using the Sales Comparison Approach, the next step is to develop an estimate of the "as is" market value. In order to develop this value estimate, the "income gain" that is projected to occur until the property is stabilized (as will be discussed in the Income Capitalization Approach to follow) must be added. The following table summarizes this calculation. ============================================================== Sales Comparison Approach Estimate of "As Is" Market Value ============================================================== Indication of Stabilized Value $7,300,000 Plus: Income Gain Until Stabilization $102,000 - ------------------------------------------- ------------------ Indicated "As Is" Market Value $7,402,000 - ------------------------------------------- ------------------ Rounded $7,400,000 - ------------------------------------------- ------------------ Thus, after the addition of income gain prior to stabilization, we estimate that the as is market value of the fee simple estate in the subject as of January 1, 1998, via the Sales Comparison Approach, is: =============================================================================== SEVEN MILLION FOUR HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $7,400,000 =============================================================================== V-17 G. VALUATION -- INCOME CAPITALIZATION APPROACH 1. Basis for Cash Flow Projection In order to develop an estimate of the net operating income (NOI) for the subject for both a stabilized year of operation (direct capitalization) and each year of the aforementioned holding period (yield capitalization), the following have been analyzed: 1. The historical operating results for the subject for year-end 1994, 1995, 1996, year-to-date September 1997, and management's operating budget for 1997. 2. The operating results of the category "Limited-Service Hotels" from the 1997 issue of PKF Consulting's Trends in the Hotel Industry. The historical operating results of the subject are presented at the end of this section of the report. 2. Stabilized Year Operating Estimate We first developed an estimate of the performance of the subject for a stabilized year of operation stated in current value, 1998 dollars. This estimate is based on our review of the historical operating results of the subject hotel coupled with an analysis of the operating results of the selected PKF Consulting "Trends" category. Additional key assumptions used in preparing this stabilized year estimate are summarized below. a) The stabilized annual occupancy of the hotel is projected to be 75.0 percent at an average daily room rate of $65.00 as stated in 1998 dollars; b) A management fee of 5.0 percent of total revenues, and a franchise fee of 8.0 percent of room revenues, and a reserve for capital replacements of 4.0 percent of total revenue have been deducted to establish the net operating income of the subject. c) The projection of expense for taxes on real and personal property is a function of the market value of the property. The subject property is in the real estate taxing jurisdiction of the Alameda County Tax Assessor's Office. Our estimate of the property taxes for the subject is based on the provisions of Proposition 13. Proposition 13 limits ad valorem property taxes to 1.0 percent of the assessed value plus assessment for city, special district, and county bonds. The current effective tax rate is 1.2061 percent of market value. This appraisal assumes a sale of the subject property on the effective date of the appraisal, which will initiate a reassessment of real estate for tax purposes. For the purpose of this analysis, the reassessment is based on the value estimate of the subject property as determined V-18 using the Income Capitalization Approach. Based on that estimated value of the hotel, a tax rate of 1.2061 per $100 of assessed value is utilized, resulting in real estate taxes of $92,000, rounded, in the representative or stabilized year. Presented below is our estimate of the subject hotel's stabilized year operating results. As can be noted, on a stabilized basis, the subject property will generate approximately $1,857,000 in total revenue, with a net operating income of $795,000, or 42.8 percent of total revenue. ================================================================================================= Super 8 Motel, Pleasanton Stabilized Year Operating Results (Stated in 1998 Value Dollars) ================================================================================================= Occupancy Level 75.0% - -------------------------------------------- ==================================================== Average Room Rate $65.00 - -------------------------------------------- ==================================================== REVPAR $48.75 - -------------------------------------------- ---------------- ---------- ------------ ----------- Total Ratios PAR (1) POR (2) - -------------------------------------------- ---------------- ---------- ------------ ----------- Revenues Rooms $1,815,000 97.7% $17,794 $65.00 Telephone 36,000 1.9% 350 1.28 Other Operated Departments 6,000 0.3% 59 0.20 - -------------------------------------------- ---------------- ---------- ------------ ----------- Total Revenues 1,857,000 100.0% 17,647 64.46 - -------------------------------------------- ---------------- ---------- ------------ ----------- Departmental Expenses (3) Rooms 280,000 15.4% 2,745 10.04 Telephone 18,000 50.0% 176 0.64 Other Operated Departments 3,000 50.0% 29 0.10 - -------------------------------------------- ---------------- ---------- ------------ ----------- Total Departmental Expenses 301,000 16.2% 2,950 10.77 - -------------------------------------------- ---------------- ---------- ------------ ----------- Departmental Income 1,556,000 83.8% 15,255 55.73 - -------------------------------------------- ---------------- ---------- ------------ ----------- Undistributed Operating Expenses Administrative and General 147,000 7.9% 1,442 5.26 Franchise Fees 145,000 7.8% 1,421 5.19 Marketing 21,000 1.1% 206 0.75 Property Maintenance 97,000 5.2% 953 3.47 Energy and Utilities 71,000 3.8% 695 2.54 - -------------------------------------------- ---------------- ---------- ------------ ----------- Total Undistributed Expenses 481,000 25.9% 4,715 17.23 - -------------------------------------------- ---------------- ---------- ------------ ----------- Income Before Fixed Charges 1,075,000 57.9% 10,539 38.50 Management Fees and Fixed Charges Management Fees 93,000 5.0% 912 3.33 Property Taxes 92,000 5.0% 902 3.29 Insurance 21,000 1.1% 206 0.75 - -------------------------------------------- ---------------- ---------- ------------ ----------- Total 206,000 11.1% 2,019 7.38 - -------------------------------------------- ---------------- ---------- ------------ ----------- Income Before Reserve 869,000 46.8% 8,519 31.12 - -------------------------------------------- ---------------- ---------- ------------ ----------- Reserve for Replacement 74,000 4.0% 725 2.65 - -------------------------------------------- ---------------- ---------- ------------ ----------- Income Before Other Charges(4) $795,000 42.8% $7,794 $28.47 ================================================================================================= (1) PAR - Per Available Room (2) POR - Per Occupied Room (3) Departmental expense ratios are based on the respective department's revenue, not total revenue (4) Income before interest, taxes, depreciation, and amortization Source: PKF Consulting =================================================================================================
V-19 3. Ten Year Statement of Estimated Annual Operating Results Presented at the end of this section of the appraisal report is our estimate of the operating results for the subject for the ten-year period beginning January 1, 1998. This forecast is based on the preceding stabilized year estimate, adjusted to reflect effects of inflation, variations in occupancy and rate and the impact of fixed and variable components of each revenue and expense item. Selected key assumptions used to develop this forecast are summarized as follows. a) With the exception of property taxes, all other revenues are expenses are projected to increase at 3.0 percent throughout the holding period. Property taxes are projected to increase at a rate of 2.0 percent per year as allowed by California law. b) For the first five years of this forecast, the occupancy and rates of the hotel were projected as previously discussed. Thereafter, the hotel's occupancy was assumed to decrease and stabilize at 73.0 percent, with the average rate increasing at 3.0 percent per year. 4. Valuation Using Direct Capitalization Based on our evaluation of the subject, it is was concluded that an overall capitalization rate (OAR) of 10.0 percent is appropriate to value the subject, and properly reflects the risks associated with this hotel given the property's age, physical features, location, market position, and fee simple estate status. Based on the projection of net operating income for a stabilized year of operation, and the selected overall rate of 10.0 percent, the value of the subject as if stabilized is calculated to be as follows. ================================================== ===================== Projected Stabilized Net Operating Income $795,000 Overall Capitalization Rate 10.0% - -------------------------------------------------- --------------------- Stabilized Value Indication $7,950,000 - -------------------------------------------------- --------------------- Rounded $7,900,000 ================================================== ===================== From this derived stabilized value, an addition is made for the benefit of the additional income the hotel is expect to earn prior to reaching the projected lower stabilized level of income. This surplus cash flow is typically referred to as "income gain". Income gain is the difference in projected cash flows and the cash flow which would be available if the property were stabilized. This amount must be added to the stabilized value to reflect the higher occupancy in the first two years of the analysis period prior to the attainment of a lower stabilization level of V-20 operation. Based on our market research and analysis, it is estimated that the subject will achieve a stabilized level of operation in 2000. A calculation of the income gain associated for the two years prior to that period is presented on the following table. =============================================================================== Income Gain to Stabilization =============================================================================== Estimated Stabilized Year Net Operating Net Operating Estimated Present Value Year Income Income (1) Income Gain @ 13.0% - -------------- ---------------- ----------------- --------------- ----------- 1998 $883,000 $795.000 $88,000 $77,876 1999 850,000 818,850 31,150 24,395 - -------------- ---------------- ----------------- --------------- ----------- Total 121,180 102,271 - -------------- ---------------- ----------------- --------------- ----------- Rounded $121,000 $102,000 =============================================================================== (1) Inflated to future value dollars at 3.0 percent. =============================================================================== Based upon the preceding calculation, the cumulative income gain over the stabilization period is estimated to be approximately $121,000. Investors typically discount the estimated income loss at a comparable discount rate as that used for the valuation of the subject property itself, or, in this case, 13.0 percent annually. This is reflective of the more aggressive discount rate used to value potential gains as compared to potential losses. Consequently, if the sum of the income gains were discounted at a rate of 13.0 percent, the present value of the estimated income loss would be roundly $102,000. Presented below is our calculation of the "as is" market value of the subject taking into account the above estimate of income gain during the projected stabilization period. ======================================================================= Value Conclusion -- Direct Capitalization ======================================================================= Stabilized Value $7,900,000 Plus: Income Gain During Stabilization Period 102,000 - ----------------------------------------------------- ----------------- "As Is" Value $8,002,000 - ----------------------------------------------------- ----------------- Rounded $8,000,000 ======================================================================= Therefore, the estimated "as is" market value of the fee simple interest in the subject using the Direct Capitalization Approach, as of January 1, 1998, is: ============================================================================== EIGHT MILLION DOLLARS - ------------------------------------------------------------------------------ $8,000,000 ============================================================================== V-21 5. Discounted Cash Flow Valuation Analysis To estimate the value of the subject using a discounted cash flow analysis, it is assumed that the property will be sold at the end of a ten-year holding period. The value of the property at that time is estimated by capitalizing the expected or anticipated net operating income of the property in the eleventh year. From this value estimate, an estimate of sales costs is deducted to arrive at the net proceeds upon sale. Based on our market research, we are of the opinion that a reversionary capitalization rate of 10.5 percent and a 13.0 percent discount rate are appropriate to value the subject on a discounted cash flow basis. The following table shows the present value of the projected net operating income for the subject for the ten-year holding period, along with the present value of the reversion, deriving a value estimate. =============================================================================== Discounted Cash Flow Analysis =============================================================================== Cash Flow Present Present From Value Value Year Operations Factor @ 13.0% - ------------------- -------------------- ------------------ ------------------- 1998 $884,000 0.8850 $782,301 1999 $852,000 0.7831 $667,241 2000 $845,000 0.6931 $585,627 2001 $870,000 0.6133 $533,587 2002 $893,000 0.5428 $484,685 2003 $881,000 0.4803 $423,161 2004 $914,000 0.4251 $388,505 2005 $934,000 0.3762 $351,333 2006 $965,000 0.3329 $321,234 2007 $997,000 0.2496 $293,705 - ------------------- -------------------- ------------------ ------------------- Reversion $9,438,000 0.2946 $2,780,325 - ------------------- -------------------- ------------------ ------------------- Present Value $7,611,704 - ------------------- -------------------- ------------------ ------------------- Value, Rounded $7,600,000 - ------------------- -------------------- ------------------ ------------------- V-22 6. Income Capitalization Approach Valuation Conclusion The value conclusion under the Income Capitalization Approach is based on both a direct capitalization and a discounted cash flow analysis. Direct capitalization indicated a value of $8,000,000 and the discounted cash flow analysis indicated a value of $7,600,000, and the values are within 5.0 percent of each other. Placing most weight on the discounted cash flow approach, as this methodology best accounts for the benefits and risks of holding the property over an extended period of time, our conclusion as to the "as is" market value of the fee simple interest of the subject using the Income Capitalization Approach, as of January 1, 1998, is: ============================================================================== SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $7,600,000 ============================================================================== H. RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the two valuation methodologies applied, considering the property type and the requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the two approaches are as follows: ============================================ ====================== Sales Comparison Approach $7,400,000 Income Capitalization Approach Direct Capitalization $8,000,000 Discounted Cash Flow Analysis $7,600,000 ============================================ ====================== In the Sales Comparison Approach we compared five recent hotel transactions to the subject. The selected sales indicated a relatively wide range in value. Furthermore, the sales were located in varying market areas throughout Alameda County and no property was identical to the subject. These factors make this approach less meaningful, but act as a reference checkpoint for the value derived from the Income Capitalization Approach methods. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized two methods of analysis: The direct capitalization method and the discounted cash flow method (yield capitalization). There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a V-23 value estimate. Both income methods resulted in a close range in values, within 5.0 percent of each other, heightening our confidence in this approach. Accordingly, the primary reliance was placed on this approach. Further, we specifically placed more reliance on the discounted cash flow method which, in combination with the conclusions derived via the Sales Comparison Approach, indicates a lower values that that derived by the direct capitalization method. Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the "as is" market value of the fee simple interest in the subject property, as of January 1, 1998, is reasonably represented as: =============================================================================== SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $7,600,000 =============================================================================== V-24 SUPER 8 MOTEL -- PLEASANTON, CALIFORNIA HISTORICAL OPERATING RESULTS Super 8, Pleasanton Historical Operating Results --------------------------------------------------------------------------------------------------- 1994 1995 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 102 102 Occupancy 73.20% 76.00% Average Daily Room Rate (ADR) $50.08 $52.63 REVPAR $36.66 $40.00 REVENUES ROOMS $ 1,364,542 97.1% $ 13,378 $ 50.07 $ 1,488,310 97.4% $ 14,591 $ 52.60 TELEPHONE 33,726 2.4% 331 1.24 34,633 2.3% 340 1.22 MISCELLANEOUS 6,867 0.5% 67 0.25 5,798 0.4% 57 0.20 ------------ ------ ------- ------- ----------- ------- -------- ------- TOTAL REVENUE 1,405,135 100.0% 13,776 51.56 1,528,741 100.0% 14,988 54.03 DEPT. COSTS & EXPENSES (3) ROOMS 253,913 18.6% 2,489 9.32 258,454 17.4% 2,534 9.13 TELEPHONE 18,713 55.5% 183 0.69 15,228 44.0% 149 0.54 MISCELLANEOUS 2,893 42.1% 28 0.11 3,029 52.2% 30 0.11 ------------ ------ ------- ------- ----------- ------- -------- ------ TOTAL COST & EXP. 275,519 19.6% 2,701 10.11 276,711 18.1% 2,713 9.78 TOTAL OPER. DEPTS. INCOME 1,129,616 80.4% 11,075 41.45 1,252,030 81.9% 12,275 44.25 ------------ ------ ------- ------- ----------- ------- -------- ------ UNDIST. OPERATING EXP. ADMIN. & GENERAL 157,736 11.2% 1,546 5.79 140,181 9.2% 1,374 4.95 MARKETING 22,682 1.6% 222 0.83 19,531 1.3% 191 0.69 FRANCHISE FEES 68,226 4.9% 669 2.50 74,399 4.9% 729 2.63 UTILITIES 70,578 5.0% 692 2.59 69,182 4.5% 678 2.45 PROPERTY OPERATIONS 87,936 6.3% 862 3.23 93,741 6.1% 919 3.31 ------------ ------ ----- ------- ----------- ------- -------- ------ TOTAL 407,158 29.0% 3,992 14.94 397,034 26.0% 3,892 14.03 INC. BEFORE MGMT. FEES AND FIXED CHARGES 722,458 51.4% 7,083 26.51 854,996 55.9% 8,382 30.22 ------------ ------ ----- ------- ----------- ------- -------- ------ MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 70,260 5.0% 689 2.58 76,350 5.0% 749 2.70 PROPERTY TAXES 44,701 3.2% 438 1.64 45,528 3.0% 446 1.61 INSURANCE 20,333 1.4% 199 0.75 20,990 1.4% 206 0.74 RENT - 0.0% - - - 0.0% - - ------------ ------ ----- ------- ----------- ------- -------- ------- TOTAL 135,294 9.6% 1,326 4.96 142,868 9.3% 1,401 5.05 INCOME BEFORE OTHER (4) FIXED CHARGES $ 587,164 41.8% 5,757 21.55 $ 712,128 46.6% 6,982 25.17 ============ ====== ===== ======= =========== ======= ======== ======= RENOVATION PAYMENT $ 52,270 $ 109,005 ----------------------------------------------------- 1996 ---------------------------------------------------- $ % PAR (1) POR (2) ---------------------------------------------------- Number of Keys 102 Occupancy 77.90% Average Daily Room Rate (ADR) $57.69 REVPAR $44.94 REVENUES ROOMS $ 1,677,855 97.3% $ 16,450 $ 57.69 TELEPHONE 44,710 2.6% 438 1.54 MISCELLANEOUS 2,596 0.2% 25 0.09 ------------- ------ -------- ------- TOTAL REVENUE 1,725,161 100.0% 16,913 59.32 DEPT. COSTS & EXPENSES (3) ROOMS 275,749 16.4% 2,703 9.48 TELEPHONE 18,767 42.0% 184 0.65 MISCELLANEOUS 802 30.9% 8 0.03 ------------- ------ -------- ------ TOTAL COST & EXP. 295,318 17.1% 2,895 10.15 TOTAL OPER. DEPTS. INCOME 1,429,843 82.9% 14,018 49.17 ------------- ------ -------- ------ UNDIST. OPERATING EXP. ADMIN. & GENERAL 157,774 9.1% 1,547 5.43 MARKETING 18,347 1.1% 180 0.63 FRANCHISE FEES 83,909 4.9% 823 2.89 UTILITIES 66,033 3.8% 647 2.27 PROPERTY OPERATIONS 90,846 5.3% 891 3.12 ------------- ------ -------- ------ TOTAL 416,909 24.2% 4,087 14.34 INC. BEFORE MGMT. FEES AND FIXED CHARGES 1,012,934 58.7% 9,931 34.83 ------------- ------ --------- ------ MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 86,289 5.0% 846 2.97 PROPERTY TAXES 46,649 2.7% 457 1.60 INSURANCE 21,962 1.3% 215 0.76 RENT - 0.0% - - ------------- ------ --------- ------ TOTAL 154,900 9.0% 1,519 5.33 INCOME BEFORE OTHER (4) FIXED CHARGES $ 858,034 49.7% 8,412 29.50 ============== ======= ========= ======= RENOVATION PAYMENT $ 42,107 - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. =================================================================================================================================== Source:The Famous Host Company ===================================================================================================================================
Super 8, Pleasanton Operating Results Year-To-Date September 1997 and 1997 Budget --------------------------------------------------------------------------------------------------- September 1997 Budget 1997 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 102 102 Occupancy 81.20% 75.44% Average Daily Room Rate (ADR) $63.40 $59.61 REVPAR $51.48 $44.97 REVENUES ROOMS $ 1,433,136 97.9%$ 18,785 $ 63.40 $ 1,674,254 97.7% $ 16,414 $ 59.61 TELEPHONE 28,143 1.9% 369 1.24 32,395 1.9% 318 1.15 MISCELLANEOUS 1,876 0.1% 25 0.08 6,761 0.4% 66 0.24 ------------ ------ ------- ------- ----------- ------- -------- ------- TOTAL REVENUE 1,463,155 100.0% 19,179 64.73 1,713,410 100.0% 16,798 61.01 DEPT. COSTS & EXPENSES (3) ROOMS 281,535 15.2% 2,865 9.67 257,938 15.4% 2,529 9.18 TELEPHONE 11,869 42.2% 156 0.53 16,712 51.6% 164 0.60 MISCELLANEOUS 168 9.0% 2 0.01 3,200 47.3% 31 0.11 ------------ ------- ------- ------- ------------ ------- -------- ------- TOTAL COST & EXP. 230,572 15.8% 3,022 10.20 277,850 16.2% 2,724 9.89 TOTAL OPER. DEPTS. INCOME 1,232,583 84.2% 16,156 54.53 1,435,560 83.8% 14,074 51.11 ------------ ------- ------- ------- ------------ ------- -------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 119,646 8.2% 1,568 5.29 140,275 8.2% 1,375 4.99 MARKETING 9,648 0.7% 126 0.43 12,804 0.7% 126 0.46 FRANCHISE FEES 71,656 4.9% 939 3.17 83,713 4.9% 821 2.98 UTILITIES 50,500 3.5% 662 2.23 67,973 4.0% 666 2.42 PROPERTY OPERATIONS 70,675 4.8% 926 3.13 67,798 4.0% 665 2.41 ------------ ------- ------- ------- ------------- ------- -------- ------- TOTAL 322,125 22.0% 4,222 14.25 372,563 21.7% 3,653 13.26 INC. BEFORE MGMT. FEES AND FIXED CHARGES 910,458 62.2% 11,934 40.28 1,062,997 62.0% 10,422 37.85 ------------ ------- ------- ------- ------------- ------- -------- -------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 73,158 5.0% 959 3.24 85,670 5.0% 840 3.05 PROPERTY TAXES 35,589 2.4% 466 1.57 45,696 2.7% 448 1.63 INSURANCE 17,189 1.2% 225 0.76 21,000 1.2% 206 0.75 RENT - 0.0% - - - 0.0% - - ------------ ------- ------- ------- ------------- ------- -------- -------- TOTAL 125,936 8.6% 1,651 5.57 152,366 8.9% 1,494 5.42 INCOME BEFORE OTHER (4) FIXED CHARGES $ 784,522 53.6% 10,283 34.71 $ 910,631 53.1% $ 8,928 $ 32 ============ ======= ======= ======= ============= ======= ======== ======== RENOVATION PAYMENT $ 32,232 $ 51,402 - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. ==================================================================================================================================== Source:The Famous Host Company ====================================================================================================================================
SUPER 8 MOTEL -- PLEASANTON, CALIFORNIA TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS Super 8 Pleasanton, California Projected Operating Results ------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 1998 1999 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 102 102 Occupancy 80.00% 77.00% Average Daily Room Rate $65.00 $66.75 Revenues Rooms $1,936,000 97.8% $18,980 $65.00 $1,914,000 97.8% $18,765 $66.77 Telephone 38,000 1.9% 373 1.28 38,000 1.9% 373 1.33 Other Operated Departments 6,000 0.3% 59 0.20 6,000 0.3% 59 0.21 ----------- ------- ------- --------- ---------- ------- ------- ------- Total Revenues 1,980,000 100.0% 19,412 66.48 1,958,000 100.0% 19,196 68.30 Departmental Expenses (3) Rooms 290,000 15.0% 2,843 9.74 293,000 15.3% 2,873 10.22 Telephone 19,000 50.0% 186 0.64 19,000 50.0% 186 0.66 Other Operated Departments 3,000 50.0% 29 0.10 3,000 50.0% 29 0.10 ----------- ------- ------- --------- --------- ------- ------- ------- Total Departmental Expenses 312,000 15.8% 3,059 10.48 315,000 16.1% 3,088 10.99 ----------- ------- ------- --------- --------- ------- ------ ------- Departmental Profit 1,668,000 84.2% 16,353 56.00 1,643,000 83.9% 16,108 57.31 Undistributed Expenses Administrative and General 149,000 7.5% 1,461 5.00 152,000 7.8% 1,490 5.30 Franchise Fees 155,000 7.8% 1,520 5.20 153,000 7.8% 1,500 5.34 Marketing 21,000 1.1% 206 0.71 22,000 1.1% 216 0.77 Property Operations and Maintenance 97,000 4.9% 951 3.26 100,000 5.1% 980 3.49 Energy and Utilities 71,000 3.6% 696 2.38 73,000 3.7% 716 2.55 ----------- ------- ------- --------- --------- ------- ------ ------- Total Undistributed Expenses 493,000 24.9% 4,833 16.55 500,000 25.5% 4,902 17.44 ----------- ------- ------- --------- --------- ------- ------ ------- Gross Operating Profit 1,175,000 59.3% 11,520 39.45 1,143,000 58.4% 11,206 39.87 Fixed Charges and Management Fees Base Management Fees 99,000 5.0% 971 3.32 98,000 5.0% 961 3.42 Property Taxes 92,000 4.6% 902 3.09 93,000 4.7% 912 3.24 Insurance 21,000 1.1% 206 0.71 22,000 1.1% 216 0.77 ----------- ------- ------- --------- --------- ------- ------ ------- Total Fixed Charges 212,000 10.7% 2,078 7.12 213,000 10.9% 2,088 7.43 ----------- ------- ------- --------- --------- ------- ------ ------- Income Before Reserves 963,000 48.6% 9,441 32.33 930,000 47.5% 9,118 32.44 Reserves for Replacements 79,000 4.0% 775 2.65 78,000 4.0% 765 2.72 ----------- ------- ------- --------- --------- ------- ------ ------- Net Operating Income (4) $ 884,000 44.6% $ 8,667 $29.68 $ 852,000 43.5% $ 8,353 $29.72 =========== ======= ======== ========= ========= ======= ======= ======= ------------------------------------------------ Calendar Years Ending December 31: 2000 ------------------------------------------------ $ % PAR (1) POR (2) ------------------------------------------------ Number of Keys 102 Occupancy 75.00% Average Daily Room Rate $68.75 Revenues Rooms $1,925,000 97.8% $18,873 $68.75 Telephone 38,000 1.9% 373 1.36 Other Operated Departments 6,000 0.3% 59 0.21 ----------- ------- ------- -------- Total Revenues 1,969,000 100.0% 19,304 70.32 Departmental Expenses (3) Rooms 298,000 15.5% 2,922 10.64 Telephone 19,000 50.0% 186 0.68 Other Operated Departments 3,000 50.0% 29 0.11 ----------- ------- ------- -------- Total Departmental Expenses 320,000 16.3% 3,137 11.43 ----------- ------- ------- -------- Departmental Profit 1,649,000 83.7% 16,167 58.89 Undistributed Expenses Administrative and General 156,000 7.9% 1,529 5.57 Franchise Fees 154,000 7.8% 1,510 5.50 Marketing 22,000 1.1% 216 0.79 Property Operations and Maintenance 103,000 5.2% 1,010 3.68 Energy and Utilities 75,000 3.8% 735 2.68 ----------- ------- ------- -------- Total Undistributed Expenses 510,000 25.9% 5,000 18.21 ----------- ------- ------- -------- Gross Operating Profit 1,139,000 57.8% 11,167 40.68 Fixed Charges and Management Fees Base Management Fees 98,000 5.0% 961 3.50 Property Taxes 95,000 4.8% 931 3.39 Insurance 22,000 1.1% 216 0.79 ----------- ------- ------- -------- Total Fixed Charges 215,000 10.9% 2,108 7.68 ----------- ------- ------- -------- Income Before Reserves 924,000 46.9% 9,059 33.00 Reserves for Replacements 79,000 4.0% 775 2.82 ----------- ------- ------- -------- Net Operating Income (4) $ 845,000 42.9% $ 8,284 $30.18 =========== ======= ======== ======== - --------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Pleasanton, California Projected Operating Results ------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2001 2002 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 102 102 Occupancy 75.00% 75.00% Average Daily Room Rate $71.00 $73.00 Revenues Rooms $1,983,000 97.8% $19,441 $71.02 $2,038,000 97.8% $19,980 $72.99 Telephone 39,000 1.9% 382 1.40 40,000 1.9% 392 1.43 Other Operated Departments 6,000 0.3% 59 0.21 6,000 0.3% 59 0.21 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Revenues 2,028,000 100.0% 19,882 72.63 2,084,000 100.0% 20,431 74.63 Departmental Expenses (3) Rooms 307,000 15.5% 3,010 10.99 316,000 15.5% 3,098 11.32 Telephone 20,000 51.3% 196 0.72 20,000 50.0% 196 0.72 Other Operated Departments 3,000 50.0% 29 0.11 3,000 50.0% 29 0.11 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Departmental Expenses 330,000 16.3% 3,235 11.82 339,000 16.3% 3,324 12.14 ----------- ------- --------- -------- ----------- ------- --------- -------- Departmental Profit 1,698,000 83.7% 16,647 60.81 1,745,000 83.7% 17,108 62.49 Undistributed Expenses Administrative and General 161,000 7.9% 1,578 5.77 166,000 8.0% 1,627 5.94 Franchise Fees 159,000 7.8% 1,559 5.69 163,000 7.8% 1,598 5.84 Marketing 23,000 1.1% 225 0.82 24,000 1.2% 235 0.86 Property Operations and Maintenance 106,000 5.2% 1,039 3.80 109,000 5.2% 1,069 3.90 Energy and Utilities 77,000 3.8% 755 2.76 80,000 3.8% 784 2.87 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Undistributed Expenses 526,000 25.9% 5,157 18.84 542,000 26.0% 5,314 19.41 ----------- ------- --------- -------- ----------- ------- --------- -------- Gross Operating Profit 1,172,000 57.8% 11,490 41.97 1,203,000 57.7% 11,794 43.08 Fixed Charges and Management Fees Base Management Fees 101,000 5.0% 990 3.62 104,000 5.0% 1,020 3.72 Property Taxes 97,000 4.8% 951 3.47 99,000 4.8% 971 3.55 Insurance 23,000 1.1% 225 0.82 24,000 1.2% 235 0.86 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Fixed Charges 221,000 10.9% 2,167 7.91 227,000 10.9% 2,225 8.13 ----------- ------- --------- -------- ----------- ------- --------- -------- Income Before Reserves 951,000 46.9% 9,324 34.06 976,000 46.8% 9,569 34.95 Reserves for Replacements 81,000 4.0% 794 2.90 83,000 4.0% 814 2.97 ----------- ------- --------- -------- ----------- ------- --------- -------- Net Operating Income (4) $ 870,000 42.9% $ 8,529 $31.16 $ 893,000 42.9% $ 8,755 $31.98 =========== ======= ========= ======== =========== ======= ========= ======== ----------------------------------------------- Calendar Years Ending December 31: 2003 ----------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------- Number of Keys 102 Occupancy 73.00% Average Daily Room Rate $75.25 Revenues Rooms $2,045,000 97.8% $20,049 $75.24 Telephone 41,000 2.0% 402 1.51 Other Operated Departments 6,000 0.3% 59 0.22 ----------- -------- ------- -------- Total Revenues 2,092,000 100.0% 20,510 76.97 Departmental Expenses (3) Rooms 321,000 15.7% 3,147 11.81 Telephone 20,000 48.8% 196 0.74 Other Operated Departments 3,000 50.0% 29 0.11 ----------- -------- ------- -------- Total Departmental Expenses 344,000 16.4% 3,373 12.66 ----------- -------- ------- -------- Departmental Profit 1,748,000 83.6% 17,137 64.32 Undistributed Expenses Administrative and General 170,000 8.1% 1,667 6.26 Franchise Fees 164,000 7.8% 1,608 6.03 Marketing 24,000 1.1% 235 0.88 Property Operations and Maintenance 113,000 5.4% 1,108 4.16 Energy and Utilities 82,000 3.9% 804 3.02 ----------- -------- ------- -------- Total Undistributed Expenses 553,000 26.4% 5,422 20.35 ----------- -------- ------- -------- Gross Operating Profit 1,195,000 57.1% 11,716 43.97 Fixed Charges and Management Fees Base Management Fees 105,000 5.0% 1,029 3.86 Property Taxes 101,000 4.8% 990 3.72 Insurance 24,000 1.1% 235 0.88 ----------- -------- ------- -------- Total Fixed Charges 230,000 11.0% 2,255 8.46 ----------- -------- ------- -------- Income Before Reserves 965,000 46.1% 9,461 35.51 Reserves for Replacements 84,000 4.0% 824 3.09 ----------- -------- ------- -------- Net Operating Income (4) $ 881,000 42.1% $ 8,637 $32.42 =========== ======== ======= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Pleasanton, California Projected Operating Results ------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2004 2005 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 102 102 Occupancy 73.00% 73.00% Average Daily Room Rate $77.50 $79.75 Revenues Rooms $2,112,000 97.7% $20,706 $77.50 $2,167,000 97.7% $21,245 $79.73 Telephone 42,000 1.9% 412 1.54 43,000 1.9% 422 1.58 Other Operated Departments 7,000 0.3% 69 0.26 7,000 0.3% 69 0.26 ----------- ------- ------- -------- --------- ------- ------ -------- Total Revenues 2,161,000 100.0% 21,186 79.30 2,217,000 100.0% 21,735 81.57 Departmental Expenses (3) Rooms 331,000 15.7% 3,245 12.15 341,000 15.7% 3,343 12.55 Telephone 21,000 50.0% 206 0.77 22,000 51.2% 216 0.81 Other Operated Departments 3,000 42.9% 29 0.11 3,000 42.9% 29 0.11 ----------- ------- ------ -------- --------- ------- ------ -------- Total Departmental Expenses 355,000 16.4% 3,480 13.03 366,000 16.5% 3,588 13.47 ----------- ------- ------ -------- --------- ------- ------ -------- Departmental Profit 1,806,000 83.6% 17,706 66.27 1,851,000 83.5% 18,147 68.11 Undistributed Expenses Administrative and General 175,000 8.1% 1,716 6.42 180,000 8.1% 1,765 6.62 Franchise Fees 169,000 7.8% 1,657 6.20 173,000 7.8% 1,696 6.37 Marketing 25,000 1.2% 245 0.92 26,000 1.2% 255 0.96 Property Operations and Maintenance 116,000 5.4% 1,137 4.26 120,000 5.4% 1,176 4.42 Energy and Utilities 85,000 3.9% 833 3.12 87,000 3.9% 853 3.20 ----------- ------- ------ -------- --------- ------- ------ -------- Total Undistributed Expenses 570,000 26.4% 5,588 20.92 586,000 26.4% 5,745 21.56 ----------- ------- ------ -------- --------- ------- ------ -------- Gross Operating Profit 1,236,000 57.2% 12,118 45.35 1,265,000 57.1% 12,402 46.54 Fixed Charges and Management Fees Base Management Fees 108,000 5.0% 1,059 3.96 111,000 5.0% 1,088 4.08 Property Taxes 103,000 4.8% 1,010 3.78 105,000 4.7% 1,029 3.86 Insurance 25,000 1.2% 245 0.92 26,000 1.2% 255 0.96 ----------- ------- ------ -------- --------- ------- ------ -------- Total Fixed Charges 236,000 10.9% 2,314 8.66 242,000 10.9% 2,373 8.90 ----------- ------- ------ -------- --------- ------- ------ -------- Income Before Reserves 1,000,000 46.3% 9,804 36.69 1,023,000 46.1% 10,029 37.64 Reserves for Replacements 86,000 4.0% 843 3.16 89,000 4.0% 873 3.27 ----------- ------- ------ -------- ---------- ------- ------- -------- Net Operating Income (4) $ 914,000 42.3% $ 8,961 $33.54 $ 934,000 42.1% $ 9,157 $34.37 =========== ======= ======= ======== ========= ======= ======= ======== ----------------------------------------------- Calendar Years Ending December 31: 2006 ----------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------- Number of Keys 102 Occupancy 73.00% Average Daily Room Rate $82.25 Revenues Rooms $2,235,000 97.8% $21,912 $82.24 Telephone 44,000 1.9% 431 1.62 Other Operated Departments 7,000 0.3% 69 0.26 ----------- -------- ------- -------- Total Revenues 2,286,000 100.0% 22,412 84.11 Departmental Expenses (3) Rooms 351,000 15.7% 3,441 12.91 Telephone 22,000 50.0% 216 0.81 Other Operated Departments 4,000 57.1% 39 0.15 ----------- -------- ------- -------- Total Departmental Expenses 377,000 16.5% 3,696 13.87 ----------- -------- ------ -------- Departmental Profit 1,909,000 83.5% 18,716 70.24 Undistributed Expenses Administrative and General 186,000 8.1% 1,824 6.84 Franchise Fees 179,000 7.8% 1,755 6.59 Marketing 27,000 1.2% 265 0.99 Property Operations and Maintenance 123,000 5.4% 1,206 4.53 Energy and Utilities 90,000 3.9% 882 3.31 ----------- -------- ------ -------- Total Undistributed Expenses 605,000 26.5% 5,931 22.26 ----------- -------- ------ -------- Gross Operating Profit 1,304,000 57.0% 12,784 47.98 Fixed Charges and Management Fees Base Management Fees 114,000 5.0% 1,118 4.19 Property Taxes 107,000 4.7% 1,049 3.94 Insurance 27,000 1.2% 265 0.99 ----------- -------- ------ -------- Total Fixed Charges 248,000 10.8% 2,431 9.13 ----------- -------- ------ -------- Income Before Reserves 1,056,000 46.2% 10,353 38.85 Reserves for Replacements 91,000 4.0% 892 3.35 ----------- -------- ------- -------- Net Operating Income (4) $ 965,000 42.2% $ 9,461 $35.51 =========== ======== ======= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Pleasanton, California Projected Operating Results -------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2007 2008 -------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) -------------------------------------------------------------------------------------------- Number of Keys 102 102 Occupancy 73.00% 73.00% Average Daily Room Rate $84.75 $87.25 Revenues Rooms $2,303,000 97.8% $22,578 $ 84.74 $2,371,000 97.7% $23,245 $ 87.24 Telephone 46,000 2.0% 451 1.69 47,000 1.9% 461 1.73 Other Operated Departments 7,000 0.3% 69 0.26 8,000 0.3% 78 0.29 ----------- ------- ------- --------- ---------- -------- ------- --------- Total Revenues 2,356,000 100.0% 23,098 86.69 2,426,000 100.0% 23,784 89.26 Departmental Expenses (3) Rooms 361,000 15.7% 3,539 13.28 372,000 15.7% 3,647 13.69 Telephone 23,000 50.0% 225 0.85 24,000 51.1% 235 0.88 Other Operated Departments 4,000 57.1% 39 0.15 4,000 50.0% 39 0.15 ----------- ------- --------- --------- ----------- -------- --------- ------ Total Departmental Expenses 388,000 16.5% 3,804 14.28 400,000 16.5% 3,922 14.72 ----------- ------- --------- --------- ----------- -------- --------- ------ Departmental Profit 1,968,000 83.5% 19,294 72.41 2,026,000 83.5% 19,863 74.55 Undistributed Expenses Administrative and General 191,000 8.1% 1,873 7.03 197,000 8.1% 1,931 7.25 Franchise Fees 184,000 7.8% 1,804 6.77 190,000 7.8% 1,863 6.99 Marketing 27,000 1.1% 265 0.99 28,000 1.2% 275 1.03 Property Operations and Maintenance 127,000 5.4% 1,245 4.67 131,000 5.4% 1,284 4.82 Energy and Utilities 93,000 3.9% 912 3.42 95,000 3.9% 931 3.50 ----------- ------- --------- --------- ----------- -------- --------- ------ Total Undistributed Expenses 622,000 26.4% 6,098 22.89 641,000 26.4% 6,284 23.59 ----------- ------- --------- --------- ----------- -------- --------- ------ Gross Operating Profit 1,346,000 57.1% 13,196 49.53 1,385,000 57.1% 13,578 50.96 Fixed Charges and Management Fees Base Management Fees 118,000 5.0% 1,157 4.34 121,000 5.0% 1,186 4.45 Property Taxes 110,000 4.7% 1,078 4.05 112,000 4.6% 1,098 4.12 Insurance 27,000 1.1% 265 0.99 28,000 1.2% 275 1.03 Total Fixed Charges 255,000 10.8% 2,500 9.38 261,000 10.8% 2,559 9.60 ----------- ------- --------- --------- ----------- -------- --------- ------ Income Before Reserves 1,091,000 46.3% 10,696 40.14 1,124,000 46.3% 11,020 41.36 Reserves for Replacements 94,000 4.0% 922 3.46 97,000 4.0% 951 3.57 ----------- ------- --------- --------- ----------- -------- --------- ------ Net Operating Income (4) $ 997,000 42.3% $ 9,775 $ 36.68 $1,027,000 42.3% $10,069 $ 37.79 =========== ======= ========= ========= =========== ======== ========= ====== - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
