MARKET STUDY Proposed Hotel at Lake Toho, Kissimmee, FL...Re: Proposed Hotel at Lake Toho, Kissimmee, FL Kissimmee, Florida HVS Reference: 2018020960 Dear Mr. Wayland: Pursuant to

MARKET STUDY

Proposed Hotel at Lake Toho, Kissimmee, FL

RUBY AVENUE AND PLEASANT STREET KISSIMMEE, FLORIDA

SUBMITTED TO:PR OPOSED

Mr. Terry Wayland Mosaic Development 1763 1st Avenue N Saint Petersburg, Florida 33713 +1 (727) 431-3489

PREPARED BY:

HVS Consulting & Valuation Division of HVS Consulting & Valuation 111 Granada Court Orlando, Florida 32803 +1 (407) 203-1122

June-2018

June 15, 2018

Mr. Terry Wayland Mosaic Development 1763 1st Avenue N Saint Petersburg, Florida, 33713

Re: Proposed Hotel at Lake Toho, Kissimmee, FL

Kissimmee, Florida

HVS Reference: 2018020960

Dear Mr. Wayland:

Pursuant to your request, we herewith submit our market study pertaining to the above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the Kissimmee, Florida area. We have studied the proposed project, and the results of our fieldwork and analysis are presented in this report.

The objective of this assignment is to perform a market study for the purpose of forecasting occupancy, average daily rate, and projecting income and expense for a proposed lodging facility; it has been assumed that the hotel will be affiliated with a nationally-recognized hotel brand and managed by a competent management team familiar with operational experience in Central Florida. HVS recommends the prospective hotel be positioned within the upper midscale price/quality tier of STR’s chain scales ranking, with optional branding considerations in the higher-tiered upscale segment.

We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings. This study is subject to the comments made throughout this report and to all assumptions and limiting conditions set forth herein.

Sincerely, HVS Consulting & Valuation Jeffrey D. Pennington, Vice President [email protected], +1 (850) 766-6109 Donald C. Stephens Jr., Managing Director [email protected], +1 (407) 203-1122

HVS ORLANDO

111 Granada Court

Orlando, Florida 32803

+1 (407) 203-1122

+1 (516) 742-3059 FAX

www.hvs.com

Superior results through unrivaled hospitality intelligence. Everywhere.

http://www.hvs.com/

Table of Contents

SECTION TITLE PAGE

1. Executive Summary 1

Objective of the Market Study 1

Subject of the Market Study 1

Ownership, Franchise, and Management Assumptions 2

Summary of Hotel Market Trends 2

Recommended Hotel Positioning - Conclusions 7

Summary of Forecast Occupancy and Average Rate 7

Summary of Forecast Income and Expense Statement 7

Scope of Work 10

2. Description of the Site and Neighborhood 12

Physical Characteristics 12

Access and Visibility 14

Airport and Metrorail Access 16

Neighborhood 16

Proximity to Local Demand Generators and Attractions 19

Flood Zone 20

Zoning 21

3. Market Area Analysis 22

Workforce Characteristics 26

Radial Demographic Snapshot 30

Unemployment Statistics 31

Major Business and Industry 32

Office Space Statistics 35

Convention Activity 37

Airport Traffic 39

Tourist Attractions 41

4. Supply and Demand Analysis 45

Definition of Subject Hotel Market 45

National Trends Overview 45

Orlando, FL Lodging Market 49

Historical Supply and Demand Data 51

Seasonality 54

Patterns of Demand 57

Competitors 59

Supply Changes 62

Demand Analysis Using Market Segmentation 63

Base Demand Growth Rates 66

Latent Demand 66

Unaccommodated Demand 66

Induced Demand 68

Accommodated Demand and Market-wide Occupancy 68

5. Projection of Occupancy and Average Rate 70

Historical Penetration Rates by Market Segment 70

Forecast of Subject Property’s Occupancy 71

Average Rate Analysis 74

Competitive Position 74

6. Projection of Income and Expense 80

Comparable Operating Statements 80

Forecast of Income and Expense 84

Rooms Revenue 87

Other Operated Departments Revenue 87

Miscellaneous Income 87

Rooms Expense 88

Other Operated Departments Expense 88

Administrative and General Expense 89

Information and Telecommunications Systems Expense 89

Marketing Expense 89

Franchise Fee 90

Property Operations and Maintenance 90

Utilities Expense 91

Management Fee 92

Property Taxes 92

Insurance Expense 95

Reserve for Replacement 95

Forecast of Revenue and Expense Conclusion 96

7. Statement of Assumptions and Limiting Conditions 97

June-2018 Executive Summary Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 1

1. Executive Summary

The objective of this assignment is to perform a market study for the purpose of evaluating the market demand, analyzing the economics, forecasting occupancy, average rate, and projecting income and expense for a proposed hotel at Lake Toho in Kissimmee, Florida. Our study also includes a recommendation of the size, quality and type of lodging facility, and an optimal brand chain scale for the hotel.

The subject of the market study is a 27,878-square-foot (0.64-acre) site to be improved with a lodging facility. HVS recommends the prospective hotel be positioned within the upper midscale price/quality tier of STR’s chain scales ranking, with optional branding considerations in the higher-tiered upscale segment.

The hotel property, which HVS has projected to open on March 1, 2020, is assumed to feature 120 guestrooms, amenities and facilities for a branded upper-midscale limited-service hotel, all necessary back-of-the-house space. The appropriate parking capacity is assumed to be provided within the adjacent parking garage and proposed hotel site.

PROPOSED HOTEL SITE

Objective of the Market Study

Subject of the Market Study


The subject site is approved for a 120-key five-story hotel, and the site is located within a designated Community Revitalization Area in Downtown Kissimmee. Additionally, the site has a brownfield designation, and the city impact fees and building permit fees will be abated. New infrastructure connects to the site, and the site also qualifies for EB-5 funding and New Market Tax Credits. The subject site is located adjacent to a newly constructed parking garage, which will provide parking to guests. The proposed subject hotel is part of the larger redevelopment of Downtown Kissimmee that will include market-rate apartments, retail, and parking.

The subject site’s location is to the east of the intersection of Ruby Avenue and Pleasant Street, Kissimmee, Florida, 34741.

The effective date of the report is June 15, 2018. The subject site was inspected by Jeffrey D. Pennington on June 6, 2018 and by Don C. Stephens Jr. on June 10, 2018.

The master developer of the greater Lake Toho Redevelopment mixed-use project is Mosaic Development; however, it is our understanding that Mosaic Development would not develop the proposed subject hotel. The larger parcel (Tract A) is currently owned by Condo at Toho Square Association Inc., while the smaller parcel (Tract 1) is currently owned by the City of Kissimmee.

Details pertaining to management terms were not yet determined at the time of this report; however, we assume that the proposed hotel will be managed by a professional hotel-operating company, with fees deducted at rates consistent with current market standards. We have assumed a market-appropriate total management fee of 3.0% of total revenues in our study.

For the purposes of this study HVS has assumed the subject hotel will operate as an upper midscale, limited-service property. A specific franchise affiliation and/or brand has yet to be finalized. As such, we have used an average of typical franchise fees for hotels that offer a limited-service product within the upper-midscale chain scale.

Both market occupancy and average rate declined in 2009 given an increase in supply and the effects of the national recession, which forced hotel operators to decrease average rates in order to maintain occupancy. In 2010, demand increased significantly, while average rate declined and bottomed out in the high $80s; however, the increased occupancy levels resulted in positive RevPAR growth. The recovery of RevPAR continued in 2011, surpassing RevPAR levels from 2008, and this positive trend extended through 2015. This positive trend was attributed to the improvement in the national and global economies, the addition of high-quality nationally branded hotels, and strong demand levels. RevPAR declined in 2016, as supply growth outpaced demand increases for the selected set of hotels;

Pertinent Dates

Ownership, Franchise, and Management Assumptions

Summary of Hotel Market Trends


furthermore, the increased competition forced local operators to lower average rates slightly in order to maintain occupancy levels. RevPAR growth resumed in 2017 and continued through the trailing-twelve-month period ending in April 2018, with growth driven largely by demand growth. Demand was strong to start 2017. Furthermore, similar to many hotel markets in Orlando and throughout Florida, this market experienced a surge in demand in September 2018 given the presence of evacuees and relief efforts from hurricanes during that month, which historically is considered to be one of the weaker months during the year.

Year-to-date 2018 data illustrate continued strengthening in occupancy and a roughly $7 gain in average rate (ADR), following the significant upward change in occupancy in 2017 relative to 2016 levels. RevPAR reached its high point in the spring of 2018. The overall strong economy, resulting in increased leisure travel, and the stability in supply have contributed to the latest trend. The near-term outlook is positive due to continued economic growth in the region and major expansions and investments at the area's major demand generators. Market participants expect that going forward, RevPAR growth will be related to modest average rate increases because of aggressive yield management amid steady growth in room night demand.

The following table provides a historical perspective on the supply and demand trends for a selected set of hotels, as provided by STR. The subsequent tables reflect our estimates of operating data for hotels on an individual basis. These trends are presented in detail in the Supply and Demand Analysis chapter of this report.


FIGURE 1-1 HISTORICAL SUPPLY AND DEMAND TRENDS (STR)

Year

Average Daily Room

Count Available Room Nights Change

Occupied Room

Nights Change Occupancy

Average

Rate Change RevPAR Change

2008 2,482 905,924 — 590,462 — 65.2 % $101.55 — $66.19 —

2009 2,720 992,903 9.6 % 635,078 7.6 % 64.0 89.44 (11.9) % 57.20 (13.6) %

2010 2,844 1,037,950 4.5 724,663 14.1 69.8 87.42 (2.3) 61.04 6.7

2011 2,862 1,044,630 0.6 753,521 4.0 72.1 91.89 5.1 66.28 8.6

2012 2,927 1,068,370 2.3 774,492 2.8 72.5 95.31 3.7 69.10 4.2

2013 3,048 1,112,438 4.1 845,137 9.1 76.0 100.54 5.5 76.38 10.5

2014 2,771 1,011,315 (9.1) 796,258 (5.8) 78.7 108.22 7.6 85.21 11.6

2015 3,001 1,095,430 8.3 860,678 8.1 78.6 112.73 4.2 88.57 4.0

2016 3,437 1,254,334 14.5 941,098 9.3 75.0 112.15 (0.5) 84.14 (5.0)

2017 3,661 1,336,279 6.5 1,096,890 16.6 82.1 114.42 2.0 93.92 11.6

2017/18 3,664 1,337,532 0.1 1,117,236 1.9 83.5 117.10 2.3 97.82 4.1

Year-to-Date Through April

2017 3,658 438,907 — 364,300 — 83.0 % $126.08 — $104.65 —

2018 3,668 440,160 0.3 % 384,646 5.6 % 87.4 133.25 5.7 % 116.45 11.3 %

Average Annual Compounded Change:

2008 - 2011 4.9 8.5 (3.3) 0.0

2011 - 2017 4.2 6.5 3.7 6.0

Hotels Included in Sample Proximity to Proposed Hotel Site

Radisson Hotel Orlando Lake Buena Vis ta Upscale Class Radisson 196 Feb 2008 Jan 1984 Approximately 8.6 mi les

Delta Hotel Orlando Lake Buena Vis ta Upper Upscale Class Marriott 241 Jan 2016 Feb 1985 Approximately 8.9 mi les

Courtyard Orlando Lake Buena Vis ta @ Vis ta Centre Upscale Class Marriott 308 Jan 1999 May 1989 Approximately 8.8 mi les

Staybridge Suites Lake Buena Vis ta Upscale Class IHG 150 Oct 2003 Sep 1993 Approximately 9.1 mi les

Autograph Col lection Bohemian Hotel Celebration Upper Upscale Class Marriott 115 Apr 2010 Nov 1999 Approximately 8.4 mi les

Courtyard Orlando Lake Buena Vis ta In The Marriott Vi l lage Upscale Class Marriott 312 Oct 2000 Oct 2000 Approximately 8.3 mi les

Springhi l l Sui tes Lake Buena Vis ta In The Marriott Vi l lage Upscale Class Marriott 400 Dec 2000 Dec 2000 Approximately 8.3 mi les

Springhi l l Sui tes Orlando Kiss immee Upscale Class Marriott 150 Feb 2015 Dec 2000 Approximately 5.7 mi les

Res idence Inn Orlando Lake Buena Vis ta Upscale Class Marriott 210 May 2001 May 2001 Approximately 8.8 mi les

Hol iday Inn Express & Suites South Lake Buena Vis ta Upper Midsca le Class IHG 162 Nov 2017 Oct 2001 Approximately 5.7 mi les

Hampton Inn Suites Orlando South Lake Buena Vis ta Upper Midsca le Class Hi l ton 125 Feb 2008 Feb 2008 Approximately 5.7 mi les

Mel ia Orlando Hotel @ Celebration Upscale Class Mel ia 285 Sep 2011 May 2008 Approximately 8.4 mi les

Homewood Suites Lake Buena Vis ta Orlando Upscale Class Hi l ton 130 Jun 2009 Jun 2009 Approximately 8.8 mi les

Hi l ton Garden Inn Lake Buena Vis ta Orlando Upscale Class Hi l ton 137 Jul 2009 Jul 2009 Approximately 8.8 mi les

Embassy Suites Orlando Lake Buena Vis ta South Upper Upscale Class Hi l ton 300 Sep 2012 Sep 2012 Approximately 5.7 mi les

Courtyard Orlando South John Young Parkway Upscale Class Marriott 128 May 2015 May 2015 Approximately 8.8 mi les

Fa irfield Inn & Suites Orlando Kiss immee Celebration Upper Midsca le Class Marriott 150 Jun 2016 Jun 2016 Approximately 8 mi les

Hyatt Place Orlando Lake Buena Vis ta Upscale Class Hyatt 169 Oct 2016 Oct 2016 Approximately 8.9 mi les

Total 3,668

Source: STR

Class

Number

of Rooms

Year

Opened

Brand Year

Affiliation Affiliated


FIGURE 1-2 PRIMARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Tran

sient

Gro

up

Weighted

Annual

Room

Count

Weighted

Annual

Room

CountProperty Occ. RevPAR RevPAR

Occupancy

Penetration

Yield

Penetration

Bohemian Hotel Celebration Autograph Col lection 115 90 % 10 % 115 70 - 75 % $170 - $180 $130 - $140 115 75 - 80 % $170 - $180 $130 - $140 90 - 95 % 140 - 150 %

Staybridge Suites Orlando Lake Buena Vis ta 150 80 20 150 95 - 100 140 - 150 140 - 150 150 95 - 100 150 - 160 140 - 150 110 - 120 150 - 160

Res idence Inn by Marriott Orlando Lake Buena Vis ta 210 75 25 210 75 - 80 125 - 130 95 - 100 210 80 - 85 130 - 140 110 - 115 100 - 110 110 - 120

Courtyard by Marriott Orlando South/John Young Parkway 128 80 20 128 80 - 85 120 - 125 100 - 105 128 85 - 90 125 - 130 110 - 115 100 - 110 110 - 120

Embassy Suites Orlando Lake Buena Vis ta South 300 70 30 300 80 - 85 125 - 130 100 - 105 300 80 - 85 125 - 130 100 - 105 95 - 100 100 - 110

Homewood Suites by Hi l ton Lake Buena Vis ta Orlando 130 80 20 130 90 - 95 120 - 125 110 - 115 130 95 - 100 120 - 125 120 - 125 110 - 120 120 - 130

Hyatt Place Orlando Lake Buena Vis ta 169 75 25 43 65 - 70 110 - 115 75 - 80 169 90 - 95 115 - 120 105 - 110 110 - 120 110 - 120

Hi l ton Garden Inn Lake Buena Vis ta Orlando 137 70 30 137 85 - 90 105 - 110 95 - 100 137 90 - 95 110 - 115 105 - 110 110 - 120 110 - 120

Mel ia Orlando at Celebration 285 85 15 246 65 - 70 130 - 140 85 - 90 285 75 - 80 110 - 115 85 - 90 90 - 95 90 - 95

Hampton Inn & Suites Orlando South Lake Buena Vis ta 125 90 10 125 75 - 80 100 - 105 75 - 80 125 80 - 85 105 - 110 85 - 90 95 - 100 90 - 95

SpringHi l l Sui tes by Marriott Orlando Lake Buena Vis ta in Marriott Vi l lage 400 85 15 400 80 - 85 105 - 110 85 - 90 400 85 - 90 105 - 110 90 - 95 100 - 110 95 - 100

Courtyard by Marriott Orlando Lake Buena Vis ta in the Marriott Vi l lage 312 75 25 312 75 - 80 100 - 105 75 - 80 312 80 - 85 105 - 110 90 - 95 100 - 110 90 - 95

Fairfield Inn & Suites Orlando Kiss immee Celebration 150 90 10 88 45 - 50 95 - 100 40 - 45 150 70 - 75 105 - 110 80 - 85 85 - 90 80 - 85

SpringHi l l Sui tes Orlando Kiss immee 150 80 20 150 65 - 70 95 - 100 65 - 70 150 70 - 75 100 - 105 75 - 80 85 - 90 75 - 80

Sub-Totals/Averages 2,761 80 % 20 % 2,534 78.4 % $119.08 $93.40 2,761 84.6 % $120.16 $101.64 102.4 % 106.4 %

Secondary Competi tors 900 80 % 20 % 675 67.1 % $90.62 $60.82 675 74.5 % $94.68 $70.49 90.1 % 73.8 %

Totals/Averages 3,661 80 % 20 % 3,209 76.0 % $113.80 $86.54 3,436 82.6 % $115.65 $95.52 100.0 % 100.0 %

* Specific occupancy and average rate data were utilized in our analysis, but are presented in ranges in the above table for the purposes of confidentiality.

Average RateTran

sient

Gro

upNumber of

Rooms Average Rate Occ.

Weighted

Annual

Room

Count

Weighted

Annual

Room

Count


FIGURE 1-3 SECONDARY COMPETITORS – OPERATING PERFORMANCE


Tran

sient

Gro

up

Total

Competitive

Level

Weighted

Annual

Room

Count

Weighted

Annual

Room

CountProperty

Number of

Rooms Occ. Average Rate RevPAR Occ. Average Rate RevPAR

Radisson Orlando Lake Buena Vis ta 196 80 % 20 % 75 % 147 70 - 75 % $100 - $105 $75 - $80 147 80 - 85 % $100 - $105 $80 - $85

Delta Hotels by Marriott Orlando Lake Buena Vis ta 241 75 25 75 181 65 - 70 90 - 95 60 - 65 181 85 - 90 95 - 100 85 - 90

Courtyard by Marriott Orlando Lake Buena Vis ta at Vis ta Centre 308 80 20 75 231 65 - 70 85 - 90 60 - 65 231 70 - 75 90 - 95 65 - 70

Hol iday Inn Express & Suites South Lake Buena Vis ta 155 90 10 75 116 45 - 50 80 - 85 40 - 45 116 50 - 55 80 - 85 40 - 45

Totals/Averages 900 80 % 20 % 75 % 675 67.1 % $90.62 $60.82 675 74.5 % $94.68 $70.49

* Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality.

Tran

sient

Gro

up

Total

Competitive

Level

Weighted

Annual

Room

Count

Weighted

Annual

Room

Count


In summary, our various interviews and prior experience and knowledge of the Kissimmee market revealed that there is demand generated in the Kissimmee downtown, and nearby surrounding areas, that is currently unaccommodated by the current supply of older, outdated, economy and budget hotels located along the nearby stretch of U.S. Highway 192. This demand is reportedly utilizing the branded, upper-midscale, upscale, and upper-upscale hotels located approximately five to ten miles away from the proposed subject site.