SECTION VI SUPER 8 MOTEL SACRAMENTO, CALIFORNIA =============================================================================== Summary of Important Facts and Conclusions =============================================================================== Property Address Super 8 Motel 4317 Madison Avenue Sacramento, California 95842 Telephone (916) 334-7430 - -------------------------------------------- ---------------------------------- Owner Leased Fee Interest Hale G. Zimmerman Leasehold Interest Super 8 Motels, Ltd. - -------------------------------------------- ---------------------------------- Assessor's Parcel Number 228-0141-028-000 and 228-0191-031-000 - -------------------------------------------- ---------------------------------- Effective Date of Appraisal January 1, 1998 - -------------------------------------------- ---------------------------------- Property Rights Appraised Leasehold Interest =============================================================================== Highest and Best Use =============================================================================== Highest and Best Use As if Vacant Limited-service hotel As Improved Hold for future development =============================================================================== Property Description =============================================================================== Existing Improvements Year Built 1980 Gross Building Area 45,633 square feet Number of Hotel Guest Rooms 128 Parking 137 spaces Number of Floors Two and Three above ground (no basement) Hotel Amenities Pool and spa, complimentary coffee Compliance with ADA Partial - -------------------------------------------- ---------------------------------- Site Area 5.37 acres (234,000 square feet) Zoning T-C (Travel Commercial) Flood Zone XC, Panel Number 060262-0090D dated September 30, 1988 Wetlands Zone No Alquist Priolo Special Studies Zone No Historic, Natural , Cultural, Recreational, or Scientific Value None =============================================================================== Valuation Conclusion =============================================================================== Cost Approach Not Applicable - -------------------------------------------- ---------------------------------- Sales Comparison Approach $2,650,000 - -------------------------------------------- ---------------------------------- Income Capitalization Approach Stabilized Occupancy 60.0% Average Daily Room Rate $43.00 Stabilized Net Income $307,000 Overall Capitalization Rate 11.5% Terminal Capitalization Rate 12.0% Discount Rate 14.5% Indicated Market Values Direct Capitalization Technique $2,700,000 Discounted Cash Flow Analysis $2,700,000 - -------------------------------------------- ---------------------------------- Final Estimate of Market Value $2,700,000 - -------------------------------------------- ---------------------------------- Marketing and Exposure Period Six months or less ============================================ ================================== VI-1 (Photograph deleted) View of Hotel Looking Southeast from Main Parking Lot (Photograph deleted) View of Typical Queen-Bed Guestroom VI-2 A. AREA AND NEIGHBORHOOD REVIEW 1. Introduction The subject property is located in Sacramento, the largest city in Central California, a metropolis of over 1.6 million people which includes the overall Metropolitan Statistical Area (MSA). Sacramento is a major stop along both Interstate 5 and Highway 99, which connect all of the Central Valley cities. As the state capital, Sacramento is dominated by government sector employment. The reliance on state government provides the area with a stable employment base. However, as a low-cost alternative to Silicon Valley, the Sacramento MSA is also becoming home to the manufacturing, distribution, and non-research and development portions of numerous technology companies, such as Apple, HP, Intel, JVC, NEC, and Packard Bell. In addition, the area is becoming an attractive base for the back-office operations of banks and communications companies because of less expensive land and the absence of seismic activity in the Sacramento area. A map showing the location of the subject in relation to the surrounding area is shown on the following page. 2. Economic Data Presented in the following text is a brief overview of selected economic data that characterizes the local market area. Population: The population of Sacramento was 388,700 persons in January 1997, a 0.9 percent increase over 1996. The Sacramento MSA population was 1,647,000 in 1997. This represents a compound average annual growth rate (CAAG) of approximately 2.0 percent over 1991. The growth rate is higher than the population growth of the state overall, which was a CAAG increase of 1.6 percent over the same period. Population in the Sacramento area is expected to show stable growth through the year 2000. Income: The effective buying income (EBI) is defined as personal income less person tax and non-tax payments. It is used as an indicator of market quality and market potential. In the Sacramento MSA, real median household experienced a slight decrease from $37,232 in 1994 to $33,301 in 1996, a 5.4 percent decrease. Currently, based on the 1990 census, income per capita is $14,087 with an average household income of $28,183. VI-3 (Map of north-central California deleted) Regional Map VI-4 Employment: While government activity is a major contributor to the local economy, as indicated, manufacturing and services industries have become increasingly important. Sacramento now has a highly diversified economy which has experienced steady growth during the past decade. Economic growth is further supported by the city's proximity to the San Francisco Bay Area, an extensive transportation system, and comparably inexpensive land, housing, and real estate development costs. Employment in the Sacramento MSA counties is estimated to have grown by 3.7 percent from 1995 to 1996, with a total average employment of 702,500 in October 1997. The unemployment rate in the Sacramento MSA decreased from 5.5 percent in 1996 to 5.2 percent in 1997. This rate compares favorably to the estimated unemployment rate of 6.0 percent for the nation as a whole. The following table presents a listing of the major public and private industry employers in the Sacramento MSA area. ================================================================= Major Employers in the Sacramento MSA ================================================================= Number of Employer Employees ---------------------------------------------- ================== State of California 70,700 University of California Davis 14,910 County of Sacramento 11,790 McClellan Air Force Base 10,100 San Juan Unified School District 8,600 Sutter Health 5,975 UC Davis Medical Center 5,300 Kaiser Permanente 5,130 Sacramento City Unified School District 5,000 Raley's Supermarkets 4,900 ================================================================= Source: Sacramento Business Journal ================================================================= Tourism: Sacramento is home to numerous tourist attractions, state monuments, and the State Capitol. Other attractions include the Railroad Museum, Old Sacramento, the Crocker Art Museum, the Downtown Plaza/K Street mall, and the California State Fairgrounds (Cal Expo). According to the Sacramento Convention and Visitors Bureau, the number of tourists to Sacramento has increased steadily over the past five years at 2.2 percent, compounded annually. Sacramento Metropolitan Airport: Sacramento is served by 140 daily flights to all major US cities by the Sacramento Metropolitan Airport. The total number of passengers increased by 90.0 percent from 1990 to 1997 because of new airline service into the area, low airfares during the 1992 airfare "war", and the expansion of the airport to be completed this year in VI-5 February. From 1996 to 1997, there was a 0.5 increase in airline passengers. In future years, however, air traffic counts are expected to continue to increase comparable to a CAAG of over 10.0 percent. Military Installations: McClellan Air Force base is scheduled to close down in 2001, following a 5-year transition period. McClellan is located one mile west of the subject along Madison Avenue. Due to the diversity of the area's economic make-up and the expected privatized re-use of the base, we do not envision the closure of the base having a significant impact. Mather Air Force Base closed in 1993 and the local market has since then recovered after an initial negative impact on the market. Riverfront and Old Sacramento: On both sides of the Sacramento River, improvement of the riverfront is planned. These redevelopment efforts are being conducted by the Sacramento Housing and Redevelopment Agency and the City of West Sacramento Redevelopment Agency. Coordination of the improvements of both riverbanks is being made by the two agencies, and mutual benefits are expected. On the City of Sacramento side of the river, a high-quality bike trail will be constructed along the Sacramento River from Old Sacramento to the Miler Park Marina. This trail will connect the existing American River Parkway bike trail to the north with the existing Sacramento River bikeway to the south. The bike trails will have emergency telephones with interpretive signs at points of historic or natural interest. Nearer to Old Sacramento, a series of levee improvements to the Docks area are planned to compliment recent upgrades to Old Sacramento. The Docks, a former maritime area, is located just south of the Tower Bridge. Improvements include attractive promenade sidewalk areas, decorative lamps, river outlook points, and landscaping. 3. Neighborhood Review The subject property is located near the major freeway intersection of Interstate 80 and Madison Avenue, in the suburban, northeastern area of Sacramento. Madison Avenue is reached by off ramps from Interstate 80. The subject property is accessed by turning right (north) off of Madison Avenue to Hillsdale Street, and then right (east) from Hillsdale Street to access the subject site. The Super 8 Motel is set back from Madison Avenue behind a Brookfields Restaurant and the various buildings comprising the small commercial center at the corner of Madison Avenue and Hillsdale Street. Shops and businesses located in this center include a restaurant, pizzeria, coffee stand, hair salon, and animal hospital. Facing the subject from the south side of Madison Avenue are a Denny's Restaurant and a vacant lot. On the other side of Hillsdale Street, at the corner of Madison Avenue, are located a Beacon gasoline station and a Trinity Christian School. The area surrounding the subject property further east is residential, and the area further south and west is a combination of highway commercial and strip commercial. The Holiday Inn Northeast is located on the south side of Interstate VI-6 80, also facing Madison Avenue, and its neighbors include a large Ford dealership and an American Automobile Association office. West of the subject along Madison Avenue is additional strip commercial and the entrance to McClellan Air Force Base (one-mile west). As indicated, a number of restaurants are also located in the vicinity of the subject property, an added attraction given that the Super 8 offers no food and beverage service of its own. A special walkway has been developed between the subject property and the Brookfields Restaurant, for example, so that Super 8 guests may easily reach the restaurant, which offers breakfast, lunch, and dinner. The trend in development in this portion of Sacramento is for new growth and new construction to occur farther east in Roseville and Rocklin, outside of the City of Sacramento area. The upcoming privatization of McClellan Air Force Base indicates that some new construction and redevelopment may occur during this process. The subject property is well positioned to accommodate demand generated by the "new" use of McClellan given its proximity to the base. 4. Conclusion In summary, we are of the opinion that the subject property is well located in the northeast area of the City of Sacramento. Growth in nearly all economic indicators has been positive over the past several years and we forecast continued modest growth in these areas for the foreseeable future. B. PROPERTY DESCRIPTION 1. Introduction The subject property is a limited-service hotel comprising 128 guestrooms. Additional amenities at the property include an outdoor swimming pool and 24-hour coffee service. The hotel comprises a wood framed structure in two wings, one of two floors and one of three floors. The main, three-floor hotel building houses guestrooms, the lobby, the hotel laundry, service areas, and various mechanical and electrical equipment. The porte cochere entrance to the hotel is created by a driveway passage through a portion of the first floor of the three-story wing, as shown in the photograph presented on page one of this report. The hotel was constructed in 1980 and we understand that 1980 was the first year of operation. The hotel is currently owned by Super 8 Motels Ltd., a related company to the Famous Host Companies. We are not aware of any transactions relating to the site or the improvements since the date of opening. VI-7 2. Site Description and Zoning The subject property is located at 4316 Madison Avenue. The subject site comprises 5.37acres, or 234,000 square feet. The site is irregular in shape, and slopes downward slightly to the east from surrounding streets. The property has 205 feet of frontage along Madison Avenue street side of the property. The subject property is zoned T-C (Travel Commercial). This zoning allows a variety of commercial development in a highway setting and a hotel is a permitted use in this zone. We are aware of no easements or covenants affecting the subject property which would negatively affect the market value of the subject property. 3. Improvements Description The hotel building forms an approximate Y-shape with the interior of the Y-shape forming a courtyard area. The courtyard is landscaped and is also the site of the pool. The hotel offers interior corridors and one hydraulic elevator. The building is fire sprinklered. The total interior square footage of the hotel is 45,633 square feet with the average interior space of a typical guestroom being approximately 225 square feet. The Super 8 Motel provides 128 guestrooms, configured as 54 queen-size bedrooms, 74 double queen-size bedrooms, and no suites. A small number of rooms are provided for disabled persons. The guestrooms are furnished with a color television, desk, two chairs, nightstand, lamp, and dresser. The lobby is wood paneled with contemporary wood furniture. Overall the property is in good condition and has been maintained on a regular basis. With regard to parking, the hotel has 137 surface parking spaces located in the paved parking lot which surrounds the hotel building. Three of these spaces are designated for physically challenged persons. Also located on-site for guest use are an ice machine, soft-drink vending machine, and a snack vending machine. 4. Basic Construction and Mechanical Systems The subject building is a wood framed structures having foundations of poured-in-place concrete. The exterior walls are composed of stucco and painted wood. The exterior colors of the hotel are a beige-tone paint scheme with contrasting dark-brown wood . The interior walls are sheet rock and are primarily painted or have vinyl wall covering. The roofs are pitched, composition tile roofing which appear to be in good condition. Presented on the following table is a summary of the basic construction and mechanical systems of the hotel. VI-8 =============================================================================== Super 8 Motel -- Sacramento Summary of Basic Construction and Mechanical Systems =============================================================================== Foundation: Concrete slab on grade - ---------------------------- -------------------------------------------------- Frame: Wood frame construction, type V-1 hour fire rating. - ---------------------------- -------------------------------------------------- Walls: Exterior: stucco. Interior: gypsum board covering an airspace between 2x4 studs. The walls in the guestrooms are painted gypsum board and partially papered. Lobby walls are wood paneled and painted gypsum board. - ---------------------------- -------------------------------------------------- Floor: Floors are carpeted in guestrooms and corridor areas. Bathrooms have vinyl tile. The lobby area is carpeted and the vending area has ceramic tile flooring. - ---------------------------- -------------------------------------------------- Roof: Slightly pitched with composition tile roofing - ---------------------------- -------------------------------------------------- Ceiling Heights: 8.0 feet. Ceilings are painted gypsum board and painted wood. In the public areas the lighting is set in incandescent light fixtures. In the guestrooms, are table lamps. - ---------------------------- -------------------------------------------------- Windows: Window and door sashes are bronzed anodized aluminum. Window trim is painted wood. - ---------------------------- -------------------------------------------------- Heating and Cooling: Each room had individual electric heating and air conditioning units located in the wall under a window - ---------------------------- -------------------------------------------------- Laundry Facilities: Laundry equipment consists of two washers and three dryers, commercial grade. - ---------------------------- -------------------------------------------------- Sprinkler System: All public areas and guestrooms are fire sprinklered. - ---------------------------- -------------------------------------------------- Life Safety: There are two individual fire systems in the guestrooms: fire sensitive sensors and independent smoke alarms. =============================================================================== Source: Famous Host Companies =============================================================================== 5. Assessed Value and Property Taxes The subject property is assessed by Sacramento County on a tax year commencing July 1 of every year. Under the provisions of Article 13-A of the State of California (Proposition 13), properties are assessed based on their fair market value as of the change of ownership date. The assessed value can be increased by a maximum of 2.0 percent per year until such date as the property is subsequently sold, substantial new construction takes place, or the use of the property is substantially changed. The current assessed value of the property is presented in the following table. ============================================================ Assessor's Parcel Numbers 228-0141-028-0000 1997/98 Assessed Value ============================================================ Land and Improvements $2,303,063 Personal Property 244,221 - -------------------------------------- --------------------- Net Taxable Value $2,547,284 - -------------------------------------- --------------------- VI-9 For 1997/1998, total property taxes and direct assessments are $27,311.31 on the subject property. The indicated tax rate, therefore, is 1.0722 percent. 6. Land Lease The subject property is encumbered by a lease, with the underlying land owned by Mr. Hale G. Zimmerman. The term of the lease extends until June 20, 2013, with five renewal options of ten years each. The base rent is adjusted every two years to reflect changes in the Consumer Price Index. The current rent is $9,783 per month as of December 31, 1997 ($117,396 annually). Super 8 Motel, Ltd. currently sub-leases three portions of their leased land, one to a restaurant operation, the other two to strip shopping center developers. The names of the sublessees are KMH Trinity, Madison Avenue, and Sterling Equity. The income from this sub-leased land appears on the hotel's financial statement as Other Income, which as of year-end 1997, totaled $80,863. 7. Renovation and Capital Improvements Identified renovation plans include the replacement of the sub-flooring of the ground floor guest corridors as well as the carpeting of these hallways. Further, as the through-the wall air conditioning units in each guestroom continue to age, these units will need to be replaced. Further, as the guestroom doors are secured with standard key locks, an upgrade to more contemporary electronic door locks is also necessary. Given that the cost of such renovation work, on a project-by-project basis, is not unusually large, annual funding for such projects on a phased-basis is considered to be possible through a annual reserve for capital replacement of 4.0 percent of total revenue. 8. Summary of Functional Utility and Condition It is our opinion that the hotel is adequately designed and maintained to service the hotel market demands of the suburban Sacramento community. VI-10 C. HOTEL MARKET ANALYSIS 1. Sacramento Metropolitan Area Hotel Market Overview There are a wide variety of existing lodging facilities offering distinctive levels of quality, service, and amenities in the metropolitan Sacramento market. The primary sub-market areas are Downtown, Richards Boulevard, Natomas, Cal Expo, Roseville, and Rancho Cordova/Folsom. For year-end 1996, the composite annual average occupancy of the overall Sacramento area was 69.9 percent as reported by PKF Consulting's Trends in the Hotel Industry. The corresponding year-end 1996 average daily room rate (ADR) is estimated to be $73.50. For 1997, PKF Consulting estimates an occupancy level of 72.8 percent and an ADR of $75.50. An eight-year review of occupancy and ADR for the Sacramento area is presented in the following chart. ============================================================================================================== Sacramento Metropolitan Area Hotel Market Performance 1990 - 1997 - ---------------------------- ----------------- ---------------- ----------------- ----------- ---------------- Percentage Average Points Average Daily Percent Year Occupancy Change Room Rate Change Inflation(1) - ---------------------------- ----------------- ---------------- ----------------- ----------- ---------------- 1990 65.2% - $58.99 - - 1991 64.6% (0.6)% $58.75 (0.4%) 3.0% 1992 64.4% (0.2)% $59.45 1.2% 3.0% 1993 66.8% 2.4% $61.16 2.9% 2.7% 1994 71.2% 4.4% $64.09 4.8% 2.7% 1995 71.5% 0.3% $70.72 5.9% 2.6% 1996 69.9% (1.6)% $73.50 3.9% 3.0% 1997 72.8% 4.1% $75.50 2.7% 3.5% - ---------------------------- ----------------- ---------------- ----------------- ----------- ---------------- CAAG 1.6% - 3.6% - - ============================================================================================================== (1) U.S. City Average CPI change over previous year Source: PKF Consulting's Trends in the Hotel Industry and U.S. Dept. of Labor Statistics ==============================================================================================================
Over the 1990 to 1997 period, occupancy has increased at a CAAG of 1.6 percent annually, with strong growth shown for 1997. With regard to ADR, the market has indicated a steady room rate growth of 3.6 percent annually overall, ahead of inflation as measured by CPI, which has averaged approximately 3.0 percent over the same period. For 1998, based on historical trends, current economic status, and the addition of new supply to the market, PKF Consulting projects a year-end 1998 area-wide occupancy of 72.5 percent at a corresponding ADR of approximately $78.50. 2. Proposed Additions to Hotel Supply Based on our discussions with planning departments and various hotel development personnel, we understand that there are a number of hotels planned for VI-11 construction and proposed hotel development in the Sacramento metropolitan area is summarized in the following table. In specific, a number of projects in the Roseville and Rocklin area may potentially impact the subject property. ======================================================================================================================= Sacramento Metropolitan Area Proposed Hotel Development ======================================================================================================================= No. of Development Hotel/Product Location Rooms Status - ------ -------------------------------- --------------------------------- ------------ ================================ 1 Various Hotel Products I-80 at Taylor 155-350 A Hilton Garden Inn, Courtyard Roseville by Marriott, Fairfield Inn, and Comfort Inn are proposed. Phased opening from 1998 to 1999 - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 2 Extended Stay America Harding at Lead Hill 122 Ground broken. September 1998 Roseville opening planned - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 3 Microtel Rocklin Road at Interstate 80 100 Plans completed. June 1, 1998 Rocklin opening scheduled - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 4 Radisson Inn at Lake Natoma 720 Gold Lake Drive 62 Approved by Planning Dept. (Expansion) Folsom Awaiting financing - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 5 Best Western Heritage Inn 11269 Point East Drive 63 Approved by Planning Dept. (Expansion) Rancho Cordova - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 6 AmeriSuites Zinfandel and Gold Circle 128 Plans and approval complete. Rancho Cordova January 1, 1999 opening scheduled - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 7 Crossland Economy Studio Point East Drive 127 Early-1999 opening likely Rancho Cordova - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 8 Hampton Inn Zinfandel and Gold Circle 88 Early-1999 opening likely Rancho Cordova - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 9 Homewood Suites 2480 Natomas Park Drive 125 Letter of development intent Natomas signed - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 10 TownePlace Suites East side of Venture Oaks Way, 95 Letter of development intent off Gateway Oaks Dr. signed Natomas - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 11 Hilton Garden Inn East side of Venture Oaks Way, 150 Speculative off Gateway Oaks Drive Natomas - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 12 Embasssy Suites Hotel Capitol Mall at The Docks 247 Under negotiation with City. Old Sacramento Mid-1999 opening possible - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 13 Sheraton Hotel J Street at 13th Street 450 Under negotiation with City. Downtown Sacramento Late-1999 opening possible - ------ -------------------------------- --------------------------------- ------------ -------------------------------- 12 All-Suite Hotel Captain's Table Marina along 120 Advanced stage of planning the Sacramento River South Sacramento ======================================================================================================================= Source: PKF Consulting =======================================================================================================================
Up to 572 new hotel rooms are proposed in the nearby areas of Roseville and Rocklin which may have some effect on the subject property. The three projects that may have the most impact would be the 100-room Microtel in Rocklin, the VI-12 90-room Comfort Inn in Roseville, and the 82-unit Fairfield Inn, also in Roseville. These projects are expected to start construction after the cessation of the heavy winter rains and have the potential to be open by the end of 1998. Therefore, we have analyzed the impact of these additions to the competitive supply projected during the next five-year period. 3. Demand Segmentation The primary demand segments in the Sacramento market are corporate, group, and leisure demand. Business and leisure travel are the two largest demand segments on an annual basis. On a more seasonal basis, such as the bi-annual summer bowling leagues, group demand is the third demand segment in the Sacramento market. Each hotel penetrates these three demand segments based on the appeal of the property to the various types of travelers in each segment. The current mix of demand at the subject property is primarily composed of leisure travelers (45.0%) who are attracted to the subject property because of its convenient location and clean, well-priced rooms. The second largest component of demand (27.0%) is from corporate and county government travelers who are visiting businesses and agencies in the area. Federal government, military, and McClellan demand comprises the third largest segment (15.0). The balance of demand (13.0 percent) is generated by group travelers, such as athletic and school groups, and miscellaneous segments. 4. Projected Future Supply and Demand Over the past eight years (1990 to 1997) demand for hotel accommodations in Sacramento has increased at a CAAG of 1.6 percent. This reflects economic growth in the area, which has remained in the low 70s percent level since 1994. Based on our review of the local market, we project overall demand for hotel rooms will stabilize at this level and may drop slightly over the next five years as the market absorbs new supply. VI-13 5. Market Performance of the Subject The following table summarizes the historical occupancy levels and average room rate for the Super 8 Motel over the past four years =============================================================================== Super 8 Motel -- Sacramento Historical Occupancy and Room Rate 1994 to 1997 (Estimated) =============================================================================== Average Daily Year Occupancy % Change Room Rate % Change - --------------------- -------------- ------------- -------------- ------------- 1994 61.9% - $37.21 - - --------------------- -------------- ------------- -------------- ------------- 1995 53.8% (13.1)% $41.06 10.3% - --------------------- -------------- ------------- -------------- ------------- 1996 55.5% 3.1% $40.37 (1.7)% - --------------------- -------------- ------------- -------------- ------------- 1997 (Estimated) 62.0% 11.7% $41.75 3.4% - --------------------- -------------- ------------- -------------- ------------- CAAG 0.0% - 3.9% - =============================================================================== Source: Famous Host Companies =============================================================================== As can be noted, occupancy rates at the subject property dropped significantly from 61.9 percent in 1994 to 53.8 percent in 1995 as changes at McClellan Air Force Base were announced. Since 1995, occupancy rates have increased annually, and an occupancy of 62.0 is estimated for year-end 1997. Occupancy rates at the subject property are expected to stabilize in the near future as new supply comes on-line in neighboring areas. On the other hand, during this period of declined occupancy, management has raise ADR at a CAAG of 3.9 percent from 1994 to estimated year-end 1997. Room rate increased from $37.21 in 1994 to $41.75 estimated for year-end 1997. This increase in ADR is a reflection of some economic strength in the local market. Based on our analysis of the local market, we are of the opinion the subject will achieve a stable occupancy level of approximately 60.0 percent in 1999 as new supply comes on-line in both Roseville and Rocklin. An occupancy of 62.0 percent is forecast for 1998, comparable to that achieved in 1997, and then a decreased occupancy of 60.0 percent if forecast for 1999. For the balance of the projection period, from 2000 to 2007, a stable occupancy level of 60.0 percent is projected. Based on our market analysis, we project the hotel to achieve an average room rate of $43.00 in 1998, a 3.0 percent increase from 1997. Over the balance of our projection period, we project the hotel's average room rates to increase at the anticipated long-term level of inflation (3.0 percent per year). We believe that this is realistic given the projected limited growth in demand combined with some new additions to supply. VI-14 The following table summarizes our projections for the subject property over the first five years of the ten-year analysis period from January 1, 1998 to December 31, 2002. =========================================================================== Super 8 Motel -- Sacramento Projected Occupancy and Average Daily Room Rate 1998 to 2002 =========================================================================== Average Daily Percent Year Occupancy Room Rate Change - --------------- ------------------- -------------------- ------------------ 1997 62.0% $41.75 - - --------------- ------------------- -------------------- ------------------ 1998 62.0% $43.00 3.0% 1999 60.0% $44.25 3.0% 2000 60.0% $45.50 3.0% 2001 60.0% $47.00 3.0% 2002 60.0% $49.75 3.0% - --------------- ------------------- -------------------- ------------------ CAAG (0.6)% 3.0% - - --------------- ------------------- -------------------- ------------------ D. HIGHEST AND BEST USE Based on our analysis, we are of the opinion that the existing improvements contribute significant overall value to the site. There is no alternative, legal use that could economically justify the restructuring or removal of the existing improvements at this time. Therefore, the subject property, as improved, represents the highest and best use of the site. E. VALUATION -- SALES COMPARISON APPROACH 1. Introduction We have reviewed a number of Sacramento metropolitan area hotel sales and focused on those sales considered most comparable in providing support for the market value of the subject. Based on this review, we have identified six recent hotel sales in the Sacramento region. The sales occurred between August 1993 and May 1997. The sales are all of a fee simple estate interest in the property. ========================================================================================================================== Comparable Hotel Sales ========================================================================================================================== Rooms Overall Sale Sale Year Number Price Revenue Capitalization No. Hotel Name Location Date Built of Rooms Per Room Multiplier Rate - ----------- ----------------- ----------------- --------------- -------- ---------- ----------- ----------- ============== 1 Fountain Suites Sacramento 5/97 1988 300 $56,667 3.30 11.1% 2 Beverly Garland Sacramento 5/96 1980 205 $30,224 2.03 N/A 3 Residence Inn Sacramento 1/96 1985 176 $81,818 3.51 10.6% 4 South Pointe Inn Sacramento 8/95 1960 152 $13,500 6.50 N/A 5 Fairfield Inn Sacramento 8/94 1990 117 $32,692 3.02 10.8% 6 Days Inn Sacramento 8/93 1981 173 $20,231 3.06 N/A ========================================================================================================================== Source: PKF Consulting ==========================================================================================================================
VI-15 2. Analysis of the Hotel Sales In reviewing the preceding table, it can be noted that the sales price per room indicates a range in value on a per-room basis from $13,500 to $56,667. Because of the many differences between these hotels and the subject hotel, we are of the opinion that an analysis using a rooms revenue multiplier is the most appropriate units of comparison to value the subject. A rooms revenue multiplier measures the total revenue generated from room rentals, the major revenue source for this type of hotel property, in relation to the sales price. Rooms revenue multipliers do not require subjective adjustments since most variance in properties are considered to be reflected in average daily room rates and annual occupancies as achieved in the market. As can be noted, indicated rooms revenue multipliers for the six sales ranged from a low of 2.03 to a high of 6.50. Sale number four was of a distressed property and the low rooms revenue of this hotel causes the transaction to have a comparably high rooms revenue multiplier of 6.50. Without this transaction, the average rooms revenue multiplier of the other five properties is 2.98, with a range of 2.03 to 3.51. Based on our analysis, we are of the opinion that a rooms revenue multiplier close to the high end of the range indicated by the five comparable sales is appropriate in valuing the subject property, in the order of 3.25 Based on this multiplier, and assuming a stabilized occupancy level of 60.0 percent at an average daily room rate of $43.00 (stated in 1998 dollars), the indicated value for available rooms for the subject is as follows: Rooms Stabilized Stabilized Indicated Value Revenue Average Rate Occupancy Per Room Multiplier Level Days/Year (Rounded) - ---------------- --- --------------- --- ----------------- --- ---------------- --- ----------------------- 3.25 X $43.00 X 60.0% X 365 = $30,600 - ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
As noted above, the rooms revenue multiplier analysis produced a value indication of $30,600 per available room. This value unit is converted into a total value estimate by multiplying the indicated value per room by the total number of rooms. Based on 128 rentable rooms, the indicated stabilized value of the fee simple interest in the Super 8 Motel is $3,900,000 as calculated below: - ----------------------- ---- ---------------- ----- --------------------------- $30,600 X 128 Rooms = $3,900,000 (Rounded) - ----------------------- ---- ---------------- ----- --------------------------- VI-16 F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH After concluding to our estimate of the stabilized value of the subject, the next step in our analysis is to develop an estimate of the "as is" leasehold market value of the subject property. 1. Income Gain The first step to develop the value estimate is to add the income gain projected to occur until the property is stabilized (as discussed in the Income Capitalization section). =================================================================== Sales Comparison Approach "As Is" Fee Simple Value =================================================================== Stabilized Value Indication $3,900,000 Less: Income Gain Until Stabilization 26,000 - ---------------------------------------------- -------------------- "As Is" Fee Simple Value $3,926,000 - ---------------------------------------------- -------------------- 2. Valuation of Leased Fee Interest After having developed an estimate of the "as is" fee simple value of the subject under the Sales Comparison Approach, the next step is to develop an estimate of the value of the leased fee interest in the property. This represents the position of the ground lessor, who benefits from the income derived from the ground lease payments during the term of the lease, as well as the ownership of the property in fee at the termination of the lease (the reversion). The estimated leased fee interest in the hotel is then subtracted from the fee simple value to arrive at our estimate of the value of the leasehold interest. This deduction is derived by capitalizing the land lease payment for a stabilized year ($121,000) by an appropriate capitalization rate (9.0 percent). This capitalization rate of 250 basis points less than the rate used to capitalize the revenue stream from the hotel operations (as will be discussed in the Income Capitalization Approach) is reflective of the more secure position of the landlord as compared to the lessee. This calculation results in a leased fee interest of $1,300,000 ($121,000 / 9.0 percent). The following table summarizes the deduction made from the stabilized fee simple value indication. VI-17 ============================================================== Sales Comparison Approach "As Is" Leasehold Value ============================================================== Fee Simple Value Estimate $3,926,000 Less: Leased Fee Land Value (1,300,000) - ------------------------------------- ------------------------ Leasehold Value $2,626,000 - ------------------------------------- ------------------------ Rounded $2,650,000 - ------------------------------------- ------------------------ As a result of the foregoing analysis, we estimate the "as is" market value of the leasehold estate interest in the subject as of January 1, 1998, through the Sales Comparison Approach to be: =============================================================================== TWO MILLION SIX HUNDRED FIFTY THOUSAND DOLLARS - ------------------------------------------------------------------------------- $2,650,000 =============================================================================== G. VALUATION -- INCOME CAPITALIZATION APPROACH 1. Basis for Cash Flow Projection In order to develop an estimate of the net operating income (NOI) for the subject for both a stabilized year of operation (direct capitalization) and each year of the aforementioned holding period (yield capitalization), the following have been analyzed: 1. The historical operating results for the subject for year-end 1994, 1995, 1996, year-to-date September 1997, and management's operating budget for 1997. 2. The operating results of the category "Limited-Service Hotels" from the 1997 issue of PKF Consulting's Trends in the Hotel Industry. The historical operating results of the subject are presented at the end of this section of the report. 2. Stabilized Year Operating Estimate We first developed an estimate of the performance of the subject for a stabilized year of operation stated in current value, 1998 dollars. This estimate is based on our review of the historical operating results of the subject hotel coupled with an analysis of the operating results of the selected PKF Consulting "Trends" category. Additional key assumptions used in preparing this stabilized year estimate are summarized below. VI-18 a) The stabilized annual occupancy of the hotel is projected to be 60.0 percent at an average daily room rate of $43.00 as stated in 1998 dollars; b) A management fee of 5.0 percent of total revenues, a franchise fee of 8.0 percent of room revenues, and a reserve for capital replacements of 4.0 percent of total revenue have been deducted to establish the net operating income of the subject. c) The projection of expense for taxes on real and personal property is a function of the market value of the property. The subject property is in the real estate taxing jurisdiction of the Sacramento County Tax Assessor's Office. Our estimate of the property taxes for the subject is based on the provisions of Proposition 13. Proposition 13 limits ad valorem property taxes to 1.0 percent of the assessed value plus assessment for city, special district, and county bonds. The current effective tax rate is 1.0722 percent of market value. This appraisal assumes a sale of the subject property on the effective date of the appraisal, which will initiate a reassessment of real estate for tax purposes. For the purpose of this analysis, the reassessment is based on the value estimate of the subject property as determined using the Income Capitalization Approach as if owned in fee simple. Based on that estimated value of the hotel, a tax rate of 1.0722 per $100 of assessed value is utilized, resulting in real estate taxes of $40,000, rounded, in the representative or stabilized year. Presented below is our estimate of the subject hotel's stabilized year operating results. As can be noted, on a stabilized basis, the subject property will generate approximately $1,329,000 in total revenue, with a net operating income of $307,000, or 23.1 percent of total revenue. VI-19 ================================================================================================== Super 8 Motel, Sacramento Stabilized Year Operating Results (Stated in 1998 Value Dollars) ================================================================================================== Occupancy Level 60.0% - -------------------------------------------- ----------------------------------------------------- Average Room Rate $43.00 - -------------------------------------------- ----------------------------------------------------- REVPAR $25.80 - -------------------------------------------- -------------- ------------ ------------ ------------ Total Ratios POR (1) POR (2) - -------------------------------------------- -------------- ------------ ------------ ------------ Revenues Rooms $1,205,000 90.7% $9,414 $43.00 Telephone 23,000 1.7% 180 0.80 Other Operated Departments 101,000 7.6% 789 3.60 - -------------------------------------------- -------------- ------------ ------------ ------------ Total Revenues 1,329,000 100.0% 10,383 47.40 - -------------------------------------------- -------------- ------------ ------------ ------------ Departmental Expenses (3) Rooms 231,000 19.2% 1,805 8.24 Telephone 11,000 50.0% 86 0.40 Other Operated Departments 10,000 10.0% 78 0.37 - -------------------------------------------- -------------- ------------ ------------ ------------ Total Departmental Expenses 252,000 19.0% 1,969 8.74 - -------------------------------------------- -------------- ------------ ------------ ------------ Departmental Income 1,077,000 81.0% 8,414 38.42 - -------------------------------------------- -------------- ------------ ------------ ------------ Undistributed Operating Expenses Administrative and General 178,000 13.4% 1,390 6.34 Franchise Fees 97,000 7.3% 756 3.46 Marketing 30,000 2.2% 231 1.06 Property Maintenance 96,000 7.2% 747 3.41 Energy and Utilities 63,000 4.7% 491 2.24 - -------------------------------------------- -------------- ------------ ------------ ------------ Total Undistributed Expenses 464,000 34.9% 3,625 16.55 - -------------------------------------------- -------------- ------------ ------------ ------------ Income Before Fixed Charges 613,000 46.1% 4,789 21.87 - -------------------------------------------- -------------- ------------ ------------ ------------ Management Fees and Fixed Charges Management Fees 66.000 5.0% 519 2.37 Property Taxes 40,000 3.1% 313 1.43 Insurance 26,000 2.0% 203 0.94 Land Lease 121,000 9.1% 945 4.32 - -------------------------------------------- -------------- ------------ ------------ ------------ Total 253,000 19.0% 1,976 9.02 - -------------------------------------------- -------------- ------------ ------------ ------------ Income Before Reserve 360,000 27.0% 2,812 12.84 - -------------------------------------------- -------------- ------------ ------------ ------------ Reserve for Replacement 53,000 4.0% 414 1.89 - -------------------------------------------- -------------- ------------ ------------ ------------ Income Before Other Charges(4) $307,000 23.1% $2,398 $10.95 ================================================================================================== (1) PAR - Per Available Room (2) POR - Per Occupied Room (3) Departmental expense ratios are based on the respective department's revenue, not total revenue (4) Income before interest, taxes, depreciation, and amortization Source: PKF Consulting ==================================================================================================