HVS has used a maximum 120 guestroom for the proposed subject hotel; however, it is our opinion (supported by discussions with brand representatives) that to maximize average rate levels for this proposed hotel, the development may warrant a lower room count. As you progress through the development cycle, we recommend further investigation by revisiting room count through a sensitivity analysis at that time.

Based on our analysis presented in the Projection of Occupancy and Average Rate chapter, we have chosen to use a stabilized occupancy level of 74% and a base-year (2017) rate position of $120.00 for the proposed subject hotel. The following table reflects a summary of our market-wide and proposed subject hotel occupancy and average rate projections.

FIGURE 1-4 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

Calendar Year 2017 2018 2019 2020 2021 2022 2023

Market ADR $115.65 $120.28 $125.09 $128.22 $132.70 $136.68 $140.78

Projected Market ADR Growth Rate — 4.0% 4.0% 2.5% 3.5% 3.0% 3.0%

Proposed Subject Property ADR (As-If Stabi l i zed) $120.00 $124.80 $129.79 $133.04 $137.69 $141.82 $146.08

ADR Growth Rate — 4.0% 4.0% 2.5% 3.5% 3.0% 3.0%

Proposed Subject Stabi l i zed ADR Penetration 104% 104% 104% 104% 104% 104% 104%

Fiscal Year 2020/21 2021/22 2022/23 2023/24

Proposed Subject Property Average Rate $133.79 $138.36 $142.51 $146.79

Opening Discount 5.0% 3.0% 0.0% 0.0%

Average Rate After Discount $127.10 $134.21 $142.51 $146.79

Real Average Rate Growth — 5.6% 6.2% 3.0%

Market ADR $128.94 $133.35 $137.35 $141.47

Proposed Subject ADR Penetration (After Discount) 99% 101% 104% 104%

ADR Expressed in Base-Year Dol lars Deflated @ Inflation Rate $117.45 $120.41 $124.13 $124.13

Our positioning of each revenue and expense level is supported by comparable operations or trends specific to this market. Our forecast of income and expense is presented in the following table.

Recommended Hotel Positioning - Conclusions

Summary of Forecast Occupancy and Average Rate

Summary of Forecast Income and Expense Statement


FIGURE 1-5 DETAILED FORECAST OF INCOME AND EXPENSE

2020/21 Begins March 2021/22 Stabilized 2023/24 2024/25

Number of Rooms: 120 120 120 120 120

Occupancy: 68% 72% 74% 74% 74%

Average Rate: $127.10 $134.21 $142.51 $146.79 $151.19

RevPAR: $86.43 $96.63 $105.46 $108.62 $111.88

Days Open: 365 365 365 365 365

Occupied Rooms: 29,784 %Gross PAR POR 31,536 %Gross PAR POR 32,412 %Gross PAR POR 32,412 %Gross PAR POR 32,412 %Gross PAR POR

OPERATING REVENUE

Rooms $3,786 98.8 % $31,550 $127.12 $4,232 98.9 % $35,267 $134.20 $4,619 99.0 % $38,492 $142.51 $4,758 99.0 % $39,650 $146.80 $4,900 99.0 % $40,833 $151.18

Other Operated Departments 34 0.9 287 1.15 36 0.8 300 1.14 37 0.8 312 1.15 39 0.8 321 1.19 40 0.8 331 1.22

Miscellaneous Income 10 0.3 86 0.35 11 0.3 90 0.34 11 0.2 93 0.35 12 0.2 96 0.36 12 0.2 99 0.37

Total Operating Revenues 3,831 100.0 31,923 128.62 4,279 100.0 35,657 135.68 4,668 100.0 38,897 144.01 4,808 100.0 40,067 148.34 4,952 100.0 41,263 152.77

DEPARTMENTAL EXPENSES *

Rooms 904 23.9 7,531 30.34 952 22.5 7,931 30.18 991 21.5 8,258 30.57 1,021 21.5 8,506 31.49 1,051 21.5 8,761 32.44


Total Expenses 932 24.3 7,765 31.28 981 22.9 8,172 31.10 1,021 21.9 8,507 31.50 1,051 21.9 8,762 32.44 1,083 21.9 9,025 33.41

DEPARTMENTAL INCOME 2,899 75.7 24,158 97.33 3,298 77.1 27,485 104.58 3,647 78.1 30,390 112.51 3,757 78.1 31,305 115.90 3,869 78.1 32,238 119.36

UNDISTRIBUTED OPERATING EXPENSES

Administrative & General 360 9.4 2,999 12.08 378 8.8 3,148 11.98 395 8.5 3,288 12.17 406 8.5 3,387 12.54 419 8.5 3,488 12.91

Info & Telecom Systems 57 1.5 474 1.91 60 1.4 497 1.89 62 1.3 519 1.92 64 1.3 535 1.98 66 1.3 551 2.04

Marketing 303 7.9 2,526 10.18 318 7.4 2,651 10.09 332 7.1 2,769 10.25 342 7.1 2,852 10.56 352 7.1 2,937 10.88

Franchise Fee 341 8.9 2,840 11.44 381 8.9 3,174 12.08 416 8.9 3,464 12.83 428 8.9 3,569 13.21 441 8.9 3,675 13.61

Prop. Operations & Maint. 121 3.2 1,010 4.07 135 3.2 1,127 4.29 166 3.6 1,384 5.13 171 3.6 1,426 5.28 176 3.6 1,469 5.44

Utilities 139 3.6 1,158 4.66 146 3.4 1,215 4.62 152 3.3 1,269 4.70 157 3.3 1,307 4.84 162 3.3 1,346 4.98

Total Expenses 1,321 34.5 11,006 44.34 1,417 33.1 11,811 44.94 1,523 32.7 12,694 47.00 1,569 32.7 13,075 48.41 1,616 32.7 13,467 49.86

GROSS HOUSE PROFIT 1,578 41.2 13,152 52.99 1,881 44.0 15,674 59.64 2,123 45.4 17,696 65.52 2,188 45.4 18,230 67.49 2,253 45.4 18,771 69.50

Management Fee 115 3.0 958 3.86 128 3.0 1,070 4.07 140 3.0 1,167 4.32 144 3.0 1,202 4.45 149 3.0 1,238 4.58

INCOME BEFORE NON-OPR. INC. & EXP. 1,463 38.2 12,195 49.13 1,752 41.0 14,604 55.57 1,983 42.4 16,529 61.19 2,043 42.4 17,028 63.04 2,104 42.4 17,533 64.91

NON-OPERATING INCOME & EXPENSE

Property Taxes 212 5.5 1,766 7.11 218 5.1 1,819 6.92 225 4.8 1,873 6.93 232 4.8 1,929 7.14 238 4.8 1,987 7.36

Insurance 91 2.4 761 3.07 94 2.2 784 2.98 97 2.1 808 2.99 100 2.1 832 3.08 103 2.1 857 3.17

Reserve for Replacement 77 2.0 638 2.57 128 3.0 1,070 4.07 187 4.0 1,556 5.76 192 4.0 1,603 5.93 198 4.0 1,651 6.11

Total Expenses 380 9.9 3,165 12.75 441 10.3 3,672 13.97 508 10.9 4,237 15.69 524 10.9 4,364 16.16 539 10.9 4,495 16.64

EBITDA LESS RESERVE $1,084 28.3 % $9,029 $36.38 $1,312 30.7 % $10,932 $41.60 $1,475 31.5 % $12,292 $45.51 $1,520 31.5 % $12,664 $46.89 $1,565 31.5 % $13,039 $48.27

*Departmental expenses are expressed as a percentage of departmental revenues.


FIGURE 1-6 TEN-YEAR FORECAST OF INCOME AND EXPENSE

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30

Number of Rooms: 120 120 120 120 120 120 120 120 120 120

Occupied Rooms: 29,784 31,536 32,412 32,412 32,412 32,412 32,412 32,412 32,412 32,412

Occupancy: 68% 72% 74% 74% 74% 74% 74% 74% 74% 74%

Average Rate: $127.10 % of $134.21 % of $142.51 % of $146.79 % of $151.19 % of $155.73 % of $160.40 % of $165.21 % of $170.17 % of $175.27

RevPAR: $86.43 Gross $96.63 Gross $105.46 Gross $108.62 Gross $111.88 Gross $115.24 Gross $118.69 Gross $122.26 Gross $125.92 Gross $129.70

OPERATING REVENUE

Rooms $3,786 98.8 % $4,232 98.9 % $4,619 99.0 % $4,758 99.0 % $4,900 99.0 % $5,047 99.0 % $5,199 99.0 % $5,355 99.0 % $5,515 99.0 % $5,681 99.0 %





Rooms 904 23.9 952 22.5 991 21.5 1,021 21.5 1,051 21.5 1,083 21.5 1,115 21.5 1,149 21.5 1,183 21.5 1,219 21.5


Total Expenses 932 24.3 981 22.9 1,021 21.9 1,051 21.9 1,083 21.9 1,116 21.9 1,149 21.9 1,183 21.9 1,219 21.9 1,256 21.9



Administrative & General 360 9.4 378 8.8 395 8.5 406 8.5 419 8.5 431 8.5 444 8.5 457 8.5 471 8.5 485 8.5


Marketing 303 7.9 318 7.4 332 7.1 342 7.1 352 7.1 363 7.1 374 7.1 385 7.1 397 7.1 409 7.1

Franchise Fee 341 8.9 381 8.9 416 8.9 428 8.9 441 8.9 454 8.9 468 8.9 482 8.9 496 8.9 511 8.9

Prop. Operations & Maint. 121 3.2 135 3.2 166 3.6 171 3.6 176 3.6 182 3.6 187 3.6 193 3.6 198 3.6 204 3.6

Utilities 139 3.6 146 3.4 152 3.3 157 3.3 162 3.3 166 3.3 171 3.3 177 3.3 182 3.3 187 3.3

Total Expenses 1,321 34.5 1,417 33.1 1,523 32.6 1,569 32.6 1,616 32.6 1,664 32.6 1,714 32.6 1,766 32.6 1,819 32.6 1,873 32.6


Management Fee 115 3.0 128 3.0 140 3.0 144 3.0 149 3.0 153 3.0 158 3.0 162 3.0 167 3.0 172 3.0



Property Taxes 212 5.5 218 5.1 225 4.8 232 4.8 238 4.8 246 4.8 253 4.8 261 4.8 268 4.8 276 4.8

Insurance 91 2.4 94 2.2 97 2.1 100 2.1 103 2.1 106 2.1 109 2.1 112 2.1 116 2.1 119 2.1

Reserve for Replacement 77 2.0 128 3.0 187 4.0 192 4.0 198 4.0 204 4.0 210 4.0 216 4.0 223 4.0 230 4.0

Total Expenses 380 9.9 441 10.3 508 10.9 524 10.9 539 10.9 556 10.9 572 10.9 589 10.9 607 10.9 625 10.9

EBITDA LESS RESERVE $1,084 28.3 % $1,312 30.7 % $1,475 31.6 % $1,520 31.6 % $1,565 31.6 % $1,612 31.6 % $1,660 31.6 % $1,710 31.6 % $1,761 31.6 % $1,814 31.6 %1 1 1 1 1 1 1 1 1 1


% of

Gross


As illustrated, the hotel is expected to stabilize at a profitable level. Please refer to the Forecast of Income and Expense chapter of our report for a detailed explanation of the methodology used in deriving this forecast.

The methodology used to develop this study is based on the market research and valuation techniques set forth in the textbooks authored by Hospitality Valuation Services for the American Institute of Real Estate Appraisers and the Appraisal Institute, entitled The Valuation of Hotels and Motels,1 Hotels, Motels and Restaurants: Valuations and Market Studies,2 The Computerized Income Approach to Hotel/Motel Market Studies and Valuations,3 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations,4 and Hotels and Motels – Valuations and Market Studies.5

1. All information was collected and analyzed by the staff of HVS Consulting & Valuation. Information was supplied by the client and/or the property’s development team.

2. The subject site has been evaluated from the viewpoint of its physical utility for the future operation of a hotel, as well as access, visibility, and other relevant factors.

3. The surrounding economic environment, on both an area and neighborhood level, has been reviewed to identify specific hostelry-related economic and demographic trends that may have an impact on future demand for hotels.

4. Dividing the market for hotel accommodations into individual segments defines specific market characteristics for the types of travelers expected to utilize the area's hotels. The factors investigated include purpose of visit, average length of stay, facilities and amenities required, seasonality, daily demand fluctuations, and price sensitivity.

5. An analysis of existing and proposed competition provides an indication of the current accommodated demand, along with market penetration and the

1 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of

Real Estate Appraisers, 1978). 2 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies.

(Chicago: American Institute of Real Estate Appraisers, 1983). 3 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and

Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990). 4 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment

Analysis, and Valuations (Chicago: Appraisal Institute, 1992). 5 Stephen Rushmore and Erich Baum, Hotels and Motels – Valuations and Market Studies.

(Chicago: Appraisal Institute, 2001).

Scope of Work


degree of competitiveness. Unless noted otherwise, we have inspected the competitive lodging facilities summarized in this report.

6. Documentation for an occupancy and ADR projection is derived utilizing the build-up approach based on an analysis of lodging activity.

7. A detailed projection of income and expense made in accordance with the Uniform System of Accounts for the Lodging Industry sets forth the anticipated economic benefits of the proposed subject property.

June-2018 Description of the Site and Neighborhood Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 12

2. Description of the Site and Neighborhood

The suitability of the land for the operation of a lodging facility is an important consideration affecting the economic viability of a property and its ultimate marketability. Factors such as size, topography, access, visibility, and the availability of utilities have a direct impact on the desirability of a particular site.

The subject site is located in Downtown Kissimmee, directly east of the intersection formed by Pleasant Street and Ruby Avenue. The subject site is approximately two blocks northwest of Lake Tohopekaliga. This site is in the city of Kissimmee, Florida.

The subject site measures approximately 0.64 acres, or 27,878 square feet. The parcel's adjacent uses are set forth in the following table.

FIGURE 2-1 SUBJECT PARCEL'S ADJACENT USES

Direction Boundary

Northeast Property Line Toho Square Parking Garage

Southeast Rai l road Parking Lot

Southwest Ruby Avenue Parking Lot, Office Bui lding

Northwest Pleasant Street Offices , Retai l

Adjacent Use

The subject site comprises two separate parcels. The main parcel (Tract 1) measures 7,405.2 square feet. The second parcel (Tract A) measures 20,473.2 square feet. At the time of inspection in early June 2018, both parcels appeared to be cleared and prepped for development.

Physical Characteristics


VIEW OF SUBJECT SITE

The topography of the site is generally flat, and the shape should permit efficient use of the site for building and site improvements, including ingress and egress. Upon completion of construction, the subject site will not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. It is expected that the site will be developed fully with building and site improvements, thus contributing to the overall profitability of the hotel.

AERIAL PHOTOGRAPH

Topography and Site Utility


VIEW FROM SITE TO THE NORTH

VIEW FROM SITE TO THE SOUTH

VIEW FROM SITE TO THE EAST

VIEW FROM SITE TO THE WEST

It is important to analyze the site with respect to regional and local transportation routes and demand generators, including ease of access. The subject site is readily accessible to a variety of local and county roads, as well as state and interstate highways.

Access and Visibility


MAP OF REGIONAL ACCESS ROUTES

Primary regional access through the area is provided by east/west Interstate 4, which extends to such cities as Tampa to the southwest and Daytona Beach to the northeast. North/south Interstate 95 is another major highway, providing access to such cities as Miami to the south and Jacksonville to the north. Regional access through the area is also provided by Florida's Turnpike, which extends from southeast Florida, through Orlando, to Interstate 75 to the northwest. The subject market is served by a variety of additional local highways, which are illustrated on the map.

Primary vehicular access to the subject site is provided by Ruby Avenue. Access is also available from Pleasant Street. The subject site is located one block from Broadway/North Main Street, the principal artery through Downtown Kissimmee that extends south of West Irlo Bronson Memorial Highway/U.S. Highway 192, which is the nearest major highway. The proposed subject hotel is anticipated to have adequate signage at the street and on its façade. Visibility of the proposed hotel


from Broadway is expected to be limited given the site's location behind existing structures. Overall, the subject site benefits from good accessibility, and the proposed hotel is expected to enjoy fair visibility from within its local neighborhood.

The proposed subject hotel will be served by the Orlando International Airport, which is located approximately ten miles to the northeast of the subject site.

The first phase of SunRail, Central Florida’s $1.3 billion commuter rail system, began operations in 2014 from DeBary in Volusia County to Sand Lake Road in Orange County. SunRail is expected to help alleviate traffic on Interstate 4 that likely will worsen during the Florida Department of Transportation’s $2.1-billion overhaul. The remaining portion of the SunRail system includes the south alignment (which will run from Sand Lake Road to Poinciana in Osceola County), the north alignment (extending from DeBary to DeLand), and an extension to Orlando International Airport. Construction began in April 2016 on the south alignment, a 17.2-mile extension that will provide rail service for residents and visitors from Meadow Woods in Orange County and Tupperware, Kissimmee, and Poinciana in Osceola County. Service for this extension is scheduled to begin in late June or early July 2018. Testing of this new extension was already underway as of early June 2018. The Kissimmee SunRail station is located approximately one-quarter mile northeast of the subject site. The station is adjacent to the recently constructed Lynx Intermodal Station and Kissimmee Intermodal Parking Garage. The new Kissimmee SunRail station is projected to be the busiest of the new stations, which will also include a station in Poinciana, Tupperware, Meadow Woods.

The neighborhood surrounding a lodging facility often has an impact on a hotel's status, image, class, style of operation, and sometimes its ability to attract and properly serve a particular market segment. This section of the report investigates the subject neighborhood and evaluates any pertinent location factors that could affect its future occupancy, average rate, and overall profitability.

The neighborhood that surrounds the subject site is generally defined by Neptune Road to the north, Lake Tohopekaliga to the east and south, and North Rose Avenue to the west. The neighborhood is characterized by historic buildings, Kissimmee Lakefront Park, independent retail shops, city and county municipal buildings, parking structures, Kissimmee Civic Center, and Lake Tohopekaliga, as well as residential areas located along the secondary roadways. Some specific businesses, entities, and attractions in the area include Kissimmee Lakefront Park, Kissimmee Civic Center, Berlinksy Community House, Osceola County Courthouse, and the Bog Toho Marina. The only existing lodging establishment in the vicinity is the Kapp and Kappy B&B located along North Clyde Avenue. Restaurants located near the subject site include Shipwrecked in the Islands, Main Street Pizza, Big John's Rockin' BBQ, Broadway Pizza Bar, Savion's Place Family Cuisine, and Nadia's Cafe; the proximity

Airport and Metrorail Access

Neighborhood


of these restaurants is considered supportive of the operation of a limited-service lodging property.

In general, this neighborhood is in the revitalization stage of its life cycle. The Kissimmee Lakefront Park underwent significant redevelopment that was completed in 2015 after an approximately $30-million, five-year update. The facility spans 24 acres along the northern banks of Lake Tohopekaliga and features views of the lake, open space, event stages, a newly constructed marina, public pavilions, concession stand, a splash park and playground, paved trails, and various recreational areas. The park's Lake Toho Marina offers over 52 new brick-paved floating docks, as well as the Bog Toho Marina Bait & Tackle Shop. Other notable changes in this neighborhood include the March 2018 completion of a parking structure with over 380 spaces located between Ruby Avenue and East Monument Avenue. The parking garage is free to the public and designed to increase pedestrian traffic and raise parking capacity for residents and events in the downtown Kissimmee area. Furthermore, SunRail will begin offering service to/from Downtown Kissimmee via its south extension in July 2018.