3. Ten Year Statement of Estimated Annual Operating Results Presented at the end of this section of the appraisal report is our estimate of the operating results for the subject for the ten-year period beginning January, 1, 1998. This forecast is based on the preceding stabilized year estimate, adjusted to reflect effects of inflation, variations in occupancy and rate and the impact of fixed and variable components of each revenue and expense item. Selected key assumptions used to develop this forecast are summarized below. VI-20 a) With the exception of property taxes, all other revenues are expenses are projected to increase at 3.0 percent throughout the holding period. Property taxes are projected to increase at a rate of 2.0 percent per year as allowed by California law, and growth in average daily room rate is expected to be depressed for the first four years of the analysis period as a result of market-driven factors. b) For the first year of this forecast, the occupancy and rates of the hotel were projected as previously discussed. Thereafter, the hotel's occupancy was assumed to decrease to, and remain at, 60.0 percent, with the average rate increasing at 3.0 percent per year. 4. Valuation Using Direct Capitalization Based on our evaluation of the subject, it is was concluded that an overall capitalization rate (OAR) of 11.5 percent is appropriate to value the subject, and properly reflects the risks associated with this hotel given the property's age, physical features, location, market position, and leasehold estate status. Based on the projection of net operating income for a stabilized year of operation, and the selected overall rate of 11.5 percent, the value of the subject as if stabilized is calculated to be as follows. ======================================================================== Projected Stabilized Net Operating Income $307,000 Overall Capitalization Rate 11.5% - -------------------------------------------------- --------------------- Stabilized Value Indication $2,669,565 Rounded $2,700,000 ======================================================================== From this derived stabilized value, an addition is made for the benefit of the additional income the hotel is expect to earn prior to reaching the projected lower stabilized level of income. This surplus cash flow is typically referred to as "income gain." Income gain is the difference in projected cash flows and the cash flow which would be available if the property were stabilized. This amount must be added to the stabilized value to reflect the higher occupancy in the first year of the analysis period prior to the attainment of a lower stabilization level of operation. Based on our market research and analysis, it is estimated that the subject will achieve a stabilized level of operation in 1999. A calculation of the income gain associated for the year prior to that period is presented on the following table. VI-21 =============================================================================== Income Gain to Stabilization =============================================================================== Estimated Stabilized Year Net Operating Net Operating Estimated Present Value Year Income Income Income Gain @ 14.5% - ----------- ----------------- ----------------- --------------- --------------- 1998 $337,000 $307,000 $30,000 $26,201 - ----------- ----------------- ----------------- --------------- --------------- Rounded $30,000 $26,000 - ----------- ----------------- ----------------- --------------- --------------- Based upon the preceding calculation, the cumulative income gain over the stabilization period is estimated to be approximately $30,000. Investors typically discount the estimated income gain at a comparable discount rate as that used for the valuation of the subject property itself, or, in this case, 14.5 percent annually. This is reflective of the more aggressive discount rate used to value potential gains as compared to potential losses. Consequently, if the sum of the income gains were discounted at a rate of 14.5 percent, the present value of the estimated income gain would be roundly $26,000. Presented below is our calculation of the "as is" market value of the subject taking into account the above estimate of income gain during the projected stabilization period. ======================================================================= Value Conclusion -- Direct Capitalization ======================================================================= Stabilized Value $2,700,000 Plus: Income Gain During Stabilization Period 26,000 - ----------------------------------------------------- ----------------- "As Is" Value $2,726,000 - ----------------------------------------------------- ----------------- Rounded $2,700,000 - ----------------------------------------------------- ----------------- Therefore, the estimated "as is" market value of the leasehold interest in the subject using the Direct Capitalization Approach, as of January 1, 1998, is: ============================================================================== TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $2,700,000 ============================================================================== 5. Discounted Cash Flow Valuation Analysis To estimate the value of the subject using a discounted cash flow analysis, it is assumed that the property will be sold at the end of a ten-year holding period. The value of the property at that time is estimated by capitalizing the expected or anticipated net operating income of the property in the eleventh year. From this value estimate, an estimate of sales costs is deducted to arrive at the net proceeds upon sale. VI-22 Based on our market research, we are of the opinion that a reversionary capitalization rate of 12.0 percent and a 14.5 percent discount rate are appropriate to value the subject on a discounted cash flow basis. The following table shows the present value of the projected net operating income for the subject for the ten-year holding period, along with the present value of the reversion, deriving a value estimate. =============================================================================== Discounted Cash Flow Analysis =============================================================================== Cash Flow Present Present From Value Value Year Operations Factor @ 14.5% - ------------------ -------------------- ----------------------- --------------- 1998 $337,000 0.8734 $294,323 1999 $317,000 0.7628 $241,796 2000 $330,000 0.6662 $219,835 2001 $339,000 0.5818 $197,232 2002 $352,000 0.5081 $178,861 2003 $357,000 0.4438 $158,429 2004 $372,000 0.3876 $144,180 2005 $385,000 0.3385 $130,322 2006 $395,000 0.2956 $116,774 2007 $404,000 0.2582 $104,310 - ------------------ -------------------- ----------------------- --------------- Reversion $3,473,000 0.2582 $896,706 - ------------------ -------------------- ----------------------- --------------- Present Value $2,682,768 - ------------------ -------------------- ----------------------- --------------- Value, Rounded $2,700,000 ================== ==================== ======================= ================ 6. Income Capitalization Approach Valuation Conclusion The value conclusion under the Income Capitalization Approach is based on both a direct capitalization and a discounted cash flow analysis. Both the direct capitalization method and the discounted cash flow method indicated a value of $2,700,000. Placing equal weight on both methods, our conclusion as to the "as is" market value of the leasehold interest of the subject using the Income Capitalization Approach, as of January 1, 1998, is: ============================================================================== TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $2,700,000 ============================================================================== H. RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the two valuation methodologies applied, considering the property type and the VI-23 requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the two approaches are as follows: ============================================ ====================== Sales Comparison Approach $2,650,000 Income Capitalization Approach Direct Capitalization $2,700,000 Discounted Cash Flow Analysis $2,700,000 ============================================ ====================== In the Sales Comparison Approach we compared six Sacramento area hotel transactions to the subject. The selected sales indicated a relatively wide range in value, and no property was identical to the subject. These factors make this approach less meaningful, but act as a reference checkpoint for the value derived from the Income Capitalization Approach methods. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized two methods of analysis: The direct capitalization method and the discounted cash flow method (yield capitalization). There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a value estimate. Both income methods resulted in similar values, heightening our confidence in this approach. Accordingly, the primary reliance was placed on this method. Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the "as is" market value of the leasehold interest in the subject property, as of January 1, 1998, is reasonably represented as: =============================================================================== TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $2,700,000 =============================================================================== VI-24 SUPER 8 MOTEL -- SACRAMENTO, CALIFORNIA HISTORICAL OPERATING RESULTS Super 8, Sacramento Historical Operating Results --------------------------------------------------------------------------------------------------- 1994 1995 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 128 128 Occupancy 61.90% 53.76% Average Daily Room Rate (ADR) $37.21 $41.06 REVPAR $23.03 $22.07 REVENUES ROOMS $ 1,076,064 91.0% $ 8,407 $ 37.21 $ 1,031,471 90.1% $ 8,058 $ 41.07 TELEPHONE 17,651 1.5% 138 0.61 16,111 1.4% 126 0.64 MISCELLANEOUS 89,238 7.5% 697 3.09 96,596 8.4% 755 3.85 ------------ ------ ------- ------- ----------- ------ ------- ------- TOTAL REVENUE 1,182,953 100.0% 9,242 40.90 1,144,178 100.0% 8,939 45.55 DEPT. COSTS & EXPENSES (3) ROOMS 217,219 20.2% 1,697 7.51 213,907 20.7% 1,671 8.52 TELEPHONE 12,001 68.0% 94 0.41 11,118 69.0% 87 0.44 MISCELLANEOUS 589 0.7% 5 0.02 7,228 7.5% 56 0.29 ------------ ------- ------ ------- ----------- ------- ------- ------- TOTAL COST & EXP. 229,809 19.4% 1,795 7.95 232,253 20.3% 1,814 9.25 TOTAL OPER. DEPTS. INCOME 953,144 80.6% 7,446 32.96 911,925 79.7% 7,124 36.31 ------------ ------- ------ ------- ----------- ------- ------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 130,621 11.0% 1,020 4.52 151,992 13.3% 1,187 6.05 MARKETING 22,969 1.9% 179 0.79 28,569 2.5% 223 1.14 FRANCHISE FEES 53,720 4.5% 420 1.86 51,574 4.5% 403 2.05 UTILITIES 54,119 4.6% 423 1.87 53,162 4.6% 415 2.12 PROPERTY OPERATIONS 72,012 6.1% 563 2.49 74,364 6.5% 581 2.96 ------------ ------- ----- ----- ---------- ------- ------- ------ TOTAL 333,441 28.2% 2,605 11.53 359,661 31.4% 2,810 14.32 INC. BEFORE MGMT. FEES AND FIXED CHARGES 619,703 52.4% 4,841 21.43 552,264 48.3% 4,315 21.99 ------------ ------- ------ ----- ---------- ------- ------- ------ MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 54,903 4.6% 429 1.90 53,056 4.6% 415 2.11 PROPERTY TAXES 27,672 2.3% 216 0.96 27,905 2.4% 218 1.11 INSURANCE 19,876 1.7% 155 0.69 20,602 1.8% 161 0.82 RENT 109,003 9.2% 852 3.77 111,325 9.7% 870 4.43 ------------ ------- ------ ------ ---------- ------- ------- ------ TOTAL 211,454 17.9% 1,652 7.31 212,888 18.6% 1,663 8.48 INCOME BEFORE OTHER (4) FIXED CHARGES $ 408,249 34.5% 3,189 14.12 $ 339,376 29.7% 2,651 13.51 ============ ======= ====== ====== ========== ======= ======= ====== RENOVATION PAYMENT $ 58,689 $ 80,817 ----------------------------------------------------- 1996 ----------------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------------- Number of Keys 128 Occupancy 55.48% Average Daily Room Rate (ADR) $40.37 REVPAR $22.40 REVENUES ROOMS $ 1,049,315 89.2% $ 8,198 $ 40.37 TELEPHONE 23,293 2.0% 182 0.90 MISCELLANEOUS 104,008 8.8% 813 4.00 ------------- ------- ------- ------- TOTAL REVENUE 1,176,616 100.0% 9,192 45.27 DEPT. COSTS & EXPENSES (3) ROOMS 202,942 19.3% 1,585 7.81 TELEPHONE 11,406 49.0% 89 0.44 MISCELLANEOUS 13,030 12.5% 102 0.50 ------------- ------- ------- ------- TOTAL COST & EXP. 227,378 19.3% 1,776 8.75 TOTAL OPER. DEPTS. INCOME 949,238 80.7% 7,416 36.52 ------------- ------- ------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 154,610 13.1% 1,208 5.95 MARKETING 24,866 2.1% 194 0.96 FRANCHISE FEES 52,590 4.5% 411 2.02 UTILITIES 52,627 4.5% 411 2.02 PROPERTY OPERATIONS 64,035 5.4% 500 2.46 ------------- ------- ------- ------- TOTAL 348,728 29.6% 2,724 13.42 INC. BEFORE MGMT. FEES AND FIXED CHARGES 600,510 51.0% 4,691 23.10 ------------- ------- ------- ------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 54,608 4.6% 427 2.10 PROPERTY TAXES 28,009 2.4% 219 1.08 INSURANCE 21,679 1.8% 169 0.83 RENT 113,977 9.7% 890 4.39 ------------- ------- ------- ------- TOTAL 218,73 18.6% 1,705 8.40 INCOME BEFORE OTHER (4) FIXED CHARGES $ 382,237 32.5% 2,986 14.71 ============= ======= ======= ======= RENOVATION PAYMENT $ 23,700 - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. =================================================================================================================================== Source:Famous Host Company ===================================================================================================================================
Super 8, Sacramento Operating Results Year-to-Date September 1997 and 1997 Budget --------------------------------------------------------------------------------------------------- September 1997 Budget 1997 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 128 128 Occupancy 62.00% 57.08% Average Daily Room Rate (ADR) $41.76 $42.28 REVPAR $25.89 $24.13 REVENUES ROOMS $ 904,874 90.9% $ 9,452 $ 41.76 $ 1,127,411 91.2% $11,776 $ 42.28 TELEPHONE 17,085 1.7% 178 0.79 20,065 1.6% 210 0.75 MISCELLANEOUS 73,304 7.4% 766 3.38 88,587 7.2% 925 3.32 ---------- ------ ------ ------- ----------- ------- ------- ------- TOTAL REVENUE 995,263 100.0% 10,396 45.93 1,236,063 100.0% 12,911 46.35 DEPT. COSTS & EXPENSES (3) ROOMS 172,425 19.1% 1,801 7.96 215,361 19.1% 2,250 8.08 TELEPHONE 10,839 63.4% 113 0.50 10,563 52.6% 110 0.40 MISCELLANEOUS 6,994 9.5% 73 0.32 630 0.7% 7 0.02 ---------- ------ ------ ------- ----------- ------- ------- ------ TOTAL COST & EXP. 190,258 19.1% 1,987 8.78 226,554 18.3% 2,366 8.50 TOTAL OPER. DEPTS. INCOME 805,005 80.9% 8,409 37.15 1,009,509 81.7% 10,545 37.86 ---------- ------ ------ ------- ----------- ------- ------- ------ UNDIST. OPERATING EXP. ADMIN. & GENERAL 129,575 13.0% 1,353 5.98 142,373 11.5% 1,487 5.34 MARKETING 14,770 1.5% 154 0.68 19,693 1.6% 206 0.74 FRANCHISE FEES 45,244 4.5% 473 2.09 56,370 4.6% 589 2.11 UTILITIES 45,843 4.6% 479 2.12 51,090 4.1% 534 1.92 PROPERTY OPERATIONS 46,143 4.6% 482 2.13 62,498 5.1% 653 2.34 ---------- ------ ----- ------- ---------- ------- ------- ------ TOTAL 281,575 28.3% 2,941 12.99 332,024 26.9% 3,468 12.45 INC. BEFORE MGMT. FEES AND FIXED CHARGES 523,430 52.6% 5,467 24.16 677,485 54.8% 7,077 25.40 ---------- ------ ------ ------- ---------- ------- ------- ------ MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 46,731 4.7% 488 2.16 57,655 4.7% 602 2.16 PROPERTY TAXES 20,437 2.1% 213 0.94 28,392 2.3% 297 1.06 INSURANCE 17,475 1.8% 183 0.81 20,000 1.6% 209 0.75 RENT 87,472 8.8% 914 4.04 110,000 8.9% 1,149 4.12 ---------- ------ ----- ------ ---------- ------- ------- ------ TOTAL 172,115 17.3% 1,798 7.94 216,047 17.5% 2,257 8.10 INCOME BEFORE OTHER (4) FIXED CHARGES $ 351,315 35.3% 3,670 16.21 $ 461,438 37.3% $ 4,820 $ 17.30 ========== ====== ====== ====== ========== ======= ======= ======= RENOVATION PAYMENT $ 46,544 $ 37,082 - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. ==================================================================================================================================== Source:Famous Host Company ====================================================================================================================================
SUPER 8 MOTEL -- SACRAMENTO, CALIFORNIA TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS Super 8 Sacramento, California Projected Operating Results ----------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 1998 1999 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 128 128 Occupancy 62.00% 60.00% Average Daily Room Rate $43.00 $44.25 Revenues Rooms $1,246,000 90.7% $ 9,734 $43.02 $1,240,000 90.6% $ 9,688 $44.24 Telephone 24,000 1.7% 188 0.83 24,000 1.8% 188 0.86 Other Operated Departments 104,000 7.6% 813 3.59 104,000 7.6% 813 3.71 ----------- ------- ------ --------- ---------- ------- ------- ------- Total Revenues 1,374,000 100.0% 10,734 47.43 1,368,000 100.0% 10,688 48.80 Departmental Expenses (3) Rooms 236,000 18.9% 1,844 8.15 237,000 19.1% 1,852 8.45 Telephone 12,000 50.0% 94 0.41 12,000 50.0% 94 0.43 Other Operated Departments 10,000 9.6% 78 0.35 10,000 9.6% 78 0.36 ----------- ------- ------ --------- ---------- ------- ------ ------- Total Departmental Expenses 258,000 18.8% 2,016 8.91 259,000 18.9% 2,023 9.24 ----------- ------- ------ --------- ---------- ------- ------ ------- Departmental Profit 1,116,000 81.2% 8,719 38.53 1,109,000 81.1% 8,664 39.56 Undistributed Expenses Administrative and General 179,000 13.0% 1,398 6.18 183,000 13.4% 1,430 6.53 Franchise Fees 100,000 7.3% 781 3.45 99,000 7.2% 773 3.53 Marketing 30,000 2.2% 234 1.04 31,000 2.3% 242 1.11 Property Operations and Maintenance 96,000 7.0% 750 3.31 98,000 7.2% 766 3.50 Energy and Utilities 63,000 4.6% 492 2.17 65,000 4.8% 508 2.32 ----------- ------- ------ --------- ---------- ------- ------ ------- Total Undistributed Expenses 468,000 34.1% 3,656 16.16 476,000 34.8% 3,719 16.98 ----------- ------- ------ --------- ---------- ------- ------ ------- Gross Operating Profit 648,000 47.2% 5,063 22.37 633,000 46.3% 4,945 22.58 Fixed Charges and Management Fees Base Management Fees 69,000 5.0% 539 2.38 68,000 5.0% 531 2.43 Property Taxes 40,000 2.9% 313 1.38 41,000 3.0% 320 1.46 Insurance 26,000 1.9% 203 0.90 27,000 2.0% 211 0.93 Land Lease 121,000 8.8% 945 4.18 125,000 9.1% 977 4.46 ----------- ------- ------ --------- ----------- ------- ------- ------- Total Fixed Charges 256,000 18.6% 2,000 8.84 261,000 19.1% 2,039 9.31 ----------- ------- ------ --------- ----------- ------- ------- ------- Income Before Reserves 392,000 28.5% 3,063 13.53 372,000 27.2% 2,906 13.27 Reserves for Replacements 55,000 4.0% 430 1.90 55,000 4.0% 430 1.96 ----------- ------- ------- --------- ----------- ------- ------ ------- Net Operating Income (4) $ 337,000 24.5% $ 2,633 $11.63 $ 317,000 23.2% $ 2,477 $11.31 =========== ======= ======= ========= =========== ======= ======= ======= ------------------------------------------------ Calendar Years Ending December 31: 2000 ------------------------------------------------ $ % PAR (1) POR (2) ------------------------------------------------ Number of Keys 128 Occupancy 60.00% Average Daily Room Rate $45.50 Revenues Rooms $1,279,000 90.6% $ 9,992 $45.50 Telephone 25,000 1.8% 195 0.89 Other Operated Departments 108,000 7.6% 844 3.84 ----------- ------- ------ -------- Total Revenues 1,412,000 100.0% 11,031 50.23 Departmental Expenses (3) Rooms 245,000 19.2% 1,914 8.72 Telephone 12,000 48.0% 94 0.43 Other Operated Departments 11,000 10.2% 86 0.39 ----------- ------- ------ -------- Total Departmental Expenses 268,000 19.0% 2,094 9.53 ----------- ------- ------ -------- Departmental Profit 1,144,000 81.0% 8,938 40.70 Undistributed Expenses Administrative and General 189,000 13.4% 1,477 6.72 Franchise Fees 102,000 7.2% 797 3.63 Marketing 31,000 2.2% 242 1.10 Property Operations and Maintenance 101,000 7.2% 789 3.59 Energy and Utilities 66,000 4.7% 516 2.35 ----------- ------- ------ -------- Total Undistributed Expenses 489,000 34.6% 3,820 17.40 ----------- ------- ------ -------- Gross Operating Profit 655,000 46.4% 5,117 23.30 Fixed Charges and Management Fees Base Management Fees 71,000 5.0% 555 2.53 Property Taxes 42,000 3.0% 328 1.49 Insurance 28,000 2.0% 219 1.00 Land Lease 128,000 9.1% 1,000 4.55 ----------- ------- ------ -------- Total Fixed Charges 269,000 19.1% 2,102 9.57 ----------- ------- ------ -------- Income Before Reserves 386,000 27.3% 3,016 13.73 Reserves for Replacements 56,000 4.0% 438 1.99 ----------- ------- ------ -------- Net Operating Income (4) $ 330,000 23.4% $ 2,578 $11.74 =========== ======= ======= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Sacramento, California Projected Operating Results ----------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2001 2002 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 128 128 Occupancy 60.00% 60.00% Average Daily Room Rate $47.00 $48.50 Revenues Rooms $1,318,000 90.7% $10,297 $47.02 $1,360,000 90.7% $10,625 $48.52 Telephone 25,000 1.7% 195 0.89 26,000 1.7% 203 0.93 Other Operated Departments 110,000 7.6% 859 3.92 114,000 7.6% 891 4.07 ----------- ------- ------- -------- ---------- ------- ------- -------- Total Revenues 1,453,000 100.0% 11,352 51.83 1,500,000 100.0% 11,719 53.51 Departmental Expenses (3) Rooms 252,000 19.1% 1,969 8.99 259,000 19.0% 2,023 9.24 Telephone 13,000 52.0% 102 0.46 13,000 50.0% 102 0.46 Other Operated Departments 11,000 10.0% 86 0.39 11,000 9.6% 86 0.39 ----------- ------- ------- -------- ----------- ------- ------- -------- Total Departmental Expenses 276,000 19.0% 2,156 9.85 283,000 18.9% 2,211 10.10 ----------- ------- ------- -------- ----------- ------- ------- -------- Departmental Profit 1,177,000 81.0% 9,195 41.99 1,217,000 81.1% 9,508 43.41 Undistributed Expenses Administrative and General 195,000 13.4% 1,523 6.96 201,000 13.4% 1,570 7.17 Franchise Fees 105,000 7.2% 820 3.75 109,000 7.3% 852 3.89 Marketing 32,000 2.2% 250 1.14 33,000 2.2% 258 1.18 Property Operations and Maintenance 104,000 7.2% 813 3.71 108,000 7.2% 844 3.85 Energy and Utilities 68,000 4.7% 531 2.43 70,000 4.7% 547 2.50 ----------- ------- ------ -------- --------- ------- ------- -------- Total Undistributed Expenses 504,000 34.7% 3,938 17.98 521,000 34.7% 4,070 18.59 ----------- ------- ------ -------- --------- ------- ------- -------- Gross Operating Profit 673,000 46.3% 5,258 24.01 696,000 46.4% 5,438 24.83 Fixed Charges and Management Fees Base Management Fees 73,000 5.0% 570 2.60 75,000 5.0% 586 2.68 Property Taxes 42,000 2.9% 328 1.50 43,000 2.9% 336 1.53 Insurance 29,000 2.0% 227 1.03 30,000 2.0% 234 1.07 Land Lease 132,000 9.1% 1,031 4.71 136,000 9.1% 1,063 4.85 ----------- ------- ------ -------- --------- ------- ------- -------- Total Fixed Charges 276,000 19.0% 2,156 9.85 284,000 18.9% 2,219 10.13 ----------- ------- ------ -------- --------- ------- ------- -------- Income Before Reserves 397,000 27.3% 3,102 14.16 412,000 27.5% 3,219 14.70 Reserves for Replacements 58,000 4.0% 453 2.07 60,000 4.0% 469 2.14 ----------- ------- ------- -------- ---------- ------- ------- -------- Net Operating Income (4) $ 339,000 23.3% $ 2,648 $12.09 $ 352,000 23.5% $ 2,750 $12.56 =========== ======= ======= ======== ========== ======= ======= ======== ----------------------------------------------- Calendar Years Ending December 31: 2003 ----------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------- Number of Keys 128 Occupancy 60.00% Average Daily Room Rate $49.75 Revenues Rooms $1,395,000 90.6% $10,898 $49.76 Telephone 27,000 1.8% 211 0.96 Other Operated Departments 117,000 7.6% 914 4.17 ----------- -------- --------- -------- Total Revenues 1,539,000 100.0% 12,023 54.90 Departmental Expenses (3) Rooms 267,000 19.1% 2,086 9.52 Telephone 13,000 48.1% 102 0.46 Other Operated Departments 12,000 10.3% 94 0.43 ----------- -------- --------- -------- Total Departmental Expenses 292,000 19.0% 2,281 10.42 ----------- -------- --------- -------- Departmental Profit 1,247,000 81.0% 9,742 44.48 Undistributed Expenses Administrative and General 206,000 13.4% 1,609 7.35 Franchise Fees 112,000 7.3% 875 4.00 Marketing 34,000 2.2% 266 1.21 Property Operations and Maintenance 111,000 7.2% 867 3.96 Energy and Utilities 73,000 4.7% 570 2.60 ----------- -------- --------- -------- Total Undistributed Expenses 536,000 34.8% 4,188 19.12 ----------- -------- --------- -------- Gross Operating Profit 711,000 46.2% 5,555 25.36 Fixed Charges and Management Fees Base Management Fees 77,000 5.0% 602 2.75 Property Taxes 44,000 2.9% 344 1.57 Insurance 31,000 2.0% 242 1.11 Land Lease 140,000 9.1% 1,094 4.99 ----------- -------- --------- -------- Total Fixed Charges 292,000 19.0% 2,281 10.42 ----------- -------- --------- -------- Income Before Reserves 419,000 27.2% 3,273 14.95 Reserves for Replacements 62,000 4.0% 484 2.21 ----------- -------- --------- -------- Net Operating Income (4) $ 357,000 23.2% $ 2,789 $12.74 =========== ======== ========= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Sacramento, California Projected Operating Results ------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2004 2005 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 128 128 Occupancy 60.00% 60.00% Average Daily Room Rate $51.25 $53.00 Revenues Rooms $1,441,000 90.6% $11,258 $51.26 $1,486,000 90.7% $11,609 $53.01 Telephone 28,000 1.8% 219 1.00 28,000 1.7% 219 1.00 Other Operated Departments 121,000 7.6% 945 4.30 124,000 7.6% 969 4.42 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Revenues 1,590,000 100.0% 12,422 56.57 1,638,000 100.0% 12,797 58.43 Departmental Expenses (3) Rooms 276,000 19.2% 2,156 9.82 283,000 19.0% 2,211 10.10 Telephone 14,000 50.0% 109 0.50 14,000 50.0% 109 0.50 Other Operated Departments 12,000 9.9% 94 0.43 12,000 9.7% 94 0.43 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Departmental Expenses 302,000 19.0% 2,359 10.74 309,000 18.9% 2,414 11.02 ----------- ------- --------- -------- ----------- ------- --------- -------- Departmental Profit 1,288,000 81.0% 10,063 45.82 1,329,000 81.1% 10,383 47.41 Undistributed Expenses Administrative and General 213,000 13.4% 1,664 7.58 219,000 13.4% 1,711 7.81 Franchise Fees 115,000 7.2% 898 4.09 119,000 7.3% 930 4.25 Marketing 35,000 2.2% 273 1.25 36,000 2.2% 281 1.28 Property Operations and Maintenance 114,000 7.2% 891 4.06 118,000 7.2% 922 4.21 Energy and Utilities 75,000 4.7% 586 2.67 77,000 4.7% 602 2.75 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Undistributed Expenses 552,000 34.7% 4,313 19.64 569,000 34.7% 4,445 20.30 ----------- ------- --------- -------- ----------- ------- --------- -------- Gross Operating Profit 736,000 46.3% 5,750 26.18 760,000 46.4% 5,938 27.11 Fixed Charges and Management Fees Base Management Fees 80,000 5.0% 625 2.85 82,000 5.0% 641 2.93 Property Taxes 45,000 2.8% 352 1.60 46,000 2.8% 359 1.64 Insurance 31,000 1.9% 242 1.10 32,000 2.0% 250 1.14 Land Lease 144,000 9.1% 1,125 5.12 149,000 9.1% 1,164 5.32 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Fixed Charges 300,000 18.9% 2,344 10.67 309,000 18.9% 2,414 11.02 ----------- ------- --------- -------- ----------- ------- --------- -------- Income Before Reserves 436,000 27.4% 3,406 15.51 451,000 27.5% 3,523 16.09 Reserves for Replacements 64,000 4.0% 500 2.28 66,000 4.0% 516 2.35 ----------- ------- --------- -------- ----------- ------- --------- -------- Net Operating Income (4) $ 372,000 23.4% $ 2,906 $13.23 $ 385,000 23.5% $ 3,008 $13.73 =========== ======= ========= ======== =========== ======= ========= ======== ------------------------------------------------- Calendar Years Ending December 31: 2006 ----------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------- Number of Keys 128 Occupancy 60.00% Average Daily Room Rate $54.50 Revenues Rooms $1,528,000 90.7% $11,938 $54.51 Telephone 29,000 1.7% 227 1.03 Other Operated Departments 128,000 7.6% 1,000 4.57 ----------- -------- --------- -------- Total Revenues 1,685,000 100.0% 13,164 60.11 Departmental Expenses (3) Rooms 292,000 19.1% 2,281 10.42 Telephone 15,000 51.7% 117 0.54 Other Operated Departments 13,000 10.2% 102 0.46 ----------- -------- --------- -------- Total Departmental Expenses 320,000 19.0% 2,500 11.42 ----------- -------- --------- -------- Departmental Profit 1,365,000 81.0% 10,664 48.69 Undistributed Expenses Administrative and General 226,000 13.4% 1,766 8.06 Franchise Fees 122,000 7.2% 953 4.35 Marketing 38,000 2.3% 297 1.36 Property Operations and Maintenance 121,000 7.2% 945 4.32 Energy and Utilities 79,000 4.7% 617 2.82 ----------- -------- --------- -------- Total Undistributed Expenses 586,000 34.8% 4,578 20.90 ----------- -------- --------- -------- Gross Operating Profit 779,000 46.2% 6,086 27.79 Fixed Charges and Management Fees Base Management Fees 84,000 5.0% 656 3.00 Property Taxes 47,000 2.8% 367 1.68 Insurance 33,000 2.0% 258 1.18 Land Lease 153,000 9.1% 1,195 5.46 ----------- -------- --------- -------- Total Fixed Charges 317,000 18.8% 2,477 11.31 ----------- -------- --------- -------- Income Before Reserves 462,000 27.4% 3,609 16.48 Reserves for Replacements 67,000 4.0% 523 2.39 ----------- -------- --------- -------- Net Operating Income (4) $ 395,000 23.4% $ 3,086 $14.09 =========== ======== ========= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Sacramento, California Projected Operating Results -------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2007 2008 -------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) -------------------------------------------------------------------------------------------- Number of Keys 128 128 Occupancy 60.00% 60.00% Average Daily Room Rate $56.00 $57.75 Revenues Rooms $1,570,000 90.6% $12,266 $ 56.01 $1,619,000 90.6% $12,648 $ 57.76 Telephone 30,000 1.7% 234 1.07 31,000 1.7% 242 1.11 Other Operated Departments 132,000 7.6% 1,031 4.71 136,000 7.6% 1,063 4.85 ----------- ------- --------- --------- ----------- -------- -------- -------- Total Revenues 1,732,000 100.0% 13,531 61.79 1,786,000 100.0% 13,953 63.71 Departmental Expenses (3) Rooms 300,000 19.1% 2,344 10.70 309,000 19.1% 2,414 11.02 Telephone 15,000 50.0% 117 0.54 16,000 51.6% 125 0.57 Other Operated Departments 13,000 9.8% 102 0.46 14,000 10.3% 109 0.50 ----------- ------- --------- --------- ----------- -------- -------- -------- Total Departmental Expenses 328,000 18.9% 2,563 11.70 339,000 19.0% 2,648 12.09 ----------- ------- --------- --------- ----------- -------- -------- -------- Departmental Profit 1,404,000 81.1% 10,969 50.09 1,447,000 81.0% 11,305 51.62 Undistributed Expenses Administrative and General 232,000 13.4% 1,813 8.28 239,000 13.4% 1,867 8.53 Franchise Fees 126,000 7.3% 984 4.49 130,000 7.3% 1,016 4.64 Marketing 39,000 2.3% 305 1.39 40,000 2.2% 313 1.43 Property Operations and Maintenance 125,000 7.2% 977 4.46 128,000 7.2% 1,000 4.57 Energy and Utilities 82,000 4.7% 641 2.93 84,000 4.7% 656 3.00 ----------- ------- --------- --------- ----------- -------- -------- -------- Total Undistributed Expenses 604,000 34.9% 4,719 21.55 621,000 34.8% 4,852 22.15 ----------- ------- --------- --------- ----------- -------- -------- -------- Gross Operating Profit 800,000 46.2% 6,250 28.54 826,000 46.2% 6,453 29.47 Fixed Charges and Management Fees Base Management Fees 87,000 5.0% 680 3.10 89,000 5.0% 695 3.17 Property Taxes 48,000 2.8% 375 1.71 49,000 2.7% 383 1.75 Insurance 34,000 2.0% 266 1.21 35,000 2.0% 273 1.25 Land Lease 158,000 9.1% 1,234 5.64 163,000 9.1% 1,273 5.81 ----------- ------- --------- --------- ----------- -------- -------- -------- Total Fixed Charges 327,000 18.9% 2,555 11.67 336,000 18.8% 2,625 11.99 ----------- ------- --------- --------- ----------- -------- -------- -------- Income Before Reserves 473,000 27.3% 3,695 16.87 490,000 27.4% 3,828 17.48 Reserves for Replacements 69,000 4.0% 539 2.46 71,000 4.0% 555 2.53 ----------- ------- --------- --------- ----------- -------- -------- -------- Net Operating Income (4) $ 404,000 23.3% $ 3,156 $ 14.41 $ 419,000 23.5% $ 3,273 $ 14.95 =========== ======= ========= ========= =========== ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. ==================================================================================================================================== Source: PKF Consulting ====================================================================================================================================
SECTION VII SUPER 8 MOTEL SAN BERNARDINO, CALIFORNIA =============================================================================== Summary of Important Facts and Conclusions =============================================================================== Property Address Super 8 Motel 294 East Hospitality Lane San Bernardino, California 92408 Telephone (909) 381-1681 - ----------------------------------------- ------------------------------------- Owner Super 8 Motels III, Ltd. - ----------------------------------------- ------------------------------------- Assessor's Parcel Numbers 0141-412-13-P-001 - ----------------------------------------- ------------------------------------- Effective Date of Appraisal January 1, 1998 - ----------------------------------------- ------------------------------------- Property Rights Appraised Fee Simple =============================================================================== Highest and Best Use =============================================================================== Highest and Best Use As if Vacant Limited-service hotel As Improved Limited-service hotel =============================================================================== Property Description =============================================================================== Existing Improvements Year Built 1982 Gross Building Area 27,736 square feet Number of Hotel Guest Rooms 81 Parking 83 spaces (including two for disabled persons) Number of Floors Two Hotel Amenities Swimming pool and whirlpool Compliance with ADA In compliance - ----------------------------------------- ------------------------------------- Site Area 1.62 acres (70,567 square feet) Zoning CD (Commercial Districts) Flood Zone Zone XB, Panel #060281-8684F, dated July 16, 1979 Wetlands Zone No Alquist Priolo Special Studies Zone No Historic, Natural , Cultural, Recreational, or Scientific None Value =============================================================================== Valuation Conclusion =============================================================================== Cost Approach Not Used - ----------------------------------------- ------------------------------------- Sales Comparison Approach $1,700,000 - ----------------------------------------- ------------------------------------- Income Capitalization Approach Stabilized Occupancy 59.0% Average Daily Room Rate $44.75 (1998 value dollars) - ----------------------------------------- ------------------------------------- Stabilized Net Operating Income $174,000 (1998 value dollars) - ----------------------------------------- ------------------------------------- Overall Capitalization Rate 11.0% Terminal Capitalization Rate 11.5% Discount Rate 14.0% - ----------------------------------------- ------------------------------------- Indicated Market Values Direct Capitalization Technique $1,600,000 Discounted Cash Flow Analysis $1,550,000 - ----------------------------------------- ------------------------------------- Final Estimate of Market Value $1,600,000 - ----------------------------------------- ------------------------------------- Marketing and Exposure Period Six months or less - ----------------------------------------- ------------------------------------- VII-1 (Photograph deleted) View of the Subject Property (Photograph deleted) View of a Typical Double Queen-Bed Guestroom VII-2 A. AREA AND NEIGHBORHOOD REVIEW 1. Introduction The subject property is located in San Bernardino, which lies in San Bernardino County. Covering over 20,000 square miles in total area, it is the largest county in the United States. San Bernardino County is located 45 miles from Anaheim, 55 miles from Palm Springs, and 62 miles east of Los Angeles. Inyo, Los Angeles, Kern, and Riverside Counties border San Bernardino County. The area is the gateway to the resort areas of the San Bernardino Mountains, including Lake Arrowhead, and Big Bear Lake, and is known as Southern California's Inland Empire. San Bernardino is the county's governmental, financial and business center. Over 90.0 percent of the county's land is desert, and most of the population and agricultural production is concentrated west of the San Bernardino Mountains, which separate the area from the desert region. A map on the following page highlights the location of the subject property within the surrounding area. 2. Economic Data Presented in the following text is a brief overview of selected economic data that characterizes the local market area. Population: The population of San Bernardino was 180,300 persons in January 1997, a 1.6 percent compound average annual growth rate (CAAG) over 1990. The corresponding population of San Bernardino County was 1.6 million in January 1997. This figure represents a CAAG rate of 2.0 percent over the 1990 figure of 1.4 million. The population level in San Bernardino County is expected to increase at a CAAG of 1.2 percent, to 1.7 million persons by 2002. Retail Sales: Total taxable sales for San Bernardino County totaled over $3.5 billion in 1996. This county figure represented an annual increase of 6.1 percent over the previous year. Retail sales per household in 1996 were $22,000, and are expected to increase to $25,000 by 2002, a CAAG increase of 2.1 percent. Income: Average household effective buying income (EBI) for San Bernardino County was $36,682 in 1996, and is expected to increase to $42,000 by 2000, representing a CAAG increase of 2.3 percent. VII-3 (Street map of San Bernardino area deleted) Regional Map VII-4 Employment: In November 1997, the total number of persons employed in the Riverside-San Bernardino MSA, which includes Riverside and San Bernardino Counties, was approximately 853,300 persons. This is approximately a 3.6 percent increase over 1996; the corresponding unemployment rate was 6.0 percent during this period. The San Bernardino County unemployment rate was 5.4 percent, which is lower than the rate of 6.0 percent for Los Angeles County and 5.7 percent for California. Overall the largest increases in employment were experienced in the retail trade and the services sectors. The following table presents a listing of the major employers in San Bernardino. ============================================================ Major Employers in San Bernardino ============================================================ Number of Company Employees - ------------------------------- ---------------------------- San Bernardino Unified School District 4,432 Stater Brothers Markets 3,600 Carousel Mall 2,000 Inland Center Mall 2,000 St. Bernardine's Medical Center 1,671 Patton State Hospital 1,585 San Bernardino County 1,516 San Bernardino Community Hospital 1,400 City of San Bernardino 1,300 Unite States Post Office 1,200 California State University 1,000 McLane Co. 650 San Bernardino Valley College 565 Harris' Company 500 FEDCO Incorporated 450 GE Capital Corporation 400 ============================================================ Source: San Bernardino Economic Development Agency ============================================================ Tourism: San Bernardino hosts the National Orange Show, one of the premier events in Southern California. It is also home to the Renaissance Pleasure Faire, the Route 66 Rendezvous, Festival de Mariachi, and the Western Regional Little League. Surrounded by the San Bernardino National Forest, both Lake Arrowhead and Big Bear Lake, regional parks, mountains, museums and other attractions, San Bernardino offers a wide array of recreational and cultural activities for tourists. Transportation: Major airline transportation to San Bernardino County includes San Bernardino International Airport, Ontario VII-5 International Airport, and Los Angeles International Airport, less than one hour away. San Bernardino's easily accessible commuter train, Metrolink, provides rapid service to Orange County and downtown Los Angeles. 3. Neighborhood Review The subject property is located in one of the highly commercial areas of San Bernardino. Surrounding improvements include: four restaurants (Wendy's, Carl's Jr., Black Angus, and a Japanese restaurant); four hotels (the 250-room San Bernardino Hilton Inn, 153-room La Quinta Inn, 120-room Motel 6, and the 50-room Comfort Inn); four gasoline stations (Texaco, Shell, Union 76, and Chevron), and an upscale shopping center. Interstate 10 is situated just across from East Hospitality Lane, to the south of the Hilton. 4. Conclusion San Bernardino County, the largest in the United States, is a retail and shopping center, benefiting from its proximity to the purchasing power of Los Angeles County. Overall, we view the area will be experiencing stable growth levels in the near future, positively impacting the lodging industry. B. PROPERTY DESCRIPTION 1. Introduction The subject property is a limited-service hotel with 81 guestrooms. Amenities at the property include an outdoor swimming pool and a whirlpool. The property includes one main building containing the guest rooms and the lobby. The subject property was constructed in 1982 and is currently owned in fee simple by Grotewhol Management, Inc. We are not aware of any transactions relating to the site or the improvements since the date of opening. 2. Site Description and Zoning The subject property is located at 294 East Hospitality Lane, and is bounded by the 50-room Comfort Inn to the north, East Hospitality Lane and the 247-room Hilton to the south, Business Center Drive to the east, and Waterman Avenue to the west. The land area is 1.62 acres (70,567 square feet), and the property has 130 feet of frontage along East Hospitality Lane. The site has good visibility to traffic, and is also easily accessible from Interstate 10. The subject site is attractively landscaped with lawn, bushes, and palm trees. VII-6 The subject property is zoned CD (Commercial District) by San Bernardino County. The present use of the property is permitted with this zoning designation, and the subject is, therefore, a legal, conforming use. We are aware of no easements or covenants which would adversely affect the value of the subject property. 3. Improvements Description The subject property of this appraisal is improved with a 81-room limited-service hotel. The exterior-corridor property includes a lobby area, an outdoor swimming pool, and a whirlpool, and has a port cochere. The second floor corridors have wrought iron railings, and there are stair towers located at the corners of the building. Parking for 83 automobiles, including two for disabled persons, is provided. 4. Basic Construction and Mechanical Systems The subject building is a two-story wood-framed structure, with white stucco finish. The hotel building forms an approximate L-shape, with the inner portion of the L-shape forming a courtyard area. The courtyard is landscaped and is also the site of the pool. The hotel offers exterior corridors with no elevators. The entire building is sprinklered, and has a concrete-barrel tile roof which appears to be in good condition. The exterior of the building is comprised of white stucco. The total interior square footage of the hotel is 27,736 square feet with the average interior space of a typical guestroom being approximately 282 square feet. The Super 8 Motel provides 81 guestrooms, configured as 35 queen-size bedrooms, 29 double-queen , and 17 suite rooms. The guestrooms are furnished with a color television, desk, two chairs, nightstand, lamp, and dresser. Overall the property is in good condition and has been maintained on a regular basis. Presented in the following table is a summary of the basic construction and mechanical systems of the hotel. VII-7 =============================================================================== Super 8 Motel - San Bernardino Summary of Basic Construction and Mechanical Systems =============================================================================== Foundation: Concrete slab on-grade with spread footings - --------------------------------- --------------------------------------------- Frame: Wood - --------------------------------- --------------------------------------------- Exterior Walls: Stucco - --------------------------------- --------------------------------------------- Floor: Wood trusses, 5/8" plywood, and 3/4" gypsum board - --------------------------------- --------------------------------------------- Roof: Concrete barrel tile and four ply built-up fiberglass with minimum surface cap sheet - --------------------------------- --------------------------------------------- Ceiling Heights: 8' - 0" - --------------------------------- --------------------------------------------- Doors: Guest Room and Bathroom: 1 3/4" thick solid core wood Exterior: 13/4" thick solid core wood; aluminum store- front door - --------------------------------- --------------------------------------------- Windows: Sliding bronze anodized double pane aluminum - --------------------------------- --------------------------------------------- Heating and Cooling: GE Zoneline III, 2,775-watt auxiliary heater for guest rooms and lobby; Carrier split-system heat pump in laundry room - --------------------------------- --------------------------------------------- Elevators: None - --------------------------------- --------------------------------------------- Electrical: 120-280V; 1,600 AMPS; 42,000 A system - --------------------------------- --------------------------------------------- Plumbing: Water Pipes: Copper type M above-grade; type L below-grade Sewer Pipes: ABS pipe and fittings (interior and exterior) - --------------------------------- --------------------------------------------- Domestic Hot Water: Two boilers and holding tank - --------------------------------- --------------------------------------------- Laundry Facilities: Two washers and six dryers - --------------------------------- --------------------------------------------- Sprinkler System: Entire building is sprinklered - --------------------------------- --------------------------------------------- Life Safety: Fire Alarm Stations: At reception desk area Smoke Detectors: Hard-wired dual ionization smoke detectors Emergency Illumination: Yes =============================================================================== Source: Famous Host Companies =============================================================================== 5. Assessed Value and Property Taxes The subject property is assessed by the San Bernardino County on a tax year commencing July 1 of every year. Under the provisions of Article 13-A of the State of California (Proposition 13), properties are assessed based on their fair market value as of the change of ownership date. The assessed value can be increased by a maximum of 2.0 percent per year until such date as the property is subsequently sold, substantial new construction takes place, or the use of the property is substantially changed. The current assessed value of the property is presented in the following table. =================================================================== Assessor's Parcel Number 0141-412-13-P-001 1997/98 Assessed Value =================================================================== Land $624,240 Personal Property $109,051 Improvements $1,643,865 - -------------------------------------- ---------------------------- Total Assessed Value $2,377,156 =================================================================== VII-8 For fiscal year 1997/1998, total property taxes were $26,555.90 on the subject property, which included $2,784.34 for special assessments. The effective tax rate including the special assessments, therefore, is 1.1171 percent of the total assessed value. 6. Renovation and Capital Improvements We understand that $31,000 has been allocated as part of capital expenditures for the parking lot's resurfacing, as well as the painting of the subject property's exterior during 1998. 7. Summary of Functional Utility and Condition Overall, the subject property is well-maintained. The grounds are neat and well-trimmed, and the paint both inside and outside the building is in good condition. As noted previously, $31,000 will be spent on resurfacing the parking lot and painting the exterior of the subject property in 1998. C. HOTEL MARKET ANALYSIS 1. Competitive Supply The competitive hotel market for the Super 8 is comprised of six properties, including the subject, with a total of 745 rooms. The selection of the competitive supply was based on facilities and amenities, room rate structure, and market orientation. These properties are all affiliated with national chains and cater to the area's commercial, leisure, and government demand. VII-9 ======================================================================================================================= Super 8 Motel - San Bernardino Census of Competitive Properties ======================================================================================================================= Published Room Rates ----------------------------- Year Number AAA Property Opened of Rooms Single Double Amenities Rating - -------------------------- ----------- ----------- -------------- -------------- ----------------- -------------------- Super 8 Motel 1982 81 $38.00 $47.00 F,G,H 2 star (Motel) La Quinta Inn 1985 153 $47.00 $59.00 D,F,H 3 star (Motel) Motel 6 1986 120 $47.00 $47.00 H Not Rated Hilton Inn 1988 250 $120.00 $120.00 A,B,D,E,F,G 3 star (Hotel) Comfort Inn 1987 50 $53.00 $67.00 F,H 3 star (Motel) TraveLodge 1980 91 $45.00 $45.00 F,H Not Rated - -------------------------- ----------- ----------- -------------- -------------- ----------------- -------------------- Total 745 - - -------------------------- ----------- ----------- -------------- -------------- ----------------- -------------------- Amenities Codes AAA Rating A - Restaurant 5 star - Renowned; exceptional property recognized for B - Bar/Lounge market superiority of facilities and service C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations as well as extra amenities D - Meeting Rooms 3 star - Offers very comfortable and attractive E - Exercise Room accommodations F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some physical G - Whirlpool and operational categories H - Adjacent Restaurant 1 star - Meets AAA basic requirements for recommendation ======================================================================================================================= Source: Management of Individual Properties and 1998 American Automobile Association Tour Book =======================================================================================================================
As can be noted above, the competitive market is characterized by smaller, budget-oriented, national brand-affiliated products. According to our discussions with the San Bernardino County Planning Department, there are no new hotels planned in the surrounding market area. 2. Historical Market Performance The following table presents a summary of the historical market performance of the selected competitive hotels, together with the subject, over the period 1994 to 1996, as well as our estimate for 1997. ======================================================================================================================= Super 8 Motel - San Bernardino Competitive Hotel Market Historical Occupancy and Room Rate 1994 to 1997 (Estimated) ======================================================================================================================== Annual Rooms Percent Percent Average Daily Percent Year Available Change Occupancy Change Room Rate Change - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ 1994 271,925 - 61.6% - $47.63 - - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ 1995 271,925 0.0% 60.6% (1.7%) $49.72 4.4% - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ 1996 271,925 0.0% 63.2% 4.4% $51.11 2.8% - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ 1997 (Estimated) 271,925 0.0% 65.0% 2.8% $57.00 11.5% - --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============ CAAG 0.0% - - - 6.2% - ======================================================================================================================== Source: PKF Consulting and Smith Travel Research ========================================================================================================================
VII-10 As can be noted, over the past four years the number of available rooms within the competitive market has remained stable. During the same period, demand has increased from 60.6 percent to 65.0 percent. In terms of ADR, the competitive market has experienced above-inflation growth, indicating a CAAG of 6.2 percent between 1994 and 1997. 3. Demand Segmentation The competitive market is oriented towards attracting commercial, leisure, and government demand. Commercial demand includes employees and visitors to local companies, such as FEDCO and GE Capital. The majority of leisure travelers to the area are typically on their way to, or returning from, another destination such as Los Angeles, Anaheim, Las Vegas, Arizona, or San Diego, and stop at the area's lodging facilities for a one night stay. Most of the leisure demand is generated between Memorial Day and Labor Day. In addition, the local area attractions previously discussed, namely the shopping malls, can be visited within one day. 4. Projected Future Supply and Demand Over the past four years (1994 to 1997), demand for hotel accommodations in the competitive market has increased at a CAAG of 1.8 percent. Based on our review of the local market, we project overall demand for hotel rooms will increase at a rate of 3.0 percent per year over the next five years. In deriving this growth rate, we have specifically analyzed the overall growth in manufacturing and services, retail sales, and the historical CAAG of this market. Presented in the following table is a summary of the projected growth in supply, demand, and the resulting occupancy levels for the competitive market for the period 1998 to 2002. VII-11 ======================================================================================================= Super 8 Motel - San Bernardino Estimated Growth In Supply and Demand Competitive Hotel Market ======================================================================================================= Daily Annual Total Year Available Rooms Available Rooms Demand Occupancy - ------------------------ -------------------- --------------------- ---------------- ------------------ Actual 1994 745 271,925 167,525 61.6% 1995 745 271,925 164,744 60.6% 1996 745 271,925 171,935 63.2% 1997 (Estimated) 745 271,925 177,000 65.0% - ------------------------ -------------------- --------------------- ---------------- ------------------ Projected 1998 745 271,925 182,000 67.0% 1999 745 271,925 185,000 68.0% 2000 745 271,925 185,000 68.0% 2001 745 271,925 185,000 68.0% 2002 745 271,925 185,000 68.0% - ------------------------ -------------------- --------------------- ---------------- ------------------ CAAG 1994 to 1997 0.0% - 1.8% - 1998 to 2002 0.0% - 0.4% - ======================================================================================================= Source: PKF Consulting and Smith Travel Research =======================================================================================================
As can be noted above, although we project demand in the overall market to grow at a CAAG of 3.0 percent over the five year period, due to demand timing and capacity constraints, the competitive market occupancy is not projected to exceed 68.0 percent. This will result in unsatisfied demand between 1999 and 2002, rendering an effective market growth of only 0.4 percent. 5. Market Performance of the Subject The following table summarizes the historical occupancy levels and ADR for the Super 8 Motel over the past four years. =============================================================================== Super 8 Motel - San Bernardino Historical Occupancy and Room Rate 1994 to 1997 (Estimated) =============================================================================== Average Daily Year Occupancy % Change Room Rate % Change - --------------------- -------------- ------------ ----------------- ----------- 1994 59.1% - $41.07 - - --------------------- -------------- ------------ ----------------- ----------- 1995 55.3% (6.4%) $40.29 (1.9%) - --------------------- -------------- ------------ ----------------- ----------- 1996 49.9% (9.8%) $40.23 (0.1%) - --------------------- -------------- ------------ ----------------- ----------- 1997 (Estimated) 58.0% 16.2% $43.50 8.1% - --------------------- -------------- ------------ ----------------- ----------- CAAG (0.6%) - 1.9% - =============================================================================== Source: Famous Host Companies =============================================================================== VII-12 As can be noted, the subject experienced a nearly ten percentage point drop in occupancy between 1994 and 1996, attributed to the closure of the Norton Air Force Base. The growth in ADR has been less-than-market, equating to a CAAG of 1.9 percent, compared to the market's 6.2 percent. The subject property's market penetration rate (subject's occupancy divided by the market's occupancy) has decreased from 95.9 percent in 1994 to an estimated 89.0 percent in 1997. It should be noted that the subject property's 1997 year-to-date occupancy (ending September) was 58.6 percent, compared to 50.7 percent in 1996, indicating the subject's improving position in the market following the closure of Norton Air Force Base. Based on our analysis of the local market in the San Bernardino area, coupled with our discussions with management at the subject property, we are of the opinion that the subject will achieve an occupancy level of approximately 59.0 percent in 1998, slightly above that estimated for 1997. In 1999 and onwards, we estimate that the subject property will continue to achieve an occupancy of 59.0 percent, a level we believe as being the subject property's stabilized position. Based on our market research, we project the hotel to achieve an ADR of $44.75 in 1998, or an increase of 3.0 percent over 1997. Over the balance of our projection period, we project the hotel's ADR to increase at the anticipated long-term level of inflation (3.0 percent per year). We believe that this is realistic given the supply and demand dynamics of the San Bernardino hotel market. =============================================================================== Super 8 Motel - San Bernardino Projected Occupancy and Average Daily Room Rate - 1998 to 2002 =============================================================================== Market Average Percent Year Occupancy Penetration Daily Room Rate Change - ------------ ---------------- --------------- --------------------- ----------- 1998 59.0% 88.0% $44.75 3.0% 1999 59.0% 87.0% $46.25 3.0% 2000 59.0% 87.0% $47.50 3.0% 2001 59.0% 87.0% $49.00 3.0% 2002 59.0% 87.0% $50.50 3.0% - ------------ ---------------- --------------- --------------------- ----------- CAAG 0.0% - 3.0% - =============================================================================== Source: PKF Consulting =============================================================================== D. HIGHEST AND BEST USE Based on our analysis, we are of the opinion that the existing improvements contribute significant overall value to the site. There is no alternative, legal use that could economically justify the restructuring or removal of the existing improvements at this time. Therefore, the subject property, as improved, represents the highest and best use of the site. VII-13 E. VALUATION - SALES COMPARISON APPROACH 1. Introduction We have reviewed a number of recent sales and have focused on those considered most comparable in providing support for the market value of the subject. Our search for sales was initially focused on San Bernardino; however, due to the limited number of comparable transactions, our search for sales was extended to include the surrounding area, namely Colton, Bishop, and Kingsburg. Based on this search, five sales were identified to use as the basis for our valuation of the subject under this approach. Presented in the following table is a summary of the selected comparable hotel sales. As can be noted, these sales have occurred between November 1996 and October 1997. ======================================================================================================================= Comparable Hotel Sales ======================================================================================================================= Rooms Overall Sale Sale Year Number of Price Revenue Capitalization No. Hotel Name Location Date Built Rooms Per Room Multiplier Rate - ----- --------------------------- -------------- --------- --------- ------------ ---------- ----------- ============== 1 Econolodge Colton 10/97 1972 51 $19,601 2.4 NA 2 Days Inn Colton 8/97 1985 147 $19,932 2.6 NA 3 Bishop Lodge Bishop 7/97 1979 52 $28,846 3.9 8.9% 4 Swedish Inn Kingsburg 1/97 1988 47 $31,195 2.9 NA 5 Super 8 Ontario 11/96 1985 53 $22,925 2.2 NA ======================================================================================================================= Source: PKF Consulting =======================================================================================================================
2. Analysis of the Hotel Sales In reviewing the preceding table, it can be noted that the sale prices per room ranged between $19,601 for the 51-room Econolodge and $31,195 for the 47-room Swedish Inn in Kingsburg. Because of the many differences between the comparable hotel sales and the subject property, we are of the opinion that an analysis using a rooms revenue multiplier (RRM) is the most approiate unit of comparison to value the subject. A RRM measures the total revenue generated from room rentals in relation to the sale price. RRMs do not require subjective adjustments since most variances in properties are considered to be reflected in ADRs and annual occupancies achieved in the market. As can be noted, the indicated RRMs range from 2.2 to 3.9, with an average of 2.8. We consider that the subject property is most similar to the 53-room Super 8 Motel sale in Ontario. Accordingly, we are of the opinion that a RRM in the order of 2.2 is appropriate in valuing the subject property. Based on this VII-14 multiplier, and assuming a stabilized occupancy level of 59.0 percent at an ADR of $44.75 (stated in 1998 dollars), the indicated value per room for the subject is as follows: =========================================================================================================== Rooms Stabilized Stabilized Indicated Value Revenue Average Rate Occupancy Per Room Multiplier Level Days/Year (Rounded) - ---------------- --- --------------- --- ----------------- --- ---------------- --- ----------------------- 2.2 X $44.75 X 59.0% X 365 = $21,000 ===========================================================================================================
As noted above, the RRM analysis produced a value indication of $21,000 per available room. This value unit is converted into a total value estimate by multiplying the indicated value per room by the total number of rooms. Based on 81 rentable rooms, the indicated stabilized value of the fee simple interest in the Super 8 Motel is $1,700,000 as calculated below: - ----------------------- ---- ---------------- ----- --------------------------- $21,000 X 81 Rooms = $1,700,000 (Rounded) - ----------------------- ---- ---------------- ----- --------------------------- F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH As a result of the foregoing analysis, we estimate the "as is" market value of the fee simple interest in the subject as of January 1, 1998, through the Sales Comparison Approach to be: =============================================================================== ONE MILLION SEVEN HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $1,700,000 =============================================================================== G. VALUATION - INCOME CAPITALIZATION APPROACH 1. Basis for Cash Flow Projection In order to develop an estimate of the net operating income (NOI) for the subject for both a stabilized year of operation (direct capitalization) and each year of the aforementioned holding period (yield capitalization), the following have been analyzed: 1. The historical operating results for the subject for year-end 1994, 1995, 1996, year-to-date September 1997, and management's operating budget for 1997; VII-15 2. The previously discussed market performance (occupancy levels and ADR) of the competitive hotels; and 3. The operating results of the category "Limited-Service Hotels" from the 1997 issue of PKF Consulting's Trends in the Hotel Industry. The historical operating results of the subject are presented at the end of this section of the report. 2. Stabilized Year Operating Estimate We first developed an estimate of the performance of the subject for a stabilized year of operation stated in current value, 1998 dollars. This estimate is based on our review of the historical operating results of the subject hotel coupled with an analysis of the operating results of the selected PKF Consulting's "Trends" category. Additional key assumptions used in preparing this stabilized year estimate are summarized as follows: a) The stabilized annual occupancy of the hotel is projected to be 59.0 percent at a $44.75 ADR (in 1998 value dollars); b) A franchise fee of 8.0 percent of rooms revenue; c) A management fee of 5.0 percent of total revenues as well as a reserve for capital replacements of 4.0 percent of total revenue have been deducted to establish the net operating income of the subject; d) The projection of expense for taxes on real and personal property is a function of the market value of the property. The subject property is in the real estate taxing jurisdiction of the San Bernardino County Tax Assessor's Office. Our estimate of the property taxes for the subject is based on the provisions of Proposition 13. Proposition 13 limits ad valorem property taxes to 1.0 percent of the assessed value plus assessment for city, special district, and county bonds. The current effective tax rate is 1.1171 percent of market value. This appraisal assumes a sale of the subject property on the effective date of the appraisal, which will initiate a reassessment of real estate for tax purposes. For the purpose of this analysis, the reassessment is based on the value estimate of the subject property as determined using the Income Capitalization Approach. Based on the estimated value of the hotel, a tax rate of 1.1171 per $100 of assessed value is utilized, resulting in real estate taxes of $18,000, rounded, in the representative or stabilized year. Presented in the following table is our estimate of the subject hotel's stabilized year operating results. As can be noted, on a stabilized basis the VII-16 Super 8 Motel will generate approximately $810,000 in total revenues, with a net operating income of $174,000 in 1998 value dollars. =================================================================================================== Super 8 Motel - San Bernardino Stabilized Year Operating Results (Stated in 1998 Value Dollars) =================================================================================================== Occupancy Level 59.0% - ------------------------------------------------ -------------------------------------------------- Average Room Rate $44.75 - ------------------------------------------------ -------------------------------------------------- REVPAR $26.40 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Ratios PAR (1) POR (2) - ------------------------------------------------ -------------- ---------- ------------ ----------- Revenues Rooms $781,000 96.4% $9,642 $44.75 Telephone 25,000 3.1% 309 1.43 Other Operated Departments 4,000 0.5% 49 0.23 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Revenues 810,000 100.0% 10,000 46.44 - ------------------------------------------------ -------------- ---------- ------------ ----------- Departmental Expenses (3) Rooms 183,000 23.4% 2,259 10.49 Telephone 18,000 70.0% 222 1.03 Other Operated Departments 1,000 20.0% 12 0.06 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Departmental Expenses 202,000 24.9% 2,494 11.58 - ------------------------------------------------ -------------- ---------- ------------ ----------- Departmental Income 608,000 75.1% 7,506 34.86 - ------------------------------------------------ -------------- ---------- ------------ ----------- Undistributed Operating Expenses Administrative and General 121,000 15.0% 1,494 6.94 Franchise Fees 62,000 7.7% 775 3.55 Marketing 25,000 3.1% 309 1.43 Property Maintenance 60,000 7.4% 741 3.44 Energy and Utilities 58,000 7.2% 716 3.33 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Undistributed Expenses 326,000 40.2% 4,025 18.69 - ------------------------------------------------ -------------- ---------- ------------ ----------- Income Before Fixed Charges 282,000 34.8% 3,481 16.17 - ------------------------------------------------ -------------- ---------- ------------ ----------- Management Fees and Fixed Charges Base Management Fees 41,000 5.0% 506 2.35 Property Taxes 18,000 2.2% 222 1.03 Insurance 17,000 2.1% 210 0.97 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total 76,000 9.4% 938 4.36 - ------------------------------------------------ -------------- ---------- ------------ ----------- Income Before Reserve 206,000 25.4% 2,543 11.81 - ------------------------------------------------ -------------- ---------- ------------ ----------- Reserve for Replacement 32,000 4.0% 395 1.83 - ------------------------------------------------ -------------- ---------- ------------ ----------- Income Before Other Charges (4) $174,000 21.5% $2,148 $1.00 =================================================================================================== (1) PAR - Per Available Room (2) POR - Per Occupied Room (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Income before interest, taxes, depreciation, and amortization Source: PKF Consulting ===================================================================================================
3. Ten Year Statement of Estimated Annual Operating Results Presented at the end of this section of the appraisal report is our estimate of the operating results for the subject for the ten-year period beginning January, 1, 1998. This forecast is based on the preceding stabilized year estimate, adjusted to reflect effects of inflation and the impact of fixed and variable VII-17 components of each revenue and expense item. Selected key assumptions used to develop this forecast are summarized as follows. a) With the exception of property taxes, all other revenues and expenses are projected to increase at 3.0 percent throughout the holding period. Property taxes are projected to increase at a rate of 2.0 percent per year as allowed by California law, and growth in ADR is expected to grow at inflation throughout the analysis period as a result of market-driven factors. b) For the first five years of this forecast, the occupancy and ADR of the hotel were projected as previously discussed. Thereafter, the hotel's occupancy was assumed to remain at 59.0 percent, with the ADR increasing at 3.0 percent per year. 4. Valuation Using Direct Capitalization Based on our evaluation of the subject, it was concluded that an overall capitalization rate (OAR) of 11.0 percent is appropriate to value the subject, and properly reflects the risks associated with this hotel given the property's age, physical features, location, and market position. Based on the projection of net operating income for a stabilized year of operation, and the selected overall rate of 11.0 percent, the value of the subject as if stabilized is calculated to be as follows. - -------------------------------------------------- ===================== Projected Stabilized Net Operating Income $174,000 Overall Capitalization Rate 11.0% - -------------------------------------------------- --------------------- Stabilized Value Indication (Rounded) $1,600,000 - -------------------------------------------------- ===================== Therefore, the estimated "as is" market value of the fee simple interest in the subject using the Direct Capitalization Approach, as of January 1, 1998, is: ============================================================================== ONE MILLION SIX HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $1,600,000 ============================================================================== 5. Discounted Cash Flow Valuation Analysis To estimate the value of the subject using a discounted cash flow analysis, it is assumed that the property will be sold at the end of a ten-year holding period. The value of the property at that time is estimated by capitalizing the VII-18 expected or anticipated net operating income of the property in the eleventh year. From this value estimate, an estimate of sales costs is deducted to arrive at the net proceeds upon sale. Based on our market research, we are of the opinion that a reversionary capitalization rate of 11.5 percent and a 14.0 percent discount rate are appropriate to value the subject. The following table indicates the present value of the projected net operating income for the subject for the ten-year holding period, along with the present value of the reversion, deriving a value estimate. =============================================================================== Discounted Cash Flow Analysis =============================================================================== Cash Flow Present Present From Value Value Year Operations Factor @ 14.0% - ------------------- -------------------- ------------------ ------------------- 1998 $174,000 0.8772 $153,000 1999 $181,000 0.7695 $139,000 2000 $185,000 0.6750 $125,000 2001 $193,000 0.5921 $114,000 2002 $196,000 0.5194 $102,000 2003 $203,000 0.4556 $92,000 2004 $207,000 0.3996 $83,000 2005 $211,000 0.3506 $74,000 2006 $223,000 0.3075 $69,000 2007 $228,000 0.2697 $62,000 - ------------------- -------------------- ------------------ ------------------- Reversion $2,000,000 0.2697 $541,000 - ------------------- -------------------- ------------------ ------------------- Present Value $1,553,000 - ------------------- -------------------- ------------------ ------------------- Value (Rounded) $1,550,000 =============================================================================== 6. Income Capitalization Approach Valuation Conclusion The value conclusion under the Income Capitalization Approach is based on both a direct capitalization and a discounted cash flow analysis. Direct capitalization indicated a value of $1,600,000 and the discounted cash flow analysis indicated a value of $1,550,000. Placing more weight on the direct capitalization method, our conclusion as to the "as is" market value of the fee simple interest of the subject using the Income Capitalization Approach, as of January 1, 1998, is: ============================================================================== ONE MILLION SIX HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $1,600,000 ============================================================================== VII-19 H. RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the two valuation methodologies applied, considering the property type and the requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the two approaches are as follows: ============================================ ====================== Sales Comparison Approach $1,700,000 Income Capitalization Approach Direct Capitalization $1,600,000 Discounted Cash Flow Analysis $1,550,000 ============================================ ====================== In the Sales Comparison Approach we compared five recently sold hotels to the subject. The selected sales indicated a relatively wide range in value. Furthermore, the sales were located in varying sub-market areas in the surrounding region, and no property was identical to the subject. These factors make this approach less meaningful, but act as a reference checkpoint for the value derived from the Income Approaches. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized two methods of analysis: the direct capitalization method and the discounted cash flow method (yield capitalization). There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a value estimate. Both income methods resulted in similar values, heightening our confidence in this approach, although indications from the Sales Comparison Approach and the direct capitalization method highlight higher values than that derived by the discounted cash flow method. Accordingly, the primary reliance was placed on the Income Capitalization Approach. Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the "as is" market value of the fee simple interest in the subject property, as of January 1, 1998, is reasonably represented as: =============================================================================== ONE MILLION SIX HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $1,600,000 =============================================================================== VII-20 SUPER 8 MOTEL - SAN BERNARDINO, CALIFORNIA HISTORICAL OPERATING RESULTS Super 8, San Bernardino Historical Operating Results -------------------------------------------------------------------------------------------------- 1994 1995 -------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) -------------------------------------------------------------------------------------------------- Number of Keys 81 81 Occupancy 59.12% 55.32% Average Daily Room Rate (ADR) $41.07 $40.29 REVPAR $24.28 $22.29 REVENUES ROOMS $ 717,889 96.8% $ 8,863 $ 41.07 $ 658,924 97.1% $ 8,135 $ 40.29 TELEPHONE 21,641 2.9% 267 1.24 18,387 2.7% 227 1.12 MISCELLANEOUS 2,033 0.3% 25 0.12 1,249 0.2% 15 0.08 ------------ ------ ------- ------- --------- ------- ------- ------- TOTAL REVENUE 741,563 100.0% 9,155 42.43 678,560 100.0% 8,377 41.49 DEPT. COSTS & EXPENSES (3) ROOMS 169,372 23.6% 2,091 9.69 168,181 25.5% 2,076 10.28 TELEPHONE 21,149 97.7% 261 1.21 19,426 105.7% 240 1.19 MISCELLANEOUS 245 12.1% 3 0.01 145 11.6% 2 0.01 ------------ ------ ----- ------- -------- ------ ----- ----- TOTAL COST & EXP. 190,766 25.7% 2,355 10.91 187,752 27.7% 2,318 11.48 TOTAL OPER. DEPTS. INCOME 550,797 74.3% 6,800 31.51 490,808 72.3% 6,059 30.01 ------------ ------ ----- ------- -------- ------ ----- ----- UNDIST. OPERATING EXP. ADMIN. & GENERAL 141,904 19.1% 1,752 8.12 132,612 19.5% 1,637 8.11 MARKETING 21,897 3.0% 270 1.25 19,729 2.9% 244 1.21 FRANCHISE FEES 35,852 4.8% 443 2.05 32,946 4.9% 407 2.01 UTILITIES 63,327 8.5% 782 3.62 59,985 8.8% 741 3.67 PROPERTY OPERATIONS 69,144 9.3% 854 3.96 51,813 7.6% 640 3.17 ------------ ------ ----- ----- ------- ----- ------ ----- TOTAL 332,124 44.8% 4,100 19.00 297,085 43.8% 3,668 18.16 INC. BEFORE MGMT. FEES AND FIXED CHARGES 218,673 29.5% 2,700 12.51 193,723 28.5% 2,392 11.84 ------------ ------ ----- ----- ------- ----- ------ ----- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 37,036 5.0% 457 2.12 33,928 5.0% 419 2.07 PROPERTY TAXES 36,580 4.9% 452 2.09 37,061 5.5% 458 2.27 INSURANCE 14,697 2.0% 181 0.84 15,218 2.2% 188 0.93 RENT - 0.0% - - - 0.0% - - ------------ ------ ----- ---- -------- ----- ----- ----- TOTAL 88,313 11.9% 1,090 5.05 86,207 12.7% 1,064 5.27 INCOME BEFORE OTHER (4) FIXED CHARGES $ 130,360 17.6% 1,609 7.46 $ 107,516 15.8% 1,327 6.57 ============ ====== ===== ==== ========= ===== ===== ===== RENOVATION PAYMENT $ 79,227 $ 37,500 --------------------------------------------------- 1996 --------------------------------------------------- $ % PAR (1) POR (2) --------------------------------------------------- Number of Keys 81 Occupancy 49.92% Average Daily Room Rate (ADR) $40.23 REVPAR $20.08 REVENUES ROOMS $ 595,341 96.7% $ 7,350 $ 40.23 TELEPHONE 18,645 3.0% 230 1.26 MISCELLANEOUS 1,485 0.2% 18 0.10 ------------ ------ ------- ------- TOTAL REVENUE 615,471 100.0% 7,598 41.59 DEPT. COSTS & EXPENSES (3) ROOMS 157,673 26.5% 1,947 10.65 TELEPHONE 19,914 106.8% 246 1.35 MISCELLANEOUS 245 16.5% 3 0.02 ------------ ------ ----- ------- TOTAL COST & EXP. 177,832 28.9% 2,195 12.02 TOTAL OPER. DEPTS. INCOME 437,639 71.1% 5,403 29.57 ------------ ------ ----- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 136,279 22.1% 1,682 9.21 MARKETING 17,618 2.9% 218 1.19 FRANCHISE FEES 30,035 4.9% 371 2.03 UTILITIES 55,200 9.0% 681 3.73 PROPERTY OPERATIONS 53,347 8.7% 659 3.60 ------------ ------ ----- ------ TOTAL 292,479 47.5% 3,611 19.76 INC. BEFORE MGMT. FEES AND FIXED CHARGES 145,160 23.6% 1,792 9.81 ------------ ------ ----- ------ MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 31,039 5.0% 383 2.10 PROPERTY TAXES 23,558 3.8% 291 1.59 INSURANCE 15,760 2.6% 195 1.06 RENT - 0.0% - - ------------ ------ ------ ------ TOTAL 70,357 11.4% 869 4.75 INCOME BEFORE OTHER (4) FIXED CHARGES $ 74,803 12.2% 923 5.05 ============ ====== ===== ====== RENOVATION PAYMENT $ 16,491 - ---------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. ================================================================================================================================== Source:The Famous Host Company ==================================================================================================================================
Super 8, San Bernardino Operating Results Year-to-Date September 1997 and 1997 Budget --------------------------------------------------------------------------------------------------- September 1997 Budget 1997 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 81 81 Occupancy 58.60% 52.89% Average Daily Room Rate (ADR) $43.51 $42.10 REVPAR $25.50 $22.27 REVENUES ROOMS $ 564,220 96.5% $ 9,313 $ 43.51 $ 658,352 97.1% $ 8,128 $ 42.10 TELEPHONE 17,913 3.1% 296 1.38 17,922 2.6% 221 1.15 MISCELLANEOUS 2,484 0.4% 41 0.19 1,729 0.3% 21 0.11 ------------ ------ ------ ------- --------- ------- ------- -------- TOTAL REVENUE 584,617 100.0% 9,650 45.08 678,003 100.0% 8,370 43.36 DEPT. COSTS & EXPENSES (3) ROOMS 115,015 20.4% 1,898 8.87 156,006 23.7% 1,926 9.98 TELEPHONE 12,738 71.1% 210 0.98 18,092 100.9% 223 1.16 MISCELLANEOUS 635 25.6% 10 0.05 200 11.6% 2 0.01 ------------ ------ ------ ------- --------- ------- ------- ------ TOTAL COST & EXP. 128,388 22.0% 2,119 9.90 174,298 25.7% 2,152 11.15 TOTAL OPER. DEPTS. INCOME 456,229 78.0% 7,531 35.18 503,705 74.3% 6,219 32.21 ------------ ------ ------ ------- --------- ------- ------- ------ UNDIST. OPERATING EXP. ADMIN. & GENERAL 108,169 18.5% 1,785 8.34 122,704 18.1% 1,515 7.85 MARKETING 8,979 1.5% 148 0.69 19,812 2.9% 245 1.27 FRANCHISE FEES 28,211 4.8% 466 2.18 32,918 4.9% 406 2.11 UTILITIES 42,198 7.2% 697 3.25 55,048 8.1% 680 3.52 PROPERTY OPERATIONS 40,132 6.9% 662 3.09 58,503 8.6% 722 3.74 ------------ ------ ----- ------- --------- ------- ------ ------ TOTAL 227,689 38.9% 3,758 17.56 288,985 42.6% 3,568 18.48 INC. BEFORE MGMT. FEES AND FIXED CHARGES 228,540 39.1% 3,772 17.62 214,720 31.7% 2,651 13.73 ------------ ------ ----- ------- --------- ------- ------- ------ MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 29,231 5.0% 482 2.25 33,900 5.0% 419 2.17 PROPERTY TAXES 21,375 3.7% 353 1.65 36,000 5.3% 444 2.30 INSURANCE 11,257 1.9% 186 0.87 15,000 2.2% 185 0.96 RENT - 0.0% - - - 0.0% - - ------------ ------ ----- ------- ---------- ------- ------- ------ TOTAL 61,863 10.6% 1,021 4.77 84,900 12.5% 1,048 5.43 INCOME BEFORE OTHER (4) FIXED CHARGES $ 166,677 28.5% 2,751 12.85 $ 129,820 19.1% $ 1,603 $ 8.30 ============ ====== ===== ======= =========== ======= ======= ======= RENOVATION PAYMENT $ 17,130 $ 20,340 - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. ==================================================================================================================================== Source:The Famous Host Company ====================================================================================================================================
SUPER 8 MOTEL - SAN BERNARDINO, CALIFORNIA TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS Super 8 San Bernardino, California Projected Operating Results ---------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 1998 1999 ---------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ---------------------------------------------------------------------------------------------------- Number of Keys 81 81 Occupancy 59.00% 59.00% Average Daily Room Rate $44.75 $46.25 Revenues Rooms $ 781,000 96.4% $ 9,642 $ 44.77 $ 807,000 96.4% $ 9,963 $ 46.26 Telephone 25,000 3.1% 309 1.43 26,000 3.1% 321 1.49 Other Operated Departments 4,000 0.5% 49 0.23 4,000 0.5% 49 0.23 ------------- -------- ------ --------- ---------- -------- ------- --------- Total Revenues 810,000 100.0% 10,000 46.44 837,000 100.0% 10,333 47.98 Departmental Expenses (3) Rooms 183,000 23.4% 2,259 10.49 188,000 23.3% 2,321 10.78 Telephone 18,000 72.0% 222 1.03 18,000 69.2% 222 1.03 Other Operated Departments 1,000 25.0% 12 0.06 1,000 25.0% 12 0.06 ------------- -------- ------ --------- ----------- -------- ------- --------- Total Departmental Expenses 202,000 24.9% 2,494 11.58 207,000 24.7% 2,556 11.87 ------------- -------- ------ --------- ------------ -------- ------- --------- Departmental Profit 608,000 75.1% 7,506 34.86 630,000 75.3% 7,778 36.12 Undistributed Expenses Administrative & General 121,000 14.9% 1,494 6.94 125,000 14.9% 1,543 7.17 Franchise Fee 62,000 7.7% 765 3.55 65,000 7.8% 802 3.73 Marketing 25,000 3.1% 309 1.43 26,000 3.1% 321 1.49 Property Operations & Maintenance 60,000 7.4% 741 3.44 62,000 7.4% 765 3.55 Energy & Utilities 58,000 7.2% 716 3.33 60,000 7.2% 741 3.44 ------------- -------- ------ --------- ----------- -------- ------- --------- Total Undistributed Expenses 326,000 40.2% 4,025 18.69 338,000 40.4% 4,173 19.38 ------------- -------- ------ --------- ------------ -------- ------ --------- Gross Operating Profit 282,000 34.8% 3,481 16.17 292,000 34.9% 3,605 16.74 Fixed Charges & Management Fee Base Management Fee 41,000 5.1% 506 2.35 42,000 5.0% 519 2.41 Property Taxes 18,000 2.2% 222 1.03 19,000 2.3% 235 1.09 Insurance 17,000 2.1% 210 0.97 17,000 2.0% 210 0.97 Total Fixed Charges 76,000 9.4% 938 4.36 78,000 9.3% 963 4.47 ------------- -------- ------ --------- ------------ -------- ------ --------- Income Before Reserves 206,000 25.4% 2,543 11.81 214,000 25.6% 2,642 12.27 Reserves for Replacements 32,000 4.0% 395 1.83 33,000 3.9% 407 1.89 ------------- -------- ------ --------- ------------ -------- ------ --------- Net Operating Income (4) $ 174,000 21.5% $ 2,148 $ 9.98 $ 181,000 21.6% $ 2,235 $ 10.38 ============= ======== ======= ========= ============ ======== ======= ========= --------------------------------------------------- Calendar Years Beginning January 1 2000 --------------------------------------------------- $ % PAR (1) POR (2) --------------------------------------------------- Number of Keys 81 Occupancy 59.00% Average Daily Room Rate $47.50 Revenues Rooms $ 829,000 96.4%$ 10,235 $ 47.53 Telephone 27,000 3.1% 333 1.55 Other Operated Departments 4,000 0.5% 49 0.23 --------------- ------- --------- ---------- Total Revenues 860,000 100.0% 10,617 49.30 Departmental Expenses (3) Rooms 194,000 23.4% 2,395 11.12 Telephone 19,000 70.4% 235 1.09 Other Operated Departments 1,000 25.0% 12 0.06 --------------- ------- --------- ---------- Total Departmental Expenses 214,000 24.9% 2,642 12.27 --------------- ------- --------- ---------- Departmental Profit 646,000 75.1% 7,975 37.03 Undistributed Expenses Administrative & General 128,000 14.9% 1,580 7.34 Franchise Fee 66,000 7.7% 815 3.78 Marketing 27,000 3.1% 333 1.55 Property Operations & Maintenance 64,000 7.4% 790 3.67 Energy & Utilities 62,000 7.2% 765 3.55 --------------- ------- --------- ---------- Total Undistributed Expenses 347,000 40.3% 4,284 19.89 --------------- ------- --------- ---------- Gross Operating Profit 299,000 34.8% 3,691 17.14 Fixed Charges & Management Fee Base Management Fee 43,000 5.0% 531 2.47 Property Taxes 19,000 2.2% 235 1.09 Insurance 18,000 2.1% 222 1.03 Total Fixed Charges 80,000 9.3% 988 4.59 --------------- ------- --------- ---------- Income Before Reserves 219,000 25.5% 2,704 12.56 Reserves for Replacements 34,000 4.0% 420 1.95 --------------- ------- --------- ---------- Net Operating Income (4) $ 185,000 21.5% $ 2,284 $ 10.61 =============== ======= ========= ========== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. =================================================================================================================================== Source:PKF Consulting ===================================================================================================================================
Super 8 San Bernardino, California Projected Operating Results --------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 2001 2002 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 81 81 Occupancy 59.00% 59.00% Average Daily Room Rate $49.00 $50.50 Revenues Rooms $ 855,000 96.5% $ 10,556 $ 49.02 $ 881,000 96.5%$ 10,877 $ 50.51 Telephone 27,000 3.0% 333 1.55 28,000 3.1% 346 1.61 Other Operated Departments 4,000 0.5% 49 0.23 4,000 0.4% 49 0.23 ------------- ------- --------- --------- ---------- ------- --------- --------- Total Revenues 886,000 100.0% 10,938 50.79 913,000 100.0% 11,272 52.34 Departmental Expenses (3) Rooms 200,000 23.4% 2,469 11.47 206,000 23.4% 2,543 11.81 Telephone 19,000 70.4% 235 1.09 20,000 71.4% 247 1.15 Other Operated Departments 1,000 25.0% 12 0.06 1,000 25.0% 12 0.06 ------------- ------- -------- --------- ----------- ------- ------- --------- Total Departmental Expenses 220,000 24.8% 2,716 12.61 227,000 24.9% 2,802 13.01 ------------- ------- -------- --------- ----------- ------- ------- --------- Departmental Profit 666,000 75.2% 8,222 38.18 686,000 75.1% 8,469 39.33 Undistributed Expenses Administrative & General 132,000 14.9% 1,630 7.57 136,000 14.9% 1,679 7.80 Franchise Fee 68,000 7.7% 840 3.90 70,000 7.7% 864 4.01 Marketing 27,000 3.0% 333 1.55 28,000 3.1% 346 1.61 Property Operations & Maintenance 66,000 7.4% 815 3.78 68,000 7.4% 840 3.90 Energy & Utilities 64,000 7.2% 790 3.67 66,000 7.2% 815 3.78 ------------- ------- -------- --------- ----------- ------- ------ --------- Total Undistributed Expenses 357,000 40.3% 4,407 20.47 368,000 40.3% 4,543 21.10 ------------- ------- -------- --------- ----------- ------- ------ --------- Gross Operating Profit 309,000 34.9% 3,815 17.71 318,000 34.8% 3,926 18.23 Fixed Charges & Management Fee Base Management Fee 44,000 5.0% 543 2.52 46,000 5.0% 568 2.64 Property Taxes 19,000 2.1% 235 1.09 20,000 2.2% 247 1.15 Insurance 18,000 2.0% 222 1.03 19,000 2.1% 235 1.09 Total Fixed Charges 81,000 9.1% 1,000 4.64 85,000 9.3% 1,049 4.87 ------------- ------- ------- --------- ----------- ------- ------- --------- Income Before Reserves 228,000 25.7% 2,815 13.07 233,000 25.5% 2,877 13.36 Reserves for Replacements 35,000 4.0% 432 2.01 37,000 4.1% 457 2.12 ------------- ------- ------- --------- ----------- ------- ------- --------- Net Operating Income (4) $ 193,000 21.8% $ 2,383 $ 11.06 $ 196,000 21.5% $ 2,420 $ 11.24 ============= ======= ======= ========= =========== ======= ======= ========= ------------------------------------------------ Calendar Years Beginning January 1 2003 ------------------------------------------------ $ % PAR (1) POR (2) ------------------------------------------------ Number of Keys 81 Occupancy 59.00% Average Daily Room Rate $52.00 Revenues Rooms $ 907,000 96.5%$ 11,198 $ 52.00 Telephone 29,000 3.1% 358 1.66 Other Operated Departments 4,000 0.4% 49 0.23 ------------- -------- -------- --------- Total Revenues 940,000 100.0% 11,605 53.89 Departmental Expenses (3) Rooms 212,000 23.4% 2,617 12.15 Telephone 20,000 69.0% 247 1.15 Other Operated Departments 1,000 25.0% 12 0.06 ------------- -------- ------- --------- Total Departmental Expense 233,000 24.8% 2,877 13.36 ------------- -------- ------- --------- Departmental Profit 707,000 75.2% 8,728 40.53 Undistributed Expenses Administrative & General 140,000 14.9% 1,728 8.03 Franchise Fee 73,000 7.8% 901 4.19 Marketing 29,000 3.1% 358 1.66 Property Operations & Mainte 70,000 7.4% 864 4.01 Energy & Utilities 68,000 7.2% 840 3.90 ------------- -------- ------- --------- Total Undistributed Expens 380,000 40.4% 4,691 21.79 ------------- -------- ------- --------- Gross Operating Profit 327,000 34.8% 4,037 18.75 Fixed Charges & Management Fee Base Management Fee 47,000 5.0% 580 2.69 Property Taxes 20,000 2.1% 247 1.15 Insurance 19,000 2.0% 235 1.09 Total Fixed Charges 86,000 9.1% 1,062 4.93 ------------- -------- ------ --------- Income Before Reserves 241,000 25.6% 2,975 13.82 Reserves for Replacements 38,000 4.0% 469 2.18 ------------- -------- ------ --------- Net Operating Income (4) $ 203,000 21.6% $ 2,506 $ 11.64 ============= ======== ======= ========= - -------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. ================================================================================================================================ Source:PKF Consulting ================================================================================================================================
Super 8 San Bernardino, California Projected Operating Results ------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 2004 2005 --------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) --------------------------------------------------------------------------------------------------- Number of Keys 81 81 Occupancy 59.00% 59.00% Average Daily Room Rate $53.50 $55.00 Revenues Rooms $ 933,000 96.5%$ 11,519 $ 53.49 $959,000 96.5%$ 11,840 $ 54.98 Telephone 30,000 3.1% 370 1.72 31,000 3.1% 383 1.78 Other Operated Departments 4,000 0.4% 49 0.23 4,000 0.4% 49 0.23 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Revenues 967,000 100.0% 11,938 55.44 994,000 100.0% 12,272 56.99 Departmental Expenses (3) Rooms 218,000 23.4% 2,691 12.50 225,000 23.5% 2,778 12.90 Telephone 21,000 70.0% 259 1.20 22,000 71.0% 272 1.26 Other Operated Departments 1,000 25.0% 12 0.06 1,000 25.0% 12 0.06 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Departmental Expenses 240,000 24.8% 2,963 13.76 248,000 24.9% 3,062 14.22 ------------- -------- --------- --------- ------------ -------- --------- --------- Departmental Profit 727,000 75.2% 8,975 41.68 746,000 75.1% 9,210 42.77 Undistributed Expenses Administrative & General 145,000 15.0% 1,790 8.31 149,000 15.0% 1,840 8.54 Franchise Fee 75,000 7.8% 926 4.30 77,000 7.7% 951 4.41 Marketing 30,000 3.1% 370 1.72 31,000 3.1% 383 1.78 Property Operations & Maintenance 72,000 7.4% 889 4.13 74,000 7.4% 914 4.24 Energy & Utilities 70,000 7.2% 864 4.01 72,000 7.2% 889 4.13 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Undistributed Expenses 392,000 40.5% 4,840 22.47 403,000 40.5% 4,975 23.10 ------------- -------- --------- --------- ------------ -------- --------- --------- Gross Operating Profit 335,000 34.6% 4,136 19.21 343,000 34.5% 4,235 19.66 Fixed Charges & Management Fee Base Management Fee 48,000 5.0% 593 2.75 50,000 5.0% 617 2.87 Property Taxes 21,000 2.2% 259 1.20 21,000 2.1% 259 1.20 Insurance 20,000 2.1% 247 1.15 21,000 2.1% 259 1.20 Total Fixed Charges 89,000 9.2% 1,099 5.10 92,000 9.3% 1,136 5.27 ------------- -------- --------- --------- ------------ -------- --------- --------- Income Before Reserves 246,000 25.4% 3,037 14.10 251,000 25.3% 3,099 14.39 Reserves for Replacements 39,000 4.0% 481 2.24 40,000 4.0% 494 2.29 ------------- -------- --------- --------- ------------ -------- --------- --------- Net Operating Income (4) $ 207,000 21.4% $ 2,556 $ 11.87 $ 211,000 21.2% $ 2,605 $ 12.10 ============= ======== ========= ========= ============ ======== ========= ========= ---------------------------------------------- Calendar Years Beginning January 1 2006 ---------------------------------------------- $ % PAR (1) POR (2) ---------------------------------------------- Number of Keys 81 Occupancy 59.00% Average Daily Room Rate $56.75 Revenues Rooms $990,000 96.4%$ 12,222 $ 56.76 Telephone 32,000 3.1% 395 1.83 Other Operated Departments 5,000 0.5% 62 0.29 ------------ -------- --------- --------- Total Revenues 1,027,000 100.0% 12,679 58.88 Departmental Expenses (3) Rooms 232,000 23.4% 2,864 13.30 Telephone 22,000 68.8% 272 1.26 Other Operated Departments 1,000 20.0% 12 0.06 ------------ -------- --------- --------- Total Departmental Expenses 255,000 24.8% 3,148 14.62 ------------ -------- --------- --------- Departmental Profit 772,000 75.2% 9,531 44.26 Undistributed Expenses Administrative & General 153,000 14.9% 1,889 8.77 Franchise Fee 79,000 7.7% 975 4.53 Marketing 32,000 3.1% 395 1.83 Property Operations & Mainten 77,000 7.5% 951 4.41 Energy & Utilities 74,000 7.2% 914 4.24 ------------ -------- --------- --------- Total Undistributed Expense 415,000 40.4% 5,123 23.79 ------------ -------- --------- --------- Gross Operating Profit 357,000 34.8% 4,407 20.47 Fixed Charges & Management Fee Base Management Fee 51,000 5.0% 630 2.92 Property Taxes 21,000 2.0% 259 1.20 Insurance 21,000 2.0% 259 1.20 Total Fixed Charges 93,000 9.1% 1,148 5.33 ------------ -------- --------- --------- Income Before Reserves 264,000 25.7% 3,259 15.14 Reserves for Replacements 41,000 4.0% 506 2.35 ------------ -------- --------- --------- Net Operating Income (4) $ 223,000 21.7% $ 2,753 $ 12.78 ============ ======== ========= ========= - ---------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. ================================================================================================================================== Source:PKF Consulting ==================================================================================================================================