MAP OF NEIGHBORHOOD


LAKE TOHO REDEVELOPMENT

Mosaic Development is redeveloping approximately eleven acres in the downtown area adjacent to the Kissimmee Lakefront Park. This proposed $65-million mixed-use development is planned to include 570 market-rate apartments, retail space, and the proposed subject hotel. As of early June 2018, the developer planned to break ground on Phase I, which includes the apartment and retail components of the proposed development, in late 2018 or early 2019, with a planned buildout time of approximately 18–24 months. The retail portion is proposed to be located on the street level below the apartments. Phase II of the development, referred to as the "Hansel Site," is slated to break ground in early 2019 and will include additional apartments, parking, and retail. The proposed subject hotel's opening should be a positive influence on the area; the hotel will be in character with and will complement surrounding land uses. Overall, the supportive nature of the development in the immediate area, as well as the planned redevelopments, are considered acceptable for the operation of a hotel.


The subject site is located near the area's primary generators of lodging demand. A sample of these demand generators is reflected on the following map, including respective distances from and drive times to the subject site. Additionally, the subject site is proximate to a new SunRail station that will provide access to other parts of the metropolitan Orlando area. Overall, the subject site is well situated with respect to demand generators.

ACCESS TO DEMAND GENERATORS AND ATTRACTIONS

Proximity to Local Demand Generators and Attractions


The subject site will reportedly be served by all necessary utilities.

Geological and soil reports were not provided to us or made available for our review during the preparation of this report. We are not qualified to evaluate soil conditions other than by a visual inspection of the surface; no extraordinary conditions were apparent.

We were not informed of any site-specific nuisances or hazards, and there were no visible signs of toxic ground contaminants at the time of our inspection. Because we are not experts in this field, we do not warrant the absence of hazardous waste and urge the reader to obtain an independent analysis of these factors.

According to the Federal Emergency Management Agency map illustrated below, the subject site is located in X.

COPY OF FLOOD MAP AND COVER

Utilities

Soil and Subsoil Conditions

Nuisances and Hazards

Flood Zone


The flood zone definition for the X designation is as follows: areas outside the 500-year flood plain; areas of the 500-year flood; areas of the 100-year flood with average depths of less than one foot or with drainage areas less than one square mile and areas protected by levees from the 100-year flood.

According to the local planning office, the subject property is zoned as follows: MUPUD - Mixed Use Planned Unit Development. Additional details pertaining to the proposed subject property’s zoning regulations are summarized in the following table.

FIGURE 2-2 ZONING

Municipal i ty Governing Zoning City of Kiss immee

Current Zoning MUPUD (Mixed Use Planned Unit Development)

Current Use Vacant Land

Is Current Use Permitted? Yes

Is Change in Zoning Likely? No

Permitted Uses Res identia l , hotel , reta i l

Hotel Al lowed Yes

We are not aware of any easements attached to the property that would significantly affect the utility of the site or marketability of this project.

We have analyzed the issues of size, topography, access, visibility, and the availability of utilities. The subject site is located in Downtown Kissimmee and is planned to be a part of a larger development in the downtown. In general, the site should be acceptable for future hotel use, with acceptable access, fair visibility, and topography for an effective operation.

Zoning

Easements and Encroachments

Conclusion

June-2018 Market Area Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 22

3. Market Area Analysis

The economic vitality of the market area and neighborhood surrounding the subject site is an important consideration in forecasting lodging demand and future income potential. Economic and demographic trends that reflect the amount of visitation provide a basis from which to project lodging demand. The purpose of the market area analysis is to review available economic and demographic data to determine whether the local market will undergo economic growth, stabilize, or decline. In addition to predicting the direction of the economy, the rate of change must be quantified. These trends are then correlated based on their propensity to reflect variations in lodging demand, with the objective of forecasting the amount of growth or decline in visitation by individual market segment (e.g., commercial, meeting and group, and leisure).

The market area for a lodging facility is the geographical region where the sources of demand and the competitive supply are located. The subject site is located in the city of Kissimmee, the county of Osceola, and the state of Florida. Kissimmee is the county seat of Osceola County and is a principal city in the Orlando-Kissimmee-Sanford MSA. In addition to being recognized as one of the nation's foremost vacation destinations, anchored by the formidable Walt Disney World Resort and Universal Orlando, Orlando is the major center for commerce in the Central Florida region. The Central Florida Research Park, totaling more than 1,000 acres, is ranked as one of the top ten research parks in the nation and is home to over 125 companies. Moreover, the University of Central Florida (UCF) is the second-largest university in the nation, with more than 60,000 students. Orlando's economic climate is characterized by tourism, healthcare services and research, financial services, and educational institutions.

Market Area Definition


KISSIMMEE

The proposed subject property’s market area can be defined by its Combined Statistical Area (CSA): Orlando-Deltona-Daytona Beach, FL. The CSA represents adjacent metropolitan and micropolitan statistical areas that have a moderate degree of employment interchange. Micropolitan statistical areas represent urban areas in the United States based around a core city or town with a population of 10,000 to 49,999; the MSA requires the presence of a core city of at least 50,000 people and a total population of at least 100,000 (75,000 in New England). The following exhibit illustrates the market area.


MAP OF MARKET AREA

A primary source of economic and demographic statistics used in this analysis is the Complete Economic and Demographic Data Source published by Woods & Poole Economics, Inc.—a well-regarded forecasting service based in Washington, D.C. Using a database containing more than 900 variables for each county in the nation, Woods & Poole employs a sophisticated regional model to forecast economic and demographic trends. Historical statistics are based on census data and information published by the Bureau of Economic Analysis. Projections are formulated by Woods & Poole, and all dollar amounts have been adjusted for inflation, thus reflecting real change.

These data are summarized in the following table.

Economic and Demographic Review


FIGURE 3-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY

Average Annual

Compounded Change

2000 2010 2017 2020 2000-10 2010-17 2017-20

Resident Population (Thousands)

Osceola County 174.1 269.8 333.7 359.0 4.5 % 3.1 % 2.5 %

Orlando-Kiss immee-Sanford, FL MSA 1,656.9 2,139.7 2,445.8 2,578.3 2.6 1.9 1.8

Orlando-Deltona-Daytona Beach, FL CSA 2,206.1 2,824.7 3,200.1 3,364.7 2.5 1.8 1.7

State of Florida 16,047.5 18,852.2 20,731.7 21,620.6 1.6 1.4 1.4

United States 282,162.4 309,347.1 327,505.1 336,690.4 0.9 0.8 0.9

Per-Capita Personal Income*

Osceola County $24,838 $25,855 $27,317 $28,651 0.4 0.8 1.6

Orlando-Kiss immee-Sanford, FL MSA 33,339 33,467 35,669 37,399 0.0 0.9 1.6

Orlando-Deltona-Daytona Beach, FL CSA 31,969 33,090 35,548 37,301 0.3 1.0 1.6

State of Florida 35,603 38,089 41,121 43,088 0.7 1.1 1.6

United States 36,812 39,622 44,290 46,375 0.7 1.6 1.5

W&P Wealth Index

Osceola County 70.2 66.9 62.2 62.3 (0.5) (1.0) 0.0

Orlando-Kiss immee-Sanford, FL MSA 92.3 86.3 82.0 82.1 (0.7) (0.7) 0.0

Orlando-Deltona-Daytona Beach, FL CSA 89.1 85.5 81.8 81.9 (0.4) (0.6) 0.1

State of Florida 100.4 100.8 96.9 97.0 0.0 (0.6) 0.0

United States 100.0 100.0 100.0 100.0 0.0 0.0 0.0

Food and Beverage Sales (Millions)*

Osceola County $363 $412 $583 $642 1.3 5.1 3.3



State of Florida 22,183 28,727 37,430 39,997 2.6 3.9 2.2

United States 368,829 447,728 571,731 602,635 2.0 3.6 1.8

Total Retail Sales (Millions)*

Osceola County $2,331 $3,138 $4,255 $4,680 3.0 4.4 3.2



State of Florida 241,567 268,761 328,454 349,959 1.1 2.9 2.1

United States 3,902,830 4,130,414 4,932,756 5,181,433 0.6 2.6 1.7

* Inflation Adjusted

Source: Woods & Poole Economics , Inc.


The U.S. population has grown at an average annual compounded rate of 0.8% from 2010 through 2017. The county’s population has grown at a quicker pace than the nation’s population; the average annual growth rate of 3.1% between 2010 and 2017 reflects a rapidly expanding area. Following this population trend, per-capita personal income increased slowly, at 0.8% on average annually for the county between 2010 and 2017. Local wealth indexes have remained stable in recent years, registering a relatively low 62.2 level for the county in 2017.

Food and beverage sales totaled $583 million in the county in 2017, versus $412 million in 2010. This reflects a 5.1% average annual change, which is stronger than the 1.3% pace recorded in the prior decade, the latter years of which were adversely affected by the recession. Over the long term, the pace of growth is forecast to moderate to a more sustainable level of 3.3%, which is forecast through 2020. The retail sales sector demonstrated an annual increase of 3.0% registered in the decade 2000 to 2010, followed by an increase of 4.4% in the period 2010 to 2017. An increase of 3.2% average annual change is expected in county retail sales through 2020.

The characteristics of an area's workforce provide an indication of the type and amount of transient visitation likely to be generated by local businesses. Sectors such as finance, insurance, and real estate (FIRE); wholesale trade; and services produce a considerable number of visitors who are not particularly rate-sensitive. The government sector often generates transient room nights, but per-diem reimbursement allowances often limit the accommodations selection to budget and mid-priced lodging facilities. Contributions from manufacturing, construction, transportation, communications, and public utilities (TCPU) employers can also be important, depending on the company type.

The following table sets forth the county workforce distribution by business sector in 2000, 2010, and 2017, as well as a forecast for 2020.

Workforce Characteristics


FIGURE 3-2 HISTORICAL AND PROJECTED EMPLOYMENT (000S)

Average Annual

Compounded Change

Percent Percent Percent Percent

Industry 2000 of Total 2010 of Total 2017 of Total 2020 of Total

Farm 0.9 1.4 % 0.5 0.5 % 0.5 0.4 % 0.5 0.4 % (5.8) % 0.5 % 0.1 %

Forestry, Fishing, Related Activi ties And Other 0.6 1.0 0.6 0.6 0.7 0.5 0.7 0.5 (0.6) 1.7 1.5

Mining 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.0 7.5 7.2 0.0

Uti l i ties 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 5.4 (3.7) 0.0

Construction 4.3 6.8 5.4 5.8 6.8 5.7 7.5 5.9 2.3 3.3 3.6

Manufacturing 1.5 2.3 1.5 1.6 1.7 1.5 1.8 1.4 (0.0) 2.5 0.5

Total Trade 11.0 17.2 14.8 15.8 19.1 16.1 20.4 15.9 3.0 3.8 2.2

Wholesa le Trade 2.0 3.1 2.2 2.4 2.7 2.2 2.8 2.2 1.1 2.5 1.5

Retai l Trade 9.0 14.1 12.5 13.4 16.4 13.9 17.6 13.8 3.3 4.0 2.3

Transportation And Warehous ing 0.9 1.3 2.3 2.4 3.1 2.6 3.5 2.7 10.3 4.4 4.2

Information 0.4 0.6 0.8 0.8 0.9 0.7 0.9 0.7 6.7 1.4 0.4

Finance And Insurance 1.1 1.7 2.6 2.8 2.9 2.4 3.2 2.5 8.7 1.7 3.0

Real Estate And Rental And Lease 3.5 5.5 7.2 7.7 8.7 7.3 9.5 7.5 7.5 2.7 3.2

Total Services 31.2 48.8 45.4 48.8 60.4 51.0 65.4 51.1 3.8 4.1 2.7

Profess ional And Technica l Services 1.5 2.4 3.2 3.4 3.9 3.3 4.2 3.2 7.5 2.9 2.1

Management Of Companies And Enterprises 0.8 1.2 0.1 0.1 0.1 0.1 0.1 0.1 (17.7) 0.0 2.7

Adminis trative And Waste Services 3.9 6.1 6.5 7.0 13.8 11.7 15.3 12.0 5.2 11.3 3.5

Educational Services 0.3 0.5 1.1 1.2 2.2 1.8 2.6 2.0 13.6 10.3 5.6

Health Care And Socia l Ass is tance 5.3 8.2 9.9 10.6 13.4 11.3 14.3 11.2 6.5 4.5 2.3

Arts , Enterta inment, And Recreation 4.5 7.1 5.7 6.1 3.5 2.9 3.8 3.0 2.3 (6.7) 3.1

Accommodation And Food Services 11.3 17.7 13.7 14.6 16.6 14.0 17.8 13.9 1.9 2.8 2.3

Other Services , Except Publ ic Adminis tration 3.5 5.5 5.3 5.7 6.9 5.8 7.3 5.7 4.2 3.7 2.1

Total Government 8.5 13.3 12.1 13.0 13.7 11.5 14.6 11.4 3.6 1.7 2.2

Federa l Civi l ian Government 0.3 0.5 0.4 0.4 0.4 0.3 0.4 0.3 1.1 (0.4) 0.6

Federa l Mi l i tary 0.4 0.6 0.5 0.6 0.6 0.5 0.6 0.5 3.9 1.0 0.1

State And Local Government 7.8 12.2 11.2 12.0 12.7 10.7 13.6 10.6 3.7 1.8 2.3

TOTAL 63.9 100.0 % 93.2 100.0 % 118.4 100.0 % 128.0 100.0 % 3.8 % 3.5 % 2.6 %

U.S. 165,370.9 — 173,034.7 — 194,801.7 — 203,418.4 — 1.0 1.7 1.5

Source: Woods & Poole Economics , Inc.

2000-

2010

2010-

2017

2017-

2020


Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county grew at an average annual rate of 3.8%. This trend was above the growth rate recorded by the MSA and also outpaced the national average. More recently, the pace of total employment growth in the county slowed to 3.5% on an annual average from 2010 to 2017.

Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2010 to 2017, increasing by 14,954 people, or 32.9%, and rising from 48.8% to 51.0% of total employment. Of the various service sub-sectors, Accommodation And Food Services and Administrative And Waste Services were the largest employers. Strong growth was also recorded in the Total Trade sector, as well as the Total Government sector, which expanded by 29.4% and 19.2%, respectively, in the period 2010 to 2017. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 2.6% on average annually through 2020. The trend is above the forecast rate of change for the U.S. as a whole during the same period.

For the Orlando market, of the roughly 1,300,000 persons employed, 31% are categorized as office employees, while 8% are categorized as industrial employees. Total employment decreased by an average annual compound rate of -2.8% during the recession of 2009 to 2012, followed by an increase of 3.4% from 2012 to 2017. By comparison, office employment reflected compound change rates of -2.6% and 3.4%, during the same respective periods. Total employment is expected to expand by 4.6% in 2018, while office employment is forecast to expand by 3.6% in 2018. From 2017 through 2022, REIS anticipates that total employment will expand at an average annual compound rate of 1.9%, while office employment will expand by 1.8% on average annually during the same period.

The number of households is forecast to expand by 3.7% on average annually between 2017 and 2022. Population is forecast to expand during this same period, at an average annual compounded rate of 2.9%. Household average income is forecast to grow by 4.0% on average annually from 2017 through 2022.

The following table illustrates historical and projected employment, households, population and average household income data as provided by REIS for the overall Orlando market.


FIGURE 3-3 HISTORICAL & PROJECTED EMPLOYMENT, HOUSEHOLDS, POPULATION, AND HOUSEHOLD INCOME STATISTICS

Year

2005 1,031,370 — 309,987 — 107,317 — 755,800 — 1,991,200 — $84,982 —

2006 1,069,470 3.7 % 326,054 5.2 % 109,657 2.2 % 775,310 2.6 % 2,041,030 2.5 % 89,331 5.1 %

2007 1,085,930 1.5 330,312 1.3 109,514 (0.1) 788,970 1.8 2,073,370 1.6 91,409 2.3

2008 1,039,930 (4.2) 319,473 (3.3) 100,894 (7.9) 795,690 0.9 2,099,920 1.3 88,579 (3.1)

2009 984,330 (5.3) 306,270 (4.1) 91,351 (9.5) 799,890 0.5 2,124,850 1.2 85,097 (3.9)

2010 997,270 1.3 305,493 (0.3) 91,202 (0.2) 804,350 0.6 2,155,550 1.4 90,400 6.2

2011 1,014,070 1.7 310,189 1.5 89,032 (2.4) 820,400 2.0 2,200,730 2.1 92,968 2.8

2012 1,043,800 2.9 319,952 3.1 90,097 1.2 837,980 2.1 2,248,130 2.2 96,316 3.6

2013 1,080,100 3.5 329,591 3.0 92,803 3.0 855,020 2.0 2,295,520 2.1 95,759 (0.6)

2014 1,123,330 4.0 338,894 2.8 97,063 4.6 872,370 2.0 2,354,110 2.6 101,904 6.4

2015 1,179,770 5.0 356,178 5.1 101,548 4.6 889,910 2.0 2,416,050 2.6 107,863 5.8

2016 1,227,170 4.0 372,474 4.6 104,275 2.7 910,230 2.3 2,477,360 2.5 109,251 1.3

2017 1,262,470 2.9 385,150 3.4 107,067 2.7 937,900 3.0 2,538,980 2.5 111,676 2.2

Forecasts

2018 1,320,470 4.6 % 399,181 3.6 % 110,739 3.4 % 973,970 3.8 % 2,616,140 3.0 % $117,720 5.4 %

2019 1,354,330 2.6 408,633 2.4 112,024 1.2 1,011,470 3.9 2,694,040 3.0 123,730 5.1

2020 1,368,200 1.0 411,660 0.7 111,690 (0.3) 1,048,430 3.7 2,772,330 2.9 127,681 3.2

2021 1,388,760 1.5 417,432 1.4 111,929 0.2 1,085,890 3.6 2,852,090 2.9 132,385 3.7

2022 1,422,810 2.5 428,152 2.6 113,160 1.1 1,124,240 3.5 2,932,680 2.8 137,826 4.1

Average Annual Compound Change

2005 - 2017 1.7 % 1.8 % (0.0) % 1.8 % 2.0 % 2.3 %

2005 - 2007 2.6 3.2 1.0 2.2 2.0 3.7

2007 - 2010 (2.8) (2.6) (5.9) 0.6 1.3 (0.4)

2010 - 2017 3.4 3.4 2.3 2.2 2.4 5.4

Forecast 2018 - 2022 1.9 % 1.8 % 0.5 % 3.7 % 2.9 % 4.0 %

% Chg% Chg

Office

Employment

Household

Avg. Income % Chg

Source: REIS Report, 1st Quarter, 2018

Households % Chg Population

Industrial

Employment % Chg

Total

Employment % Chg


The following table reflects radial demographic trends for our market area measured by three points of distance from the subject site.