Super 8 San Bernardino, California Projected Operating Results ------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 2007 2008 ------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ------------------------------------------------------------------------------------------------- Number of Keys 81 81 Occupancy 59.00% 59.00% Average Daily Room Rate $58.50 $60.25 Revenues Rooms $1,020,000 96.4%$ 12,593 $ 58.48 $1,051,000 96.4%$ 12,975 $ 60.25 Telephone 33,000 3.1% 407 1.89 34,000 3.1% 420 1.95 Other Operated Departments 5,000 0.5% 62 0.29 5,000 0.5% 62 0.29 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Total Revenues 1,058,000 100.0% 13,062 60.65 1,090,000 100.0% 13,457 62.49 Departmental Expenses (3) Rooms 239,000 23.4% 2,951 13.70 246,000 23.4% 3,037 14.10 Telephone 23,000 69.7% 284 1.32 24,000 70.6% 296 1.38 Other Operated Departments 1,000 20.0% 12 0.06 1,000 20.0% 12 0.06 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Total Departmental Expenses 263,000 24.9% 3,247 15.08 271,000 24.9% 3,346 15.54 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Departmental Profit 795,000 75.1% 9,815 45.58 819,000 75.1% 10,111 46.95 Undistributed Expenses Administrative & General 158,000 14.9% 1,951 9.06 163,000 15.0% 2,012 9.34 Franchise Fee 82,000 7.8% 1,012 4.70 84,000 7.7% 1,037 4.82 Marketing 33,000 3.1% 407 1.89 34,000 3.1% 420 1.95 Property Operations & Maintenance 79,000 7.5% 975 4.53 81,000 7.4% 1,000 4.64 Energy & Utilities 76,000 7.2% 938 4.36 78,000 7.2% 963 4.47 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Total Undistributed Expenses 428,000 40.5% 5,284 24.54 440,000 40.4% 5,432 25.23 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Gross Operating Profit 367,000 34.7% 4,531 21.04 379,000 34.8% 4,679 21.73 Fixed Charges & Management Fee Base Management Fee 53,000 5.0% 654 3.04 55,000 5.0% 679 3.15 Property Taxes 22,000 2.1% 272 1.26 22,000 2.0% 272 1.26 Insurance 22,000 2.1% 272 1.26 22,000 2.0% 272 1.26 Total Fixed Charges 97,000 9.2% 1,198 5.56 99,000 9.1% 1,222 5.68 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Income Before Reserves 270,000 25.5% 3,333 15.48 280,000 25.7% 3,457 16.05 Reserves for Replacements 42,000 4.0% 519 2.41 44,000 4.0% 543 2.52 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Net Operating Income (4) $ 228,000 21.6% $ 2,815 $ 13.07 $ 236,000 21.7% $ 2,914 $ 13.53 ============= ======= ========= ========== ============ ======= ========= ========== - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. ==================================================================================================================================== Source:PKF Consulting ====================================================================================================================================
SECTION VIII SUPER 8 MOTEL SANTA ROSA, CALIFORNIA =============================================================================== Summary of Important Facts and Conclusions =============================================================================== Property Address Super 8 Motel 2632 North Cleveland Avenue Santa Rosa, California 95403 Telephone (707) 542-5544 - -------------------------------------------- ---------------------------------- Owner Leased Fee Interest Woodstock Properties Leasehold Interest Super 8 Motels II, Ltd. - -------------------------------------------- ---------------------------------- Assessor's Parcel Number 015-471-037-000 - -------------------------------------------- ---------------------------------- Effective Date of Appraisal January 1, 1998 - -------------------------------------------- ---------------------------------- Property Rights Appraised Leasehold Interest =============================================================================== Highest and Best Use =============================================================================== Highest and Best Use As if Vacant Limited-service hotel As Improved Limited-service hotel or highway commercial use =============================================================================== Property Description =============================================================================== Existing Improvements Year Built 1980 Gross Building Area 35,374 square feet Number of Hotel Guest Rooms 100 Parking 133 spaces Number of Floors 3 above ground (no basement) Hotel Amenities Outdoor pool, complimentary coffee Compliance with ADA Partial - -------------------------------------------- ---------------------------------- Site Area 2.03 acres (88,426 square feet) Zoning C-3 (Highway Frontage Commercial) Flood Zone C, Panel Number 060381-0005B dated August 3, 1981 Wetlands Zone No Alquist Priolo Special Studies Zone No Historic, Natural , Cultural, Recreational, or Scientific Value None =============================================================================== Valuation Conclusion =============================================================================== Cost Approach Not Applicable - -------------------------------------------- ---------------------------------- Sales Comparison Approach $2,200,000 - -------------------------------------------- ---------------------------------- Income Capitalization Approach Stabilized Occupancy 65.0% Average Daily Room Rate $46.25 Stabilized Net Income $253,000 Overall Capitalization Rate 11.5% Terminal Capitalization Rate 12.0% Discount Rate 14.5% Indicated Market Values Direct Capitalization Technique $2,200,000 Discounted Cash Flow Analysis $2,200,000 - -------------------------------------------- ---------------------------------- Final Estimate of Market Value $2,200,000 - -------------------------------------------- ---------------------------------- Marketing and Exposure Period Six months or less =============================================================================== VIII-1 (Photograph deleted) View of Hotel Looking North from Parking Lot (Photograph deleted) View of Typical Queen-Bed Guestroom VIII-2 A. AREA AND NEIGHBORHOOD REVIEW 1. Introduction The subject property is located in Santa Rosa, which lies in the Sonoma County. Covering over 1,604 square miles in area, the county has 62 miles of coastal shoreline. Sonoma County is located 52 miles north of San Francisco and 446 miles north of Los Angeles. Santa Rosa is the county seat of Sonoma County and is a gateway to famous wine regions, being surrounded by vineyards and mountains and within a short drive of more than 100 wineries. Sonoma County has continued to lead the American wine industry with the designation and establishments of eleven distinct viticulture regions. These areas are home of more medal-winning wines than any other US viticulture region. In part, the viticulture success in this county is due to the weather -- warm days and cool nights. Santa Rosa also serves as an educational, medical, financial, governmental and shopping center for a region extending to the Oregon border. Now a center of trade for Northern California, Santa Rosa's economic base is dominated by high-technology manufacturing, retailing, and services. A map showing the location of the subject in relation to the surrounding area is shown on the following page. 2. Economic Data Presented in the following text is a brief overview of selected economic data that characterizes the local market area. Population: The population of Santa Rosa was 127,700 persons in January 1997, a 1.4 percent increase from 1996. The corresponding population of the Sonoma County was 426,900 persons, representing a compound average annual growth rate (CAAG) of approximately 1.0 percent over the 1990 figure of 388,222. In comparison, the compound annual rate of increase in the State of California was 1.3 percent since 1990. Population in the Sonoma County area is expected to increase at 6.5 percent to 463,800 persons by 2002. Retail Sales: Total retail sales for the Santa Rosa MSA totaled over $4,325,254 in 1997 a 9.3 percent increase from 1996. Retail sales are expected to reach $5,339,021 by 2001. Retail sales per household in 1996 was $26,261 and is expected to increase to $30,474 by 2001, a percent increase of 23.4 percent. Income: Average household effective buying income (EBI) for the Santa Rosa MSA was $44,217 in 1996 and is expected to increase to $50,912 by 2001, an increase of 20.7 percent. Based on the 1990 census, income per capita for Sonoma County is $23,285. VIII-3 (Regional map of the San Francisco Bay area deleted) Regional Map VIII-4 Employment: In November 1997, the total number of persons employed in the Santa Rosa MSA was approximately 231,200 persons. This is about a 2.7 percent increase over 1996. The corresponding unemployment rate was 3.2 percent, an annual decrease of 0.7 percent the last five years. This is lower than the rate of 5.7 percent unemployment for California. The largest increases in employment were experienced in two sectors: the instruments manufacturing and food products manufacturing areas, followed by the services industry. The following table presents a listing of the major public and private employers in Santa Rosa. =================================================== Major Employers in Santa Rosa =================================================== Number of Company Employees - -------------------------- ======================== County of Sonoma 4,321 Hewlett-Packard Co. 3,600 Santa Rosa Junior College 1,931 Santa Rosa School District 1,580 Kaiser Permanente 1,400 Sonoma State University 1,126 City of Santa Rosa 1,105 Santa Rosa Memorial Hospital 1,100 Sola Optical 950 Optical Coating Laboratories, Inc. 943 Pacific Gas & Electric 720 Pacific Bell 450 Press Democrat Publishing 439 =================================================== Source: Santa Rosa Chamber of Commerce 1997 =================================================== Tourism: More than eight million tourists travel to Napa and Sonoma counties each year. Winery "hopping" has become an avid pastime, and tasting rooms have evolved into bustling centerpieces. Sonoma has not only gained prominence in the wine world, but has become an appealing vacation destination. In addition to Sonoma's vineyards, the area's rugged coastline, mountain ranges, redwood forests, fertile valleys and state parks provide for a broad spectrum of year-round fun and exploration for the tourist. Transportation: Major airline transportation to the Sonoma County includes the small Sonoma County Airport and larger the San Francisco International Airport, a one hour away. US Highway 101 and State Highway 12 link Santa Rosa to other major cities. The subject property is located along US Highway 101. VIII-5 Industrial Developments: Santa Rosa's rapid growth in its service, wholesale and industrial sectors has established the area as a visable and major regional service center for California's North Bay counties. Industrial land within the city's sphere of influence is adequate to accommodate a mix of commercial and industrial growth. Santa Rosa's nine different industrial areas provide a wide variety of industrial and commercial sites and facilities. 3. Neighborhood Review The subject property is located near the major freeway intersection of Highway 101 and Steele Lane, in the suburban, northwestern area of Santa Rosa. The area immediately to the west of Highway 101 is developed as the Coddingtown Shopping Mall, and includes a number of major retailers such as Macy's. Located to the north, off Steele Lane, North Cleveland Avenue is developed with a number of smaller retail shops, offices, and then residential as the street proceeds north. Further, a number of restaurants are also located in the vicinity of the subject property, an added attraction given that the Super 8 offers no food and beverage service of its own. For example, an Essa's Restaurant is located directly in front of the subject property along North Cleveland Avenue and a 10.0 percent discount is given to hotel guests. As indicated, the immediate neighboring uses surrounding the subject are predominantly retail, office, and restaurant. Specific developments adjoining the subject property comprise the Essa's Restaurant in front of the subject, bordering North Cleveland Avenue, and a Circuit City and Payless retail stores to the south. Farther west, across North Cleveland Avenue, are located an Ethan Allen retail store, a National Bank of the Redwoods branch office, and several small office buildings. The site is bordered to the north by the Paulin Creek Channel, with a Motel 6 and a Chapala Mexican Restaurant located farther north on the other side of the drainage canal. The east side of the subject property borders Highway 101, however, with only limited visibility of the subject through the highway landscaping. The proximity of the subject to the freeway intersection of Highway 101 and Steele Lane, combined with the nearby access to retail shops and restaurants, provides the subject property with a reasonably desirable location with regard to a limited service hotel. The drawback, however, is the limited visibility of the subject from the surrounding area and the somewhat circuitous access to the property for first-time visitors. 4. Conclusion In summary, we are of the opinion that the subject property is reasonably well located in the northwest area of the city of Santa Rosa. Growth in nearly all economic indicators for Sonoma County in general, and Santa Rosa in specific, has been positive over the past several years. We forecast continued modest growth in these areas for the foreseeable future, indicating a stable or increasing market for the Super 8 Motel. VIII-6 B. PROPERTY DESCRIPTION 1. Introduction The subject property is a limited-service hotel comprising 100 guestrooms. Additional amenities at the property include an outdoor swimming pool and 24-hour coffee service. The hotel comprises a wood-frame structure of three floors. The hotel building houses guestrooms, the lobby, the hotel laundry, service areas, and various mechanical and electrical equipment. The hotel was constructed in 1980, the first year of operation. The hotel is currently owned by Super 8 Motels II Ltd, a related company to the Famous Host Companies. We are not aware of any transactions relating to the site or the improvements since the date of opening. 2. Site Description and Zoning The subject property is located at 2632 North Cleveland Avenue. North Cleveland Avenue is a two-way, four-land street with a center turn lane. The subject site comprises 2.03 acres, or 88,426 square feet. The site is irregular in shape, but the property is level and is at grade with North Cleveland Avenue. There is 348 feet of frontage along Highway 101, but, as indicated, only limited visibility of the subject property is possible due to the dense growth of tall landscaping trees along the property line. The subject property is zoned C-3 (Highway Frontage Commercial). This zoning allows a variety of commercial development in a highway setting and a hotel is a permitted use in this zone. We are aware of no easements or covenants affecting the subject property which would negatively affect the market value of the subject property. 3. Improvements Description The hotel building forms an approximate U-shape with the interior of the U-shape forming a courtyard area. The courtyard is landscaped and is also the site of the pool. The hotel offers interior corridors and one hydraulic elevator. The building is fire sprinklered. The building has a Spanish tile cover which appears to be in good condition. The exterior of the building is comprised of beige stucco with dark brown trim. The total interior square footage of the hotel is 35,374 square feet with the average interior space of a typical guestroom being approximately 264 square feet. The overall site ground coverage is approximately 11,791 square feet. The Super 8 Motel provides 100 guestrooms, configured as 45 queen-size bedrooms, 55 double, queen-size bedrooms. Two rooms are equipped for disabled persons. The guestrooms are furnished with a color television, desk, two chairs, nightstand, VIII-7 lamp, and dresser. The lobby is wood paneled with contemporary wood furniture. Some guestrooms open to small balconies. Overall the property is in good condition and has been maintained on a regular basis. With regard to parking, the hotel has 133 surface parking spaces located in the paved parking lot which surrounds the hotel building. Four of these spaces are designated for physically challenged persons. Also located on-site for guest use are an ice machine, soft-drink vending machine, and a snack vending machine. 4. Basic Construction and Mechanical Systems The subject building is a wood-framed structure having foundations of poured-in-place concrete. The exterior walls are composed of stucco and painted wood. The exterior colors of the hotel are a uniform beige-tan paint scheme with a contrasting dark-brown coloration. The interior walls are sheet rock and are primarily painted or have vinyl wall covering. The roof area is slightly pitched with Spanish tile covering. Presented on the following table is a summary of the basic construction and mechanical systems of the property. =============================================================================== Super 8 Motel -- Santa Rosa Summary of Basic Construction and Mechanical Systems =============================================================================== Foundation: Concrete slab on grade - --------------------------- --------------------------------------------------- Frame: Wood frame construction, type V-1 hour fire rating. - --------------------------- --------------------------------------------------- Walls: Exterior: stucco. Interior: gypsum board covering an airspace between 2x4 studs. The walls in the guestrooms are painted gypsum board and partially papered. Lobby walls are wood paneled and painted gypsum board. - --------------------------- --------------------------------------------------- Floor: Floors are carpeted in guestrooms and corridor areas. Bathrooms have vinyl tile. The lobby area is carpeted and the vending area has ceramic tile flooring. - --------------------------- --------------------------------------------------- Roof: Slightly pitched with red concrete Spanish-style roofing tiles - --------------------------- --------------------------------------------------- Ceiling Heights: 8.0 feet. Ceilings are painted gypsum board and painted wood. In the public areas the lighting is set in incandescent light fixtures. In the guestrooms, are table lamps. - --------------------------- --------------------------------------------------- Windows: Window and door sashes are bronzed anodized aluminum. Window trim is painted wood. - --------------------------- --------------------------------------------------- Heating and Cooling: Each room had individual electric heating and air conditioning units located in the wall under a window - --------------------------- --------------------------------------------------- Laundry Facilities: Laundry equipment consists of two washers and three dryers, commercial grade. - --------------------------- --------------------------------------------------- Sprinkler System: All public areas and guest rooms are fire sprinklered. - --------------------------- --------------------------------------------------- Life Safety: There are two individual fire systems in the guest rooms: fire sensitive sensors and independent smoke alarms. =============================================================================== Source: Famous Host Companies =============================================================================== VIII-8 5. Assessed Value and Property Taxes The subject property is assessed by Sonoma County on a tax year commencing July 1 of every year. Under the provisions of Article 13-A of the State of California (Proposition 13), properties are assessed based on their fair market value as of the change of ownership date. The assessed value can be increased by a maximum of 2.0 percent per year until such date as the property is subsequently sold, substantial new construction takes place, or the use of the property is substantially changed. The current assessed value of the property is presented in the following table. ============================================================ Assessor's Parcel Numbers 015-471-037-000 1996/97 Assessed Value ============================================================ Land and Improvements $2,652,720 Personal Property 111,720 - -------------------------------------- --------------------- Net Taxable Value $2,763,761 - -------------------------------------- --------------------- For 1996/1997, total property taxes and direct assessments are $29,245.02 on the subject property. The indicated tax rate, therefore, is 1.0580 percent. 6. Land Lease The subject property is encumbered by a lease, dated September 1, 1979, with the underlying land owned by Woodstock Properties. Woodstock Properties leased the site to Philip B. Grotewohl and Dennis A Brown who then assigned the lease on July 10, 1980 to Super 8 Motels II Ltd, a California limited partnership, as lessees by assignment. The term of the lease extends until August 31, 2015, with three renewal options of five years each. The base rent was established at $4.17 per square foot and is to be adjusted every three years to reflect changes in the Consumer Price Index. The current rent is $8,016 per month as of December 31, 1997 ($96,197 annually). 7. Renovation and Capital Improvements Recently-completed renovation work included the replacement of carpeting throughout the property as well as the installation of a new laundry washing machine. Routine capital replacement projects are foreseen in future years as the property is generally considered to be in good condition. For example, as the through-the-wall air conditioning units in each guestroom continue to age, these units will need to be replaced. Further, as the guestroom doors are secured with standard key locks, an upgrade to more contemporary electronic door locks is also necessary. VIII-9 Given that the cost of such renovation work, on a project-by-project basis, is not unusually large, annual funding for such projects on a phased-basis is considered to be possible through a annual reserve for capital replacement of 4.0 percent of total revenue. 8. Summary of Functional Utility and Condition It is our opinion that the hotel is adequately designed and maintained to service the hotel market demands of the suburban Santa Rosa community. C. HOTEL MARKET ANALYSIS 1. Competitive Supply There are a wide variety of lodging facilities currently located in Santa Rosa ranging from limited service motels such as the Motel 6 to full-service properties such as the Sonoma County Hilton. Of these various hotels and motels, we have identified six hotels, including the subject, with a total of 471 available rooms as comprising the current competitive set of the Super 8 Motel. The selection of the competitive supply was based on location, facilities and amenities, room rate structure, and market orientation. The competitive properties are summarized in the following table. ================================================================================================================== Super 8 Motel -- Santa Rosa Census of Competitive Properties ================================================================================================================== Published Room Rates ----------------------------- Year Number AAA Property Opened of Rooms Single Double Amenities Rating - ----------------------------- -------- ----------- -------------- -------------- ----------------- --------------- Super 8 Motel 1980 100 $38 - $45 $55 - $63 F,H 2 star (Motel) Motel 6 Santa Rosa North 1970's 119 $38 $41 F,H N/L Holiday Inn Express Santa Rosa 1995 96 $69 - $99 $69 - $99 C,D,E,F,G 3 star (Motel) Best Westren Garden Inn 1957 78 $52 - $75 $52 - $75 A,D,F,G 3 star (Motel) Travelodge Santa Rosa 1970's 44 $48 $65 F,H 1 star (Motel) Ramada Limited 1993 34 $50 - $63 $50 - $63 H 2 star (Motel) - ----------------------------- -------- ----------- -------------- -------------- ----------------- --------------- Total 471 - ----------------------------- -------- ----------- -------------- -------------- ----------------- --------------- Amenities Codes AAA Rating A - Restaurant 5 star - Renowned; exceptional property recognized for B - Bar/Lounge market superiority of facilities and service C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations as well as extra amenities D - Meeting Rooms 3 star - Offers very comfortable and attractive E - Exercise Room accommodations F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some G - Whirlpool physical and operational categories H - Adjacent Restaurant 1 star - Meets AAA basic requirements for recommendation N/L Not listed ================================================================================================================== Source: Management of Individual Properties and 1998 American Automobile Association Tour Book ==================================================================================================================
VIII-10 With regard to future lodging supply, there are no hotels currently under construction in the area, and we are aware of only one project, a proposed conference center hotel in central Santa Rosa. This 100 to 150 room project is being studied in conjunction with the City of Santa Rosa and is expected to be an upscale property, if constructed. In our opinion, this potential property will not compete with the Super 8 Motel. We do not anticipate any other new lodging properties entering the market for the foreseeable future. Therefore, no additions to the competitive supply are projected during the next five-year period. 2. Historical Market Performance The following table presents a summary of the historical market performance of the five selected competitive hotels, together with the subject, over the period 1994 to 1997. ==================================================================================================================== Competitive Hotel Market Historical Occupancy and Room Rate 1994 to 1997 (Estimated) ==================================================================================================================== Daily Rooms Available Percent Percent Average Daily Percent Year Change Occupancy Change Room Rate Change - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ 1994 375 3.8% 64.4% - $40.55 - - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ 1995 399 6.4% 69.2% 7.4% $42.50 4.8% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ 1996 471 18.0% 63.3% (8.5)% $47.62 12.0% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ 1997 (Estimated) 471 0.0% 66.0% 4.3% $50.98 7.0% - --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------ CAAG 7.9% - - - 7.9% - ==================================================================================================================== Source: PKF Consulting and Smith Travel Research ====================================================================================================================
As can be noted, over the past five years, the number of available rooms within the competitive market has increased in May 1993 with the opening of 34-unit Ramada Limited and in September 1995 with the opening of the 96-unit Holiday Inn Express. The competitive hotel supply has remained stable since 1996. However, during the same period, demand has increased slightly overall, even with the addition of the new hotel supply. Since 1994, the composite occupancy has increased from 64.4 percent in 1994 to 66.0 percent for year-end 1997, although a dip in occupancy was observed in 1996, the first full year of operation for the new Holiday Inn Express. In terms of the competitive market's average room rate, we estimate that the six competitive hotels will achieve a weighted average rate of $50.98 in 1997. This equates to CAAG of 7.9 percent over the past four years, indicating that room rate growth ahead of inflation, as measured by CPI, has been achieved by the competitive supply. This room rate growth has most likely been stimulated by the new hotel properties added to the market which can obtain a comparative premium for their new rooms. VIII-11 3. Demand Segmentation The primary demand segments in the Santa Rosa market are corporate and leisure demand. Business and leisure travel are the two largest demand segments on an annual basis. On a more seasonal basis, some group demand is the third demand segment in the Santa Rosa market. Each hotel penetrates these three demand segments based on the appeal of the property to the various types of travelers in each segment. The current mix of demand at the subject property is primarily composed of leisure travelers (80.2%) who are attracted to the subject property because of its convenient location and clean, well-price rooms. The second largest component of demand (14.4%) is from corporate and government travelers who are visiting businesses and agencies in the area, as well as law enforcement personnel who stay at the hotel. The balance of demand is generated by group travelers (5.3%) such as athletic and school groups. 4. Projected Future Supply and Demand Over the past five years (1994 to 1997) demand for hotel accommodations in Santa Rosa has generally increased at a CAAG of 8.8 percent. Based on our review of the local market, we project overall demand for hotel rooms will show comparable, limited growth over the next five years and will stabilize, on a composite basis, in the high 60's percent range in occupancy, resulting in an effective market growth of only 0.6 percent from 1998 to 2002. Presented in the table below is a summary of the projected growth in supply, demand, and the resulting occupancy levels for the competitive market for the period 1998 to 2002. ======================================================================================================= Super 8 Motel -- Santa Rosa Estimated Growth In Supply and Demand Competitive Hotel Market ======================================================================================================= Daily Annual Total Year Available Rooms Available Rooms Demand Occupancy - --------------------- ----------------------- --------------------- ---------------- ------------------ Actual 1994 375 136,875 88,147 64.4% 1995 399 145,635 100,779 69.2% 1996 471 171,915 108,822 63.3% 1997 471 171,915 113,463 66.0% - --------------------- ----------------------- --------------------- ---------------- ------------------ Projected 1998 471 171,915 115,200 67.0% 1999 471 171,915 116,900 68.0% 2000 471 171,915 116,900 68.0% 2001 471 171,915 116,900 68.0% 2002 471 171,915 116,900 68.0% - --------------------- ----------------------- --------------------- ---------------- ------------------ CAAG 1994 to 1997 7.9% - 8.8% - 1997 to 2002 0.0% 0.6% ======================================================================================================= Source: PKF Consulting and Smith Travel Research =======================================================================================================
VIII-12 As can be noted above, the number of rooms available in the market grew, at 7.9 percent from 1994 to 1997, with the entry of the Ramada Limited and the Holiday Inn Express. During that period, demand grew concurrently at a faster pace of 8.8 percent annually. No change in the number of rooms in the competitive market is forecast during the next five years. With no growth in supply, combined with expected market factors, modest growth in occupancy is forecast, and occupancy is expected to grow from 66.0 percent as of year-end 1997 to 68.0 percent as of year-end 2002. As indicated, this represents a CAAG of 0.6 percent. From 2002 onwards, a stable, composite average annual occupancy of 68.0 percent is foreseen. 5. Market Performance of the Subject The following table summarizes the historical occupancy levels and average room rate for the Super 8 Motel over the past four years =============================================================================== Super 8 Motel -- Santa Rosa Historical Occupancy and Room Rate 1994 to 1997 (Estimated) =============================================================================== Average Daily Year Occupancy % Change Room Rate % Change - --------------------- -------------- ------------- ----------------- ---------- 1994 54.4% - $40.76 - - --------------------- -------------- ------------- ----------------- ---------- 1995 53.6% (1.5)% $43.16 5.9% - --------------------- -------------- ------------- ----------------- ---------- 1996 54.1% 0.9% $43.91 1.7% - --------------------- -------------- ------------- ----------------- ---------- 1997 (Estimated) 60.0% 10.9% $45.00 2.5% - --------------------- -------------- ------------- ----------------- ---------- CAAG 3.3% - 3.3% - =============================================================================== Source: Famous Host Companies =============================================================================== As can be noted, occupancy rates at the subject property have been trending upward from 54.4 percent achieved in 1994 to an estimated 60.0 percent achieved for year-end 1997. A portion of the increase in occupancy is attributed to management's efforts to maintain ADR in the low $40s range, thus gaining demand from some of the competitive properties where ADR increased, on a composite basis, at 5.4 percent over the same period. The occupancy rate at the subject is expected to climb slightly from the year-end 1997 level in future years. However, as with past years, the subject is expected to lag the market overall with a penetration rate of less than 100.0 percent. This penetration below-market is primarily attributable to the location of the subject with limited visibility and the comparable difficult access to the site. With regard to room rates, a 5.9 percent increase in 1995 stabilized the ADR for both 1995 and 1996 in the $43.00 range. For year-end 1997, ADR jumped 2.5 percent to an estimated $45.00. This increase in ADR is a reflection of some economic strength in the local market, but reflects a strategy of management to focus more growth efforts on occupancy than on ADR. VIII-13 Based on our analysis of the local market, we are of the opinion the subject will achieve a stable occupancy level of approximately 65.0 percent by 1999. We project an occupancy of 62.0 percent in 1999, and an increased occupancy to 65.0 percent for 1999. For the balance of the projection period, from 2000 to 2007, a stable occupancy level of 65.0 percent is projected. Based on our market analysis, we project the hotel to achieve an average room rate of $46.25 in 1998, a 3.0 percent increase from 1997. Over the balance of our projection period, we project the hotel's average room rates to increase at the anticipated long-term level of inflation (3.0 percent per year). We believe that this is realistic given the projected limited growth in demand combined with no new additions to supply. The following table summarizes our projections for the subject property over the first five years of the ten-year analysis period from January 1, 1998 to December 31, 2002. =============================================================================== Super 8 Motel -- Santa Rosa Projected Occupancy and Average Daily Room Rate 1998 to 2002 =============================================================================== Average Market Daily Percent Year Occupancy Penetration Room Rate Change - --------------- ------------------- ---------------- --------------- ---------- 1997 62.0% 93.9% $45.00 - - --------------- ------------------- ---------------- --------------- ---------- 1998 65.0% 97.0% $46.25 3.0% 1999 65.0% 96.0% $47.75 3.0% 2000 65.0% 96.0% $49.25 3.0% 2001 65.0% 96.0% $50.75 3.0% 2002 65.0% 96.0% $52.25 3.0% - --------------- ------------------- ---------------- --------------- ---------- CAAG 0.9% - 3.0% - =============================================================================== Source: PKF Consulting =============================================================================== D. HIGHEST AND BEST USE Based on our analysis, we are of the opinion that the existing improvements contribute significant overall value to the site. There is no alternative, legal use that could economically justify the restructuring or removal of the existing improvements at this time. Therefore, the subject property, as improved, represents the highest and best use of the site. VIII-14 E. VALUATION -- SALES COMPARISON APPROACH 1. Introduction We have reviewed a number of recent sales and have focused on those sales considered most comparable in providing support for the market value of the subject. However, due to the limited number of recent comparable hotel sales in Santa Rosa, we have expanded our search to include other hotels located elsewhere in Sonoma and Marin counties, and nearby Alameda County. Based on this search, five sales were identified to use as the basis for our valuation of the hotel component of the subject under this approach. Presented in the following table is a summary of the selected comparable hotel sales. As can be noted, these sales have occurred between May 1996 and February 1997. ===================================================================================================================== Comparable Hotel Sales ===================================================================================================================== Rooms Overall Sale Sale Year Number of Price Per Revenue Capitalization No. Hotel Name Location Date Built Rooms Room Multiplier Rate - -------- ----------------- ------------------ --------- --------- ----------- ------------ ----------- -------------- 1 Motel 6 Santa Rosa 2/97 1970s 119 $42,777 4.4 N/A 2 Days Inn Emeryville 2/97 1985 153 $73,856 3.2 10.6% 3 Embassy Suites San Rafael 7/96 1980's 235 $120,851 3.9 9.6% 4 Doubletree Hotel Santa Rosa 10/96 1985 246 $67,886 3.7 6.4% 5 Alvarado Inn Novato 5/96 1982 70 $23,571 2.6 N/A ===================================================================================================================== Source: PKF Consulting =====================================================================================================================
2. Analysis of the Hotel Sales In reviewing the preceding table, it can be noted that the sales price per room indicates a range in value on a per-room basis from $23,571 to $120,851. Because of the many differences between these hotels and the subject hotel, we are of the opinion that an analysis using a rooms revenue multiplier is the most appropriate units of comparison to value the subject, especially true in view of the fact that sale numbers 2, 3, and 4 are superior to the subject property. A rooms revenue multiplier measures the total revenue generated from room rentals, the major revenue source for this type of hotel property, in relation to the sales price. Rooms revenue multipliers do not require subjective adjustments since most variance in properties are considered to be reflected in average daily room rates and annual occupancies as achieved in the market. As can be noted, indicated rooms revenue multipliers for the five sales ranged from a low of 2.6 to a high of 4.4, with an average of 3.6. Based on our analysis, we are of the opinion that a rooms revenue multiplier close to the low-end of the range indicated by the comparable sales is appropriate in valuing the subject property. Based on a selected multiplier of 3.0, and assuming a stabilized occupancy level of 65.0 percent at an average VIII-15 daily room rate of $46.25 (stated in 1998 dollars), the indicated value for available rooms for the subject is as follows: Rooms Stabilized Stabilized Indicated Value Revenue Average Rate Occupancy Per Room Multiplier Level Days/Year (Rounded) - ---------------- --- --------------- --- ----------------- --- ---------------- --- ----------------------- 3.0 X $46.25 X 65.0% X 365 = $32,900 - ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
As noted above, the rooms revenue multiplier analysis produced a value indication of $32,900 per available room. This value unit is converted into a total value estimate by multiplying the indicated value per room by the total number of rooms. Based on 100 rentable rooms, the indicated stabilized value of the fee simple interest in the Super 8 Motel is $3,300,000 as calculated below: - ----------------------- ---- ---------------- ----- --------------------------- $32,900 X 100 Rooms = $3,300,000 (Rounded) - ----------------------- ---- ---------------- ----- --------------------------- F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH After concluding to our estimate of the stabilized value of the subject, the next step in our analysis is to develop an estimate of the "as is" leasehold market value of the subject property. 1. Income Loss The first step to develop the value estimate is to deduct the income loss projected to occur until the property is stabilized (as discussed in the Income Capitalization section). =================================================================== Sales Comparison Approach "As Is" Fee Simple Value =================================================================== Stabilized value Indication $3,300,000 Less: Income Loss Until Stabilization (38,000) - ---------------------------------------------- -------------------- "As Is" Fee Simple Value $3,262,000 - ---------------------------------------------- -------------------- 2. Valuation of Leased Fee Interest After having developed an estimate of the "as is" fee simple value of the subject under the Sales Comparison Approach, the next step is to develop an estimate of the value of the leased fee interest in the property. This VIII-16 represents the position of the ground lessor, who benefits from the income derived from the ground lease payments during the term of the lease, as well as the ownership of the property in fee at the termination of the lease (the reversion). The estimated leased fee interest in the hotel is then subtracted from the fee simple value to arrive at our estimate of the value of the leasehold interest. This deduction is derived by capitalizing the land lease payment for a stabilized year ($99,000) by an appropriate capitalization rate (9.0 percent). This capitalization rate of 250 basis points less than the rate used to capitalize the revenue stream from the hotel operations (as will be discussed in the Income Capitalization Approach) is reflective of the more secure position of the landlord as compared to the lessee. This calculation results in a leased fee interest of $1,100,000 ($99,000 / 9.0 percent). The following table summarizes the deduction made from the stabilized fee simple value indication. ============================================================== Sales Comparison Approach "As Is" Leasehold Value ============================================================== Fee Simple Value Estimate $3,262,000 Less: Leased Fee Land Value (1,100,000) - ------------------------------------- ------------------------ Leasehold Value $2,162,000 - ------------------------------------- ------------------------ Rounded $2,200,000 ============================================================== As a result of the foregoing analysis, we estimate the "as is" market value of the leasehold estate interest in the subject as of January 1, 1998, through the Sales Comparison Approach to be: =============================================================================== TWO MILLION TWO HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $2,200,000 =============================================================================== G. VALUATION -- INCOME CAPITALIZATION APPROACH 1. Basis for Cash Flow Projection In order to develop an estimate of the net operating income (NOI) for the subject for both a stabilized year of operation (direct capitalization) and each year of the aforementioned holding period (yield capitalization), the following have been analyzed: 1. The historical operating results for the subject for year-end 1994, 1995, 1996, year-to-date September 1997, and management's operating budget for 1997. VIII-17 2. The operating results of the category "Limited-Service Hotels" from the 1997 issue of PKF Consulting's Trends in the Hotel Industry. The historical operating results of the subject are presented at the end of this section of the report. 2. Stabilized Year Operating Estimate We first developed an estimate of the performance of the subject for a stabilized year of operation stated in current value, 1998 dollars. This estimate is based on our review of the historical operating results of the subject hotel coupled with an analysis of the operating results of the selected PKF Consulting "Trends" category. Additional key assumptions used in preparing this stabilized year estimate are summarized below. a) The stabilized annual occupancy of the hotel is projected to be 65.0 percent at an average daily room rate of $46.25 as stated in 1998 dollars; b) A management fee of 5.0 percent of total revenues, a franchise fee of 8.0 percent of room revenues, and a reserve for capital replacements of 4.0 percent of total revenue have been deducted to establish the net operating income of the subject. c) The projection of expense for taxes on real and personal property is a function of the market value of the property. The subject property is in the real estate taxing jurisdiction of the Sonoma County Tax Assessor's Office. Our estimate of the property taxes for the subject is based on the provisions of Proposition 13. Proposition 13 limits ad valorem property taxes to 1.0 percent of the assessed value plus assessment for city, special district, and county bonds. The current effective tax rate is 1.0580 percent of market value. This appraisal assumes a sale of the subject property on the effective date of the appraisal, which will initiate a reassessment of real estate for tax purposes. For the purpose of this analysis, the reassessment is based on the value estimate of the subject property as determined using the Income Capitalization Approach as if owned in fee simple. Based on that estimated value of the hotel, a tax rate of 1.0580 per $100 of assessed value is utilized, resulting in real estate taxes of $32,000, rounded, in the representative or stabilized year. Presented below is our estimate of the subject hotel's stabilized year operating results. As can be noted, on a stabilized basis, the subject property will generate approximately $1,117,000 in total revenue, with a net operating income of $253,000, or 22.6 percent of total revenue. VIII-18 =============================================================================================== Super 8 Motel, Santa Rosa Stabilized Year Operating Results (Stated in 1998 Value Dollars) =============================================================================================== Occupancy Level 65.0% - -------------------------------------------- -------------------------------------------------- Average Room Rate $46.25 - -------------------------------------------- -------------------------------------------------- REVPAR $31.45 - -------------------------------------------- -------------- ---------- ------------- ---------- Total Ratios POR (1) POR (2) - -------------------------------------------- -------------- ---------- ------------- ---------- Revenues Rooms $1,097,000 98.2% $10,970 $46.25 Telephone 15,000 1.4% 150 0.65 Other Operated Departments 5,000 0.5% 50 0.22 - -------------------------------------------- -------------- ---------- ------------- ---------- Total Revenues 1,117,000 100.0% 11,170 47.12 - -------------------------------------------- -------------- ---------- ------------- ---------- Departmental Expenses (3) Rooms 202,000 18.4% 2,020 8.50 Telephone 8,000 53.3% 80 0.35 Other Operated Departments 1,000 20.0% 10 0.04 - -------------------------------------------- -------------- ---------- ------------- ---------- Total Departmental Expenses 211,000 18.9% 3,010 8.89 - -------------------------------------------- -------------- ---------- ------------- ---------- Departmental Income 906,000 81.1% 9,060 38.19 - -------------------------------------------- -------------- ---------- ------------- ---------- Undistributed Operating Expenses Administrative and General 144,000 12.9% 1,442 6.07 Franchise Fees 88,000 7.9% 850 3.71 Marketing 21,000 1.8% 206 0.89 Property Maintenance 75,000 6.7% 747 3.16 Energy and Utilities 72,000 6.4% 721 3.03 - -------------------------------------------- -------------- ---------- ------------- ---------- Total Undistributed Expenses 400,000 35.8% 4,000 16.86 - -------------------------------------------- -------------- ---------- ------------- ---------- Income Before Fixed Charges 506,000 45.3% 5,060 21.33 - -------------------------------------------- -------------- ---------- ------------- ---------- Management Fees and Fixed Charges Management Fees 56,000 5.0% 560 2.36 Property Taxes 32,000 2.9% 320 1.35 Insurance 21,000 1.9% 206 0.89 Land Lease 99,000 8.9% 990 4.17 - -------------------------------------------- -------------- ---------- ------------- ---------- Total 208,000 18.6% 2,080 8.77 - -------------------------------------------- -------------- ---------- ------------- ---------- Income Before Reserve 298,000 26.7% 2,980 12.56 - -------------------------------------------- -------------- ---------- ------------- ---------- Reserve for Replacement 45,000 4.0% 450 1.90 - -------------------------------------------- -------------- ---------- ------------- ---------- Income Before Other Charges(4) $253,000 22.6% $2,530 $10.66 =============================================================================================== (1) PAR - Per Available Room (2) POR - Per Occupied Room (3) Departmental expense ratios are based on the respective department's revenue, not total revenue (4) Income before interest, taxes, depreciation, and amortization Source: PKF Consulting ===============================================================================================