FIGURE 3-4 DEMOGRAPHICS BY RADIUS

Population

2023 Projection 5,915 73,961 181,213

2018 Estimate 5,590 68,499 165,748

2010 Census 5,037 58,356 134,725

2000 Census 4,967 51,825 99,077

Percent Change: 2018 to 2023 5.8% 8.0% 9.3%



Households

2023 Projection 2,140 26,457 60,763

2018 Estimate 2,010 24,447 55,773

2010 Census 1,788 20,732 45,815

2000 Census 1,878 18,977 34,764



Percent Change: 2000 to 2010 -4.8% 9.3% 31.8%

Income

2018 Est. Average Household Income $46,550 $54,769 $59,945

2018 Est. Median Household Income 32,127 41,418 45,814

2018 Est. Civ. Employed Pop 16+ by Occupation

Architecture/Engineering 11 152 377

Arts/Des ign/Enterta inment/Sports/Media 32 410 1,191

Bui lding/Grounds Cleaning/Maintenance 242 2,943 6,136

Bus iness/Financia l Operations 39 745 1,773

Community/Socia l Services 25 356 822

Computer/Mathematica l 8 229 892

Construction/Extraction 187 1,779 4,008

Education/Tra ining/Library 73 1,096 3,360

Farming/Fishing/Forestry 0 43 65

Food Preparation/Serving Related 188 3,468 7,988

Healthcare Practi tioner/Technician 48 1,033 2,940

Healthcare Support 60 666 1,335

Insta l lation/Maintenance/Repair 102 1,449 3,197

Legal 9 93 295

Li fe/Phys ica l/Socia l Science 8 121 215

Management 116 1,507 4,573

Office/Adminis trative Support 237 5,169 12,872

Production 83 1,164 2,565

Protective Services 34 520 1,547

Sales/Related 205 3,971 9,744

Personal Care/Service 68 1,240 3,426

Transportation/Materia l Moving 214 2,561 6,725

0.00 - 1.00 miles 0.00 - 3.00 miles 0.00 - 5.00 miles

Source: Environics Analytics

Radial Demographic Snapshot


This source reports a population of 165,748 within a five-mile radius of the subject site, and 55,773 households within this same radius. Average household income within a five-mile radius of the subject site is currently reported at $59,945, while the median is $45,814.

The following table presents historical unemployment rates for the proposed subject hotel’s market area.

FIGURE 3-5 UNEMPLOYMENT STATISTICS

Year

2008 6.5 % 6.1 % 6.3 % 5.8 %

2009 11.2 10.5 10.4 9.3

2010 12.5 11.1 11.1 9.6

2011 11.3 10.0 10.0 8.9

2012 9.5 8.4 8.5 8.1

2013 7.9 7.0 7.2 7.4

2014 6.7 6.0 6.3 6.2

2015 5.8 5.2 5.5 5.3

2016 4.9 4.5 4.8 4.9

2017 4.2 3.8 4.2 4.4

Recent Month - Apr

2017 4.0 % 3.6 % 4.0 % 4.4 %

2018 3.4 3.1 3.4 3.9

* Letters shown next to data points (if any) reflect revised population controls

and/or model re-estimation implemented by the BLS.

Source: U.S. Bureau of Labor Statis tics

U.S.City MSA State

Current U.S. unemployment levels are now firmly below the annual averages of the last economic cycle peak of 2006 and 2007, when annual averages were 4.6%. National unemployment registered 4.1% each month during the first quarter of 2018, as well as the last quarter of 2017, roughly six points below the October 2009 peak of 10.0%. In April 2018, the rate fell further to 3.9%. Total nonfarm payroll employment increased by 324,000, 135,000, and 164,000 jobs in February, March, and April of 2018, respectively. Gains in April occurred in the professional and business services, manufacturing, health care, and mining sectors. Unemployment has remained under the 5.0% mark since May 2016, reflecting a trend of relative stability and the overall strength of the U.S. economy.

Unemployment Statistics


Locally, the unemployment rate was 4.2% in 2017; for this same area in 2018, the most recent month’s unemployment rate was registered at 3.4%, versus 4.0% for the same month in 2017. Unemployment rose in 2009 because of the national recession, which also affected this region in 2010, reaching double digits as the height of the recession took hold. However, unemployment declined in 2011, a trend that continued through 2017. The most recent comparative period illustrates further improvement, indicated by the lower unemployment rate in the latest available data for 2018. Local economic development officials noted that over the course of the economic recovery, Orlando has been a state leader in job creation, and this job growth has been fueled largely by the hospitality sector. Furthermore, local medical, research, and higher-education facilities continue to expand, and employment is strong within these sectors. Continued growth in the tourism industry and the biotechnology sector is anticipated to help stabilize employment levels. Our interviews with economic development officials reflect a positive outlook.

Providing additional context for understanding the nature of the regional economy, the following table presents a list of the major employers in the subject property’s market.

FIGURE 3-6 MAJOR EMPLOYERS

Number of

Rank Firm Employees

1 Walt Disney World Resort 74,000

2 Universa l Orlando 21,000

3 Adventis t Health System/Florida Hospita l 20,413

4 Publ ix 19,783

5 Orlando International Airport 18,000

6 Orlando Health 16,828

7 Univers i ty of Centra l Florida 11,833

8 Lockheed Martin 7,000

9 Darden Restaurants 6,149

10 SeaWorld Parks & Enterta inment 6,032

Source: Orlando Economic Development Commiss ion, 2017

The following bullet points highlight major demand generators for this market:

• Our previous experience in this market, conversations with local officials and market participants, and additional research revealed a number of economic anchors within Kissimmee. Various county and city government offices and facilities are located in Downtown Kissimmee and attract a variety of visitors to

Major Business and Industry


the market, including attorneys, government employees, and consultants. The 404-bed Osceola Regional Medical Center is the fourth-largest hospital in the Orlando metropolitan area. In recent years, the hospital has undergone significant renovations and additions to its campus located in northern downtown. In 2017 and early 2018, as part of a multi-phase $50-million expansion, updates to the hospital included a new rehabilitation center, an AHCA Certified Comprehensive Stroke Center, an MRI scanner, an endoscopy unit, two new floors on the Tower A building, and a Level III Neonatal Intensive Care Unit (NICU). Florida Hospital Kissimmee offers comprehensive inpatient and outpatient services in a full range of specialties. The Kissimmee Gateway Airport, located west of downtown, accommodates general aviation air service. Three Fixed-Based Operators (FBOs) are located on the airport property, as well as a number of flight-training schools. Tupperware Brands Corporation's global headquarters is located near the northern border of Osceola County. Furthermore, the emerging growth at the NeoCity campus, which is a planned 500-acre technology district, is anticipated to bolster the local economy into the future.

• Year-round tourism remains a cornerstone of lodging demand, drawing over 60 million visitors to the market annually. World-class theme parks and attractions create a unique family destination that cannot be found anywhere else in the world. Walt Disney World Resort, the heart of Orlando’s attraction experience, includes the Magic Kingdom, Epcot, Disney’s Hollywood Studios, and Disney’s Animal Kingdom. Additionally, Walt Disney World Resort features two water parks, 30 themed hotels, and a variety of dining and entertainment venues. Other major theme parks in the area include Universal Orlando Resort and SeaWorld Orlando. New attractions in recent years include Diagon Alley, an expansion of the Wizarding World of Harry Potter at Universal Orlando Resort that opened in 2014; Heartlake City, an expansion of LEGOLAND that opened in 2015; and Universal Studios' Volcano Bay water park, which opened in the summer of 2017. In 2014, Walt Disney World Resort opened the New Fantasyland; this area includes a ride based on The Little Mermaid, the Beauty and the Beast-themed Beast's Castle and Gaston's Tavern, the Seven Dwarfs Mine Train roller coaster, and additional interactive areas. In 2013, the transformation of Downtown Disney began, expanding it from 75 to more than 150 shopping, dining, and entertainment venues and renaming it Disney Springs. The development was completed in two phases in 2015 and 2016.

• The success of Orlando’s healthcare system has led the way for the city’s surging biotechnology sector. Orlando's ever-growing Lake Nona Medical City is a 650-acre health and life-sciences park located near Orlando International Airport and within the master-planned community of Lake Nona. The medical city currently serves as a home to the University of Central Florida (UCF) Health Sciences Campus, Sanford-Burnham Medical Research Institute, Nemours


Children’s Hospital, M.D. Anderson Orlando Cancer Research Institute, and a University of Florida Academic and Research Center. Future components of the park are expected to include additional colleges and a teaching hospital at Central Florida’s College of Medicine. Furthermore, the $665-million Orlando VA Medical Center, which fully opened in 2015, will be an integral part of the park, along with its $20-million National Simulation Center, which opened in November 2016. Additionally, Orlando Health is a $2.8-billion, nonprofit healthcare network in Central Florida. The organization is home to the area’s only Level One Trauma Centers for adults and pediatrics and is a teaching hospital system, with both specialty and community hospitals. In June 2017, Orlando Health broke ground on a cancer-center expansion at the Ocoee Health Central Hospital Campus. The first phase of the Orlando Health UF Health Cancer Center opened in early 2018, with the second phase planned for completion in the summer of 2018.

• Florida Hospital is one of the largest hospital systems in the country, treating nearly one million patients on a yearly basis, and spanning seven hospitals and fifteen Central Care walk-in medical centers. This healthcare system specializes in a diverse range of services, including globally recognized programs in cardiology, cancer, women’s medicine, neurology, diabetes, orthopedics, and rehabilitation. Florida Hospital is routinely recognized as one the best medical facilities in the country by U.S. News & World Report and serves as a prominent referral hospital throughout areas of the southeastern United States, the Caribbean, and South America. Construction of Florida Hospital's new, $65-million hospital facility in Winter Garden was completed in 2016; it comprises a three-story, 75,000-square-foot building that houses an emergency department and outpatient imaging, and the second and third floors serve as outpatient surgery centers. In May 2016, Florida Hospital Lake Mary ER opened; the new facility features 24 beds and offers an array of services including cardiology, general and robotic surgery, internal medicine, and orthopedics.

Orlando's popularity as a year-round tourism destination contributes to the area's overall economic strength. According to Visit Orlando, over 68 million people visited Orlando in 2016, representing a 3% increase in visitation from 2015 and reaching a new peak level for the seventh consecutive year. This figure represents a record for Orlando as the most-visited U.S. destination and sets a new milestone for the U.S. tourism industry. New or expanded tourism attractions and refurbishments to area resorts are expected to continue to support growth in the tourism industry. Additionally, growth is planned for Downtown Orlando with a 30-year phased rollout of Creative Village, a transformation of the city's old Amway Arena site into a 68-acre mixed-use development, which will create a residential, employment, and educational village for the digital media industry. The new Amway Center opened in late 2010 as part of Downtown Orlando's Master Plan 3, which also included the


$207-million renovation of the Citrus Bowl and construction of the new Doctor Phillips Center for the Performing Arts (opened in 2014). Moreover, a new $110-million Major League Soccer stadium, Orlando City Stadium, opened in February 2017. Furthermore, the transportation sector is growing with the widening of Interstate 4 and the SunRail system construction. The SunRail construction project comprises three stages. Phase I was completed in May 2014, while Phase II, which will extend the SunRail further north and south, is slated for completion mid-year 2018. Phase III will connect the SunRail to the Orlando International Airport, with anticipated completion in 2020.

Trends in occupied office space are typically among the most reliable indicators of lodging demand, as firms that occupy office space often exhibit a strong propensity to attract commercial visitors. Thus, trends that cause changes in vacancy rates or occupied office space may have a proportional impact on commercial lodging demand and a less direct effect on meeting demand. The following table details office space statistics for the pertinent market area.

FIGURE 3-7 OFFICE SPACE STATISTICS – MARKET OVERVIEW

Submarket

1 South Orlando 96 5,965,000 4,956,900 16.9 % $23.23

2 Kissimmee 17 663,000 574,200 13.4 21.81

3 East/Univers i ty of Centra l Florida 75 3,693,000 3,205,500 13.2 19.99

4 Altamonte/Casselbery 58 1,954,000 1,545,600 20.9 18.80

5 Sanford 69 4,836,000 4,279,900 11.5 23.72

6 Maitland 66 5,683,000 4,944,200 13.0 22.60

7 Northwest Orlando 32 1,290,000 1,113,300 13.7 19.77

8 Downtown 70 6,585,000 5,577,500 15.3 27.13

9 Winter Park 50 1,657,000 1,458,200 12.0 22.64

Totals and Averages 533 32,326,000 27,655,300 14.4 % $23.15

Inventory Occupied Office

Space

Vacancy

Rate

Average Asking

Lease RateBuildings Square Feet


The greater Orlando market comprises a total of 32.3 million square feet of office space. For the 1st Quarter of 2018, the market reported a vacancy rate of 14.4% and an average asking rent of $23.15. The subject property is located in the Kissimmee submarket, which houses 663,000 square feet of office space. The submarket's vacancy rate of 13.4% is below the overall market average. The average asking lease rate of $21.81 is below the average for the broader market.

The following table illustrates a trend of office space statistics for the overall Orlando market and the Kissimmee submarket.

Office Space Statistics


FIGURE 3-8 HISTORICAL AND PROJECTED OFFICE SPACE STATISTICS – GREATER MARKET VS. SUBMARKET

Year

2005 31,145,000 — 27,395,000 — 12.0 % $19.91 — 541,000 — 457,000 — 15.6 % $18.44 —

2006 31,759,000 2.0 % 28,796,000 5.1 % 9.3 20.81 4.5 % 541,000 0.0 % 506,000 10.7 % 6.5 19.70 6.8 %

2007 32,229,000 1.5 28,703,000 (0.3) 10.9 21.79 4.7 562,000 3.9 524,000 3.6 6.7 21.04 6.8

2008 32,519,000 0.9 28,410,000 (1.0) 12.6 21.81 0.1 562,000 0.0 505,000 (3.6) 10.1 20.49 (2.6)

2009 32,315,000 (0.6) 27,065,000 (4.7) 16.2 21.18 (2.9) 663,000 18.0 586,000 16.0 11.6 19.17 (6.4)

2010 32,205,000 (0.3) 26,557,000 (1.9) 17.5 21.06 (0.6) 663,000 0.0 560,000 (4.4) 15.5 19.47 1.6

2011 32,514,000 1.0 26,481,000 (0.3) 18.6 21.06 0.0 663,000 0.0 561,000 0.2 15.4 19.73 1.3

2012 32,661,000 0.5 26,647,000 0.6 18.4 21.22 0.8 663,000 0.0 546,000 (2.7) 17.6 19.88 0.8

2013 32,747,000 0.3 26,825,000 0.7 18.1 21.44 1.0 663,000 0.0 557,000 2.0 16.0 20.18 1.5

2014 32,767,000 0.1 27,177,000 1.3 17.1 21.77 1.5 663,000 0.0 563,000 1.1 15.1 20.79 3.0

2015 32,393,000 (1.1) 27,250,000 0.3 15.9 22.18 1.9 663,000 0.0 557,000 (1.1) 16.0 20.78 (0.0)

2016 32,202,000 (0.6) 27,451,000 0.7 14.8 22.62 2.0 663,000 0.0 568,000 2.0 14.3 21.22 2.1

2017 32,192,000 (0.0) 27,564,000 0.4 14.4 23.01 1.7 663,000 0.0 576,000 1.4 13.1 21.73 2.4

Forecasts

2018 32,451,000 0.8 % 27,793,000 0.8 % 14.4 % $23.36 1.5 % 663,000 0.0 % 567,000 (1.6) % 14.6 % $22.01 1.3 %

2019 32,501,000 0.2 27,784,000 (0.0) 14.5 23.77 1.8 663,000 0.0 554,000 (2.3) 16.5 22.24 1.0

2020 32,692,000 0.6 27,850,000 0.2 14.8 24.18 1.7 663,000 0.0 539,000 (2.7) 18.7 22.44 0.9

2021 32,939,000 0.8 28,070,000 0.8 14.8 24.65 1.9 663,000 0.0 529,000 (1.9) 20.2 22.63 0.8

2022 33,200,000 0.8 28,263,000 0.7 14.9 25.14 2.0 663,000 0.0 511,000 (3.4) 22.9 22.77 0.6

Average Annual Compound Change

2005 - 2017 0.3 % 0.1 % 1.2 % 1.7 % 1.9 % 1.4 %

2005 - 2007 1.7 2.4 4.6 1.9 7.1 6.8

2007 - 2010 (0.0) (2.6) (1.1) 5.7 2.2 (2.6)

2010 - 2017 (0.0) 0.5 1.3 0.0 0.4 1.6

Forecast 2018 - 2022 0.6 % 0.3 % 1.9 % (0.0) % (2.6) % 0.9 %

Orlando Market Kissimmee Submarket

Available

Office Space % Chg

Occupied

Office Space % Chg

Asking

Lease Rate % Chg

Available

Office Space % Chg

Occupied

Office Space


% Chg

Vacancy

Rate

Asking

Lease Rate % Chg

Vacancy

Rate


The inventory of office space in the Orlando market increased at an average annual compound rate of 0.3% from 2005 through 2017, while occupied office space remained relatively stable at an average annual rate of 0.1% over the same period. During the period of 2005 through 2009, occupied office space expanded at an average annual compound rate of 2.4%. From 2009 through 2012, occupied office space contracted at an average annual compound rate of -2.6%, reflecting the impact of the recession. The onset of the recovery is evident in the 0.5% average annual change in occupied office space from 2012 to 2017. From 2017 through 2022, the inventory of occupied office space is forecast to increase at an average annual compound rate of 0.3%, with available office space expected to increase 0.6%, thus resulting in an anticipated vacancy rate of 14.9% as of 2022.

A convention center serves as a gauge of visitation trends to a particular market. Convention centers also generate significant levels of demand for area hotels and serve as a focal point for community activity. Typically, hotels within the closest proximity to a convention center—up to three miles away—will benefit the most. Hotels serving as headquarters for an event benefit the most by way of premium rates and hosting related banquet events. During the largest of conventions, peripheral hotels may benefit from compression within the city as a whole.

The Orange County Convention Center (OCCC) is a vital component of the economic health of Orlando’s hotel market and provides an average annual economic impact of $2.1 billion to the Central Florida economy. This center is the second largest in contiguous space in the United States, with over 2.5 million gross square feet. Positioned eleven miles southwest of Downtown Orlando, the center is located on International Drive, just northeast of the intersection formed by Interstate 4 and State Highway 528. The OCCC comprises two separate facilities, the west building and the north/south building. Features of the OCCC include 2.1 million square feet of exhibit space, 74 meeting rooms, 235 breakout rooms, a 2,643-seat theatre, 4 business centers, 3 full-service restaurants, and 8 food courts. In 2013, the OCCC undertook a five-year renovation project at a total cost of approximately $187 million. At the end of 2015, the Tangerine Ballroom was completed, and new digital signage was added to the Westwood lobby. Renovations to the Valencia Ballroom and Destination Lounge were completed in 2016. A pedestrian bridge connecting the convention center to the adjacent Hyatt Regency was completed in the summer of 2017; additionally, exterior upgrades to the site and structure were performed in 2017. In June 2017, the OCCC executive team proposed several campus updates, including an enclosed Grand Concourse that would connect the North and South Concourses, as well as a 200,000-square-foot multipurpose venue.

Convention Activity


CONVENTION CENTER

The following table illustrates recent use statistics for this facility.

FIGURE 3-9 CONVENTION CENTER STATISTICS

Percent Percent

Year Change Change

2010 201 — 1,178,408 —

2011 179 (10.9) % 1,214,434 3.1 %

2012 181 1.1 1,319,829 8.7

2013 194 7.2 1,244,229 (5.7)

2014 188 (3.1) 1,350,545 8.5

2015 192 2.1 1,372,827 1.6

2016 226 17.7 1,456,816 6.1

2017 (est.) 240 6.2 1,530,000 5.0

Number of

Delegates

Source: Orange County Convention Center

Number of

Conventions


According to the Convention and Visitors Bureau, statistics fluctuated late last decade because of the effects of the recession. Convention activity began to rebound in 2010, with an increase in the number of attendees, although the number of events continued to decline that year. According to representatives of the OCCC, activity in 2011 and 2012 was positively influenced by the return of the International Builders' Show and by the National Plastics Expo, which was held in Orlando in 2011 and 2012. The Convention and Visitors Bureau reported that the number of citywide events and overall attendance fluctuated in 2013 and 2014 as larger trade shows rotated out of the center to other destinations. In 2014, the International Association of Amusement Parks & Attractions (estimated 25,000 attendees) announced a six-year extension of its current agreement with the OCCC, extending its Attractions Expo through 2025. Additionally, the Society for Human Resource Management Annual Conference (estimated 15,000 attendees) returned in 2014, while National Plastics Expo (estimated 60,000 attendees) and the tile-and-stone trade show Coverings (estimated 30,000 attendees) returned in 2015. Furthermore, the International Builders' Show, which returned to Orlando in January 2017, is scheduled to repeat in 2018, 2021, and 2022. In the 2016/17 fiscal year, the convention center reported a total economic impact of $2.4 billion.