3. Ten Year Statement of Estimated Annual Operating Results Presented at the end of this section of the appraisal report is our estimate of the operating results for the subject for the ten-year period beginning January, 1, 1998. This forecast is based on the preceding stabilized year estimate, adjusted to reflect effects of inflation, variations in occupancy and rate and the impact of fixed and variable components of each revenue and expense item. Selected key assumptions used to develop this forecast are summarized below. VIII-19 a) With the exception of property taxes, all other revenues are expenses are projected to increase at 3.0 percent throughout the holding period. Property taxes are projected to increase at a rate of 2.0 percent per year as allowed by California law. b) For the first two years of this forecast, the occupancy and rates of the hotel were projected as previously discussed. Thereafter, the hotel's occupancy was assumed to remain at 65.0 percent, with the average rate increasing at 3.0 percent per year. 4. Valuation Using Direct Capitalization Based on our evaluation of the subject, it is was concluded that an overall capitalization rate (OAR) of 11.5 percent is appropriate to value the subject, and properly reflects the risks associated with this hotel given the property's age, physical features, location, market position, and leasehold estate status. Based on the projection of net operating income for a stabilized year of operation, and the selected overall rate of 11.5 percent, the value of the subject as if stabilized is calculated to be as follows. ================================================== ===================== Projected Stabilized Net Operating Income $253,000 Overall Capitalization Rate 11.5% - -------------------------------------------------- --------------------- Stabilized Value Indication $2,200,000 ================================================== ===================== From this derived stabilized value, a deduction is made for the cost required for the hotel to achieve the projected stabilized level of income. This cost is typically referred to as "income loss". Income loss is the difference in projected cash flows and the cash flow which would be available if the property were stabilized. This amount must be subtracted from the stabilized value to reflect the risk associated with the loss of income of a hotel property during the stabilization period. Based on our market research and analysis, it is estimated that the subject will achieve a stabilized level of operation in 1990. A calculation of the income loss associated for the year prior to that period is presented on the following table. VIII-20 =============================================================================== Income Loss to Stabilization =============================================================================== Estimated Stabilized Year Net Operating Net Operating Estimated Present Value Year Income Income Income Loss @ 6.5% - ---------------- ---------------- ------------------ ------------- ------------ 1998 $213,000 $253,000 $40,000 $37,559 - ---------------- ---------------- ------------------ ------------- ------------ Rounded $40,000 $38,000 =============================================================================== Based upon the preceding calculation, the cumulative income loss over the stabilization period is estimated to be approximately $40,000. Investors typically discount the estimated income loss at either the internal rate of return for the property or at a "safe rate" such as AAA bonds or short-term treasury bills. For the purpose of this analysis, we have chosen to discount the income loss at the safe rate, or a rate which easily could be achieved if this additional cash flow were available for short-term reinvestment. Consequently, if the sum of the income losses were discounted at a safe rate of 6.5 percent, the present value of the estimated income loss would be roundly $38,000. Presented below is our calculation of the "as is" market value of the subject taking into account the above estimate of income loss during the projected stabilization period. ======================================================================= Value Conclusion -- Direct Capitalization ======================================================================= Stabilized Value $2,200,000 Less: Income Loss During Stabilization Period (38,000) - ---------------------------------------------------- ------------------ "As Is" Value $2,162,000 - ---------------------------------------------------- ------------------ Rounded $2,200,000 ======================================================================= Therefore, the estimated "as is" market value of the leasehold interest in the subject using the Direct Capitalization Approach, as of January 1, 1998, is: ============================================================================== TWO MILLION TWO HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $2,200,000 ============================================================================== 5. Discounted Cash Flow Valuation Analysis To estimate the value of the subject using a discounted cash flow analysis, it is assumed that the property will be sold at the end of a ten-year holding period. The value of the property at that time is estimated by capitalizing the expected or anticipated net operating income of the property in the eleventh year. From this value estimate, an estimate of sales costs is deducted to arrive at the net proceeds upon sale. VIII-21 Based on our market research, we are of the opinion that a reversionary capitalization rate of 12.0 percent and a 14.5 percent discount rate are appropriate to value the subject on a discounted cash flow basis. The following table shows the present value of the projected net operating income for the subject for the ten-year holding period, along with the present value of the reversion, deriving a value estimate. =============================================================================== Discounted Cash Flow Analysis =============================================================================== Cash Flow Present Present From Value Value Year Operations Factor @ 14.5% - ----------------- -------------------- ----------------------- --------------- 1998 $213,000 0.8734 $186,026 1999 $266,000 0.7628 $202,895 2000 $278,000 0.6662 $185,195 2001 $283,000 0.5818 $164,651 2002 $293,000 0.5081 $148,881 2003 $299,000 0.4438 $132,690 2004 $309,000 0.3876 $119,762 2005 $319,000 0.3385 $107,981 2006 $329,000 0.2956 $97,263 2007 $341,000 0.2582 $88,044 - ----------------- -------------------- ----------------------- ---------------- Reversion $2,882,000 0.2582 $744,113 - ----------------- -------------------- ----------------------- ---------------- Present Value $2,177,501 - ----------------- -------------------- ----------------------- ---------------- Value, Rounded $2,200,000 =============================================================================== 6. Income Capitalization Approach Valuation Conclusion The value conclusion under the Income Capitalization Approach is based on both a direct capitalization and a discounted cash flow analysis. Both the direct capitalization method and the discounted cash flow method indicated a value of $2,200,000. Therefore, our conclusion as to the "as is" market value of the leasehold interest of the subject using the Income Capitalization Approach, as of January 1, 1998, is: ============================================================================== TWO MILLION TWO HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $2,200,000 ============================================================================== H. RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the two valuation methodologies applied, considering the property type and the VIII-22 requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the two approaches are as follows: ============================================ ====================== Sales Comparison Approach $2,200,000 Income Capitalization Approach Direct Capitalization $2,200,000 Discounted Cash Flow Analysis $2,200,000 ============================================ ====================== In the Sales Comparison Approach we compared five recent hotel transactions to the subject. The selected sales indicated a relatively wide range in value per room. Furthermore, the sales were located in varying market areas throughout the San Francisco Bay Area and no property was identical to the subject. These factors make this approach less meaningful, but do act as a reference checkpoint for the value derived from the Income Capitalization Approach methods. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized two methods of analysis: The direct capitalization method and the discounted cash flow method (yield capitalization). There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a value estimate. Both income methods resulted in similar values, heightening our confidence in this approach. Accordingly, the primary reliance was placed on this method. Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the "as is" market value of the leasehold interest in the subject property, as of January 1, 1998, is reasonably represented as: =============================================================================== TWO MILLION TWO HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $2,200,000 =============================================================================== VIII-23 SUPER 8 MOTEL -- SANTA ROSA, CALIFORNIA HISTORICAL OPERATING RESULTS Super 8, Santa Rosa Historical Operating Results -------------------------------------------------------------------------------------------------- 1994 1995 -------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) -------------------------------------------------------------------------------------------------- Number of Keys 100 100 Occupancy 54.39% 53.56% Average Daily Room Rate (ADR) $40.76 $43.16 REVPAR $22.17 $23.12 REVENUES ROOMS $ 809,186 98.5% $ 8,092 $ 40.76 $ 843,600 98.6% $ 8,436 $ 43.15 TELEPHONE 10,814 1.3% 108 0.54 10,362 1.2% 104 0.53 MISCELLANEOUS 1,608 0.2% 16 0.08 1,436 0.2% 14 0.07 ----------- ------- ------- ------- --------- ------- ------- ------- TOTAL REVENUE 821,608 100.0% 8,216 41.39 855,398 100.0% 8,554 43.76 DEPT. COSTS & EXPENSES (3) ROOMS 192,378 23.8% 1,924 9.69 174,352 20.7% 1,744 8.92 TELEPHONE 13,699 126.7% 137 0.69 11,527 111.2% 115 0.59 MISCELLANEOUS 245 15.2% 2 0.01 263 18.3% 3 0.01 ----------- ------- ------- ------- --------- ------- ------- ------- TOTAL COST & EXP. 206,322 25.1% 2,063 10.39 186,142 21.8% 1,861 9.52 TOTAL OPER. DEPTS. INCOME 615,286 74.9% 6,153 30.99 669,256 78.2% 6,693 34.23 ----------- ------- ------- ------- --------- ------- ------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 125,331 15.3% 1,253 6.31 127,165 14.9% 1,272 6.50 MARKETING 25,386 3.1% 254 1.28 21,400 2.5% 214 1.09 FRANCHISE FEES 40,330 4.9% 403 2.03 42,201 4.9% 422 2.16 UTILITIES 80,855 9.8% 809 4.07 74,708 8.7% 747 3.82 PROPERTY OPERATIONS 67,504 8.2% 675 3.40 65,410 7.6% 654 3.35 ----------- ------- ------ ------- ---------- ------- ------- ------- TOTAL 339,406 41.3% 3,394 17.10 330,884 38.7% 3,309 16.93 INC. BEFORE MGMT. FEES AND FIXED CHARGES 275,880 33.6% 2,759 13.90 338,372 39.6% 3,384 17.31 ----------- ------- ------ ------- ----------- ------- ------- ------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES - 0.0% - - - 0.0% - - PROPERTY TAXES 29,155 3.5% 292 1.47 29,924 3.5% 299 1.53 INSURANCE 16,841 2.0% 168 0.85 17,459 2.0% 175 0.89 RENT 89,110 10.8% 891 4.49 93,395 10.9% 934 4.78 ----------- ------- ------ ------- ----------- ------- ------- -------- TOTAL 135,106 16.4% 1,351 6.81 140,778 16.5% 1,408 7.20 INCOME BEFORE OTHER (4) FIXED CHARGES $ 140,774 17.1% 1,408 7.09 $ 197,594 23.1% 1,976 10.11 =========== ======= ======= ======= =========== ======== ======= ======== RENOVATION PAYMENT $ 48,417 $ 71,521 ---------------------------------------------------- 1996 ---------------------------------------------------- $ % PAR (1) POR (2) ---------------------------------------------------- Number of Keys 100 Occupancy 54.11% Average Daily Room Rate (ADR) $43.91 REVPAR $23.76 REVENUES ROOMS $ 869,646 98.1% $ 8,696 $ 43.91 TELEPHONE 15,538 1.8% 155 0.78 MISCELLANEOUS 1,748 0.2% 17 0.09 ------------ ------ ------- --------- TOTAL REVENUE 886,932 100.0% 8,869 44.78 DEPT. COSTS & EXPENSES (3) ROOMS 162,730 18.7% 1,627 8.22 TELEPHONE 9,297 59.8% 93 0.47 MISCELLANEOUS 272 15.6% 3 0.01 ------------ ------- ------- -------- TOTAL COST & EXP. 172,299 19.4% 1,723 8.70 TOTAL OPER. DEPTS. INCOME 714,633 80.6% 7,146 36.08 ------------ ------- -------- --------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 140,949 15.9% 1,409 7.12 MARKETING 16,704 1.9% 167 0.84 FRANCHISE FEES 43,495 4.9% 435 2.20 UTILITIES 67,342 7.6% 673 3.40 PROPERTY OPERATIONS 59,354 6.7% 594 3.00 ------------ ------- -------- --------- TOTAL 327,844 37.0% 3,278 16.55 INC. BEFORE MGMT. FEES AND FIXED CHARGES 386,789 43.6% 3,868 19.53 ------------ ------- -------- ---------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES - 0.0% - - PROPERTY TAXES 26,495 3.0% 265 1.34 INSURANCE 18,258 2.1% 183 0.92 RENT 93,395 10.5% 934 4.72 ------------ ------- -------- ----------- TOTAL 138,148 15.6% 1,381 6.98 INCOME BEFORE OTHER (4) FIXED CHARGES $ 248,641 28.0% 2,486 12.55 ============ ======= ======== =========== RENOVATION PAYMENT $ 30,239 - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. =================================================================================================================================== Source:The Famous Host Company ===================================================================================================================================
==================================================================================================================================== Super 8, Santa Rosa Operating Results Year-to-Date September 1997 and 1997 Budget -------------------------------------------------------------------------------------------------- September 1997 Budget 1997 -------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) -------------------------------------------------------------------------------------------------- Number of Keys 100 100 Occupancy 61.60% 53.88% Average Daily Room Rate (ADR) $46.99 $44.87 REVPAR $28.95 $24.18 REVENUES ROOMS $ 790,844 98.3% $10,603 $ 46.99 $ 882,450 98.4% $ 8,825 $ 44.87 TELEPHONE 10,029 1.2% 134 0.60 12,837 1.4% 128 0.65 MISCELLANEOUS 3,508 0.4% 47 0.21 1,185 0.1% 12 0.06 ---------- ------- ------- ------- --------- ------- ------- ------- TOTAL REVENUE 804,381 100.0% 10,784 47.79 896,472 100.0% 8,965 45.58 DEPT. COSTS & EXPENSES (3) ROOMS 136,692 17.3% 1,833 8.12 168,186 19.1% 1,682 8.55 TELEPHONE 9,738 97.1% 131 0.58 11,383 88.7% 114 0.58 MISCELLANEOUS 198 5.6% 3 0.01 200 16.9% 2 0.01 ---------- ------- ------- -------- ---------- ------- -------- -------- TOTAL COST & EXP. 146,628 18.2% 1,966 8.71 179,769 20.1% 1,798 9.14 TOTAL OPER. DEPTS. INCOME 657,753 81.8% 8,818 39.08 716,703 79.9% 7,167 36.44 ---------- ------- ------- -------- ----------- ------- -------- --------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 106,697 13.3% 1,430 6.34 125,204 14.0% 1,252 6.37 MARKETING 7,944 1.0% 107 0.47 12,900 1.4% 129 0.66 FRANCHISE FEES 39,542 4.9% 530 2.35 44,123 4.9% 441 2.24 UTILITIES 53,664 6.7% 719 3.19 70,733 7.9% 707 3.60 PROPERTY OPERATIONS 50,613 6.3% 679 3.01 56,819 6.3% 568 2.89 ---------- ------- ------- -------- ------------ ------- -------- --------- TOTAL 258,460 32.1% 3,465 15.36 309,779 34.6% 3,098 15.75 INC. BEFORE MGMT. FEES AND FIXED CHARGES 399,293 49.6% 5,353 23.73 406,924 45.4% 4,069 20.69 ---------- ------- ------- -------- ------------- -------- -------- ---------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES - 0.0% - - - 0.0% - - PROPERTY TAXES 17,073 2.1% 229 1.01 29,496 3.3% 295 1.50 INSURANCE 13,806 1.7% 185 0.82 16,908 1.9% 169 0.86 RENT 70,661 8.8% 947 4.20 90,000 10.0% 900 4.58 ---------- ------- ------- -------- ------------- --------- -------- ---------- TOTAL 101,540 12.6% 1,361 6.03 136,404 15.2% 1,364 6.94 INCOME BEFORE OTHER (4) FIXED CHARGES $ 297,753 37.0% 3,992 17.69 $ 270,520 30.2% $ 2,705 $ 13.76 ========== ======= ======= ======== ============= ========= ======== ========== RENOVATION PAYMENT $ 52,105 $ 26,894 - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. ==================================================================================================================================== Source:The Famous Host Company ====================================================================================================================================
SUPER 8 MOTEL -- SANTA ROSA, CALIFORNIA TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS Super 8 Santa Rosa, California Projected Operating Results ----------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 1998 1999 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 100 100 Occupancy 62.00% 65.00% Average Daily Room Rate $46.25 $47.75 Revenues Rooms $1,047,000 98.1% $10,470 $46.27 $1,133,000 98.2% $11,330 $47.76 Telephone 15,000 1.4% 150 0.66 16,000 1.4% 160 0.67 Other Operated Departments 5,000 0.5% 50 0.22 5,000 0.4% 50 0.21 ----------- ------- --------- --------- ------------ ------- --------- ------- Total Revenues 1,067,000 100.0% 10,670 47.15 1,154,000 100.0% 11,540 48.64 Departmental Expenses (3) Rooms 202,000 19.3% 2,020 8.93 208,000 18.4% 2,080 8.77 Telephone 8,000 53.3% 80 0.35 8,000 50.0% 80 0.34 Other Operated Departments 1,000 20.0% 10 0.04 1,000 20.0% 10 0.04 ----------- ------- --------- --------- ------------ ------- --------- ------- Total Departmental Expenses 211,000 19.8% 2,110 9.32 217,000 18.8% 2,170 9.15 ----------- ------- --------- --------- ------------ ------- --------- ------- Departmental Profit 856,000 80.2% 8,560 37.83 937,000 81.2% 9,370 39.49 Undistributed Expenses Administrative and General 143,000 13.4% 1,430 6.32 148,000 12.8% 1,480 6.24 Franchise Fees 84,000 7.9% 840 3.71 91,000 7.9% 910 3.84 Marketing 21,000 2.0% 210 0.93 21,000 1.8% 210 0.89 Property Operations and Maintenance 75,000 7.0% 750 3.31 77,000 6.7% 770 3.25 Energy and Utilities 72,000 6.7% 720 3.18 74,000 6.4% 740 3.12 ----------- ------- --------- --------- ------------ ------- --------- ------- Total Undistributed Expenses 395,000 37.0% 3,950 17.45 411,000 35.6% 4,110 17.32 ----------- ------- --------- --------- ------------ ------- --------- ------- Gross Operating Profit 461,000 43.2% 4,610 20.37 526,000 45.6% 5,260 22.17 Fixed Charges and Management Fees Base Management Fees 53,000 5.0% 530 2.34 58,000 5.0% 580 2.44 Property Taxes 32,000 3.0% 320 1.41 33,000 2.9% 330 1.39 Insurance 21,000 2.0% 210 0.93 21,000 1.8% 210 0.89 Land Lease 99,000 9.3% 990 4.37 102,000 8.8% 1,020 4.30 ----------- ------- --------- --------- ------------ ------- --------- ------- Total Fixed Charges 205,000 19.2% 2,050 9.06 214,000 18.5% 2,140 9.02 ----------- ------- --------- --------- ------------ ------- --------- ------- Income Before Reserves 256,000 24.0% 2,560 11.31 312,000 27.0% 3,120 13.15 Reserves for Replacements 43,000 4.0% 430 1.90 46,000 4.0% 460 1.94 ----------- ------- --------- --------- ------------ ------- --------- ------- Net Operating Income (4) $ 213,000 20.0% $ 2,130 $ 9.41 $ 266,000 23.1% $ 2,660 $11.21 =========== ======= ========= ========= ============ ======= ========= ======= --------------------------------------------- Calendar Years Ending December 31: 2000 --------------------------------------------- $ % PAR (1) POR (2) --------------------------------------------- Number of Keys 100 Occupancy 65.00% Average Daily Room Rate $49.25 Revenues Rooms $1,172,000 98.2% $11,720 $49.26 Telephone 17,000 1.4% 170 0.71 Other Operated Departments 5,000 0.4% 50 0.21 ----------- ------- --------- -------- Total Revenues 1,194,000 100.0% 11,940 50.19 Departmental Expenses (3) Rooms 215,000 18.3% 2,150 9.04 Telephone 8,000 47.1% 80 0.34 Other Operated Departments 1,000 20.0% 10 0.04 ----------- ------- --------- -------- Total Departmental Expenses 224,000 18.8% 2,240 9.42 ----------- ------- --------- -------- Departmental Profit 970,000 81.2% 9,700 40.77 Undistributed Expenses Administrative and General 153,000 12.8% 1,530 6.43 Franchise Fees 94,000 7.9% 940 3.95 Marketing 22,000 1.8% 220 0.92 Property Operations and Maintenan 79,000 6.6% 790 3.32 Energy and Utilities 76,000 6.4% 760 3.19 ----------- ------- --------- -------- Total Undistributed Expenses 424,000 35.5% 4,240 17.82 ----------- ------- --------- -------- Gross Operating Profit 546,000 45.7% 5,460 22.95 Fixed Charges and Management Fees Base Management Fees 60,000 5.0% 600 2.52 Property Taxes 33,000 2.8% 330 1.39 Insurance 22,000 1.8% 220 0.92 Land Lease 105,000 8.8% 1,050 4.41 ----------- ------- --------- -------- Total Fixed Charges 220,000 18.4% 2,200 9.25 ----------- ------- --------- -------- Income Before Reserves 326,000 27.3% 3,260 13.70 Reserves for Replacements 48,000 4.0% 480 2.02 ----------- ------- --------- -------- Net Operating Income (4) $ 278,000 23.3% $ 2,780 $11.69 =========== ======= ========= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Santa Rosa, California Projected Operating Results -------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2001 2002 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 100 100 Occupancy 65.00% 65.00% Average Daily Room Rate $50.75 $52.25 Revenues Rooms $1,204,000 98.2% $12,040 $50.75 $1,240,000 98.1% $12,400 $52.27 Telephone 17,000 1.4% 170 0.72 18,000 1.4% 180 0.76 Other Operated Departments 5,000 0.4% 50 0.21 6,000 0.5% 60 0.25 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Revenues 1,226,000 100.0% 12,260 51.68 1,264,000 100.0% 12,640 53.28 Departmental Expenses (3) Rooms 221,000 18.4% 2,210 9.32 228,000 18.4% 2,280 9.61 Telephone 9,000 52.9% 90 0.38 9,000 50.0% 90 0.38 Other Operated Departments 1,000 20.0% 10 0.04 1,000 16.7% 10 0.04 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Departmental Expenses 231,000 18.8% 2,310 9.74 238,000 18.8% 2,380 10.03 ----------- ------- --------- -------- ----------- ------- --------- -------- Departmental Profit 995,000 81.2% 9,950 41.94 1,026,000 81.2% 10,260 43.25 Undistributed Expenses Administrative and General 157,000 12.8% 1,570 6.62 162,000 12.8% 1,620 6.83 Franchise Fees 96,000 7.8% 960 4.05 99,000 7.8% 990 4.17 Marketing 23,000 1.9% 230 0.97 23,000 1.8% 230 0.97 Property Operations and Maintenance 82,000 6.7% 820 3.46 84,000 6.6% 840 3.54 Energy and Utilities 79,000 6.4% 790 3.33 81,000 6.4% 810 3.41 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Undistributed Expenses 437,000 35.6% 4,370 18.42 449,000 35.5% 4,490 18.93 ----------- ------- --------- -------- ----------- ------- --------- -------- Gross Operating Profit 558,000 45.5% 5,580 23.52 577,000 45.6% 5,770 24.32 Fixed Charges and Management Fees Base Management Fees 61,000 5.0% 610 2.57 63,000 5.0% 630 2.66 Property Taxes 34,000 2.8% 340 1.43 35,000 2.8% 350 1.48 Insurance 23,000 1.9% 230 0.97 23,000 1.8% 230 0.97 Land Lease 108,000 8.8% 1,080 4.55 112,000 8.9% 1,120 4.72 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Fixed Charges 226,000 18.4% 2,260 9.53 233,000 18.4% 2,330 9.82 ----------- ------- --------- -------- ----------- ------- --------- -------- Income Before Reserves 332,000 27.1% 3,320 13.99 344,000 27.2% 3,440 14.50 Reserves for Replacements 49,000 4.0% 490 2.07 51,000 4.0% 510 2.15 ----------- ------- --------- -------- ----------- ------- --------- -------- Net Operating Income (4) $ 283,000 23.1% $ 2,830 $11.93 $ 293,000 23.2% $ 2,930 $12.35 =========== ======= ========= ======== =========== ======= ========= ======== --------------------------------------------- Calendar Years Ending December 31: 2003 ---------------------------------------------- $ % PAR (1) POR (2) ---------------------------------------------- Number of Keys 100 Occupancy 65.00% Average Daily Room Rate $53.75 Revenues Rooms $1,275,000 98.2% $12,750 $53.74 Telephone 18,000 1.4% 180 0.76 Other Operated Departments 6,000 0.5% 60 0.25 ----------- -------- --------- -------- Total Revenues 1,299,000 100.0% 12,990 54.75 Departmental Expenses (3) Rooms 235,000 18.4% 2,350 9.91 Telephone 9,000 50.0% 90 0.38 Other Operated Departments 1,000 16.7% 10 0.04 ----------- -------- --------- -------- Total Departmental Expenses 245,000 18.9% 2,450 10.33 ----------- -------- --------- -------- Departmental Profit 1,054,000 81.1% 10,540 44.43 Undistributed Expenses Administrative and General 167,000 12.9% 1,670 7.04 Franchise Fees 102,000 7.9% 1,020 4.30 Marketing 24,000 1.8% 240 1.01 Property Operations and Maintenanc 87,000 6.7% 870 3.67 Energy and Utilities 84,000 6.5% 840 3.54 ----------- -------- --------- -------- Total Undistributed Expenses 464,000 35.7% 4,640 19.56 ----------- -------- --------- -------- Gross Operating Profit 590,000 45.4% 5,900 24.87 Fixed Charges and Management Fees Base Management Fees 65,000 5.0% 650 2.74 Property Taxes 35,000 2.7% 350 1.48 Insurance 24,000 1.8% 240 1.01 Land Lease 115,000 8.9% 1,150 4.85 ----------- -------- --------- -------- Total Fixed Charges 239,000 18.4% 2,390 10.07 ----------- -------- --------- -------- Income Before Reserves 351,000 27.0% 3,510 14.79 Reserves for Replacements 52,000 4.0% 520 2.19 ----------- -------- --------- -------- Net Operating Income (4) $ 299,000 23.0% $ 2,990 $12.60 =========== ======== ========= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Santa Rosa, California Projected Operating Results ----------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2004 2005 ----------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------- Number of Keys 100 100 Occupancy 65.00% 65.00% Average Daily Room Rate $55.25 $57.00 Revenues Rooms $1,314,000 98.1% $13,140 $55.23 $1,352,000 98.1% $13,520 $56.99 Telephone 19,000 1.4% 190 0.80 20,000 1.5% 200 0.84 Other Operated Departments 6,000 0.4% 60 0.25 6,000 0.4% 60 0.25 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Revenues 1,339,000 100.0% 13,390 56.28 1,378,000 100.0% 13,780 58.08 Departmental Expenses (3) Rooms 242,000 18.4% 2,420 10.17 249,000 18.4% 2,490 10.50 Telephone 10,000 52.6% 100 0.42 10,000 50.0% 100 0.42 Other Operated Departments 1,000 16.7% 10 0.04 1,000 16.7% 10 0.04 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Departmental Expenses 253,000 18.9% 2,530 10.63 260,000 18.9% 2,600 10.96 ----------- ------- --------- -------- ----------- ------- --------- -------- Departmental Profit 1,086,000 81.1% 10,860 45.65 1,118,000 81.1% 11,180 47.12 Undistributed Expenses Administrative and General 172,000 12.8% 1,720 7.23 177,000 12.8% 1,770 7.46 Franchise Fees 105,000 7.8% 1,050 4.41 108,000 7.8% 1,080 4.55 Marketing 25,000 1.9% 250 1.05 25,000 1.8% 250 1.05 Property Operations and Maintenance 89,000 6.6% 890 3.74 92,000 6.7% 920 3.88 Energy and Utilities 86,000 6.4% 860 3.61 89,000 6.5% 890 3.75 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Undistributed Expenses 477,000 35.6% 4,770 20.05 491,000 35.6% 4,910 20.70 ----------- ------- --------- -------- ----------- ------- --------- -------- Gross Operating Profit 609,000 45.5% 6,090 25.60 627,000 45.5% 6,270 26.43 Fixed Charges and Management Fees Base Management Fees 67,000 5.0% 670 2.82 69,000 5.0% 690 2.91 Property Taxes 36,000 2.7% 360 1.51 37,000 2.7% 370 1.56 Insurance 25,000 1.9% 250 1.05 25,000 1.8% 250 1.05 Land Lease 118,000 8.8% 1,180 4.96 122,000 8.9% 1,220 5.14 ----------- ------- --------- -------- ----------- ------- --------- -------- Total Fixed Charges 246,000 18.4% 2,460 10.34 253,000 18.4% 2,530 10.66 ----------- ------- --------- -------- ----------- ------- --------- -------- Income Before Reserves 363,000 27.1% 3,630 15.26 374,000 27.1% 3,740 15.76 Reserves for Replacements 54,000 4.0% 540 2.27 55,000 4.0% 550 2.32 ----------- ------- --------- -------- ----------- ------- --------- -------- Net Operating Income (4) $ 309,000 23.1% $ 3,090 $12.99 $ 319,000 23.1% $ 3,190 $13.45 =========== ======= ========= ======== =========== ======= ========= ======== --------------------------------------------- Calendar Years Ending December 31: 2006 ----------------------------------------------- $ % PAR (1) POR (2) ----------------------------------------------- Number of Keys 100 Occupancy 65.00% Average Daily Room Rate $58.75 Revenues Rooms $1,394,000 98.2% $13,940 $58.76 Telephone 20,000 1.4% 200 0.84 Other Operated Departments 6,000 0.4% 60 0.25 ----------- -------- --------- -------- Total Revenues 1,420,000 100.0% 14,200 59.85 Departmental Expenses (3) Rooms 256,000 18.4% 2,560 10.79 Telephone 10,000 50.0% 100 0.42 Other Operated Departments 1,000 16.7% 10 0.04 ----------- -------- --------- -------- Total Departmental Expenses 267,000 18.8% 2,670 11.25 ----------- -------- --------- -------- Departmental Profit 1,153,000 81.2% 11,530 48.60 Undistributed Expenses Administrative and General 182,000 12.8% 1,820 7.67 Franchise Fees 112,000 7.9% 1,120 4.72 Marketing 26,000 1.8% 260 1.10 Property Operations and Maintenance 95,000 6.7% 950 4.00 Energy and Utilities 91,000 6.4% 910 3.84 ----------- -------- --------- -------- Total Undistributed Expenses 506,000 35.6% 5,060 21.33 ----------- -------- --------- -------- Gross Operating Profit 647,000 45.6% 6,470 27.27 Fixed Charges and Management Fees Base Management Fees 71,000 5.0% 710 2.99 Property Taxes 38,000 2.7% 380 1.60 Insurance 26,000 1.8% 260 1.10 Land Lease 126,000 8.9% 1,260 5.31 ----------- -------- --------- -------- Total Fixed Charges 261,000 18.4% 2,610 11.00 ----------- -------- --------- -------- Income Before Reserves 386,000 27.2% 3,860 16.27 Reserves for Replacements 57,000 4.0% 570 2.40 ----------- -------- --------- -------- Net Operating Income (4) $ 329,000 23.2% $ 3,290 $13.87 =========== ======== ========= ======== - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. =================================================================================================================================== Source: PKF Consulting ===================================================================================================================================
Super 8 Santa Rosa, California Projected Operating Results ------------------------------------------------------------------------------------------- Calendar Years Ending December 31: 2007 2008 -------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) -------------------------------------------------------------------------------------------- Number of Keys 100 100 Occupancy 65.00% 65.00% Average Daily Room Rate $60.50 $62.25 Revenues Rooms $1,435,000 98.2% $14,350 $ 60.48 $1,477,000 98.1% $14,770 $ 62.26 Telephone 21,000 1.4% 210 0.89 21,000 1.4% 210 0.89 Other Operated Departments 6,000 0.4% 60 0.25 7,000 0.5% 70 0.30 ----------- ------- --------- --------- ----------- -------- --------- ------ Total Revenues 1,462,000 100.0% 14,620 61.62 1,505,000 100.0% 15,050 63.44 Departmental Expenses (3) Rooms 264,000 18.4% 2,640 11.13 272,000 18.4% 2,720 11.46 Telephone 10,000 47.6% 100 0.42 11,000 52.4% 110 0.46 Other Operated Departments 1,000 16.7% 10 0.04 1,000 14.3% 10 0.04 ----------- ------- --------- --------- ----------- -------- --------- ------ Total Departmental Expenses 275,000 18.8% 2,750 11.59 284,000 18.9% 2,840 11.97 ----------- ------- --------- --------- ----------- -------- --------- ------ Departmental Profit 1,187,000 81.2% 11,870 50.03 1,221,000 81.1% 12,210 51.46 Undistributed Expenses Administrative and General 188,000 12.9% 1,880 7.92 194,000 12.9% 1,940 8.18 Franchise Fees 115,000 7.9% 1,150 4.85 118,000 7.8% 1,180 4.97 Marketing 27,000 1.8% 270 1.14 28,000 1.9% 280 1.18 Property Operations and Maintenance 97,000 6.6% 970 4.09 100,000 6.6% 1,000 4.21 Energy and Utilities 94,000 6.4% 940 3.96 97,000 6.4% 970 4.09 ----------- ------- --------- --------- ----------- -------- --------- ------ Total Undistributed Expenses 521,000 35.6% 5,210 21.96 537,000 35.7% 5,370 22.63 ----------- ------- --------- --------- ----------- -------- --------- ------ Gross Operating Profit 666,000 45.6% 6,660 28.07 684,000 45.4% 6,840 28.83 Fixed Charges and Management Fees Base Management Fees 73,000 5.0% 730 3.08 75,000 5.0% 750 3.16 Property Taxes 38,000 2.6% 380 1.60 39,000 2.6% 390 1.64 Insurance 27,000 1.8% 270 1.14 28,000 1.9% 280 1.18 Land Lease 129,000 8.8% 1,290 5.44 133,000 8.8% 1,330 5.61 ----------- ------- --------- --------- ----------- -------- --------- ------ Total Fixed Charges 267,000 18.3% 2,670 11.25 275,000 18.3% 2,750 11.59 ----------- ------- --------- --------- ----------- -------- --------- ------ Income Before Reserves 399,000 27.3% 3,990 16.82 409,000 27.2% 4,090 17.24 Reserves for Replacements 58,000 4.0% 580 2.44 60,000 4.0% 600 2.53 ----------- ------- --------- --------- ----------- -------- --------- ------ Net Operating Income (4) $ 341,000 23.3% $ 3,410 $ 14.37 $ 349,000 23.2% $ 3,490 $ 14.71 =========== ======= ========= ========= =========== ======== ========= ====== - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income tax. ==================================================================================================================================== Source: PKF Consulting ====================================================================================================================================
SECTION IX SUPER 8 MOTEL SOUTH SAN FRANCISCO, CALIFORNIA =============================================================================== Summary of Important Facts and Conclusions =============================================================================== Property Address Super 8 Motel 111 Mitchell Avenue South San Francisco, California 94080 Telephone (415) 877-0770 - ----------------------------------------- ------------------------------------- Owner Leased Fee Poletti Trusts (dba KPR Properties) Leasehold Super 8 Motels, Ltd. - ----------------------------------------- ------------------------------------- Assessor's Parcel Numbers 015-123-670/680/690/700 - ----------------------------------------- ------------------------------------- Effective Date of Appraisal January 1, 1998 - ----------------------------------------- ------------------------------------- Property Rights Appraised Leasehold =============================================================================== Highest and Best Use =============================================================================== Highest and Best Use As if Vacant Limited-service hotel As Improved Limited-service hotel =============================================================================== Property Description =============================================================================== Existing Improvements Year Built 1979 Gross Building Area 38,556 square feet Number of Hotel Guest Rooms 117 Parking: 106 spaces (including four for disabled persons) Number of Floors Three Hotel Amenities Lobby area with complimentary coffee service Compliance with ADA In compliance - ----------------------------------------- ------------------------------------- Site Area 2.5 acres (108,900 square feet) Zoning PC (Planned Commercial) Flood Zone Zone B, Panel #065062-0008B, dated September 2, 1981 Wetlands Zone No Alquist Priolo Special Studies Zone No Historic, Natural , Cultural, Recreational, or Scientific None Value =============================================================================== Valuation Conclusion =============================================================================== Cost Approach Not Used - ----------------------------------------- ------------------------------------- Sales Comparison Approach $7,600,000 - ----------------------------------------- ------------------------------------- Income Capitalization Approach Stabilized Occupancy 80.0% Average Daily Room Rate $60.25 (1998 value dollars) - ----------------------------------------- ------------------------------------- Stabilized Net Operating Income $751,000 (1998 value dollars) - ----------------------------------------- ------------------------------------- Overall Capitalization Rate 10.5% Terminal Capitalization Rate 11.5% Discount Rate 13.5% - ----------------------------------------- ------------------------------------- Indicated Market Values Direct Capitalization Technique $7,600,000 Discounted Cash Flow Analysis $7,600,000 - ----------------------------------------- ------------------------------------- Final Estimate of Market Value $7,600,000 - ----------------------------------------- ------------------------------------- Marketing and Exposure Period Six months or less =============================================================================== IX-1 (Photograph deleted) View of the Subject Property Looking Northeast (Photograph deleted) View of a Typical Queen-Bed Guestroom IX-2 A. AREA AND NEIGHBORHOOD REVIEW 1. Introduction The subject property is located in the City of South San Francisco, in the northern portion of San Mateo County. The city is approximately ten square miles in land area and is home to approximately 58,000 residents. San Mateo County's principal incorporated cities are Burlingame, Daly City, Millbrae, Redwood City, San Bruno, San Mateo, and South San Francisco. A coastal mountain range, running north and south, divides the lightly populated western region of the county from the heavily populated eastern corridor, which stretches from San Francisco to Silicon Valley. The western portion of the county is primarily agricultural, park, and watershed land. San Mateo County has developed a diverse economic base, which is supported by an extensive transportation system, proximity to both San Francisco to the north and Silicon Valley to the south, and a highly educated workforce. The county's economic activity is primarily related to trade, finance, and business services, which are particularly linked to the biotechnology, instruments, printing, and electronics industries. A map highlighting the subject's location in relation to the surrounding area is shown on the following page. 2. Economic Data Presented in the following text is a brief overview of selected economic data that characterizes the local market area. Population: The population of South San Francisco was approximately 58,000 in 1997, representing a 0.8 percent compound annual growth rate (CAAG) over 1990. The corresponding 1997 population of San Mateo County was 701,000 persons, which represents a CAAG of approximately 0.9 percent over the 1990 figure of 656,000. As indicated, population in San Mateo County has remained relatively stable over the past seven years, mainly due to the lack of available land for building new homes. Population in San Mateo County area is expected to increase at a 1.0 percent CAAG, to 737,000 persons by 2002. Retail Sales: Total retail sales for San Mateo County were $7.4 billion in 1996, representing a 2.8 percent CAAG over 1990. Retail sales are projected to increase to $8.6 billion by 2002, or a 3.0 percent CAAG increase over 1996. In 1996, retail sales per household were $29,100 for the county, compared to California's overall $24,000. IX-3 (Street map of a portion of South San Francisco deleted) Regional map IX-4 Income: Average household effective buying income (EBI) for San Mateo County in 1996 was $47,900, compared to South San Francisco's $44,900. Both figures represented a CAAG of 2.5 percent and 1.7 percent over 1990, respectively. Approximately 47.0 percent of San Mateo County's population have an EBI of $50,000 or more. Employment: In November 1997, the total number of persons employed in San Mateo County was approximately 378,000 persons; the corresponding unemployment rate was 2.0 percent, one of the lowest in California. With regard to South San Francisco, the corresponding statistics were 30,000 and 2.5 percent, respectively. In recent years, the largest increases in employment have been experienced in the trade, bio-tech, and high-tech sectors. The following table presents a listing of the major employers in San Mateo County. =============================================================================== San Mateo County Largest Employers =============================================================================== Number Company of Employees Products/Services - ----------------------------------------- ----------------- ------------------- San Francisco International Airport 30,000 Air Transport Oracle Corporation 10,000 High-Tech Genentech 3,100 Bio-Tech Kaiser Permanente Medical Center 1,200 Health Care See's Candies 1,000 Candy Cellular One 500 Communications Spumoni/Spectravest 450 Clothing =============================================================================== Source: Chambers of Commerce =============================================================================== Transportation: The subject is located one mile north of San Francisco International Airport (SFO). In fiscal year 1996/1997, approximately 40 million passengers traveled through SFO. The CAAG was 3.7 percent between the years 1990 to 1996. This significant increase is attributed to a resurgence of both business and leisure travel. With six additional international airlines scheduled to begin air service into San Francisco, SFO is currently undergoing a $2.4 billion expansion consisting of a new international terminal, a $400 million monorail network linking the airport to downtown San Francisco, and a new rental car garage. It is forecast that this expansion will assist in increasing passenger traffic by 20 million travelers. The SFO expansion project is expected to be complete by 2001. U.S. Highway 101, a primary north-south thoroughfare, is easily accessible from the subject via South Airport Boulevard. IX-5 Commercial Development: There are approximately 1,630 acres in the city limits zoned for commercial and industrial use. Close to 280 acres (17.2 percent of the total) are currently vacant and available for development. Voters recently approved a $525 million sports and retail complex to be located at Candlestick Point, four miles north of the subject. Preliminary plans include a 75,000-seat football stadium for the San Francisco Forty Niners and an entertainment-retail mall to be potentially known as Candlestick Mills. Class A office space in South San Francisco is concentrated at The Gateway business park, Genentech, and Oyster Point Business Park. The Gateway, located to the south of Oyster Point Boulevard in northern San Mateo County and approximately one mile northeast of the subject, is a high-end, 150-acre business park comprised of low and medium-rise office buildings with ample vacant land still available for commercial development. Principal tenants in The Gateway include Brittania, Cellular One, and the 313-room Embassy Suites Hotel. Additional office/R&D/warehouse space is located to the east and southeast of The Gateway. Additional concentrations of commercial development in San Mateo County are located in Redwood Shores, Burlingame, and San Bruno towards the south. 3. Neighborhood Review The neighborhood surrounding the subject property consists primarily of low-rise, light industrial and commercial office space. Budget Rent-A-Car maintains a service facility across Gateway Boulevard; across Mitchell Avenue is a Hungry Hunter Restaurant. Traveling south along South Airport Boulevard, the 200-room TraveLodge, the 323-room Ramada Inn, and the 224-room Holiday Inn are located on the left. The out-lying surrounding area is dominated by SFO, U.S. Highway 101, and comprises a mixture of light-industrial, commercial, and some retail space. 4. Conclusion The subject property is well-situated, offering good access to U.S. Highway 101, as well as being conveniently located in relation to SFO and principal demand generators in the area. High-growth corporations in the area, such as Oracle and Genentech, have added to the already-diversified local economy, which has been fueling demand via business travelers and convention delegates. SFO itself is a principal demand generator, especially being the fifth largest passenger airport in the nation. In summary, the outlook for economic growth and development in the South San Francisco area is very positive, and it is our opinion that the area around SFO represents one of the strongest lodging markets in California, as well as the nation. IX-6 B. PROPERTY DESCRIPTION 1. Introduction The subject property is a limited-service hotel with 117 guestrooms. Amenities at the property include a lobby area with complimentary coffee service, as well as vending machines. The building provides interior corridors and a grass courtyard at the center of the "U". The subject property was constructed in 1979, and the leasehold interest in the hotel is owned by Super 8 Motels, Ltd. We are not aware of any transactions relating to the site or the improvements since the date of opening. 