Airport passenger counts are important indicators of lodging demand. Depending on the type of service provided by a particular airfield, a sizable percentage of arriving passengers may require hotel accommodations. Trends showing changes in passenger counts also reflect local business activity and the overall economic health of the area.

Orlando International Airport (MCO) is located approximately six miles southeast of Downtown Orlando. Many major airlines service MCO, and the modern terminal facility offers a convenient passenger transportation system linking the concourse gates to the multilevel terminal. Orlando International Airport offers a variety of retail outlets and services, including numerous restaurants and bars. In January 2015, a $1.1-billion expansion/modernization project commenced at the airport. Initial changes will include the expansion of the automated people mover, a $215-million intermodal transportation hub, upgraded ticket lobbies, and a $114-million expansion and refurbishment of Airside 4. Construction on the initial improvements is scheduled for completion by 2018. Future plans call for the addition of up to 120 domestic and international gates at the South Terminal, a 1,000-room hotel, and over 750,000 square feet of additional retail space.

The following table illustrates recent operating statistics for the Orlando International Airport, which is the primary airport facility serving the proposed subject hotel’s submarket.

Airport Traffic


FIGURE 3-10 AIRPORT STATISTICS - ORLANDO INTERNATIONAL AIRPORT

Year

2008 35,661,269 — —

2009 33,693,649 (5.5) % (5.5) %

2010 34,877,899 3.5 (1.1)

2011 35,426,006 1.6 (0.2)

2012 35,273,036 (0.4) (0.3)

2013 34,768,945 (1.4) (0.5)

2014 35,714,091 2.7 0.0

2015 38,809,337 8.7 1.2

2016 41,923,399 8.0 2.0

2017 44,611,265 6.4 2.5

Year-to-date, Apr

2017 15,142,030 — —

2018 16,083,478 6.2 % —

*Annual average compounded percentage change from the previous year

**Annual average compounded percentage change from first year of data

Change**

Passenger

Change*Traffic

Percent Percent

Source: Orlando International Airport

FIGURE 3-11 LOCAL PASSENGER TRAFFIC VS. NATIONAL TREND

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2009 2010 2011 2012 2013 2014 2015 2016 2017

Cha

nge

in P

ass

enge

r Act

ivit

y

Source: HVS, Local Airport Authority

Local Passenger Volume National Passenger Volume


This facility recorded 44,611,265 passengers in 2017. The change in passenger traffic between 2016 and 2017 was 6.4%. The average annual change during the period shown was 2.5%. The number of passengers traveling through Orlando International Airport surpassed Miami International Airport passenger data in 2017 for the first time. The recent uptick in passenger traffic is largely attributable to the addition of several new routes (on various air carriers), including Havana, Cuba; Dusseldorf, Germany; Niagara Falls, New York; and Oklahoma City, Oklahoma. As one of the most visited cities in the world, Orlando boasts an ever-expanding route network. Healthy increases in domestic and international travel have been partly due to the substantial growth in seating availability in the market. Additionally, new routes and additional flights by many of the major airlines contributed to the growth in 2015, 2016, and 2017. Most recently, nonstop flights to/from Paris, Rio de Janeiro, and Santiago were introduced during the summer of 2017, while additional routes continue to be added.

The market benefits from a variety of tourist and leisure attractions in the area. Central Florida's $70-billion tourism industry, which drew a record 72 million visitors to the region in 2017, serves as the area's top economic engine and major job creator. The peak season for tourism in this area is from February through August, with another visitation spike in October. However, visitation remains strong during other times of the year because of the worldwide appeal of Orlando as a major tourism destination. A favorable year-round climate also contributes to strong tourism throughout the year. Primary attractions in the area include the following:

• Walt Disney World Resort is one of the world's preeminent vacation destinations. The resort offers four major theme parks (Magic Kingdom, Epcot, Disney's Hollywood Studios, and Disney's Animal Kingdom) and two water parks (Blizzard Beach and Typhoon Lagoon). In 2016, Disney completed a multi-year transformation of Downtown Disney; the development was renamed Disney Springs in 2015 and features four outdoor neighborhoods connected by a flowing spring and nearby lakefront. Town Center offers a sophisticated mix of shopping and dining; the Landing is a commercial district with inspired cuisine and waterfront views; Marketplace is a family-friendly district that will feature an over-the-water pedestrian causeway connecting both ends of its crescent shaped design; and the West Side was largely unchanged, still offering a series of elevated spaces providing shade and overlooking activity below. In May 2017, the twelve-acre Pandora - World of Avatar opened at Disney's Animal Kingdom. Moreover, a new gondola, known as The Disney Skyline, is planned to connect several parks within the resort. Additionally, Toy Story Land, which is currently under construction, is expected to open by July 2018. Furthermore, the Star Wars: Galaxy's Edge is a highly anticipated addition, reported to cost

Tourist Attractions


roughly $1 billion. The attraction is planned to open in 2019 along with an immersive Star Wars-themed hotel modeled after the Millennium Falcon.

• SeaWorld Orlando’s Aquatica water park spans nearly 60 acres. The park was designed to model the natural scenery of New Zealand and Australia and includes live animals such as dolphins and macaws, as well as other tropical wild and sea life. Offering 80,000 square feet of beach area and featuring lagoons, 6 rivers, and 36 water slides, Aquatica is a premier water attraction in Florida. The most noteworthy attraction of the park is a series of slides constructed of clear tubes that extend underwater through a habitat of Commerson's dolphins. Aquatica also offers side-by-side wave pools. The Aquatica water park has been expanded with new attractions, including a 105-foot water slide that opened in May 2014. In March 2016, SeaWorld announced plans to phase out orca shows by 2019. Despite the shift, the orcas are likely to live at the water park through the foreseeable future as SeaWorld creates educational programs focused around the existing pod. In June 2017, the Kraken roller coaster was updated, and construction began on the new Infinity Falls water-raft ride that is expected to open in the summer of 2018. The Ray Rush family raft slide opened in 2018. In 2017, SeaWorld Orlando announced that Sesame Street Land would replace Shamu's Happy Harbor play area in late 2022. SeaWorld is reportedly cutting 350 positions in October 2018 in response to declining attendance; these cuts will primarily affect the Orlando corporate headquarters and the San Diego and Orlando water parks.

• Universal Orlando offers major theme parks such as Islands of Adventure and Universal Studios, as well as the Wet 'n Wild water park. Islands of Adventure features marquis rides including the Amazing Adventures of Spider Man and Jurassic Park River Adventure, while Universal Studios offers Shrek 4-D and Revenge of the Mummy, among many others. In June 2010, Universal Orlando opened the Wizarding World of Harry Potter, which is based on the popular Harry Potter books and movies. The park opened a new attraction, Despicable Me: Minion Mayhem, in July 2012, and in August 2013, the resort officially opened its Simpsons-themed Springfield U.S.A. expansion. Furthermore, an expansion of the Wizarding World of Harry Potter, including the Diagon Alley and Hogwarts Express connector to the original Wizarding World, opened in July 2014. A new attraction known as Skull Island: Reign of Kong opened in June 2016, and the Volcano Bay water park opened in the summer of 2017. Furthermore, Universal CityWalk, a three-block entertainment district, underwent an extensive expansion in 2014 that included the addition of eight restaurants, a Universal Studios store, and Hot Dog Hall of Fame. Universal Orlando has announced plans to add a Pokémon area, expected to open in 2020 in the existing KidZone section of the theme park. Additionally, a 400-acre site recently purchased by Universal Orlando is slated for a Nintendo-themed park, which is anticipated to open in 2023.


• Orlando boasts a wide array of shopping and dining venues that accommodate diverse budgets. The Mall at Millenia comprises upscale stores such as Neiman Marcus and Tiffany & Co. and restaurants such as Brio Tuscan Grille and The Capital Grille. The Florida Mall is anchored by Dillard's, JCPenney, and Macy's. In June 2015, the mall's new 100,000-square-foot Dining Pavilion opened, featuring 23 restaurants and over 1,300 indoor and outdoor seats combined, as well as five new retail stores. Pointe Orlando and Orlando Premium International Outlets are additional retail complexes located along International Drive. In May 2015, the I-Drive 360 entertainment complex opened, unveiling the 400-foot observation wheel Orlando Eye, Madame Tussauds Wax Museum, the SEA LIFE Aquarium, and assorted shops and restaurants. The iSquare mall and hotel project is anticipated to break ground in the coming years. This development will comprise a multi-level mall, restaurants, the five-star Solis Orlando Hotel, a performance theater, and an ice-skating rink. Other projects that were completed in 2017 along the International Drive corridor include the 140,000-square-foot Andretti Indoor Karting & Games, iFLY Orlando Indoor Skydiving, Topgolf Orlando, new dining outlets, a pedestrian bridge outside the Hyatt Regency, and various residential developments.

WALT DISNEY WORLD RESORT

This section discussed a wide variety of economic indicators for the pertinent market area. Greater Orlando is experiencing a period of economic strength and

Conclusion


expansion, primarily led by the entertainment industry and the healthcare sector. The significant presence and continued growth of Walt Disney World and Universal Studios continues to bolster the economy and lodging demand in the market; furthermore, with the increasing diversity of Orlando's economy, the city is anticipated to remain a top destination for both business and leisure travel. The Orange County Convention Center, the second largest convention facility in America, continues to break attendance records and undergo expansions and upgrades to remain a premier option for meeting and event planners around the world. The outlook for the market area is positive.

Our analysis of the outlook for this specific market also considers the broader context of the national economy. The U.S. economy expanded during the last three years, with a relatively low point in growth occurring during the fourth quarter of 2015 and the first quarter of 2016, as well as the first quarter of 2017. Most recently, the U.S. economy expanded by 2.9% and 2.3% in the fourth quarter of 2017 and first quarter of 2018, respectively. The recent growth reflected strong nonresidential fixed investments, personal consumption expenditures (PCE), exports, private inventory investments, federal government spending, and state and local government spending.

FIGURE 3-12 UNITED STATES GDP GROWTH RATE

-1.2

4.0

5.0

2.0

3.22.7

1.6

0.5 0.6

2.22.8

1.81.2

3.1 3.2 2.92.3

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2014 2015 2016 2017 2018

Source: tradingeconomics.com, Bureau of Economic Analysis

U.S. economic growth continues to support expansion of lodging demand. In 2017, demand growth through November registered 2.7%, stronger than the 1.6% level recorded in 2016. The economic growth, low unemployment, higher levels of personal income, and stability in the U.S. economy as of mid-year 2018 is helping to maintain strong interest in hotel investments by a diverse array of market participants.

June-2018 Supply and Demand Analysis Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 45

4. Supply and Demand Analysis

In the lodging industry, price varies directly, but not proportionately, with demand and inversely, but not proportionately, with supply. Supply is measured by the number of guestrooms available, and demand is measured by the number of rooms occupied; the net effect of supply and demand toward equilibrium results in a prevailing price, or average daily rate (ADR). The purpose of this section is to investigate current supply and demand trends, as indicated by the current competitive market, and to set forth a basis for the projection of future supply and demand growth.

The subject site is located in the greater Orlando lodging market, which encompasses 505 open and operating lodging facilities totaling roughly 125,750 guestrooms. Within this greater market, the direct submarket that will include the proposed subject hotel is known as Kissimmee and Lake Buena Vista. Within this market, the proposed subject hotel will compete with a smaller set of hotels based on various factors, such as chain scale, product offering, price point, and location. During our study, HVS found that there are no hotels in the upper-midscale, upscale, or upper-upscale chain scale within a 5.5-mile distance of the subject site. While there are numerous hotels proximate to downtown, within five miles of the subject site, and along West Irlo Bronson Highway/U.S. Highway 192, these hotels offer budget products and operate at a significantly lower price point than that expected for the proposed subject hotel. We are familiar with the product and client mix at these hotels and do not consider them to be competitive given their older physical plants, brand affiliations, facilities, and price point.

The subject property’s local lodging market is most directly affected by the supply and demand trends within the immediate area. However, individual markets are also influenced by conditions in the national lodging market. We have reviewed national lodging trends to provide a context for the forecast of the supply and demand for the proposed subject hotel’s competitive set.

STR is an independent research firm that compiles and publishes data on the lodging industry, and this information is routinely used by typical hotel buyers. The following STR diagram presents annual hotel occupancy and average rate data since 1987. The next two tables contain information that is more recent; the data are categorized by geographical region, price point, type of location, and chain scale, and the statistics include occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.

Definition of Subject Hotel Market

National Trends Overview


FIGURE 4-1 NATIONAL OCCUPANCY, AVERAGE RATE, AND REVPAR TRENDS

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

$0

$20

$40

$60

$80

$100

$120

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: STR

RevPAR Average Rate Occupancy


FIGURE 4-2 NATIONAL OCCUPANCY AND ADR TRENDS – YEAR-TO-DATE DATA

United States 62.6 % 63.2 % 0.9 % $124.78 $128.19 2.7 % $78.12 $81.00 3.7 % 2.0 % 3.0 %

Region

New England 54.8 % 56.7 % 3.5 % $133.76 $134.48 0.5 % $73.26 $76.26 4.1 % 1.9 % 5.5 %

Middle Atlantic 60.7 63.2 4.2 144.07 146.58 1.7 87.39 92.63 6.0 2.4 6.6

South Atlantic 67.9 68.1 0.3 130.30 134.81 3.5 88.46 91.78 3.8 1.6 1.9

East North Centra l 54.1 54.6 1.1 100.15 102.21 2.1 54.14 55.84 3.1 2.2 3.2

East South Centra l 58.2 58.4 0.2 93.92 96.82 3.1 54.69 56.50 3.3 2.1 2.3

West North Centra l 51.6 50.9 (1.3) 92.71 95.56 3.1 47.80 48.66 1.8 2.2 0.9

West South Centra l 61.7 63.6 2.9 103.20 106.05 2.8 63.72 67.41 5.8 2.7 5.7

Mountain 63.7 63.4 (0.5) 125.40 126.27 0.7 79.93 80.10 0.2 1.5 1.0

Paci fic 71.1 71.1 (0.1) 157.35 163.79 4.1 111.95 116.47 4.0 2.2 2.2

Class

Luxury 69.1 % 70.3 % 1.7 % $291.17 $300.49 3.2 % $201.24 $211.18 4.9 % 2.3 % 4.0 %

Upper-Upscale 71.0 71.1 0.2 180.93 184.04 1.7 128.47 130.91 1.9 2.2 2.4

Upscale 69.9 70.3 0.6 138.95 141.65 1.9 97.10 99.63 2.6 4.6 5.3

Upper-Midscale 63.7 64.5 1.1 111.22 113.45 2.0 70.87 73.13 3.2 3.9 5.1

Midscale 56.3 56.7 0.8 89.72 92.38 3.0 50.50 52.43 3.8 0.4 1.2

Economy 54.9 55.2 0.6 67.76 70.16 3.5 37.17 38.73 4.2 (0.2) 0.4

Location

Urban 70.6 % 70.6 % 0.0 % $168.55 $172.08 2.1 % $118.92 $121.42 2.1 % 3.3 % 3.3 %

Suburban 64.0 64.6 0.9 106.14 109.08 2.8 67.92 70.43 3.7 2.4 3.3

Airport 72.6 73.4 1.0 116.09 119.35 2.8 84.33 87.61 3.9 1.5 2.6

Interstate 51.8 52.6 1.7 80.71 82.99 2.8 41.77 43.66 4.5 1.6 3.3

Resort 70.2 70.8 0.8 185.22 193.03 4.2 130.06 136.66 5.1 0.7 1.5

Smal l Metro/Town 50.9 51.7 1.5 93.35 95.53 2.3 47.54 49.36 3.8 1.5 3.0

Chain Sca le

Luxury 73.5 % 75.1 % 2.3 % $330.29 $343.78 4.1 % $242.64 $258.27 6.4 % 2.0 % 4.3 %

Upper-Upscale 72.9 73.0 0.2 181.91 185.24 1.8 132.54 135.26 2.1 2.4 2.6

Upscale 71.4 71.8 0.5 138.39 141.12 2.0 98.86 101.36 2.5 5.6 6.2

Upper-Midscale 63.8 64.5 1.2 109.10 111.36 2.1 69.58 71.86 3.3 3.9 5.1

Midscale 55.7 56.2 1.0 83.25 85.63 2.9 46.35 48.15 3.9 1.1 2.1

Economy 54.4 54.8 0.7 59.00 61.20 3.7 32.09 33.52 4.5 0.3 1.0

Independents 59.1 59.5 0.7 122.59 126.17 2.9 72.44 75.04 3.6 0.2 0.9

Rms.

Avail. Rms. Sold20172017 2018

Source: STR - Apri l 2018 Lodging Review

2017 20182018

%

Change

%

Change

%

Change

Occupancy - YTD April Average Rate - YTD April RevPAR - YTD April Percent Change


FIGURE 4-3 NATIONAL OCCUPANCY AND ADR TRENDS – CALENDAR YEAR DATA

United States 65.4 % 65.9 % 0.9 % $124.13 $126.72 2.1 % $81.15 $83.57 3.0 % 1.8 % 2.7 %

Region

New England 64.1 % 64.8 % 1.1 % $151.20 $153.78 1.7 % $96.96 $99.67 2.8 % 1.5 % 2.6 %

Middle Atlantic 67.2 67.8 0.9 163.54 162.88 (0.4) 109.91 110.50 0.5 2.8 3.8

South Atlantic 67.1 68.0 1.4 119.92 123.40 2.9 80.45 83.91 4.3 1.5 2.9

East North Centra l 61.0 61.4 0.5 108.32 109.53 1.1 66.12 67.20 1.6 1.9 2.4

East South Centra l 61.3 61.5 0.3 94.88 98.23 3.5 58.15 60.37 3.8 1.9 2.2

West North Centra l 59.0 58.0 (1.7) 96.10 97.47 1.4 56.71 56.54 (0.3) 1.4 (0.3)

West South Centra l 61.4 62.5 1.9 98.73 100.32 1.6 60.57 62.70 3.5 3.0 4.9

Mountain 65.3 66.3 1.6 114.36 118.51 3.6 74.63 78.61 5.3 1.1 2.8

Paci fic 73.8 73.9 0.3 158.63 162.60 2.5 116.99 120.23 2.8 1.6 1.9

Class

Luxury 70.8 % 71.0 % 0.3 % $282.44 $286.27 1.4 % $199.95 $203.28 1.7 % 2.1 % 2.4 %

Upper-Upscale 72.5 72.7 0.3 178.13 181.00 1.6 129.17 131.67 1.9 1.7 2.0

Upscale 71.9 72.4 0.7 139.04 141.20 1.6 100.03 102.28 2.3 4.3 5.0

Upper-Midscale 67.1 67.6 0.8 114.07 115.86 1.6 76.54 78.34 2.3 4.0 4.8

Midscale 59.8 60.5 1.2 92.16 94.36 2.4 55.07 57.07 3.6 0.2 1.5

Economy 58.4 58.9 0.9 69.79 71.95 3.1 40.74 42.36 4.0 (0.4) 0.5

Location

Urban 73.1 % 73.5 % 0.7 % $177.36 $178.94 0.9 % $129.57 $131.61 1.6 % 3.1 % 3.8 %

Suburban 66.7 67.0 0.4 105.74 108.10 2.2 70.57 72.47 2.7 1.9 2.4

Airport 73.3 73.7 0.6 113.60 116.17 2.3 83.27 85.67 2.9 1.4 2.0

Interstate 56.5 57.2 1.3 83.14 85.04 2.3 46.97 48.67 3.6 1.5 2.9

Resort 68.4 69.6 1.8 169.02 173.57 2.7 115.60 120.88 4.6 0.9 2.7

Smal l Metro/Town 56.7 57.3 1.0 99.91 102.23 2.3 56.70 58.59 3.3 1.5 2.5

Chain Sca le

Luxury 73.8 % 74.0 % 0.3 % $317.29 $323.74 2.0 % $234.09 $239.54 2.3 % 1.6 % 1.9 %

Upper-Upscale 74.2 74.2 0.0 179.54 182.04 1.4 133.25 135.15 1.4 2.1 2.1

Upscale 73.7 73.8 0.1 138.28 140.19 1.4 101.97 103.45 1.5 6.0 6.1

Upper-Midscale 67.5 67.9 0.7 111.43 113.09 1.5 75.18 76.84 2.2 3.3 4.0

Midscale 59.3 60.0 1.2 85.23 86.99 2.1 50.53 52.17 3.3 1.3 2.4

Economy 57.7 58.1 0.6 60.86 62.48 2.7 35.14 36.28 3.2 0.1 0.7

Independents 62.0 62.9 1.4 123.00 126.49 2.8 76.27 79.56 4.3 0.0 1.5

2017

RevPAR

%

Change

Rms.

Avail. Rms. Sold

Percent Change

%

Change

Occupancy Average Rate

2017

%

Change2016 20162016 2017

Source: STR - December 2017 Lodging Review


Following the significant RevPAR decline experienced during the last recession, demand growth resumed in 2010, led by select markets that had recorded growth trends in the fourth quarter of 2009. A return of business travel and some group activity contributed to these positive trends. The resurgence in demand was partly fueled by the significant price discounts that were widely available in the first half of 2010. These discounting policies were largely phased out in the latter half of the year, balancing much of the early rate loss. Demand growth remained strong, but decelerated from 2011 through 2013, increasing at rates of 4.7%, 2.8%, and 2.0%, respectively. Demand growth then surged to 4.0% in 2014, driven by a strong economy, a robust oil and gas sector, and limited new supply, among other factors. By 2014, occupancy had surpassed the 64% mark. Average rate rebounded similarly during this time, bracketing 4.0% annual gains from 2011 through 2014.

In 2015, demand growth continued to outpace supply growth, a relationship that has been in place since 2010. With a 2.9% increase in room nights, the nation's occupancy level reached a record high of 65.4% in 2015. Supply growth intensified modestly in 2015 (at 1.1%), following annual supply growth levels of 0.7% and 0.9% in 2013 and 2014, respectively. Average rate posted another strong year of growth, at 4.7% in 2015, in pace with the annual growth of the last four years. Robust job growth, heightened group and leisure travel, and waning price-sensitivity all contributed to the gains. In 2016, occupancy showed virtually no change, as demand growth kept pace with supply additions. Occupancy then moved even higher in 2017, to a new peak of 65.9%. Average rate increased roughly 3% and 2% in 2016 and 2017, respectively. By year-end 2017, the net change in RevPAR was 3.0%, reflecting a healthy lodging market overall. However, we note that industry experts report that the strong 2017 industry performance was enhanced by demand generated by the hurricanes, floods, and fires experienced throughout the U.S. in September and October. The performance of several major markets indicates that many areas continue to benefit in 2018 from the demand generated by insurance adjusters, displaced residents, and contractors. Year-to-date statistics through April reflect a 0.6-point occupancy increase, while average rate increased by just over $3.00, resulting in a 3.7% upward change in RevPAR.

According to STR Global, as of December 31, 2017, the greater Orlando, FL area had 498 hotels with a total of 124,879 guestrooms. These totals represent a 0.8% change over the 2016 year-end inventory of 123,878 guestrooms. The following table presents the historical occupancy, average rate, and RevPAR data for the Orlando metropolitan area for the years 2000 through 2017, as well as for the comparative year-to-date period ending in April 2017 and 2018.

Orlando, FL Lodging Market


FIGURE 4-4 ORLANDO LODGING MARKET DATA – 2000 TO YTD APRIL 2018

Year

2000 72.1 % — $86.07 — $62.06 —

2001 64.0 (11.2) % 88.14 2.4 % 56.41 (9.1) %

2002 62.6 (2.2) 86.16 (2.2) 53.94 (4.4)

2003 62.7 0.2 84.94 (1.4) 53.26 (1.3)

2004 70.7 12.8 87.78 3.3 62.06 16.5

2005 70.7 0.0 91.91 4.7 64.98 4.7

2006 67.7 (4.2) 100.52 9.4 68.05 4.7

2007 67.9 0.3 105.82 5.3 71.85 5.6

2008 65.9 (2.9) 106.11 0.3 69.93 (2.7)

2009 60.7 (7.9) 92.91 (12.4) 56.40 (19.3)

2010 63.2 4.1 91.95 (1.0) 58.11 3.0

2011 67.6 7.0 93.94 2.2 63.50 9.3

2012 68.8 1.8 96.88 3.1 66.65 5.0

2013 71.0 3.2 101.53 4.8 72.09 8.2

2014 73.7 3.8 108.03 6.4 79.62 10.4

2015 76.7 4.1 112.05 3.7 85.94 7.9

2016 75.6 (1.4) 115.93 3.5 87.64 2.0

2017 79.3 4.9 121.53 4.8 96.37 10.0

Year to date through April

2017 82.3 % $133.22 $109.64

2018 83.2 1.1 % 140.90 5.8 % 117.23 6.9 %

Average Annual Compound Growth

2000 to 2017 0.6 % 2.1 % 2.6 %

Percent

Change

Source: STR Global , STR Monthly Hotel Review

Occupancy

Percent

Change Average Rate

Percent

Change RevPAR

World-class theme parks, local employers, and the convention center represent the primary sources of demand in the greater Orlando market. Occupancy spiked in 2004 because of the active hurricane season that year and the related demand increase from recovery personnel. Demand levels remained relatively stable in 2005 and then decreased in 2006, as the temporary demand dissipated. Average rate (ADR) in the local market increased from 2004 through 2007 given the strength of the economy during that time, with little rate-resistance from leisure travelers. In 2007, occupancy remained relatively stable, but declined again in 2008 with the onset of the Great Recession. In 2009, with the recession in full swing, both occupancy and ADR dropped; average rate also declined in 2010 along with the nationwide contraction of destination travel and lower levels of discretionary spending. Occupancy began to recover in 2010, and ADR increased in 2011, largely due to the opening of new attractions at the local theme parks. In line with the


broader economic recovery, ADR in 2013 exceeded its previous peak, and occupancy in 2014 rebounded above the strong 2004 and 2005 levels. Both metrics increased in 2015. Although supply has steadily increased since 2012, the Orlando market sustained strong RevPAR growth from 2011 through 2015. Data for 2016 illustrate increases in ADR and RevPAR, although occupancy declined modestly. In 2017, both occupancy and ADR increased significantly, with RevPAR increasing 10% over 2016. Occupancy peaked in 2017 given strong demand growth across all segments. With all three indices recording continued growth in 2017, growth in 2018 in anticipated to be predominantly ADR-driven amid a steady increase in demand and limited new supply entering the market. Forecasted economic growth throughout the MSA, ongoing expansions at Orlando International Airport, and ongoing developments at area resorts and attractions should support demand growth in the near future.

As previously noted, STR is an independent research firm that compiles and publishes data on the lodging industry, routinely used by typical hotel buyers. HVS has custom ordered and analyzed an STR Trend Report of historical supply and demand data for a group of hotels considered applicable to this analysis for the proposed subject hotel. This information is presented in the following table, along with the market-wide occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.

Historical Supply and Demand Data


FIGURE 4-5 HISTORICAL SUPPLY AND DEMAND TRENDS

Year

Average Daily Room

Count Available Room Nights Change

Occupied Room

Nights Change Occupancy

Average

Rate Change RevPAR Change

2008 2,482 905,924 — 590,462 — 65.2 % $101.55 — $66.19 —

2009 2,720 992,903 9.6 % 635,078 7.6 % 64.0 89.44 (11.9) % 57.20 (13.6) %

2010 2,844 1,037,950 4.5 724,663 14.1 69.8 87.42 (2.3) 61.04 6.7

2011 2,862 1,044,630 0.6 753,521 4.0 72.1 91.89 5.1 66.28 8.6

2012 2,927 1,068,370 2.3 774,492 2.8 72.5 95.31 3.7 69.10 4.2

2013 3,048 1,112,438 4.1 845,137 9.1 76.0 100.54 5.5 76.38 10.5

2014 2,771 1,011,315 (9.1) 796,258 (5.8) 78.7 108.22 7.6 85.21 11.6

2015 3,001 1,095,430 8.3 860,678 8.1 78.6 112.73 4.2 88.57 4.0

2016 3,437 1,254,334 14.5 941,098 9.3 75.0 112.15 (0.5) 84.14 (5.0)

2017 3,661 1,336,279 6.5 1,096,890 16.6 82.1 114.42 2.0 93.92 11.6

2017/18 3,664 1,337,532 0.1 1,117,236 1.9 83.5 117.10 2.3 97.82 4.1

Year-to-Date Through April

2017 3,658 438,907 — 364,300 — 83.0 % $126.08 — $104.65 —

2018 3,668 440,160 0.3 % 384,646 5.6 % 87.4 133.25 5.7 % 116.45 11.3 %

Average Annual Compounded Change:

2008 - 2011 4.9 8.5 (3.3) 0.0

2011 - 2017 4.2 6.5 3.7 6.0

Hotels Included in Sample Proximity to Proposed Hotel Site

Radisson Hotel Orlando Lake Buena Vis ta Upscale Class Radisson 196 Feb 2008 Jan 1984 Approximately 8.6 mi les

Delta Hotel Orlando Lake Buena Vis ta Upper Upscale Class Marriott 241 Jan 2016 Feb 1985 Approximately 8.9 mi les

Courtyard Orlando Lake Buena Vis ta @ Vis ta Centre Upscale Class Marriott 308 Jan 1999 May 1989 Approximately 8.8 mi les

Staybridge Suites Lake Buena Vis ta Upscale Class IHG 150 Oct 2003 Sep 1993 Approximately 9.1 mi les

Autograph Col lection Bohemian Hotel Celebration Upper Upscale Class Marriott 115 Apr 2010 Nov 1999 Approximately 8.4 mi les

Courtyard Orlando Lake Buena Vis ta In The Marriott Vi l lage Upscale Class Marriott 312 Oct 2000 Oct 2000 Approximately 8.3 mi les

Springhi l l Sui tes Lake Buena Vis ta In The Marriott Vi l lage Upscale Class Marriott 400 Dec 2000 Dec 2000 Approximately 8.3 mi les

Springhi l l Sui tes Orlando Kiss immee Upscale Class Marriott 150 Feb 2015 Dec 2000 Approximately 5.7 mi les

Res idence Inn Orlando Lake Buena Vis ta Upscale Class Marriott 210 May 2001 May 2001 Approximately 8.8 mi les

Hol iday Inn Express & Suites South Lake Buena Vis ta Upper Midsca le Class IHG 162 Nov 2017 Oct 2001 Approximately 5.7 mi les

Hampton Inn Suites Orlando South Lake Buena Vis ta Upper Midsca le Class Hi l ton 125 Feb 2008 Feb 2008 Approximately 5.7 mi les

Mel ia Orlando Hotel @ Celebration Upscale Class Mel ia 285 Sep 2011 May 2008 Approximately 8.4 mi les

Homewood Suites Lake Buena Vis ta Orlando Upscale Class Hi l ton 130 Jun 2009 Jun 2009 Approximately 8.8 mi les

Hi l ton Garden Inn Lake Buena Vis ta Orlando Upscale Class Hi l ton 137 Jul 2009 Jul 2009 Approximately 8.8 mi les

Embassy Suites Orlando Lake Buena Vis ta South Upper Upscale Class Hi l ton 300 Sep 2012 Sep 2012 Approximately 5.7 mi les

Courtyard Orlando South John Young Parkway Upscale Class Marriott 128 May 2015 May 2015 Approximately 8.8 mi les

Fa irfield Inn & Suites Orlando Kiss immee Celebration Upper Midsca le Class Marriott 150 Jun 2016 Jun 2016 Approximately 8 mi les

Hyatt Place Orlando Lake Buena Vis ta Upscale Class Hyatt 169 Oct 2016 Oct 2016 Approximately 8.9 mi les

Total 3,668

Source: STR

Class

Number

of Rooms

Year

Opened

Brand Year

Affiliation Affiliated


It is important to note some limitations of the STR data. Hotels are occasionally added to or removed from the sample; furthermore, not every property reports data in a consistent and timely manner. These factors can influence the overall quality of the information by skewing the results, and these inconsistencies may also cause the STR data to differ from the results of our competitive survey. Nonetheless, STR data provide the best indication of aggregate growth or decline in existing supply and demand; thus, these trends have been considered in our analysis. Opening dates, as available, are presented for each reporting hotel in the previous table.

The STR data for the competitive set reflect a market-wide occupancy level of 2017 in 82.1%, which compares to 75.0% for 2016. The STR data for the competitive set reflect a market-wide ADR level of $114.42 in 2017, which compares to $112.15 For 2016. These occupancy and ADR trends resulted in a RevPAR level of $93.92 in 2017.

Both market occupancy and average rate declined in 2009 given an increase in supply and the effects of the national recession, which forced hotel operators to decrease average rates in order to maintain occupancy. In 2010, demand increased significantly, while average rate declined and bottomed out in the high $80s; however, the increased occupancy levels resulted in positive RevPAR growth. The recovery of RevPAR continued in 2011, surpassing RevPAR levels from 2008, and this positive trend extended through 2015. This positive trend was attributed to the improvement in the national and global economies, the addition of high-quality nationally branded hotels, and strong demand levels. RevPAR declined in 2016, as supply growth outpaced demand increases for the selected set of hotels; furthermore, the increased competition forced local operators to lower average rates slightly in order to maintain occupancy levels. RevPAR growth resumed in 2017 and continued through the trailing-twelve-month period ending in April 2018, with growth driven largely by demand growth. Demand was strong to start 2017. Furthermore, similar to many hotel markets in Orlando and throughout Florida, this market experienced a surge in demand in September 2018 given the presence of evacuees and relief efforts from hurricanes during that month, which historically is considered to be one of the weaker months during the year.

Year-to-date 2018 data illustrate continued strengthening in occupancy and a roughly $7 gain in average rate (ADR), following the significant upward change in occupancy in 2017 relative to 2016 levels. RevPAR reached its high point in the spring of 2018. The overall strong economy, resulting in increased leisure travel, and the stability in supply have contributed to the latest trend. The near-term outlook is positive due to continued economic growth in the region and major expansions and investments at the area's major demand generators. Market participants expect that going forward, RevPAR growth will be related to modest


average rate increases because of aggressive yield management amid steady growth in room night demand.

The illustrated monthly occupancy and ADR patterns reflect important seasonal characteristics. We have reviewed these trends in developing our forthcoming forecast of market-wide demand and average rate.

Monthly occupancy and ADR trends are presented in the following tables.

Seasonality


FIGURE 4-6 MONTHLY OCCUPANCY TRENDS

Month 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

January 70.5 % 62.1 % 67.3 % 69.1 % 72.3 % 77.0 % 77.4 % 83.1 % 74.3 % 76.1 % 83.8 %

February 72.8 70.2 71.4 77.2 81.1 80.7 85.6 82.3 80.6 79.9 87.1

March 82.6 76.5 82.6 88.3 88.1 89.3 89.1 89.5 88.7 89.3 93.5

Apri l 77.6 79.8 75.5 82.5 80.4 77.8 82.2 80.8 79.9 86.5 85.0

May 62.3 64.1 64.7 67.1 70.0 72.4 75.5 71.4 70.1 76.8 —

June 68.3 66.5 73.2 74.1 78.6 80.7 81.3 76.7 71.5 81.2 —

July 74.4 72.5 83.2 84.2 83.3 79.9 82.4 87.7 81.2 84.6 —

August 63.5 57.9 61.9 60.4 65.5 72.5 75.7 73.0 68.5 75.5 —

September 36.0 42.4 49.5 56.0 52.1 58.6 65.3 65.5 68.6 83.8 —

October 62.3 61.6 69.8 70.0 65.7 72.9 79.1 80.4 75.1 85.5 —

November 51.3 54.6 64.3 66.8 66.7 70.6 71.5 73.9 71.4 82.1 —

December 64.2 62.7 73.8 70.0 70.3 77.1 80.0 79.5 71.8 83.8 —

Annual Occupancy 65.2 % 64.0 % 69.8 % 72.1 % 72.5 % 76.0 % 78.7 % 78.6 % 75.0 % 82.1 % —

Year-to-Date 76.1 % 72.1 % 74.3 % 79.3 % 80.5 % 81.2 % 83.6 % 84.0 % 80.9 % 83.0 % 87.4 %

Source: STR

FIGURE 4-7 MONTHLY ADR TRENDS

Month 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

January $113.82 $104.38 $93.65 $95.12 $97.20 $101.31 $118.08 $114.88 $125.93 $117.71 $130.45

February 119.67 98.90 92.94 103.38 105.45 108.20 124.96 128.08 123.34 128.85 131.27

March 121.02 96.98 94.26 102.17 107.15 116.10 119.37 130.30 137.19 130.49 142.78

Apri l 101.67 97.58 92.35 102.86 104.67 101.71 117.46 123.07 115.84 126.59 127.18

May 99.75 92.05 81.88 86.33 90.28 91.18 99.68 104.68 108.38 110.91 —

June 97.60 86.76 86.42 89.67 93.52 100.31 107.20 108.25 106.55 110.48 —

July 93.61 85.33 86.01 89.37 94.23 97.64 102.38 111.19 108.83 105.07 —

August 85.69 74.96 79.67 78.14 81.78 86.50 92.50 95.97 95.53 89.74 —

September 83.77 73.87 72.71 74.88 76.03 83.28 85.38 88.74 90.93 107.34 —

October 97.21 79.80 82.40 87.63 89.39 98.80 104.16 108.08 104.59 109.27 —

November 91.02 82.74 83.21 85.65 88.72 96.64 99.90 106.59 104.85 110.06 —

December 103.14 93.51 96.10 97.46 105.55 116.20 120.54 126.10 117.91 124.57 —

Annual Average Rate $101.55 $89.44 $87.42 $91.89 $95.31 $100.54 $108.22 $112.73 $112.15 $114.42 —

Year-to-Date $114.06 $99.23 $93.34 $101.04 $103.83 $107.20 $119.91 $124.24 $126.03 $126.08 $133.25

Source: STR


FIGURE 4-8 SEASONALITY

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

High Season - February, March, April

Occupancy 77.8 % 75.6 % 76.7 % 82.9 % 83.3 % 82.7 % 85.7 % 84.3 % 83.2 % 85.4 % 88.6 %

Average Rate $114.12 $97.76 $93.24 $102.76 $105.82 $109.11 $120.48 $127.28 $126.06 $128.67 $134.18

RevPAR 88.80 73.94 71.50 85.17 88.16 90.25 103.24 107.32 104.85 109.90 118.92

Shoulder Season - January, May, June, July, October, November, December

Occupancy 64.7 % 63.5 % 70.9 % 71.6 % 72.2 % 75.9 % 78.2 % 78.9 % 73.7 % 81.4 % —

Average Rate $99.33 $89.06 $87.23 $90.21 $94.27 $100.31 $107.54 $111.56 $110.94 $112.55 —

RevPAR 64.22 56.51 61.88 64.61 68.06 76.14 84.08 88.06 81.71 91.65 —

Low Season - August, September

Occupancy 50.0 % 50.3 % 55.8 % 58.3 % 58.5 % 66.0 % 70.6 % 69.3 % 68.6 % 79.6 % —

Average Rate $85.01 $74.51 $76.63 $76.60 $79.14 $85.15 $89.26 $92.61 $93.26 $98.86 —

RevPAR 42.49 37.45 42.80 44.63 46.32 56.19 62.99 64.16 63.94 78.64 —

Source: Smith Travel Research


The competitive market is characterized by a moderate degree of seasonality, which is evident in the monthly occupancy statistics. The strongest occupancy levels are recorded in February and March, when demand from leisure travelers supplements the commercial segment that is the principal source of demand in this submarket. Average rate levels reflect a similar trend, with highest rates recorded in January, February, and March.