2. Site Description and Zoning The subject property is located at 111 Mitchell Avenue. The property is bounded to the east by West Harris Avenue; to the west by South Airport Boulevard; to the south by Mitchell Avenue, and to the north by a light-industrial complex. Visibility from South Airport Boulevard is good, with good signage at the entrance of the driveway. Although the property is close to U.S. Highway 101, it is not readily visible from the freeway. The property is easily accessible by using the South Airport Boulevard exit off U.S. Highway 101, from either the north or south bound lanes, by heading east and then turning left on Mitchell Avenue. The land on which the hotel is situated is approximately 2.5 acres. The property is level, with approximately 328 feet of frontage along Mitchell Avenue, and approximately 149 feet of frontage along West Harris Avenue. The subject property is zoned PC (Planned Commercial) by the City of South San Francisco. The present use of the property is permitted with this zoning designation, and the subject is, therefore, a legal, conforming use. We are aware of no easements or covenants which would adversely affect the value of the subject property. 3. Improvements Description The subject property is a three-story building constructed of wood-frame and over-laid with stucco in a Tudor-style design. The subject is comprised of a 38,556-square-foot, U-shaped building, which houses the guestrooms, administrative offices, and lobby area. Beyond the lobby is an area dedicated to vending machines and an ice machine. The elevator to the upper floors is located across a covered breezeway from the lobby. The breezeway is decorated with a tile mural along one full wall. The entry to the breezeway from the porte IX-7 cochere is open, with a single-glass door leading to the lobby along one side. The end of the breezeway opposite the entry has two glass doors leading to the open courtyard. The courtyard is landscaped with trees along the perimeter. There are no chairs or tables, and the courtyard is open to the parking lot at the back of the building. The laundry and utility rooms are located adjacent to the lobby area on the first floor. With regard to parking, the hotel has 104 surface spaces located in the paved lot which surrounds the hotel building. Four of these spaces are designated for physically-challenged persons. 4. Basic Construction and Mechanical Systems The subject building is a three-story wood-framed structure, with stucco finish and exposed wood beams. The stucco is painted off-white and the beams are painted dark brown to render a Tudor-style affect. The roof is of brown composition shingle. Presented in the following table is a summary of the basic construction and mechanical systems of the hotel. =============================================================================== Super 8 Motel - South San Francisco Summary of Basic Construction and Mechanical Systems =============================================================================== Foundation: Concrete slab on grade. - ------------------------------------- ----------------------------------------- Frame: Wood frame construction, type V-1 hour fire rating. - ------------------------------------- ----------------------------------------- Walls: Exterior: stucco with exposed wood beams. Interior: gypsum board covering an airspace between 2x4 studs. The walls in the guestrooms are painted gypsum board and partially papered. Lobby walls are wood paneled and painted gypsum board. - ------------------------------------- ----------------------------------------- Floor: Floors are carpeted in guestrooms and corridor areas. Bathrooms have vinyl tile. The lobby area is carpeted and the vending area has ceramic tile flooring. - ------------------------------------- ----------------------------------------- Roof: Composition shingle. - ------------------------------------- ----------------------------------------- Ceiling Heights: 8.0 feet. Ceilings are painted gypsum board and painted wood. In the public areas the lighting is set in incandescent light fixtures. In the guestrooms, are table lamps. - ------------------------------------- ----------------------------------------- Windows: Window and door sashes are bronzed anodized aluminum. Window trim is painted wood. - ------------------------------------- ----------------------------------------- Heating and Cooling: Each room had individual electric heating and air conditioning units located in the wall under a window. - ------------------------------------- ----------------------------------------- Laundry Facilities: Laundry equipment consists of two washers and three dryers, commercial grade. - ------------------------------------- ----------------------------------------- Sprinkler System: All public areas and guest rooms are fire sprinklered. - ------------------------------------- ----------------------------------------- Life Safety: There are two individual fire systems in the guest rooms: fire sensitive sensors and independent smoke alarms. =============================================================================== Source: Famous Host Companies =============================================================================== IX-8 5. Assessed Value and Property Taxes The subject property is assessed by the San Mateo County on a tax year commencing July 1 of every year. Under the provisions of Article 13-A of the State of California (Proposition 13), properties are assessed based on their fair market value as of the change of ownership date. The assessed value can be increased by a maximum of 2.0 percent per year until such date as the property is subsequently sold, substantial new construction takes place, or the use of the property is substantially changed. The current assessed value of the property is presented in the following table. =================================================================== Assessor's Parcel Numbers 015-123-670/680/690/700 1996/97 Assessed Value =================================================================== Land $657,383 Improvements $2,754,067 - -------------------------------------- ---------------------------- Total Assessed Value $3,411,450 - -------------------------------------- ---------------------------- For fiscal year 1996/1997, total property taxes were $47,905.16 on the subject property, and the tax rate is 1.0012 percent of the total assessed value. 6. Land Lease The property upon which the subject hotel is built is owned by Poletti Trusts (dba KPR Properties). In 1978, a lease agreement for both the Super 8 Motel and the parking area was entered into between Poletti Trusts (as lessor) and Super 8 Motel, Ltd. (as lessee). The lease started on December 15, 1978 with a base rent of $2,500, and runs to December 31, 2007, offering five renewal periods of five years each on the same terms as the original lease. Adjustments to the rent are made in proportion to increases in the consumer price index (CPI) every five years. The next adjustment to rent is scheduled for December 15, 1998. Present rent as stipulated by the lease agreement is $7,547 per month ($90,564 per annum) for both the Super 8 Motel and the parking area. The lease terms are triple-net, with no option to purchase. 7. Renovation and Capital Improvements We understand that the following capital improvements are planned at the subject for 1998 and 1999: re-pavement of the parking lot; painting of the building's exterior, installation of security cameras, and new corridor carpets, at a cost of $82,000. 8. Summary of Functional Utility and Condition Overall, the subject property is well-maintained. The grounds are neat and well-trimmed, and the paint both inside and outside the building is in good condition. The parking lot, which is in need of re-striping, will be improved in 1998. IX-9 C. HOTEL MARKET ANALYSIS 1. Competitive Supply There is a wide variety of lodging facilities currently located in South San Francisco, ranging from limited-service motels to full-service properties. Of these various hotels and motels, we have identified four properties, including the subject, with a total of 616 available rooms as comprising the current competitive set of the Super 8 Motel. The selection of the competitive supply was based on location, number of guestrooms, facilities and amenities, room rate structure, and market orientation. These hotels are all limited-service properties, which cater to budget-oriented commercial and leisure travelers. ================================================================================================================ Super 8 Motel - South San Francisco Census of Competitive Properties ================================================================================================================ Published Room Rates ----------------------------- Year Number AAA Property Opened of Rooms Single Double Amenities Rating - -------------------------- ----------- ----------- -------------- -------------- ----------------- ------------- Super 8 Motel 1979 117 $49.00 $59.00 H 2 star (Motel) Comfort Suites 1986 165 $75.00 $85.00 C,F,G 2 star (Motel) La Quinta Inn 1985 134 $85.00 $95.00 C,D 3 star (Motel) TraveLodge 1960 200 $54.00 $74.00 H Not Rated - -------------------------- ----------- ----------- -------------- -------------- ----------------- ------------- Total 616 - - -------------------------- ----------- ----------- -------------- -------------- ----------------- ------------- Amenities Codes AAA Rating A - Restaurant 5 star - Renowned; exceptional property recognized B - Bar/Lounge for market superiority of facilities and C - Complimentary Continental Breakfast service 4 star - Exceptional; offers luxurious accommodations D - Meeting Rooms as well as extra amenities E - Exercise Room 3 star - Offers very comfortable and attractive F - Swimming Pool accommodations G - Whirlpool 2 star - Exceeds AAA minimum requirements in some H - Adjacent Restaurant physical and operational categories 1 star - Meets AAA basic requirements for recommendation ================================================================================================================ Source: Management of Individual Properties and 1998 American Automobile Association Tour Book ================================================================================================================
As can be noted above, the competitive market is characterized by smaller, economy, national brand-affiliated products. With regard to future lodging supply in the overall South San Francisco hotel market, there are twelve hotel projects with a total of 2,350 rooms planned. Of these twelve developments, only one is considered to be directly competitive with the subject, which is the 100-room Hampton Inn. The Hampton Inn, being developed by SRI-RAM and expected to be open by January 1999, will be located in The Gateway business park just south of Oyster Point Boulevard. Other planned hotel projects in the area include a: 112-room Homestead Village in The Gateway; 111-suite hotel near Sierra Point; 169-room Hilton Garden Inn also in The Gateway; 231-room Courtyard by Marriott and a 157-suite Residence IX-10 Inn by Marriott at Bay West Cove; 200-room new La Quinta property and a 250-room project with no operator yet named, also at Bay West Cove; 100-room Clarion hotel along South Airport Boulevard; three potential hotel projects at Terra Bay totaling 340 rooms; 180-room potential project at Oyster Point Marina; and lastly, a 400-room project at Rockport. 2. Historical Market Performance The following table presents a summary of the historical market performance of the four selected competitive hotels, together with the subject, over the period 1994 to 1996 as well as our estimate for 1997. ======================================================================================================================== Super 8 Motel - South San Francisco Competitive Hotel Market Historical Occupancy and Room Rate 1994 to 1997 (Estimated) ======================================================================================================================== Daily Rooms Percent Percent Average Daily Percent Year Available Change Occupancy Change Room Rate Change - --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------ 1994 616 - 73.8% - $55.14 - - --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------ 1995 616 0.0% 79.8% 8.1% $56.03 1.6% - --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------ 1996 616 0.3% 84.9% 6.6% $61.55 9.9% - --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------ 1997 (Estimated) 616 0.0% 87.0% 2.2% $72.00 17.0% - --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------ CAAG 0.0% - - - 9.3% - ======================================================================================================================== Source: PKF Consulting ========================================================================================================================
As can be noted, over the past four years the number of available rooms within the competitive market has remained stable. During the same period, in turn, demand has increased from 73.8 percent to 87.0 percent, with the strongest growth taking place in 1995. In terms of ADR, the competitive market has experienced significant growth, indicating a CAAG of 9.3 percent between 1994 and 1997. According to PKF Consulting's Trends in the Hotel Industry, the hotel market surrounding SFO is currently the strongest in California and the nation in terms of ADR growth. This surge is attributed to this market's strategic location between the city of San Francisco to the north and Silicon Valley to the south, and the overall economic buoyancy of the Bay Area. For 1997, we have estimated that the four hotels achieved a weighted average rate of approximately $72.00, equating to an increase of 17.0 percent over 1996. On an individual property basis, the occupancy levels of the four competitive hotels in 1997 ranged from an estimated 85.0 percent to a high of 92.0 percent. With regard to ADRs, the properties ranged from a low of approximately $59.00 to a high of $84.00. The subject was ranked second in occupancy in 1997 (at par with the TraveLodge), yet the lowest in overall ADR. IX-11 3. Demand Segmentation According to our research, the majority of demand is generated by the commercial segment. This demand segment consists primarily of rate-sensitive individual business travelers visiting offices, bio-technology companies (namely Genentech), industrial plants, warehouses, and other commercial establishments in northern San Mateo County. Secondarily, business travelers also use the convenience of the airport area as a base from which to service their clients throughout the area during short trips. The other market segments include leisure and group demand. Leisure demand consists primarily of visitors to San Francisco who are unable to find accommodation within the city. In addition, visitors to 3Com Park (formerly the Candlestick), guests of local residents, and layover airline passengers are also classified in this segment. Group demand is comprised of corporate-related meetings held at the 16,500-square-foot South San Francisco Conference Center, located near the subject property. 4. Projected Future Supply and Demand Over the past four years (1994 to 1997), demand for hotel accommodations in the competitive market has increased significantly, reflecting the underlying strength of this market. Based on our review of the local market, we project overall demand for hotel rooms will increase at a steady rate of approximately 4.0 percent per year over the next five years. In deriving this growth rate, we have specifically analyzed the overall growth in manufacturing and services, employment, airline passenger traffic, and the historical CAAG of this market. Presented in the following table is a summary of the projected growth in supply, demand, and the resulting occupancy levels for the competitive market for the period 1998 to 2002. IX-12 ======================================================================================================= Super 8 Motel - South San Francisco Estimated Growth In Supply and Demand Competitive Hotel Market ======================================================================================================= Daily Annual Total Year Available Rooms Available Rooms Demand Occupancy - ------------------------ -------------------- --------------------- ---------------- ------------------ Actual 1994 616 224,840 166,025 73.8% 1995 616 224,840 179,520 79.8% 1996 616 225,840 191,433 84.9% 1997 (Estimated) 616 224,840 196,000 87.0% - ------------------------ -------------------- --------------------- ---------------- ------------------ Projected 1998 616 224,840 196,000 87.0% 1999(1) 716 261,340 212,000 81.0% 2000 716 261,340 220,000 84.0% 2001 716 261,340 227,000 87.0% 2002 716 261,340 227,000 87.0% - ------------------------ -------------------- --------------------- ---------------- ------------------ CAAG 1994 to 1997 0.0% - 5.7% - 1998 to 2002 3.8% - 3.7% - ======================================================================================================= (1) 100-room Hampton Inn opens. Source: PKF Consulting =======================================================================================================
As can be noted above, although we project demand in the overall market to grow at a CAAG of 3.7 percent over the five year period. Further, due to demand timing and capacity constraints, the competitive market occupancy is not projected to exceed 87.0 percent. This will result in unsatisfied demand in 1998, 2001, and 2002. 5. Market Performance of the Subject The following table summarizes the historical occupancy levels and ADR for the Super 8 Motel over the past four years. =============================================================================== Super 8 Motel - South San Francisco Historical Occupancy and Room Rate 1994 to 1997 (Estimated) =============================================================================== Average Daily Year Occupancy % Change Room Rate % Change - --------------------- -------------- ---------------- --------------- --------- 1994 63.8% - $48.13 - - --------------------- -------------- ---------------- --------------- --------- 1995 69.4% 8.9% $49.43 2.7% - --------------------- -------------- ---------------- --------------- --------- 1996 78.3% 13.1% $53.83 8.9% - --------------------- -------------- ---------------- --------------- --------- 1997 (Estimated) 86.0% 9.5% $58.50 8.7% - --------------------- -------------- ---------------- --------------- --------- CAAG 10.5% - 6.7% - =============================================================================== Source: Famous Host Companies =============================================================================== IX-13 As can be noted, the subject has experienced a significant rise in occupancy, which is in tandem with the competitive market. The growth in ADR, however, has been, as mentioned previously, less-than-market, equating to a CAAG of 6.7 percent compared to the market's 9.3 percent. The subject property's market penetration rate (subject's occupancy divided by the market's occupancy) has increased from 86.4 percent in 1994 to an estimated 99.0 percent in 1997. Based on our analysis of the local market in South San Francisco and the SFO area, we are of the opinion that the subject will achieve an occupancy level of approximately 86.0 percent in 1998, similar to that estimated in 1997. Given the strength of the SFO market, we expect the subject to achieve a similar occupancy level in 1999 at 86.0 percent. With the completion of the previously-mentioned 100-room Hampton Inn, coupled with the indirect impact of other additional supply in the area, we estimate that the subject property's occupancy level will decrease gradually to 85.0 percent in 2000, 82.0 percent in 2001, then stabilizing at approximately 80.0 percent in 2002 and onwards. Based on our market analysis, we project the hotel to achieve an ADR of $61.50 in 1998, or an increase of approximately 5.0 percent over 1997. In 1999, we project an increase of 4.0 percent to $63.75, and an increase of 3.0 percent in 2000. Over the balance of our projection period, we project the hotel's ADR to increase at the anticipated long-term level of inflation (3.0 percent per year). We believe that this is realistic given the projected growth in demand and the numerous new additions to supply. =============================================================================== Super 8 Motel - South San Francisco Projected Occupancy and Average Daily Room Rate - 1998 to 2002 =============================================================================== Average Market Daily Percent Year Occupancy Penetration Room Rate Change - ------------ ---------------- ----------------- ---------------- -------------- 1998 86.0% 99.0% $61.50 5.0% 1999 86.0% 106.0% $63.75 4.0% 2000 85.0% 101.0% $65.75 3.0% 2001 82.0% 94.0% $67.75 3.0% 2002 80.0% 92.0% $69.75 3.0% - ------------ ---------------- ----------------- ---------------- -------------- CAAG - - 3.2% - =============================================================================== Source: PKF Consulting =============================================================================== D. HIGHEST AND BEST USE Based on our analysis, we are of the opinion that the existing improvements contribute significant overall value to the site. There is no alternative, legal use that could economically justify the restructuring or removal of the existing improvements at this time. Therefore, the subject property, as improved, represents the highest and best use of the site. IX-14 E. VALUATION - SALES COMPARISON APPROACH 1. Introduction We have reviewed a number of recent sales and have focused on those considered most comparable in providing support for the market value of the subject. Our search for sales was focused on the SFO area; however, due to the limited number of comparable transactions, our search for sales was extended to include the East Bay area. Based on this search, four sales were identified to use as the basis for our valuation of the subject under this approach. Presented in the following table is a summary of the selected comparable hotel sales. As can be noted, these sales have occurred between August 1996 and July 1997. ===================================================================================================================== Comparable Hotel Sales ===================================================================================================================== Rooms Overall Sale Sale Year Number of Price Per Revenue Capitalization No. Hotel Name Location Date Built Rooms Room Multiplier Rate - -------- ----------------- ------------------- -------- --------- ----------- ------------ ----------- -------------- 1 Holiday Inn South San Francisco 7/97 1960 224 $84,821 3.2 10.5% 2 Ramada Inn South San Francisco 7/97 1963 323 $54,179 2.2 10.5% 3 Days Inn Emeryville 2/97 1985 153 $49,683 3.2 10.6% 4 Comfort Suites South San Francisco 8/96 1985 165 $73,856 2.3 11.8% ===================================================================================================================== Source: PKF Consulting =====================================================================================================================
2. Analysis of the Hotel Sales In reviewing the preceding table, it can be noted that the sale prices per room ranged between $49,683 for the 165-room Comfort Suites and $84,821 for the 224-room Holiday Inn; overall capitalization rates were between 10.5 percent and 11.8 percent. Because of the many differences between these hotels and the subject property, we are of the opinion that an analysis using a rooms revenue multiplier (RRM) is the most approiate unit of comparison to value the subject. A RRM measures the total revenue generated from room rentals in relation to the sale price. RRMs do not require subjective adjustments since most variances in properties are considered to be reflected in ADRs and annual occupancies achieved in the market. As can be noted, indicated RRMs for the four sales ranged from 2.2 to 3.2, with an average of 2.7. Strong performing, limited-service products, such as the subject property, can command higher RRMs due to the substantially lower-risk associated with operating a limited-service hotel. Accordingly, we are of the opinion that a RRM of 4.0 (above the range indicated by the comparable sales) is appropriate in valuing the subject property in this instance. Based on this multiplier, and assuming a stabilized occupancy level of 80.0 percent at an ADR of $60.25 (stated in 1998 dollars), the indicated value per room for the fee simple interest in the subject is as follows: IX-15 =========================================================================================================== Rooms Stabilized Stabilized Indicated Value Revenue Average Rate Occupancy Per Room Multiplier Level Days/Year (Rounded) - ---------------- --- --------------- --- ----------------- --- ---------------- --- ----------------------- 4.0 X $60.25 X 80.0% X 365 = $70,000 ===========================================================================================================
As noted above, the RRM analysis produced a value indication of $70,000 per available room. This value unit is converted into a total value estimate by multiplying the indicated value per room by the total number of rooms. Based on 117 rentable rooms, the indicated stabilized value of the fee simple interest in the Super 8 Motel is $8,200,000 as calculated below: =============================================================================== $70,000 X 117 Rooms = $8,200,000 (Rounded) =============================================================================== F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH After concluding to our estimate of the stabilized value of the subject, the next step in our analysis is to develop an estimate of the "as is" leasehold market value of the subject property. 1. Income Gain The first step to develop the value estimate is to add the income gain, or surplus, projected to occur until the property is stabilized (as will be discussed in the Income Capitalization section). The following table summarizes this transaction: =================================================================== Sales Comparison Approach "As Is" Fee Simple Value =================================================================== Stabilized value Indication $8,200,000 Plus: Income Gain Until Stabilization $431,000 - ---------------------------------------------- -------------------- "As Is" Fee Simple Value $8,600,000 =================================================================== 2. Valuation of Leased Fee Interest After having developed an estimate of the "as is" fee simple value of the subject under the Sales Comparison Approach, the next step is to develop an estimate of the value of the leased fee interest in the property. This represents the position of the ground lessor, who benefits from the income derived from the ground lease payments during the term of the lease, as well as the ownership of the property in fee at the termination of the lease (the reversion). The estimated leased fee interest in the hotel is then subtracted from the fee simple value to arrive at our estimate of the value of the leasehold interest. IX-16 This deduction is derived by capitalizing the land lease payment for a stabilized year ($93,000) by an appropriate capitalization rate (9.0 percent). This capitalization rate of 150 basis points less than the rate used to capitalize the revenue stream from the hotel operations (as will be discussed in the Income Capitalization Approach) is reflective of the more secure position of the landlord as compared to the lessee. This calculation results in a leased fee interest of $1,000,000 ($93,000 / 9.0 percent). The following table summarizes the deduction made from the stabilized fee simple value indication. ============================================================== Sales Comparison Approach "As Is" Leasehold Value ============================================================== Fee Simple Value Estimate $8,600,000 Less: Leased Fee Land Value $(1,000,000) - ------------------------------------- ------------------------ Leasehold Value $7,600,000 ============================================================== As a result of the foregoing analysis, we estimate the "as is" market value of the leasehold interest in the subject as of January 1, 1998, through the Sales Comparison Approach to be: =============================================================================== SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $7,600,000 =============================================================================== G. VALUATION - INCOME CAPITALIZATION APPROACH 1. Basis for Cash Flow Projection In order to develop an estimate of the net operating income (NOI) for the subject for both a stabilized year of operation (direct capitalization) and each year of the aforementioned holding period (yield capitalization), the following have been analyzed: 1. The historical operating results for the subject for year-end 1994, 1995, 1996, year-to-date September 1997, and management's operating budget for 1997; 2. The previously discussed market performance (occupancy levels and ADR) of the competitive hotels; and 3. The operating results of the category "Limited-Service Hotels" from the 1997 issue of PKF Consulting's Trends in the Hotel Industry. The historical operating results of the subject are presented at the end of this section of the report. IX-17 2. Stabilized Year Operating Estimate We first developed an estimate of the performance of the subject for a stabilized year of operation stated in current value, 1998 dollars. This estimate is based on our review of the historical operating results of the subject hotel coupled with an analysis of the operating results of the selected PKF Consulting's "Trends" category. Additional key assumptions used in preparing this stabilized year estimate are summarized as follows: a) The stabilized annual occupancy of the hotel is projected to be 80.0 percent at a $60.25 ADR (in 1998 value dollars); b) A management fee of 5.0 percent of total revenues, a franchise fee of 8.0 percent of rooms revenue, as well as a reserve for capital replacements of 4.0 percent of total revenue have been deducted to establish the net operating income of the subject; and c) The projection of expense for taxes on real and personal property is a function of the market value of the property. The subject property is in the real estate taxing jurisdiction of the San Mateo County Tax Assessor's Office. Our estimate of the property taxes for the subject is based on the provisions of Proposition 13. Proposition 13 limits ad valorem property taxes to 1.0 percent of the assessed value plus assessment for city, special district, and county bonds. The current tax rate is 1.0012 percent of market value. This appraisal assumes a sale of the subject property on the effective date of the appraisal, which will initiate a reassessment of real estate for tax purposes. For the purpose of this analysis, the reassessment is based on the fee simple value estimate of the subject property as determined using the Income Capitalization Approach. Based on the estimated value of the hotel, a tax rate of 1.0012 per $100 of assessed value is utilized, resulting in real estate taxes of $86,000, rounded, in the representative or stabilized year. Presented in the following table is our estimate of the subject hotel's stabilized year operating results. As can be noted, on a stabilized basis the Super 8 Motel will generate approximately $2.1 million in total revenues, with a net operating income of $751,000, in 1998 value dollars. IX-18 =================================================================================================== Super 8 Motel - South San Francisco Stabilized Year Operating Results (Stated in 1998 Value Dollars) =================================================================================================== Occupancy Level 80.0% - ------------------------------------------------ -------------------------------------------------- Average Room Rate $60.25 - ------------------------------------------------ -------------------------------------------------- REVPAR $48.20 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Ratios PAR (1) POR (2) - ------------------------------------------------ -------------- ---------- ------------ ----------- Revenues Rooms $2,058,000 97.5% $17,593 $60.25 Telephone 35,000 1.7% 299 1.03 Other Operated Departments 18,000 0.8% 150 0.51 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Revenues 2,111,000 100.0% 18,042 61.79 - ------------------------------------------------ -------------- ---------- ------------ ----------- Departmental Expenses (3) Rooms 410,000 20.0% 3,504 12.00 Telephone 18,000 50.0% 150 0.51 Other Operated Departments 9,000 53.0% 79 0.27 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Departmental Expenses 437,000 20.7% 3,733 12.78 - ------------------------------------------------ -------------- ---------- ------------ ----------- Departmental Income 1,674,000 79.3% 14,309 49.00 - ------------------------------------------------ -------------- ---------- ------------ ----------- Undistributed Operating Expenses Administrative and General 169,000 8.0% 1,444 4.94 Franchise Fees 165,000 7.8% 1,409 4.82 Marketing 42,000 2.0% 361 1.24 Property Maintenance 84,000 4.0% 722 2.47 Energy and Utilities 70,000 3.3% 599 2.05 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total Undistributed Expenses 530,000 25.1% 4,534 15.53 - ------------------------------------------------ -------------- ---------- ------------ ----------- Income Before Fixed Charges 1,144,000 54.2% 9,776 33.48 - ------------------------------------------------ -------------- ---------- ------------ ----------- Management Fees and Fixed Charges Base Management Fees 106,000 5.0% 907 3.11 Property Taxes 86,000 4.1% 735 2.52 Land Lease 93,000 4.4% 795 2.72 Insurance 24,000 1.1% 202 0.69 - ------------------------------------------------ -------------- ---------- ------------ ----------- Total 309,000 14.6% 2,639 9.04 - ------------------------------------------------ -------------- ---------- ------------ ----------- Income Before Reserve 835,000 39.6% 7,136 24.44 - ------------------------------------------------ -------------- ---------- ------------ ----------- Reserve for Replacement 84,000 4.0% 722 2.47 - ------------------------------------------------ -------------- ---------- ------------ ----------- Income Before Other Charges (4) $751,000 35.6% $6,400 $22.00 =================================================================================================== (1) PAR - Per Available Room (2) POR - Per Occupied Room (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Income before interest, taxes, depreciation, and amortization Source: PKF Consulting ===================================================================================================
3. Ten Year Statement of Estimated Annual Operating Results Presented at the end of this section of the appraisal report is our estimate of the operating results for the subject for the ten-year period beginning January 1, 1998. This forecast is based on the preceding stabilized year estimate, adjusted to reflect effects of inflation, variations in occupancy and rate and the impact of fixed and variable components of each revenue and expense item. Selected key assumptions used to develop this forecast are summarized as follows. IX-19 a) With the exception of property taxes and rooms revenues for the period 1998 to 2000, all other revenues are expenses are projected to increase at 3.0 percent throughout the holding period. Property taxes are projected to increase at a rate of 2.0 percent per year as allowed by California law, and growth in ADR is expected to be above inflation for the first two years of the analysis period as a result of market-driven factors. b) For the first five years of this forecast, the occupancy and ADR of the hotel were projected as previously discussed. Thereafter, the hotel's occupancy was assumed to remain at 80.0 percent, with the ADR increasing at 3.0 percent per year. 4. Valuation using Direct Capitalization Based on our evaluation of the subject, it is concluded that an overall capitalization rate (OAR) of 10.5 percent is appropriate to value the subject, and properly reflects the risks associated with this hotel given the property's age, physical features, location, and market position. Based on the projection of net operating income for a stabilized year of operation, and the selected overall rate of 10.5 percent, the value of the subject as if stabilized is calculated to be as follows. ======================================================================== Projected Stabilized Net Operating Income $751,000 Overall Capitalization Rate 10.5% - -------------------------------------------------- --------------------- Stabilized Value Indication (Rounded) $7,200,000 ======================================================================== From this derived stabilized value, an adjustment must be made for any income surplus until the property stabilizes. This adjustment is typically referred to as an "income gain". Income gain is the difference in projected cash flows and the cash flow which would result if the property were stabilized. This amount must be added to the stabilized value to reflect the higher occupancy in the first four years of the projection period. Based on our market research and analysis, it is estimated that the subject will achieve a stabilized level of operation by 2002. A calculation of the income gain associated with the four years prior to stabilization is presented in the following table. IX-20 ======================================================================================================== Income Gain to Stabilization ======================================================================================================== Estimated Stabilized Year Net Operating Net Operating Estimated Present Value Year Income Income (1) Income Gain @ 13.5% - --------------------- ------------------- -------------------- ------------------ ---------------------- 1998 $903,000 $751,000 $152,000 $134,000 1999 $941,000 $774,000 $167,000 $130,000 2000 $953,000 $797,000 $156,000 $107,000 2001 $917,000 $821,000 $98,000 $59,000 - --------------------- ------------------- -------------------- ------------------ ---------------------- Total Rounded $573,000 $430,000 ======================================================================================================== (1) Inflated to future value dollars at 3.0 percent. ========================================================================================================
Based upon the preceding calculation, the cumulative income gain over the stabilization period is estimated to be approximately $573,000. Investors typically discount the estimated income gain at the market-derived discount rate for the property. Consequently, if the estimated income gain, or surplus, is discounted at a rate of 13.5 percent, the present value of this additional income is projected to be approximately $430,000. Presented below is our calculation of the "as is" market value of the subject taking into account the above estimate of income gain during the projected stabilization period. ======================================================================= Value Conclusion - Direct Capitalization ======================================================================= Stabilized Value $7,200,000 Plus: Income Gain During Stabilization Period $430,000 - ------------------------------------------------------ ---------------- "As Is" Value $7,630,000 - ------------------------------------------------------ ---------------- Rounded $7,600,000 ======================================================================= Therefore, the estimated "as is" market value of the leasehold interest in the subject using the Direct Capitalization Approach, as of January 1, 1998, is: ============================================================================== SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $7,600,000 ============================================================================== 5. Discounted Cash Flow Valuation Analysis To estimate the value of the subject using a discounted cash flow analysis, it is assumed that the property will be sold at the end of a ten-year holding period. The value of the property at that time is estimated by capitalizing the expected or anticipated net operating income of the property in the eleventh year. From this value estimate, an estimate of sales costs is deducted to arrive at the net proceeds upon sale. IX-21 Based on our market research, we are of the opinion that a reversionary capitalization rate of 11.5 percent and a 13.5 percent discount rate are appropriate to value the subject. The following table indicates the present value of the projected net operating income for the subject for the ten-year holding period, along with the present value of the reversion, deriving a value estimate. =============================================================================================== Discounted Cash Flow Analysis =============================================================================================== Cash Flow Present Present From Value Value Year Operations Factor @ 13.5% - ------------------------- -------------------- ----------------------- ------------------------ 1998 $903,000 0.8811 $796,000 1999 $941,000 0.7763 $730,000 2000 $953,000 0.6839 $652,000 2001 $919,000 0.6026 $554,000 2002 $904,000 0.5309 $480,000 2003 $929,000 0.4678 $435,000 2004 $960,000 0.4121 $396,000 2005 $990,000 0.3631 $359,000 2006 $1,021,000 0.3199 $327,000 2007 $1,058,000 0.2819 $298,000 - ------------------------- -------------------- ----------------------- ------------------------ Reversion $9,313,000 0.2819 $2,625,000 - ------------------------- -------------------- ----------------------- ------------------------ Present Value $7,650,000 - ------------------------- -------------------- ----------------------- ------------------------ Value (Rounded) $7,600,000 ===============================================================================================
6. Income Capitalization Approach Valuation Conclusion The value conclusion under the Income Capitalization Approach is based on both a direct capitalization and a discounted cash flow analysis. Direct capitalization indicated a value of $7,600,000 and the discounted cash flow analysis indicated a value of $7,600,000 as well. Placing equal emphasis on both methods, our conclusion for the "as is" market value of the leasehold interest of the subject using the Income Capitalization Approach, as of January 1, 1998, is: ============================================================================== SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------ $7,600,000 ============================================================================== IX-22 G. RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the two valuation methodologies applied, considering the property type and the requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the two approaches are as follows: ============================================ ====================== Sales Comparison Approach $7,600,000 Income Capitalization Approach Direct Capitalization $7,600,000 Discounted Cash Flow Analysis $7,600,000 ============================================ ====================== In the Sales Comparison Approach we compared four recently sold hotels to the subject. The selected sales indicated a relatively wide range in value. Furthermore, the sales were located in varying sub-market areas within the San Francisco Bay Area, and no property was identical to the subject. These factors make this approach less meaningful, but act as a reference checkpoint for the value derived from the Income Approaches. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized two methods of analysis: The direct capitalization method and the discounted cash flow method (yield capitalization). There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a value estimate. Both income methods resulted in similar values, heightening our confidence in this approach. Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the "as is" market value of the leasehold interest in the subject property, as of January 1, 1998, is reasonably represented as: =============================================================================== SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS - ------------------------------------------------------------------------------- $7,600,000 =============================================================================== IX-23 SUPER 8 MOTEL - SOUTH SAN FRANCISCO, CALIFORNIA HISTORICAL OPERATING RESULTS Super 8, South San Francisco Historical Operating Results ------------------------------------------------------------------------------------------------- 1994 1995 ----------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ----------------------------------------------------------------------------------------------------- Number of Keys 117 117 Occupancy 63.75% 69.41% Average Daily Room Rate (ADR) $48.13 $49.43 REVPAR $30.68 $34.31 REVENUES ROOMS $ 1,310,362 98.0% $ 11,200 $ 48.13 $ 1,465,224 97.6% $ 12,523 $ 49.43 TELEPHONE 21,883 1.6% 187 0.80 30,796 2.1% 263 1.04 MISCELLANEOUS 5,218 0.4% 45 0.19 5,420 0.4% 46 0.18 ------------ ------- -------- ------- ----------- ------ -------- ------- TOTAL REVENUE 1,337,463 100.0% 11,431 49.13 1,501,440 100.0% 12,833 50.65 DEPT. COSTS & EXPENSES (3) ROOMS 322,212 24.6% 2,754 11.84 344,502 23.5% 2,944 11.62 TELEPHONE 10,975 50.2% 94 0.40 13,581 44.1% 116 0.46 MISCELLANEOUS 387 7.4% 3 0.01 811 15.0% 7 0.03 ------------ ------- -------- ------- ----------- ------ -------- ------- TOTAL COST & EXP. 333,574 24.9% 2,851 12.25 358,894 23.9% 3,067 12.11 TOTAL OPER. DEPTS. INCOME 1,003,889 75.1% 8,580 36.87 1,142,546 76.1% 9,765 38.55 ------------ ------- -------- ------- ----------- ------ -------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 137,757 10.3% 1,177 5.06 139,881 9.3% 1,196 4.72 MARKETING 38,078 2.8% 325 1.40 35,097 2.3% 300 1.18 FRANCHISE FEES 65,435 4.9% 559 2.40 73,261 4.9% 626 2.47 UTILITIES 51,624 3.9% 441 1.90 59,425 4.0% 508 2.00 PROPERTY OPERATIONS 88,468 6.6% 756 3.25 69,229 4.6% 592 2.34 ------------ ------- ----- ----- -------- ------ ----- ----- TOTAL 381,362 28.5% 3,260 14.01 376,893 25.1% 3,221 12.72 INC. BEFORE MGMT. FEES AND FIXED CHARGES 622,527 46.5% 5,321 22.87 765,653 51.0% 6,544 25.83 ------------ ------- ------ ----- ----------- ------- -------- ------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 66,790 5.0% 571 2.45 75,074 5.0% 642 2.53 PROPERTY TAXES 47,214 3.5% 404 1.73 48,280 3.2% 413 1.63 INSURANCE 21,767 1.6% 186 0.80 26,637 1.8% 228 0.90 RENT 91,170 6.8% 779 3.35 90,564 6.0% 774 3.06 ------------ ------- ------ ------ ----------- ------- -------- ------- TOTAL 226,941 17.0% 1,940 8.34 240,555 16.0% 2,056 8.12 INCOME BEFORE OTHER (4) FIXED CHARGES $ 395,586 29.6% 3,381 14.53 $ 525,098 35.0% 4,488 17.71 ============ ======= ====== ====== =========== ======== ======== ======= RENOVATION PAYMENT $ 52,830 $ 89,291 --------------------------------------------------- 1996 --------------------------------------------------- $ % PAR (1) POR (2) --------------------------------------------------- Number of Keys 117 Occupancy 78.31% Average Daily Room Rate (ADR) $53.83 REVPAR $42.15 REVENUES ROOMS $ 1,805,049 97.2% $ 15,428 $ 53.83 TELEPHONE 38,349 2.1% 328 1.14 MISCELLANEOUS 14,232 0.8% 122 0.42 ------------- ------- -------- ------- TOTAL REVENUE 1,857,630 100.0% 15,877 55.40 DEPT. COSTS & EXPENSES (3) ROOMS 382,088 21.2% 3,266 11.39 TELEPHONE 14,237 37.1% 122 0.42 MISCELLANEOUS 7,105 49.9% 61 0.21 ------------- ------- --------- -------- TOTAL COST & EXP. 403,430 21.7% 3,448 12.03 TOTAL OPER. DEPTS. INCOME 1,454,200 78.3% 12,429 43.37 ------------- ------- --------- -------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 155,277 8.4% 1,327 4.63 MARKETING 37,500 2.0% 321 1.12 FRANCHISE FEES 90,275 4.9% 772 2.69 UTILITIES 61,923 3.3% 529 1.85 PROPERTY OPERATIONS 84,614 4.6% 723 2.52 ------------- ------- --------- -------- TOTAL 429,589 23.1% 3,672 12.81 INC. BEFORE MGMT. FEES AND FIXED CHARGES 1,024,611 55.2% 8,757 30.55 ------------- ------- --------- -------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 92,898 5.0% 794 2.77 PROPERTY TAXES 50,853 2.7% 435 1.52 INSURANCE 22,249 1.2% 190 0.66 RENT 90,564 4.9% 774 2.70 ------------- ------- --------- -------- TOTAL 256,564 13.8% 2,193 7.65 INCOME BEFORE OTHER (4) FIXED CHARGES $ 768,047 41.3% 6,565 22.90 ============= ======= ========= ======== RENOVATION PAYMENT $ 60,898 - --------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. ================================================================================================================================= Source:The Famous Host Company =================================================================================================================================