A review of the trends in occupancy and average rate by day of the week provides some insight into the impact that the current economic conditions have had on the competitive lodging market. The data, as provided by STR, are illustrated in the following tables.

FIGURE 4-9 OCCUPANCY BY DAY OF WEEK (TRAILING 12 MONTHS)

Month Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Month

May - 17 70.0 % 67.3 % 73.9 % 74.8 % 73.5 % 87.8 % 93.8 % 76.8 %

Jun - 17 71.6 77.4 83.1 83.0 79.0 85.6 88.5 81.2

Jul - 17 75.7 79.4 82.0 84.3 86.4 91.8 93.7 84.6

Aug - 17 67.1 70.7 73.8 72.4 71.4 85.0 90.0 75.5

Sep - 17 85.6 74.3 77.8 81.3 85.4 86.2 93.0 83.8

Oct - 17 75.8 76.8 81.9 86.2 89.3 96.5 97.0 85.5

Nov - 17 67.2 72.7 78.4 82.7 84.6 94.4 93.6 82.1

Dec - 17 80.5 77.2 83.3 82.6 82.2 87.9 90.9 83.8

Jan - 18 77.7 77.0 83.3 85.5 86.1 87.2 91.5 83.8

Feb - 18 79.7 82.0 86.9 86.5 84.5 93.7 96.2 87.1

Mar - 18 84.0 88.7 94.3 96.5 93.1 97.7 98.4 93.5

Apr - 18 71.0 79.5 86.1 86.5 87.1 94.2 95.5 85.0

Average 75.5 % 76.8 % 81.8 % 83.2 % 83.4 % 90.6 % 93.5 % 83.5 %

Source: STR

FIGURE 4-10 AVERAGE RATE BY DAY OF WEEK (TRAILING 12 MONTHS)


May - 17 $107.81 $107.49 $112.44 $111.25 $108.97 $112.66 $114.34 $110.91

Jun - 17 106.47 110.99 115.01 113.22 108.91 109.02 109.99 110.48

Jul - 17 99.39 100.51 104.38 105.97 106.35 108.60 109.62 105.07

Aug - 17 86.13 88.47 88.88 89.11 88.54 92.41 93.63 89.74

Sep - 17 109.14 110.99 110.33 108.09 105.68 102.12 107.20 107.34

Oct - 17 99.32 103.93 108.51 108.54 110.17 117.98 116.24 109.27

Nov - 17 98.98 105.68 106.84 109.94 111.58 116.62 115.92 110.06

Dec - 17 122.78 115.92 123.07 125.35 125.87 125.48 130.74 124.57

Jan - 18 118.96 132.88 136.24 137.05 133.60 125.17 125.40 130.45

Feb - 18 125.16 127.57 130.51 132.23 129.07 136.06 136.60 131.27

Mar - 18 134.15 141.24 144.74 144.67 138.48 147.49 146.19 142.78

Apr - 18 116.20 126.59 131.56 127.82 129.19 129.66 129.17 127.18

Average $110.96 $115.02 $118.09 $118.18 $116.77 $119.31 $120.15 $117.10

Source: STR

Patterns of Demand


FIGURE 4-11 OCCUPANCY, AVERAGE RATE, AND REVPAR BY DAY OF WEEK (MULTIPLE YEARS)

Occupancy (%)

May 15 - Apr 16 67.9 % 72.1 % 76.4 % 77.1 % 77.2 % 85.2 % 87.7 % 77.7 %

May 16 - Apr 17 66.7 69.7 74.1 75.2 75.3 83.5 87.1 75.9

May 17 - Apr 18 75.5 76.8 81.8 83.2 83.4 90.6 93.5 83.5

Change (Occupancy Points)

FY 15 - FY 16 (1.2) (2.4) (2.3) (1.9) (1.9) (1.7) (0.6) (1.8)

FY 16 - FY 17 8.8 7.1 7.7 7.9 8.2 7.1 6.4 7.6

ADR ($)

May 15 - Apr 16 $110.14 $113.45 $115.67 $114.37 $113.35 $113.77 $114.87 $113.75

May 16 - Apr 17 108.71 114.00 115.22 113.38 111.56 112.89 113.41 112.79

May 17 - Apr 18 110.96 115.02 118.09 118.18 116.77 119.31 120.15 117.10

Change (Dollars)

FY 15 - FY 16 ($1.43) $0.55 ($0.45) ($0.99) ($1.79) ($0.88) ($1.46) ($0.96)

FY 16 - FY 17 2.25 1.02 2.87 4.80 5.21 6.42 6.74 4.31

Change (Percent)

FY 15 - FY 16 (1.3) % 0.5 % (0.4) % (0.9) % (1.6) % (0.8) % (1.3) % (0.8) %

FY 16 - FY 17 2.1 0.9 2.5 4.2 4.7 5.7 5.9 3.8

RevPAR ($)

May 15 - Apr 16 $74.80 $81.83 $88.38 $88.19 $87.52 $96.94 $100.80 $88.41

May 16 - Apr 17 72.52 79.51 85.38 85.29 83.99 94.27 98.80 85.65

May 17 - Apr 18 83.78 88.36 96.58 98.28 97.44 108.07 112.40 97.82

Change (Dollars)

FY 15 - FY 16 ($2.28) ($2.31) ($2.99) ($2.90) ($3.53) ($2.66) ($2.00) ($2.76)

FY 16 - FY 17 11.26 8.84 11.20 12.99 13.45 13.79 13.59 12.17

Change (Percent)

FY 15 - FY 16 (3.1) % (2.8) % (3.4) % (3.3) % (4.0) % (2.7) % (2.0) % (3.1) %

FY 16 - FY 17 15.5 11.1 13.1 15.2 16.0 14.6 13.8 14.2

Sunday Monday Tuesday Wednesday

Sunday Monday Tuesday Thursday

Total YearSaturday

Friday

Thursday Friday

Source: STR

Total Year

Sunday Monday Tuesday Total Year

Wednesday Saturday

Wednesday Thursday Friday Saturday

In most markets, business travel, including individual commercial travelers and corporate groups, is the predominant source of demand on Monday through Thursday nights. Leisure travelers and non-business-related groups generate a majority of demand on Friday and Saturday nights. The influence of the transient leisure segment, particularly demand generated by major theme parks, is evident in the occupancy levels recorded on Friday and Saturday nights throughout the year.


Based on an evaluation of the occupancy, rate structure, market orientation, chain affiliation, location, facilities, amenities, reputation, and quality of each area hotel, as well as the comments of management representatives, we have identified several properties that are expected to be primarily competitive with the proposed subject hotel. Additional lodging facilities may be judged only secondarily competitive; although the facilities, rate structures, or market orientations of these hotels prevent their inclusion among the primary competitive supply, they are expected to compete with the proposed subject hotel to some extent.

The following table summarizes the important operating characteristics of the future competitors with an average daily rate over $100, considered to be primary competition, and the aggregate of the competitors with an average rate of $100 and below, which are considered to be secondarily competitive. This information is presented in order from highest to lowest estimated average daily rate. This information was compiled from personal interviews, inspections, online resources, and our in-house database of operating and hotel facility data.

SUPPLY

Competitors


FIGURE 4-12 COMPETITORS WITH AN AVERAGE DAILY RATE OF OVER $100 – OPERATING PERFORMANCE


Property Occ. RevPAR RevPAR

Occupancy

Penetration

Yield

Penetration

Bohemian Hotel Celebration Autograph Col lection 115 90 % 10 % 115 70 - 75 % $170 - $180 $130 - $140 115 75 - 80 % $170 - $180 $130 - $140 90 - 95 % 140 - 150 %

Staybridge Suites Orlando Lake Buena Vis ta 150 80 20 150 95 - 100 140 - 150 140 - 150 150 95 - 100 150 - 160 140 - 150 110 - 120 150 - 160

Res idence Inn by Marriott Orlando Lake Buena Vis ta 210 75 25 210 75 - 80 125 - 130 95 - 100 210 80 - 85 130 - 140 110 - 115 100 - 110 110 - 120

Courtyard by Marriott Orlando South/John Young Parkway 128 80 20 128 80 - 85 120 - 125 100 - 105 128 85 - 90 125 - 130 110 - 115 100 - 110 110 - 120

Embassy Suites Orlando Lake Buena Vis ta South 300 70 30 300 80 - 85 125 - 130 100 - 105 300 80 - 85 125 - 130 100 - 105 95 - 100 100 - 110

Homewood Suites by Hi l ton Lake Buena Vis ta Orlando 130 80 20 130 90 - 95 120 - 125 110 - 115 130 95 - 100 120 - 125 120 - 125 110 - 120 120 - 130

Hyatt Place Orlando Lake Buena Vis ta 169 75 25 43 65 - 70 110 - 115 75 - 80 169 90 - 95 115 - 120 105 - 110 110 - 120 110 - 120

Hi l ton Garden Inn Lake Buena Vis ta Orlando 137 70 30 137 85 - 90 105 - 110 95 - 100 137 90 - 95 110 - 115 105 - 110 110 - 120 110 - 120

Mel ia Orlando at Celebration 285 85 15 246 65 - 70 130 - 140 85 - 90 285 75 - 80 110 - 115 85 - 90 90 - 95 90 - 95

Hampton Inn & Suites Orlando South Lake Buena Vis ta 125 90 10 125 75 - 80 100 - 105 75 - 80 125 80 - 85 105 - 110 85 - 90 95 - 100 90 - 95

SpringHi l l Sui tes by Marriott Orlando Lake Buena Vis ta in Marriott Vi l lage 400 85 15 400 80 - 85 105 - 110 85 - 90 400 85 - 90 105 - 110 90 - 95 100 - 110 95 - 100

Courtyard by Marriott Orlando Lake Buena Vis ta in the Marriott Vi l lage 312 75 25 312 75 - 80 100 - 105 75 - 80 312 80 - 85 105 - 110 90 - 95 100 - 110 90 - 95

Fairfield Inn & Suites Orlando Kiss immee Celebration 150 90 10 88 45 - 50 95 - 100 40 - 45 150 70 - 75 105 - 110 80 - 85 85 - 90 80 - 85

SpringHi l l Sui tes Orlando Kiss immee 150 80 20 150 65 - 70 95 - 100 65 - 70 150 70 - 75 100 - 105 75 - 80 85 - 90 75 - 80

Sub-Totals/Averages 2,761 80 % 20 % 2,534 78.4 % $119.08 $93.40 2,761 84.6 % $120.16 $101.64 102.4 % 106.4 %

Secondary Competi tors 900 80 % 20 % 675 67.1 % $90.62 $60.82 675 74.5 % $94.68 $70.49 90.1 % 73.8 %

Totals/Averages 3,661 80 % 20 % 3,209 76.0 % $113.80 $86.54 3,436 82.6 % $115.65 $95.52 100.0 % 100.0 %

* Specific occupancy and average rate data were utilized in our analysis, but are presented in ranges in the above table for the purposes of confidentiality.

Average RateTran

sient

Gro

upNumber of

Rooms Average Rate Occ.

Weighted

Annual

Room

Count

Weighted

Annual

Room

Count


The following map illustrates the locations of the subject property and its future competitors.

MAP OF COMPETITION


It is important to consider any new hotels that may have an impact on the proposed subject hotel’s operating performance. The following chart sets forth the hotels that have recently opened, are under construction, or are in the stages of early development in the Kissimmee area. The list is categorized by the principal submarkets within the city.

FIGURE 4-13 AREA DEVELOPMENT ACTIVITY

Proposed Hotel Name Hotel Product Tier Development StageProposed Hotel 0

Osceola County

Proposed Home2 Suites Kiss immee/Celebration 140 Upper-Midscale Early Development Q1 '20

Proposed Hampton by Hi l ton OBT 125 Upper-Midscale Due Di l igence Period TBD

Estimated

Number of

Rooms

Expected

Qtr. & Year

of Opening

Of the hotels listed in the preceding chart, we have identified the following new supply that is expected to have some degree of competitive interaction with the proposed subject hotel, based on location, anticipated market orientation and price point, and/or operating profile.

FIGURE 4-14 NEW SUPPLY

Total

Proposed Property

Number

of Rooms

Competitive

LevelEstimated Opening

Date Development Stage

Proposed Subject Property 120 100 % 120 March 1, 2020 Early Development

Proposed Home2 Suites Kiss immee/Celebration 140 100 140 January 1, 2020 Early Development

Proposed Hampton by Hi l ton OBT 125 50 63 June 1, 2020 Due Di l igence Period

Totals/Averages 385 323

Weighted

Room

Count

The proposed Home2 Suites by Hilton Celebration/Kissimmee will be located near the existing Fairfield Inn by Marriott Orlando Kissimmee Celebration and will offer a similar product type. We have considered this proposed hotel to be fully competitive given its proposed location, product quality, and price point. A Hampton by Hilton is proposed for a site near the Tupperware Brands Corporation headquarter offices in Kissimmee; however, we have weighted this hotel at a lower competitive level, as the status of this development was uncertain as of early June 2018.

Supply Changes


While we have taken reasonable steps to investigate proposed hotel projects and their status, due to the nature of real estate development, it is impossible to determine with certainty every hotel that will be opened in the future, or what their marketing strategies and effect in the market will be. Depending on the outcome of current and future projects, the future operating potential of the proposed subject hotel may be affected. Future improvement in market conditions will raise the risk of increased competition. Our forthcoming forecast of stabilized occupancy and average rate is intended to reflect such risk.

We have identified various properties that are expected to be competitive to some degree with the proposed subject hotel. We have also investigated potential increases in competitive supply in this Kissimmee submarket. The Proposed Hotel at Lake Toho, Kissimmee, FL should enter a dynamic market of varying product types and price points. Next, we will present our forecast for demand change, using the historical supply data presented as a starting point.

The following table presents the most recent trends for the subject hotel market as tracked by HVS. These data pertain to the competitors discussed previously in this section; performance results are estimated, rounded for the competition, and in some cases weighted if there are secondary competitors present. In this respect, the information in the table differs from the previously presented STR data and is consistent with the supply and demand analysis developed for this report.

FIGURE 4-15 HISTORICAL MARKET TRENDS

Year

Est. 2015 816,512 — 1,033,836 — 79.0 % $113.83 — $89.90 —

Est. 2016 890,600 9.1 % 1,171,118 13.3 % 76.0 113.80 (0.0) % 86.54 (3.7) %

Est. 2017 1,035,874 16.3 1,254,140 7.1 82.6 115.65 1.6 95.52 10.4

Avg. Annual Compounded

Chg., Est. 2015-Est. 2017: 12.6 % 10.1 % 0.8 % 3.1 %

Accommodated

Room Nights % Change

Market

Occupancy Market ADR% Change

Room Nights

Available % Change % Change

Market

RevPAR

For the purpose of demand analysis, the overall market is divided into individual segments based on the nature of travel. Based on our fieldwork, area analysis, and knowledge of the local lodging market, we estimate the 2017 distribution of accommodated-room-night demand as follows.

Supply Conclusion

DEMAND

Demand Analysis Using Market Segmentation


FIGURE 4-16 ACCOMMODATED-ROOM-NIGHT DEMAND

Marketwide

Market Segment

Trans ient 824,824 80 %

Group 211,049 20

Total 1,035,874 100 %

Accommodated

Demand

Percentage

of Total

The market’s demand mix comprises transient demand, with this segment representing roughly 80% of the accommodated room nights in this Kissimmee submarket. The group segment comprises 20% of the total.

Using the distribution of accommodated hotel demand as a starting point, we will analyze the characteristics of each market segment in an effort to determine future trends in room-night demand.

Transient demand consists of individuals and families spending time in an area or passing through en route to other destinations; this segment represents travelers that are not associated with a group or room-night contract. Travel purposes include business, sightseeing, recreation, or visiting friends and relatives. Transient demand also includes room nights booked through Internet sites such as Expedia, Hotels.com, and Priceline; however, this demand may include group and convention attendees who use these channels to take advantage of any discounts that may be available on these sites. In resort destinations, transient demand is strongest Friday and Saturday nights, and all week during holiday periods and the summer months. In urban and suburban destinations, transient demand is typically strongest on Tuesday, Wednesday, and Thursday nights. The typical length of stay ranges from one to four days, depending on the destination and travel purpose. The rate of double occupancy typically ranges from 1.0 to 3.0 people per room, with higher double occupancy occurring in resort destinations. Price sensitivity tends to vary with product type. All-suite properties with inclusive food and beverage or luxury destination properties tend to drive strong transient room rates, with discounted rates offered at older or value-oriented hotels with limited amenities. For destination locations, future transient demand is related to the overall economic health of the primary source cities for visitation; the overall economic health of the surrounding neighborhood is considered for urban and suburban locations.

Primary transient leisure demand generators for this market include theme parks in the area, most notably Walt Disney World Resort, Universal Orlando Resort, and

Transient Segment


SeaWorld Orlando. Additionally, transient leisure demand in the local Kissimmee market is generated by visitors to Lake Tohopekaliga, the Osceola Heritage Park and nearby youth sporting complexes, and the Kissimmee Civic Center. Lake Tohopekaliga is a well-known destination for bass fishing throughout the year. Transient demand is also generated by commercial demand sources in the area, including the Osceola County Courthouse, Osceola Regional Medical Center, Florida Hospital Kissimmee, and Tupperware Brands Corporation's offices. Consultants and government officials from outside Kissimmee were reported to use hotels closer to Interstate 4 and State Highway 535 while completing business in Downtown Kissimmee. Doctors, traveling nurses, and healthcare industry participants reportedly create room-night demand in the local market when visiting the two major hospitals in the area. Additional demand is anticipated to be created by the NeoCity Tech Center developments as they continue to grow. Demand from small aircraft owners, transitory flight crews, and professionals taking accelerated flight training courses at the nearby the Kissimmee Gateway Airport also reportedly utilizes hotels near State Highway 535. We project overall demand in this segment to increase by the stabilized year.

In the limited-service sector, group demand is most commonly generated by groups that require ten or more room nights, but need little to no meeting space within the hotel. Examples of these groups include family reunions, sports teams, and bus tours. In some markets, limited-service hotels may also accommodate demand from groups or individuals attending events at the local convention center or at one of the larger convention hotels in the area.