Super 8, South San Francisco Operating Results Year-to-Date September 1997 and 1997 Budget -------------------------------------------------------------------------------------------------- September 1997 Budget 1997 -------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) -------------------------------------------------------------------------------------------------- Number of Keys 117 117 Occupancy 85.90% 70.93% Average Daily Room Rate (ADR) $58.54 $55.55 REVPAR $50.29 $39.40 REVENUES ROOMS $ 1,605,685 86.4%$ 18,349 $ 58.54 $ 1,682,753 97.9% $ 14,383 $ 55.55 TELEPHONE 25,088 1.4% 287 0.91 30,375 1.8% 260 1.00 MISCELLANEOUS 15,348 0.8% 175 0.56 6,075 0.4% 52 0.20 ------------ ------- ------- ------- ----------- ------ -------- ------- TOTAL REVENUE 1,857,630 100.0% 21,228 67.72 1,719,203 100.0% 14,694 56.76 DEPT. COSTS & EXPENSES (3) ROOMS 307,232 19.1% 3,511 11.20 331,380 19.7% 2,832 10.94 TELEPHONE 12,531 49.9% 143 0.46 12,335 40.6% 105 0.41 MISCELLANEOUS 11,252 73.3% 129 0.41 400 6.6% 3 0.01 ------------ ------- ------- ------- ----------- ------ -------- ------- TOTAL COST & EXP. 331,015 17.8% 3,783 12.07 344,115 20.0% 2,941 11.36 TOTAL OPER. DEPTS. INCOME 1,315,106 70.8% 15,028 47.94 1,375,088 80.0% 11,753 45.40 ------------ ------- ------- ------- ----------- ------- -------- ------- UNDIST. OPERATING EXP. ADMIN. & GENERAL 140,509 7.6% 1,606 5.12 138,367 8.0% 1,183 4.57 MARKETING 23,954 1.3% 274 0.87 30,696 1.8% 262 1.01 FRANCHISE FEES 80,284 4.3% 917 2.93 84,138 4.9% 719 2.78 UTILITIES 49,520 2.7% 566 1.81 56,423 3.3% 482 1.86 PROPERTY OPERATIONS 56,218 3.0% 642 2.05 61,910 3.6% 529 2.04 ------------ ------- ------- ------- ----------- -------- -------- ------- TOTAL 350,485 18.9% 4,005 12.78 371,534 21.6% 3,176 12.27 INC. BEFORE MGMT. FEES AND FIXED CHARGES 964,621 51.9% 11,023 35.17 1,003,554 58.4% 8,577 33.13 ------------ ------- ------- ------- ----------- -------- -------- ------- MGMT. FEES & FIXED CHARGES MANAGEMENT FEES 82,306 4.4% 941 3.00 85,960 5.0% 735 2.84 PROPERTY TAXES 38,288 2.1% 438 1.40 47,196 2.7% 403 1.56 INSURANCE 21,822 1.2% 249 0.80 24,048 1.4% 206 0.79 RENT 67,923 3.7% 776 2.48 92,000 5.4% 786 3.04 ------------ ------- ------- ------- ----------- -------- -------- ------- TOTAL 210,339 11.3% 2,404 7.67 249,204 14.5% 2,130 8.23 INCOME BEFORE OTHER (4) FIXED CHARGES $ 754,282 40.6% 8,619 27.50 $ 754,350 43.9% $ 6,447 $ 24.90 ============ ======= ======= ======= =========== ======== ======== ======= RENOVATION PAYMENT $ 59,150 $ 59,150 - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, depreciation, amortization, and income taxes. =================================================================================================================================== Source:The Famous Host Company ===================================================================================================================================
SUPER 8 MOTEL - SOUTH SAN FRANCISCO, CALIFORNIA TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS Super 8 South San Francisco, California Projected Operating Results ------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 1998 1999 ------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ------------------------------------------------------------------------------------------------- Number of Keys 117 117 Occupancy 86.00% 86.00% Average Daily Room Rate $61.50 $63.75 Revenues Rooms $ 2,259,000 97.5%$ 19,308 $ 61.51 $ 2,341,000 97.6%$ 20,009 $ 63.74 Telephone 38,000 1.6% 325 1.03 39,000 1.6% 333 1.06 Other Operated Departments 19,000 0.8% 162 0.52 19,000 0.8% 162 0.52 ------------- -------- --------- --------- ------------- -------- --------- --------- Total Revenues 2,316,000 100.0% 19,795 63.06 2,399,000 100.0% 20,504 65.32 Departmental Expenses (3) Rooms 425,000 18.8% 3,632 11.57 438,000 19.3% 3,744 11.93 Telephone 19,000 50.0% 162 0.52 19,000 48.7% 162 0.52 Other Operated Departments 9,000 47.4% 77 0.25 10,000 52.6% 85 0.27 ------------- -------- --------- --------- ------------- -------- --------- --------- Total Departmental Expenses 453,000 19.6% 3,872 12.33 467,000 19.5% 3,991 12.72 ------------- -------- --------- --------- ------------- -------- --------- --------- Departmental Profit 1,863,000 80.4% 15,923 50.73 1,932,000 80.0% 16,513 52.61 Undistributed Expenses Administrative & General 172,000 7.4% 1,470 4.68 177,000 7.4% 1,513 4.82 Franchise Fee 181,000 7.8% 1,547 4.93 187,000 7.8% 1,598 5.09 Marketing 42,000 1.8% 359 1.14 43,000 1.8% 368 1.17 Property Operations & Maintenance 84,000 3.6% 718 2.29 87,000 3.6% 744 2.37 Energy & Utilities 70,000 3.0% 598 1.91 72,000 3.0% 615 1.96 ------------- -------- --------- --------- ------------- -------- --------- --------- Total Undistributed Expenses 549,000 23.7% 4,692 14.95 566,000 23.6% 4,838 15.41 ------------- -------- --------- --------- ------------- -------- --------- --------- Gross Operating Profit 1,314,000 56.7% 11,231 35.78 1,366,000 56.9% 11,675 37.19 Fixed Charges & Management Fee Base Management Fee 116,000 5.0% 991 3.16 120,000 5.0% 1,026 3.27 Property Taxes 86,000 3.7% 735 2.34 88,000 3.7% 752 2.40 Land Lease 93,000 4.0% 795 2.53 96,000 4.0% 821 2.61 Insurance 24,000 1.0% 205 0.65 25,000 1.0% 214 0.68 Total Fixed Charges 319,000 13.8% 2,726 8.69 329,000 13.7% 2,812 8.96 ------------- ------ ------- --------- ------------- -------- --------- --------- Income Before Reserves 995,000 43.0% 8,504 27.09 1,037,000 43.2% 8,863 28.24 Reserves for Replacements 92,000 4.0% 786 2.51 96,000 4.0% 821 2.61 ------------- ----- ------- --------- ------------- -------- --------- --------- Net Operating Income (4) $ 903,000 39.0% $ 7,718 $ 24.59 $ 941,000 39.2% $ 8,043 $ 25.62 ============= ====== ======= ========= ============= ======== ========= ======== ------------------------------------------------- Calendar Years Beginning January 1 2000 ------------------------------------------------- $ % PAR (1) POR (2) ------------------------------------------------- Number of Keys 117 Occupancy 85.00% Average Daily Room Rate $65.75 Revenues Rooms $ 2,387,000 97.5%$ 20,402 $ 65.76 Telephone 40,000 1.6% 342 1.10 Other Operated Departments 20,000 0.8% 171 0.55 ------------- ------- --------- ---------- Total Revenues 2,447,000 100.0% 20,915 67.41 Departmental Expenses (3) Rooms 448,000 18.8% 3,829 12.34 Telephone 20,000 50.0% 171 0.55 Other Operated Departments 10,000 50.0% 85 0.28 ------------- ------- --------- ---------- Total Departmental Expenses 478,000 19.5% 4,085 13.17 ------------- ------- --------- ---------- Departmental Profit 1,969,000 80.5% 16,829 54.24 Undistributed Expenses Administrative & General 182,000 7.4% 1,556 5.01 Franchise Fee 191,000 7.8% 1,632 5.26 Marketing 45,000 1.8% 385 1.24 Property Operations & Mainten 89,000 3.6% 761 2.45 Energy & Utilities 74,000 3.0% 632 2.04 ------------- ------- --------- ---------- Total Undistributed Expense 581,000 23.7% 4,966 16.01 ------------- ------- --------- ---------- Gross Operating Profit 1,388,000 56.7% 11,863 38.24 Fixed Charges & Management Fee Base Management Fee 122,000 5.0% 1,043 3.36 Property Taxes 90,000 3.7% 769 2.48 Land Lease 99,000 4.0% 846 2.73 Insurance 26,000 1.1% 222 0.72 Total Fixed Charges 337,000 13.8% 2,880 9.28 ------------- ------- --------- ---------- Income Before Reserves 1,051,000 43.0% 8,893 28.95 Reserves for Replacements 98,000 4.0% 838 2.70 ------------- ------- --------- ---------- Net Operating Income (4) $ 953,000 38.9% $ 8,145 $ 26.25 ============= ======= ========= ========== - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. ==================================================================================================================================== Source:PKF Consulting ====================================================================================================================================
Super 8 South San Francisco, California Projected Operating Results -------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 2001 2002 -------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) -------------------------------------------------------------------------------------------------- Number of Keys 117 117 Occupancy 82.00% 80.00% Average Daily Room Rate $67.75 $69.75 Revenues Rooms $ 2,372,000 97.6% $ 20,274 $ 67.74 $ 2,383,000 97.5%$ 20,368 $ 69.75 Telephone 39,000 1.6% 333 1.11 40,000 1.6% 342 1.17 Other Operated Departments 20,000 0.8% 171 0.57 20,000 0.8% 171 0.59 ------------- ------- ---------- --------- ------------- ------- --------- --------- Total Revenues 2,431,000 100.0% 20,778 69.42 2,443,000 100.0% 20,880 71.51 Departmental Expenses (3) Rooms 453,000 19.1% 3,872 12.94 461,000 19.3% 3,940 13.49 Telephone 20,000 51.3% 171 0.57 20,000 50.0% 171 0.59 Other Operated Departments 10,000 50.0% 85 0.29 10,000 50.0% 85 0.29 ------------- ------- ---------- --------- ------------- ------- --------- --------- Total Departmental Expenses 483,000 19.9% 4,128 13.79 491,000 20.1% 4,197 14.37 ------------- ------- ---------- --------- ------------- ------- --------- --------- Departmental Profit 1,948,000 80.1% 16,650 55.63 1,952,000 79.9% 16,684 57.14 Undistributed Expenses Administrative & General 187,000 7.7% 1,598 5.34 191,000 7.8% 1,632 5.59 Franchise Fee 190,000 7.8% 1,624 5.43 191,000 7.8% 1,632 5.59 Marketing 46,000 1.9% 393 1.31 47,000 1.9% 402 1.38 Property Operations & Maintenance 92,000 3.8% 786 2.63 95,000 3.9% 812 2.78 Energy & Utilities 76,000 3.1% 650 2.17 79,000 3.2% 675 2.31 ------------- ------- ---------- --------- ------------- ------- --------- --------- Total Undistributed Expenses 591,000 24.3% 5,051 16.88 603,000 24.7% 5,154 17.65 ------------- ------- ---------- --------- ------------- ------- --------- --------- Gross Operating Profit 1,357,000 55.8% 11,598 38.75 1,349,000 55.2% 11,530 39.49 Fixed Charges & Management Fee Base Management Fee 122,000 5.0% 1,043 3.48 122,000 5.0% 1,043 3.57 Property Taxes 91,000 3.7% 778 2.60 93,000 3.8% 795 2.72 Land Lease 102,000 4.2% 872 2.91 105,000 4.3% 897 3.07 Insurance 26,000 1.1% 222 0.74 27,000 1.1% 231 0.79 Total Fixed Charges 341,000 14.0% 2,915 9.74 347,000 14.2% 2,966 10.16 ------------- ------- ---------- --------- ------------- ------- --------- --------- Income Before Reserves 1,016,000 41.8% 8,684 29.01 1,002,000 41.0% 8,564 29.33 Reserves for Replacements 97,000 4.0% 829 2.77 98,000 4.0% 838 2.87 ------------- ------- ---------- --------- ------------- ------- --------- --------- Net Operating Income (4) $ 919,000 37.8% $ 7,855 $ 26.24 $ 904,000 37.0% $ 7,726 $ 26.46 ============= ======= ========== ========= ============= ======= ========= ========= ------------------------------------------------ Calendar Years Beginning January 1 2003 ------------------------------------------------- $ % PAR (1) POR (2) ------------------------------------------------- Number of Keys 117 Occupancy 80.00% Average Daily Room Rate $71.75 Revenues Rooms $ 2,451,000 97.6%$ 20,949 $ 71.74 Telephone 41,000 1.6% 350 1.20 Other Operated Departments 20,000 0.8% 171 0.59 ------------- -------- --------- --------- Total Revenues 2,512,000 100.0% 21,470 73.53 Departmental Expenses (3) Rooms 475,000 19.3% 4,060 13.90 Telephone 20,000 48.8% 171 0.59 Other Operated Departments 10,000 50.0% 85 0.29 ------------- -------- --------- --------- Total Departmental Expense 505,000 20.1% 4,316 14.78 ------------- -------- --------- --------- Departmental Profit 2,007,000 79.9% 17,154 58.75 Undistributed Expenses Administrative & General 197,000 7.8% 1,684 5.77 Franchise Fee 196,000 7.8% 1,675 5.74 Marketing 49,000 2.0% 419 1.43 Property Operations & Mainte 98,000 3.9% 838 2.87 Energy & Utilities 81,000 3.2% 692 2.37 ------------- -------- --------- --------- Total Undistributed Expens 621,000 24.7% 5,308 18.18 ------------- -------- --------- --------- Gross Operating Profit 1,386,000 55.2% 11,846 40.57 Fixed Charges & Management Fee Base Management Fee 126,000 5.0% 1,077 3.69 Property Taxes 95,000 3.8% 812 2.78 Land Lease 108,000 4.3% 923 3.16 Insurance 28,000 1.1% 239 0.82 Total Fixed Charges 357,000 14.2% 3,051 10.45 ------------- -------- --------- --------- Income Before Reserves 1,029,000 41.0% 8,795 30.12 Reserves for Replacements 100,000 4.0% 855 2.93 ------------- -------- --------- --------- Net Operating Income (4) $ 929,000 37.0% $ 7,940 $ 27.19 ============= ======== ========= ========= - ----------------------------------------------------------------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. =================================================================================================================================== Source:PKF Consulting ===================================================================================================================================
Super 8 South San Francisco, California Projected Operating Results ------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 2004 2005 ------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ------------------------------------------------------------------------------------------------- Number of Keys 117 117 Occupancy 80.00% 80.00% Average Daily Room Rate $74.00 $76.25 Revenues Rooms $ 2,528,000 97.6%$ 21,607 $ 74.00 $2,605,000 97.6%$ 22,265 $ 76.25 Telephone 42,000 1.6% 359 1.23 43,000 1.6% 368 1.26 Other Operated Departments 21,000 0.8% 179 0.61 22,000 0.8% 188 0.64 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Revenues 2,591,000 100.0% 22,145 75.84 2,670,000 100.0% 22,821 78.15 Departmental Expenses (3) Rooms 489,000 19.3% 4,179 14.31 504,000 19.3% 4,308 14.75 Telephone 21,000 50.0% 179 0.61 22,000 51.2% 188 0.64 Other Operated Departments 11,000 52.4% 94 0.32 11,000 50.0% 94 0.32 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Departmental Expenses 521,000 20.1% 4,453 15.25 537,000 20.1% 4,590 15.72 ------------- -------- --------- --------- ------------ -------- --------- --------- Departmental Profit 2,070,000 79.9% 17,692 60.59 2,133,000 79.9% 18,231 62.43 Undistributed Expenses Administrative & General 203,000 7.8% 1,735 5.94 209,000 7.8% 1,786 6.12 Franchise Fee 202,000 7.8% 1,726 5.91 208,000 7.8% 1,778 6.09 Marketing 50,000 1.9% 427 1.46 52,000 1.9% 444 1.52 Property Operations & Maintenance 101,000 3.9% 863 2.96 104,000 3.9% 889 3.04 Energy & Utilities 83,000 3.2% 709 2.43 86,000 3.2% 735 2.52 ------------- -------- --------- --------- ------------ -------- --------- --------- Total Undistributed Expenses 639,000 24.7% 5,462 18.70 659,000 24.7% 5,632 19.29 ------------- -------- --------- --------- ------------ -------- --------- --------- Gross Operating Profit 1,431,000 55.2% 12,231 41.89 1,474,000 55.2% 12,598 43.14 Fixed Charges & Management Fee Base Management Fee 130,000 5.0% 1,111 3.81 134,000 5.0% 1,145 3.92 Property Taxes 97,000 3.7% 829 2.84 99,000 3.7% 846 2.90 Land Lease 111,000 4.3% 949 3.25 114,000 4.3% 974 3.34 Insurance 29,000 1.1% 248 0.85 30,000 1.1% 256 0.88 Total Fixed Charges 367,000 14.2% 3,137 10.74 377,000 14.1% 3,222 11.04 ------------- -------- --------- --------- ------------ -------- --------- --------- Income Before Reserves 1,064,000 41.1% 9,094 31.14 1,097,000 41.1% 9,376 32.11 Reserves for Replacements 104,000 4.0% 889 3.04 107,000 4.0% 915 3.13 ------------- -------- --------- --------- ------------ -------- --------- --------- Net Operating Income (4) $ 960,000 37.1% $ 8,205 $ 28.10 $ 990,000 37.1% $ 8,462 $ 28.98 ============= ======== ========= ========= ============ ======== ========= ========= ------------------------------------------------ Calendar Years Beginning January 1 2006 ------------------------------------------------ $ % PAR (1) POR (2) ------------------------------------------------ Number of Keys 117 Occupancy 80.00% Average Daily Room Rate $78.50 Revenues Rooms $2,682,000 97.6%$ 22,923 $ 78.50 Telephone 45,000 1.6% 385 1.32 Other Operated Departments 22,000 0.8% 188 0.64 ------------ -------- --------- --------- Total Revenues 2,749,000 100.0% 23,496 80.46 Departmental Expenses (3) Rooms 519,000 19.6% 4,436 15.19 Telephone 22,000 48.9% 188 0.64 Other Operated Departments 11,000 50.0% 94 0.32 ------------ -------- --------- --------- Total Departmental Expenses 552,000 20.1% 4,718 16.16 ------------ -------- --------- --------- Departmental Profit 2,197,000 79.9% 18,778 64.31 Undistributed Expenses Administrative & General 215,000 7.8% 1,838 6.29 Franchise Fee 215,000 7.8% 1,838 6.29 Marketing 53,000 1.9% 453 1.55 Property Operations & Mainten 107,000 3.9% 915 3.13 Energy & Utilities 89,000 3.2% 761 2.61 ------------ -------- --------- --------- Total Undistributed Expense 679,000 24.7% 5,803 19.87 ------------ -------- --------- --------- Gross Operating Profit 1,518,000 55.2% 12,974 44.43 Fixed Charges & Management Fee Base Management Fee 137,000 5.0% 1,171 4.01 Property Taxes 100,000 3.7% 863 2.96 Land Lease 118,000 4.3% 1,009 3.45 Insurance 31,000 1.1% 265 0.91 Total Fixed Charges 387,000 14.1% 3,308 11.33 ------------ -------- --------- --------- Income Before Reserves 1,131,000 41.1% 9,667 33.11 Reserves for Replacements 110,000 4.0% 940 3.22 ------------ -------- --------- --------- Net Operating Income (4) $ 1,021,000 37.1% $ 8,726 $ 29.89 ============ ======== ========= ========= - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. ==================================================================================================================================== Source:PKF Consulting ====================================================================================================================================
Super 8 South San Francisco, California Projected Operating Results ------------------------------------------------------------------------------------------------- Calendar Years Beginning January 1 2007 2008 ------------------------------------------------------------------------------------------------- $ % PAR (1) POR (2) $ % PAR (1) POR (2) ------------------------------------------------------------------------------------------------- Number of Keys 117 117 Occupancy 80.00% 80.00% Average Daily Room Rate $81.00 $83.25 Revenues Rooms $2,767,000 97.6%$ 23,650 $ 80.99 $2,844,000 97.6%$ 24,308 $ 83.25 Telephone 46,000 1.6% 393 1.35 47,000 1.6% 402 1.38 Other Operated Departments 23,000 0.8% 197 0.67 24,000 0.8% 205 0.70 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Total Revenues 2,836,000 100.0% 24,239 83.01 2,915,000 100.0% 24,915 85.32 Departmental Expenses (3) Rooms 535,000 19.3% 4,573 15.66 551,000 19.4% 4,709 16.13 Telephone 23,000 50.0% 197 0.67 24,000 51.1% 205 0.70 Other Operated Departments 11,000 47.8% 94 0.32 12,000 50.0% 103 0.35 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Total Departmental Expenses 569,000 20.1% 4,863 16.65 587,000 20.1% 5,017 17.18 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Departmental Profit 2,267,000 79.9% 19,376 66.36 2,328,000 79.9% 19,897 68.14 Undistributed Expenses Administrative & General 222,000 7.8% 1,897 6.50 228,000 7.8% 1,949 6.67 Franchise Fee 221,000 7.8% 1,889 6.47 228,000 7.8% 1,949 6.67 Marketing 55,000 1.9% 470 1.61 57,000 2.0% 487 1.67 Property Operations & Maintenance 110,000 3.9% 940 3.22 113,000 3.9% 966 3.31 Energy & Utilities 91,000 3.2% 778 2.66 94,000 3.2% 803 2.75 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Total Undistributed Expenses 699,000 24.6% 5,974 20.46 720,000 24.7% 6,154 21.07 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Gross Operating Profit 1,568,000 55.3% 13,402 45.90 1,608,000 55.2% 13,744 47.07 Fixed Charges & Management Fee Base Management Fee 142,000 5.0% 1,214 4.16 146,000 5.0% 1,248 4.27 Property Taxes 102,000 3.6% 880 3.01 105,000 3.6% 897 3.04 Land Lease 121,000 4.3% 1,034 3.54 125,000 4.3% 1,068 3.66 Insurance 31,000 1.1% 265 0.91 32,000 1.1% 274 0.94 Total Fixed Charges 397,000 14.0% 3,393 11.62 408,000 14.0% 3,487 11.94 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Income Before Reserves 1,171,000 41.3% 10,009 34.28 1,200,000 41.2% 10,256 35.12 Reserves for Replacements 113,000 4.0% 966 3.31 117,000 4.0% 1,000 3.42 ------------- ------- --------- ---------- ------------ ------- --------- ---------- Net Operating Income (4) $ 1,058,000 37.3% $ 9,043 $ 30.97 $ 1,083,000 37.2% $ 9,256 $ 31.70 ============= ======= ========= ========== ============ ======= ========= ========== - ------------------------------------------------------------------------------------------------------------------------------------ Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net cash flow before interest, tax, amortization, and depreciation. ==================================================================================================================================== Source:PKF Consulting ====================================================================================================================================
ADDENDA TABLE OF CONTENTS A. CERTIFICATION OF THE APPRAISERS B. STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS C. QUALIFICATIONS OF THE APPRAISERS D. COPY OF THE APPRAISERS' STATE CERTIFICATIONS ADDENDUM A CERTIFICATION OF THE APPRAISERS CERTIFICATION OF THE APPRAISERS We, Thomas E. Callahan, CPA, CRE, MAI, and Kenneth Kuchman certify that, to the best of our knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. Kenneth Kuchman has made a personal inspection of each property that is a subject of this report. Anwar R. Elgonemy provided significant professional assistance to the persons signing this report. This appraisal engagement was not based on a requested minimum valuation, specific valuation or the approval of a loan. The reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. Mr. Callahan and Mr. Kuchman are Certified General Real Estate Appraisers in the State of California. As of the date of this report, Mr. Callahan has completed the requirements of the continuing education program of the Appraisal Institute. Based on the scope outlined and our experience as real estate analysts and appraisers, we are of the opinion that the "as is" market value of the fee simple or leasehold interest in each of the eight hotels, as of January 1, 1998, is: =============================================================== Property Valuation Property Rights Conclusion Appraised - -------------------------- --------------- -------------------- Super 8 Bakersfield, CA Fee Simple $1,300,000 - -------------------------- --------------- -------------------- Holiday Inn Barstow, CA Leasehold $4,100,000 - -------------------------- --------------- -------------------- Super 8 Modesto, CA Leasehold $1,800,000 - -------------------------- --------------- -------------------- Super 8 Pleasanton, CA Fee Simple $7,600,000 - -------------------------- --------------- -------------------- Super 8 Sacramento, CA Leasehold $2,700,000 - -------------------------- --------------- -------------------- Super 8 San Bernardino, CA Fee Simple $1,600,000 - -------------------------- --------------- -------------------- Super 8 South San Francisco, CA Leasehold $7,600,000 - -------------------------- --------------- -------------------- Super 8 Santa Rosa, CA Leasehold $2,200,000 ========================================== ==================== Sum of Individual Values $28,900,000 ========================================== ==================== PKF Consulting appreciates this opportunity to be of service to you. Should you have any questions or if we can be of further assistance, please do not hesitate to contact us. Respectfully submitted, /s/ Thomas E. Callahan By Thomas E. Callahan, CPA, CRE, MAI Executive Vice President California Certified General Appraiser AG9618 /s/ Kenneth Kuchman By Kenneth Kuchman Vice President California Certified General Appraiser AG22842 ADDENDUM B STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS =============================================================================== STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS =============================================================================== Date of Value - The conclusions and opinions expressed in this report apply to the date of value set forth in the letter of transmittal accompanying this report. The dollar amount of any value opinion or conclusion rendered or expressed in this report is based upon the purchasing power of the American dollar existing in the date of value. Economic and Social Trends - The appraiser assumes no responsibility for economic, physical or demographic factors which may affect or alter the opinions in this report if said economic, physical or demographic factors were not present as of the date of the letter of transmittal accompanying this report. The appraiser is not obligated to predict future political, economic or social trends. Information Furnished by Others - In preparing the report, the appraiser was required to rely on information furnished by other individuals or found in previously existing records and/or documents. Unless otherwise indicated, such information is presumed to be reliable. However, no warranty, either express or implied, is given by the appraiser for the accuracy of such information and the appraiser assumes no responsibility for information relied upon later found to have been inaccurate. The appraiser reserves the right to make such adjustments to the analyses, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. Title - No opinion as to the title of the subject property is rendered. Data related to ownership and legal description was obtained from the attached title report records and is considered reliable. Title is assumed to be marketable and free and clear of all liens, encumbrances, easements and restrictions except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management, and available for its highest and best use. Hidden Conditions - The appraiser assumes no responsibility for hidden or unapparent conditions of the property, subsoil, ground water or structures that render the subject property more or less valuable. No responsibility is assumed for arranging for engineering, geologic or environmental studies that may be required to discover such hidden or unapparent conditions. Hazardous Materials - The appraiser has not been provided any information regarding the presence of any material or substance on or in any portion of the subject property or improvements thereon, which material or substance possesses or may possess toxic, hazardous and/or other harmful and/or dangerous characteristics. Unless otherwise stated in the report, the appraiser did not become aware of the presence of any such material or substance during the appraiser's inspection of the subject property. However, the appraiser is not qualified to investigate or test for the presence of such materials or substances. The presence of such materials or substances may adversely affect the value of the subject property. The value estimated in this report is predicted on the assumption that no such material or substance is present on or in the subject property or in such proximity thereto that it would cause a loss in value. The appraiser assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or engineering knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state and local environmental laws, regulations and rules. Zoning and Land Use - Unless otherwise stated, the subject property is appraised assuming it to be in full compliance with all applicable zoning and land use regulations and restrictions. Licenses and Permits - Unless otherwise stated, the property is appraised assuming that all required licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (Continued) Engineering Survey - No engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area of the subject property was taken from sources considered reliable and no encroachment of the subject property is considered to exist. Subsurface Rights - No opinion is expressed as to the value of subsurface oil, gas or mineral rights or whether the property is subject to surface entry for the exploration or removal of such materials, except as is expressly stated. Maps, Plats and Exhibits - Maps, plats and exhibits included in this report are for illustration only to serve as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced or used apart from the report. Legal Matters - No opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Allocation Between Land and Improvements - The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. Right of Publication - Possession of this report, or a copy of it, does not carry with it the right of publication. Without the written consent of the appraiser, this report may not be used for any purpose by any person other than the party to whom it is addressed. In any event, this report may be used only with properly written qualification and only in its entirety for its stated purpose. Testimony in Court - Testimony or attendance in court or at any other hearing is not required by reason of rendering this appraisal, unless such arrangements are made a reasonable time in advance of said hearing. Further, unless otherwise indicated, separate arrangements shall be made concerning compensation for the appraiser's time to prepare for and attend any such hearing. Structural Deficiencies - The appraiser has personally inspected the subject property, and except as noted in this report, finds no obvious evidence of structural deficiencies in any improvements located on the subject property. However, the appraiser assumes no responsibility for hidden defects or non-conformity with specific governmental requirements, such as fire, building and safety, earthquake or occupancy codes, unless inspections by qualified independent professionals or governmental agencies were provided to the appraiser. Further, the appraiser is not a licensed engineer or architect and assumes no responsibility for structural deficiencies not apparent to the appraiser at the time of this inspection. Termite/Pest Infestation - No termite or pest infestation report was made available to the appraiser. It is assumed that there is no significant termite or pest damage or infestation, unless otherwise stated. Income Data Provided by Third Party - Income and expense data related to the property being appraised was provided by the client and is assumed, but not warranted, to be accurate. Asbestos - The appraiser is not aware of the existence of asbestos in any improvements on the subject property. However, the appraiser is not trained to discover the presence of asbestos and assumes no responsibility should asbestos be found in or at the subject property. For the purposes of this report, the appraiser assumes the subject property is free of asbestos and that the subject property meets all federal, state and local laws regarding asbestos abatement. STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (Continued) Archeological Significance - No investigation has been made by the appraiser and no information has been provided to the appraiser regarding potential archeological significance of the subject property or any portion thereof. This report assumes no portion of the subject property has archeological significance. Compliance with the Americans with Disabilities Act - The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of ADA in estimating the value of the property. Definitions and Assumptions - The definitions and assumptions upon which our analyses, opinions and conclusions are based are set forth in appropriate sections of this report and are to be part of these general assumptions as if included here in their entirety. Utilization of the Land and/or Improvements - It is assumed that the utilization of the land and/or improvements is within the boundaries or property described herein and that there is no encroachment or trespass. Encroachments - It is assumed that the utilization of the land and/or improvements is within the boundaries or property described herein and that there is no encroachment or trespass. Dissemination of Material - Use and disclosure of the contents of this report is governed by the bylaws and regulations of the Appraisal Institute. Neither all or any part of the contents of this report (especially the conclusions as to value, the identity of the appraiser or the firm with which they are connected, or any reference to the Appraisal Institute or to the MAI or RM designations) shall be disseminated to the general public through advertising or sales media, public relations media, new media or other public means of communication without the prior written consent and approval of the appraiser(s). Distribution and Liability to Third Parties - The party of whom this appraisal report was prepared may distribute copies of this appraisal report only in its entirety to such third parties as may be selected by the party for whom this appraisal report was prepared; however, portions of this appraisal report shall not be given to third parties without our written consent. Liability to third parties will not be accepted. Use in Offering Materials - This appraisal report, including all cash flow forecasts, market surveys and related data, conclusions, exhibits and supporting documentation may not be reproduced or references made to the report or to PKF Consulting in any sale offering, prospectus, public or private placement memorandum, proxy statement or other document ("Offering Material") in connection with a merger, liquidation or other corporate transaction unless PKF Consulting has approved in writing the text of any such reference or reproduction prior to the distribution and filing thereof. Limits to Liability - PKF Consulting cannot be held liable in any cause of action resulting in litigation for any dollar amount which exceeds the total fees collected from this individual engagement. Legal Expenses - Any legal expenses incurred in defending or representing ourselves concerning this assignment will be the responsibility of the client. ADDENDUM C QUALIFICATIONS OF THE APPRAISERS QUALIFICATIONS OF THOMAS E. CALLAHAN, CPA, CRE, MAI EXECUTIVE VICE PRESIDENT PROFESSIONAL HISTORY Present Executive Vice President, PKF Consulting San Francisco, California Prior Pannell Kerr Forster, Boston and Los Angeles Partner-in-Charge Pannell Kerr Forster, Dallas and Houston Partner AREAS OF EXPERTISE Economic, financial, operational, management and valuation consulting for the real estate, hospitality and related service industries. REPRESENTATIVE PROJECTS Numerous market and economic feasibility studies for hotels, motor hotels, and resorts in the United States, Europe, the Pacific, and Southeast Asia. Acquisition studies and development planning for numerous hotels and motor hotels. Appraisal of the market value of all types of income producing properties including: hotels, restaurants, ski resorts, office buildings, golf courses, mixed-use and retail developments. Market and economic feasibility studies for retirement and long-term health care facilities located in Texas and California. Preparation of master plan studies for the development of multi-use real estate projects in the Republic of China, Singapore, and the United States. These studies include highest and best use analyses for the proposed site, market and financial feasibility analyses, economic valuations and development of the management structure for project implementation. Development of reorganization plans and expert testimony in court for bankruptcy proceedings associated with all types of hotels and resorts. QUALIFICATIONS OF THOMAS E. CALLAHAN, CPA, CRE, MAI REPRESENTATIVE PROJECTS Evaluation of the organization structure, financial controls and management information systems of the Armed Forces Recreation Center located in the Federal Republic of Germany. Operational reviews, financial analyses, management evaluations and systems analyses for hotels, resorts, restaurants, and clubs. Valuation of large, complex real estate and business holdings, including the Aspen Skiing Company, Aspen Colorado; Angel Fire Ski Company, Angel Fire, New Mexico; and the Embarcadero Center, San Francisco, California. Preparation of cash flow and return on investment calculations for proposed, operating and distressed hotels, resorts, restaurants, and clubs. Appraisal of the market value of large real estate portfolios, including all Trusthouse Forte, Inc. hotel properties; all company owned Hilton Hotels; all Vagabond Inns; all Western 6 Motels; and all of the holdings of Hotel Investors Trust. Operational analysis, financial review and long-range development for hotels and resorts. Market and economic feasibility study for a proposed major international class hotel to be located in Bandar Seri Begawan, Brunei. Long-range budgeting, economic feasibility and economic impact analysis for the Industry Hills Civic Recreation Center located in the City of Industry, California. Market and economic feasibility analysis for numerous convention and exhibit centers including the Los Angeles Convention Center and the Taipei World Trade Center. Development of the organizational structure and job descriptions and requirements for a multi-use facility, which includes a hotel, convention center and numerous recreational facilities. QUALIFICATIONS OF THOMAS E. CALLAHAN, CPA, CRE, MAI REPRESENTATIVE PROJECTS (Continued) Development of procedural manuals for the operation of major hotels. Accounting system, internal control procedures and management information system design and implementation for hotel, club, and restaurant operations. EDUCATION WASHINGTON STATE UNIVERSITY Bachelor of Arts in Business Administration APPRAISAL INSTITUTE Completed All Courses Required for Membership PROFESSIONAL QUALIFICATIONS Certified Public Accountant in Massachusetts, California and Texas Certified General Real Estate Appraiser - State of California PROFESSIONAL AFFILIATIONS Member of the Appraisal Institute (MAI) American Society of Real Estate Counselors (CRE) International Society of Hospitality Consultants (ISHC) American Institute of Certified Public Accountants California Society of Certified Public Accountants Texas Society of Certified Public Accountants Massachusetts Society of Certified Public Accountants American Hotel & Motel Association - Research Committee American Institute of Certified Public Accountants - MAS Executive Committee Member PROFESSIONAL ACTIVITIES Guest speaker at various industry seminars EXPERT TESTIMONY Admitted as an expert in both State and Federal courts located in Massachusetts, Illinois, California, Texas and New Mexico QUALIFICATIONS OF KENNETH KUCHMAN VICE PRESIDENT PROFESSIONAL HISTORY Present PKF CONSULTING - San Francisco Vice President Prior BDO SEIDMAN - San Francisco Senior Consultant LAVENTHOL & HORWATH - San Francisco Consultant THE MANDARIN ORIENTAL HOTEL GROUP Hong Kong and San Francisco Various Management Positions AREAS OF EXPERTISE Operational planning and evaluation of hospitality industry activities. Extensive experience in the pre-opening and on-going operations of hotels, motels, resorts, and conference centers. Preparation of market feasibility studies for hotels and related facilities including estimated financial income statements. Preparation of full narrative appraisals of lodging properties and related facilities focusing on valuation of projected operating income. Skills encompass fee simple, leasehold, and leased fee estate interest valuation. Litigation support analysis involving the performance of hotel management services. MAJOR PROJECTS Comprehensive operational review of the lodging and food service operating establishments located within Yosemite National Park. Operational review of lodging, dining, recreation and sports facilities at nine United States Air Force bases. QUALIFICATIONS OF KENNETH KUCHMAN MAJOR PROJECTS (CONTINUED) Market feasibility studies for over 15 proposed hospitality industry projects including golf courses and standard and extended-stay hotels to be constructed in Northern California and in Nevada. Appraisals and operational analysis of two casino hotels and a 500 room resort-style hotel located in Las Vegas, Nevada. Appraisals of over 20 full-service hotels and major resorts located throughout the mainland United States, Hawaii, and Bermuda. Appraisals of numerous economy lodging facilities, comprising 53 to 175 rooms, and adjacent leased restaurants, in California and in the Southwest. Litigation support services relating to the termination of hotel management contracts by the owning partnerships of several full-service hotels located in California and Hawaii. EDUCATION CLAREMONT GRADUATE SCHOOL THE PETER F. DRUCKER GRADUATE MANAGEMENT CENTER Master of Business Administration CORNELL UNIVERSITY SCHOOL OF HOTEL ADMINISTRATION Bachelor of Science, Hotel Administration PROFESSIONAL ACTIVITIES Certified General Real Estate Appraiser State of California, Certificate #AG022842 State Accredited Affiliate of the Appraisal Institute MAI Candidate, Appraisal Institute, Candidate #M950161 President, Cornell Society of Hotelmen, Northern California Chapter ANWAR R. ELGONEMY CONSULTANT PROFESSIONAL HISTORY Present PKF CONSULTING - San Francisco, California Consultant Prior Horwath International - Lisbon, Portugal Consultant Marriott International - London, England Manager - International Market Planning and Feasibility Holiday Inn Hotel - Bristol, England Management Trainee Houston Medical Center Hilton Hotel - Houston, Texas Internal Auditor SUMMARY OF PROJECTS Market studies on the potential demand for recreational facilities and amenities throughout Portugal. Facilities analyzed included golf courses, camping grounds, marinas, aquatic parks, amusement parks, and museums. Preparation of master plan studies for the development of multi-use real estate projects in Southern Europe. These studies included highest and best use analyses for the proposed site, market and financial feasibility analyses, and economic valuations. Market and financial feasibility study for a 250-room luxury hotel with a 100-berth marina, and sports and leisure complex in Northern Portugal. Market and financial feasibility for a 200-room luxury hotel with a 36-hole golf course and 400 luxury villas in Southern Portugal. Appraisal of 25 lodging facilities located in Arizona, California, New Mexico, Oregon and Washington QUALIFICATIONS OF ANWAR R. ELGONEMY CONSULTANT (Continued) EDUCATION THUNDERBIRD - THE AMERICAN GRADUATE SCHOOL OF INTERNATIONAL MANAGEMENT Master of International Management (Emphasis in Finance) THE UNIVERSITY OF HOUSTON Conrad N. Hilton College Bachelor of Science in Hotel Management CENTRE INTERNATIONAL DE GLION - Switzerland Diplome Superior - Hotel and Tourism Administration PROFESSIONAL MEMBERSHIPS Affiliate Member of the Appraisal Institute (Chicago) World Affairs Council of Northern California (San Francisco) Chartered Institute of Bankers (London) Vice President - Thunderbird Northern California Chapter ADDENDUM D COPY OF THE APPRAISERS' STATE CERTIFICATIONS (Official state certificate issued to Thomas E. Callahan deleted) EX-99.2 5 FAIRNESS OPINION May 19, 1998 Famous Host Lodging V, L.P. c/o The Famous Host Companies 2030 J Street Sacramento, California 95814 Attn: Mr. Philip Grotewohl Dear Mr. Grotewohl: Pursuant to your request, we have analyzed the proposed transaction whereby Tiburon Capital Corporation would acquire the following hotel which is owned by Famous Host Lodging V, L.P. Holiday Inn 1511 East Main Street Barstow, California As we understand it, Tiburon Capital Corporation would acquire this property on an all cash basis for a total consideration of $4,100,000. Based on our analysis of the above hotel property, we are of the opinion that the proposed transaction is fair and equitable from a financial standpoint to the limited partners of the Partnership. If you have any questions on the foregoing, or if I can be of any further assistance, please don't hesitate to contact me directly. Very truly yours, PKF Consulting /s/ THOMAS E. CALLAHAN Thomas E. Callahan, CPA, CRE, MAI Executive Vice President TEC/klk -----END PRIVACY-ENHANCED MESSAGE-----