A wide variety of youth sporting groups visiting the ESPN Wide World of Sports Complex generate meeting and group demand for local hotels; additionally, group demand is also generated by baseball and softball tournaments held at the sporting complex adjacent to the Osceola County Stadium. The proximity to theme parks is attractive for tournaments and competitions, as competitors and their families often stay for several nights. Lake Tohopekaliga is a well-known destination for bass fishing and hosts numerous tournaments during the year, including the Bass Pro Shops Bassmaster Eastern Open. Furthermore, family reunions, weddings, and bus tours also represent primary sources of demand during weekend and holiday periods. Local officials noted that the Berlinsky Community House and Kissimmee Civic Center generate hotel room nights for special events and weddings; moreover, the recent redevelopment of the Kissimmee Lakefront Park, which offers several pavilions, is anticipated to be a source of demand moving forward for various events held at the park. The potential to attract some smaller scale aviation conventions was also noted as a potential demand source.

Group Segment


The purpose of segmenting the lodging market is to define each major type of demand, identify customer characteristics, and estimate future growth trends. Starting with an analysis of the local area, two segments were defined as representing the subject property’s lodging market. Various types of economic and demographic data were then evaluated to determine their propensity to reflect changes in hotel demand. Based on this procedure, we forecast the following average annual compounded market-segment growth rates.

FIGURE 4-17 AVERAGE ANNUAL COMPOUNDED MARKET-SEGMENT GROWTH RATES

Annual Growth Rate

Market Segment

Trans ient -1.0 % 1.0 % 1.0 % 0.5 % 0.5 % 0.0 %

Group -1.0 1.0 0.5 0.5 0.5 0.0

Base Demand Growth -1.0 % 1.0 % 0.9 % 0.5 % 0.5 % 0.0 %

2018 2019 2020 2021 2022 2023

We have decreased the base demand growth for 2018 given the presence of non-recurring demand in September and October 2017 from hurricane evacuees and relief workers.

A table presented earlier in this section illustrated the accommodated-room-night demand in the subject property’s competitive market. Because this estimate is based on historical occupancy levels, it includes only those hotel rooms that were used by guests. Latent demand reflects potential room-night demand that has not been realized by the existing competitive supply, further classified as either unaccommodated demand or induced demand.

Unaccommodated demand refers to individuals who are unable to secure accommodations in the market because all the local hotels are filled. These travelers must defer their trips, settle for less desirable accommodations, or stay in properties located outside the market area. Because this demand did not yield occupied room nights, it is not included in the estimate of historical accommodated-room-night demand. If additional lodging facilities are expected to enter the market, it is reasonable to assume that these guests will be able to secure hotel rooms in the future, and it is therefore necessary to quantify this demand.

Unaccommodated demand is further indicated if the market is at all seasonal, with distinct high and low seasons; such seasonality indicates that although year-end occupancy may not average in excess of 70%, the market may sell out certain nights during the year. To evaluate the incidence of unaccommodated demand in the market, we have reviewed the average occupancy by the night of the week for the

Base Demand Growth Rates

Latent Demand

Unaccommodated Demand


past twelve months for the competitive set, as reflected in the STR data. This is set forth in the following table.

FIGURE 4-18 OCCUPANCY BY NIGHT OF THE WEEK


May - 17 70.0 % 67.3 % 73.9 % 74.8 % 73.5 % 87.8 % 93.8 % 76.8 %

Jun - 17 71.6 77.4 83.1 83.0 79.0 85.6 88.5 81.2

Jul - 17 75.7 79.4 82.0 84.3 86.4 91.8 93.7 84.6

Aug - 17 67.1 70.7 73.8 72.4 71.4 85.0 90.0 75.5

Sep - 17 85.6 74.3 77.8 81.3 85.4 86.2 93.0 83.8

Oct - 17 75.8 76.8 81.9 86.2 89.3 96.5 97.0 85.5

Nov - 17 67.2 72.7 78.4 82.7 84.6 94.4 93.6 82.1

Dec - 17 80.5 77.2 83.3 82.6 82.2 87.9 90.9 83.8

Jan - 18 77.7 77.0 83.3 85.5 86.1 87.2 91.5 83.8

Feb - 18 79.7 82.0 86.9 86.5 84.5 93.7 96.2 87.1

Mar - 18 84.0 88.7 94.3 96.5 93.1 97.7 98.4 93.5

Apr - 18 71.0 79.5 86.1 86.5 87.1 94.2 95.5 85.0

Average 75.5 % 76.8 % 81.8 % 83.2 % 83.4 % 90.6 % 93.5 % 83.5 %

Source: STR

Our interviews with market participants found that the market generally sells out on Friday and Saturday nights during the peak travel season, as well as sporadically within other periods throughout the year. Special events, tournaments, competitions, as well as the consistent demand visiting local theme parks regularly sell out competitive hotels. A portion of this demand, which is currently turned away, should return to the market concurrent with the supply increase. The following table presents our estimate of unaccommodated demand in the subject market.

FIGURE 4-19 UNACCOMMODATED DEMAND ESTIMATE

Market Segment

Trans ient 824,824 2.5 % 20,730

Group 211,049 1.5 3,196

Total 1,035,874 2.3 % 23,926

Unaccommodated

Demand Percentage

Unaccommodated

Room Night Demand

Accommodated Room

Night Demand


Accordingly, we have forecast unaccommodated demand equivalent to 2.3% of the base-year demand, resulting from our analysis of monthly and weekly peak demand and sell-out trends.

Induced demand represents the additional room nights that are expected to be attracted to the market following the introduction of a new demand generator. Situations that can result in induced demand include the opening of a new manufacturing plant, the expansion of a convention center, or the addition of a new hotel with a distinct chain affiliation or unique facilities. Although increases in demand are expected in the local market, we have accounted for this growth in the determination of market-segment growth rates rather than induced demand.

Based upon a review of the market dynamics in the subject property’s competitive environment, we have forecast growth rates for each market segment. Using the calculated potential demand for the market, we have determined market-wide accommodated demand based on the inherent limitations of demand fluctuations and other factors in the market area.

The following table details our projection of lodging demand growth for the subject market, including the total number of occupied room nights and any residual unaccommodated demand in the market.

Induced Demand

Accommodated Demand and Market-wide Occupancy


FIGURE 4-20 FORECAST OF MARKET OCCUPANCY

824,824 816,576 824,742 832,989 837,154 841,340 841,340

Unaccommodated Demand 20,523 20,728 20,935 21,040 21,145 21,145

837,099 845,470 853,925 858,194 862,485 862,485

Growth Rate 1.5 % 1.0 % 1.0 % 0.5 % 0.5 % 0.0 %

211,049 208,939 211,028 212,083 213,144 214,209 214,209

3,164 3,195 3,211 3,227 3,243 3,243

212,102 214,223 215,294 216,371 217,453 217,453

0.5 % 1.0 % 0.5 % 0.5 % 0.5 % 0.0 %

Base Demand 1,035,874 1,025,515 1,035,770 1,045,073 1,050,298 1,055,549 1,055,549

Unaccommodated Demand 23,686 23,923 24,147 24,267 24,389 24,389

Total Demand 1,049,201 1,059,693 1,069,219 1,074,565 1,079,938 1,079,938

less : Res idual Demand 23,307 23,540 3,334 0 0 0

Total Accommodated Demand 1,025,894 1,036,153 1,065,885 1,074,565 1,079,938 1,079,938

Overall Demand Growth (1.0) % 1.0 % 2.9 % 0.8 % 0.5 % 0.0 %

Market Mix

79.6 % 79.8 % 79.8 % 79.9 % 79.9 % 79.9 % 79.9 %

20.4 20.2 20.2 20.1 20.1 20.1 20.1

3,436 3,436 3,436 3,436 3,436 3,436 3,436

Proposed Subject Property ¹ 101 120 120 120

Proposed Home2 Suites Kiss immee/Celebration ² 140 140 140 140

Proposed Hampton by Hi l ton OBT ³ 37 63 63 63

Change to Existing Hotels

Hol iday Inn Express & Suites South Lake Buena Vis ta A 5 5 5 5 5 5

Avai lable Room Nights per Year 1,254,140 1,256,056 1,256,056 1,357,251 1,373,769 1,373,769 1,373,769

Nights per Year 365 365 365 365 365 365 365

Total Supply 3,436 3,441 3,441 3,718 3,764 3,764 3,764

Rooms Supply Growth — 0.2 % 0.0 % 8.1 % 1.2 % 0.0 % 0.0 %

Marketwide Occupancy 82.6 % 81.7 % 82.5 % 78.5 % 78.2 % 78.6 % 78.6 %

¹ Opening in March 2020 of the 100% competitive, 120-room Proposed Subject Property²

Opening in January 2020 of the 100% competitive, 140-room Proposed Home2 Suites Kiss immee/Celebration³

Opening in June 2020 of the 50% competitive, 125-room Proposed Hampton by Hi l ton OBTA Change of room count in November 2017 of the 75% competitive, Hol iday Inn Express & Suites South Lake Buena Vis ta

Existing Hotel Supply

Proposed Hotels

Totals

Trans ient

Group

Total Demand

Growth Rate

Unaccommodated Demand

2023

Base Demand

Total Demand

Group

Base Demand

Transient

2017 2018 2019 2020 2021 2022

The defined competitive market of hotels should experience modest occupancy growth by the stabilized year. Based on historical occupancy levels in this market, and taking into consideration typical supply and demand cyclicality, market occupancy is forecast to stabilize in the high 70s.

June-2018 Projection of Occupancy and Average Rate Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 70

5. Projection of Occupancy and Average Rate

Along with average rate results, the occupancy levels achieved by a hotel are the foundation of the property's financial performance and market value. Most of a lodging facility's other revenue sources (such as food, beverages, other operated departments, and rentals and other income) are driven by the number of guests, and many expense levels vary with occupancy. To a certain degree, occupancy attainment can be manipulated by management. For example, hotel operators may choose to lower rates in an effort to maximize occupancy. Our forecasts reflect an operating strategy that we believe would be implemented by a typical, professional hotel management team to achieve an optimal mix of occupancy and average rate.

The subject property's forecasted market share and occupancy levels are based upon its anticipated competitive position within the market, as quantified by its penetration rate. The penetration rate is the ratio of a property's market share to its fair share.

In the following table, the penetration rates attained by the primary competitors and the aggregate secondary competitors are set forth for each segment for the base year.

Penetration Rate Analysis

Historical Penetration Rates by Market Segment


FIGURE 5-1 HISTORICAL PENETRATION RATES

Property

Bohemian Hotel Celebration Autograph Col lection 105 % 46 % 93 %

Staybridge Suites Orlando Lake Buena Vis ta 119 116 119

Res idence Inn by Marriott Orlando Lake Buena Vis ta 95 123 100

Courtyard by Marriott Orlando South/John Young Parkway 105 102 104

Embassy Suites Orlando Lake Buena Vis ta South 87 146 99

Homewood Suites by Hi l ton Lake Buena Vis ta Orlando 118 115 117

Hyatt Place Orlando Lake Buena Vis ta 107 140 114

Hi l ton Garden Inn Lake Buena Vis ta Orlando 101 169 115

Mel ia Orlando at Celebration 101 70 94

Hampton Inn & Suites Orlando South Lake Buena Vis ta 112 49 99

SpringHi l l Sui tes by Marriott Orlando Lake Buena Vis ta in Marriott Vi l lage 111 77 104

Courtyard by Marriott Orlando Lake Buena Vis ta in the Marriott Vi l lage 96 125 102

Fairfield Inn & Suites Orlando Kiss immee Celebration 103 45 91

SpringHi l l Sui tes Orlando Kiss immee 90 88 90

Secondary Competition 90 90 90

Ove

rall

Tran

sient

Gro

up

The Staybridge Suites Orlando Lake Buena Vista achieved the highest penetration rate within the transient segment. The highest penetration rate in the group segment was achieved by the Hilton Garden Inn Lake Buena Vista Orlando.

Because the supply and demand balance for the competitive market is dynamic, there is a circular relationship between the penetration factors of each hotel in the market. The performance of individual new hotels has a direct effect upon the aggregate performance of the market, and consequently upon the calculated penetration factor for each hotel in each market segment. The same is true when the performance of existing hotels changes, either positively (following a refurbishment, for example) or negatively (when a poorly maintained or marketed hotel loses market share).

A hotel’s penetration factor is calculated as its achieved market share of demand divided by its fair share of demand. Thus, if one hotel’s penetration performance increases, thereby increasing its achieved market share, this leaves less demand available in the market for the other hotels to capture and the penetration performance of one or more of those other hotels consequently declines (other things remaining equal). This type of market share adjustment takes place every time there is a change in supply, or a change in the relative penetration performance of one or more hotels in the competitive market. Our projections of penetration,

Forecast of Subject Property’s Occupancy


demand capture, and occupancy performance for the subject property account for these types of adjustments to market share within the defined competitive market.

The proposed subject hotel's occupancy forecast is set forth as follows, with the adjusted projected penetration rates used as a basis for calculating the amount of captured market demand.

FIGURE 5-2 FORECAST OF SUBJECT PROPERTY'S OCCUPANCY

Market Segment

Transient

Demand 851,034 858,194 862,485 862,485

Market Share 2.3 % 2.9 % 2.9 % 2.9 %

Capture 19,653 24,641 25,299 25,299

Penetration 85 % 90 % 92 % 92 %

Group

Demand 214,851 216,371 217,453 217,453

Market Share 2.4 % 3.2 % 3.2 % 3.2 %

Capture 5,241 6,892 7,063 7,063

Penetration 90 % 100 % 102 % 102 %

Total Room Nights Captured 24,895 31,533 32,362 32,362

Avai lable Room Nights 36,720 43,800 43,800 43,800

Subject Occupancy 68 % 72 % 74 % 74 %

Market-wide Avai lable Room Nights 1,357,251 1,373,769 1,373,769 1,373,769

Fair Share 3 % 3 % 3 % 3 %

Market-wide Occupied Room Nights 1,065,885 1,074,565 1,079,938 1,079,938

Market Share 2 % 3 % 3 % 3 %

Market-wide Occupancy 79 % 78 % 79 % 79 %

Total Penetration 86 % 92 % 94 % 94 %

2020 2021 2022 2023

The proposed subject hotel is expected to stabilize with a penetration rate under the market-average level and within the range of the existing competition due to its proposed location in Downtown Kissimmee, anticipated national brand affiliation, and distance from the majority of the region's major demand generators. This penetration level appropriately ramps up during the early years of operation as the hotel gains recognition in the local market. Commercial accounts from the area's transient demand sources will need to visit the property after its opening, and then perhaps test the property with one or two guests, before sending substantial levels of business to the hotel (for both small group and transient corporate travelers). Leisure travelers may need to first see the hotel, as well, before staying at the hotel on their next return visit. Accordingly, by the stabilized year, the proposed hotel


reaches an appropriate penetration level based on our assessment of its planned guestroom count, location, and well-recognized brand affiliation, among other factors. Additional insights by segment are presented as follows:

• Within the transient segment, the proposed subject hotel’s occupancy penetration is positioned at a below-market-average level by the stabilized period due to the distance of the subject site from the major regional demand sources, relative to the existing competition. The proposed subject hotel is anticipated to capture a portion of the existing transient demand from individuals working in the local market and staying at hotels located over five miles away from the subject site.

• The proposed subject hotel is expected to become a competitive option for groups demand holding events and competitions in the Kissimmee area; however, the distance of the subject site from the ESPN Wide World of Sports Complex is considered somewhat of a disadvantage when compared to the hotels in the competitive market. We have positioned the proposed subject hotel's group occupancy penetration at the market-average level as the proximity to the Berlinsky Community House, Kissimmee Civic Center, Osceola Heritage Park and nearby sports facilities, and Lake Tohopekaliga should allow the hotel to attract group demand from these sources. A portion of the demand generated from these sources is currently captured by hotels over five miles away.

These positioned segment penetration rates result in the following market segmentation forecast.

FIGURE 5-3 MARKET SEGMENTATION FORECAST – SUBJECT PROPERTY

Trans ient 79 % 78 % 78 % 78 %

Group 21 22 22 22

Total 100 % 100 % 100 % 100 %

2020 2021 2022 2023

Based on our analysis of the proposed subject hotel and market area, we have selected a stabilized occupancy level of 74%. The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life, given all changes in the life cycle of the hotel. Thus, the stabilized occupancy excludes from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusually high or low occupancies. Although the subject property may operate at occupancies


above this stabilized level, we believe it equally possible for new competition and temporary economic downturns to force the occupancy below this selected point of stability.

One of the most important considerations in estimating the value of a lodging facility is a supportable forecast of its attainable average rate, which is more formally defined as the average rate per occupied room. Average rate can be calculated by dividing the total rooms revenue achieved during a specified period by the number of rooms sold during the same period. The projected average rate and the anticipated occupancy percentage are used to forecast rooms revenue, which in turn provides the basis for estimating most other income and expense categories.

Although the average rate analysis presented here follows the occupancy projection, these two statistics are highly correlated; in reality, one cannot project occupancy without making specific assumptions regarding average rate. This relationship is best illustrated by revenue per available room (RevPAR), which reflects a property's ability to maximize rooms revenue. The following table summarizes the historical average rate and the RevPAR of the subject property’s future competitors.

Average Rate Analysis

Competitive Position


FIGURE 5-4 BASE-YEAR AVERAGE RATE AND REVPAR OF THE COMPETITORS

Property

Bohemian Hotel Celebration Autograph

Col lection$170 - $180 150 - 160 % $130 - $140 140 - 150 %

Staybridge Suites Orlando Lake Buena

Vis ta150 - 160 130 - 140 140 - 150 150 - 160

Res idence Inn by Marriott Orlando Lake

Buena Vis ta130 - 140 110 - 120 110 - 115 110 - 120

Courtyard by Marriott Orlando

South/John Young Parkway125 - 130 110 - 120 110 - 115 110 - 120

Embassy Suites Orlando Lake Buena

Vis ta South125 - 130 100 - 110 100 - 105 100 - 110

Homewood Suites by Hi l ton Lake Buena

Vis ta Orlando120 - 125 100 - 110 120 - 125 120 - 130

Hyatt Place Orlando Lake Buena Vis ta 115 - 120 100 - 110 105 - 110 110 - 120

Hi l ton Garden Inn Lake Buena Vis ta

Orlando110 - 115 95 - 100 105 - 110 110 - 120

Mel ia Orlando at Celebration 110 - 115 95 - 100 85 - 90 90 - 95

Hampton Inn & Suites Orlando South

Lake Buena Vis ta105 - 110 90 - 95 85 - 90 90 - 95

SpringHi l l Sui tes by Marriott Orlando

Lake Buena Vis ta in Marriott Vi l lage105 - 110 90 - 95 90 - 95 95 - 100

Courtyard by Marriott Orlando Lake

Buena Vis ta in the Marriott Vi l lage105 - 110 90 - 95 90 - 95 90 - 95

Fairfield Inn & Suites Orlando

Kiss immee Celebration105 - 110 90 - 95 80 - 85 80 - 85

SpringHi l l Sui tes Orlando Kiss immee 100 - 105 85 - 90 75 - 80 75 - 80

Average - Primary Competitors $120.16 103.9 % $101.64 106.4 %

Average - Secondary Competitors 94.68 81.9 70.49 73.8

Overall Average $115.65 100.0 % $95.52 100.0 %

Estimated 2017

Average Room

Rate

Average Room

Rate Penetration

Rooms Revenue

Per Available

Room (RevPAR)

RevPAR

Penetration

The defined primarily competitive market realized an overall average rate of $120.16 in the 2017 base year, improving from the 2016 level of $119.08. We have analyzed the historical average rate data for the historical set and arranged this data


in order from highest to lowest for the year-end 2017 period. Additionally, we have grouped this data into hotels that achieved an average daily rate above $100 and hotels that operated under this level. The Bohemian Hotel Celebration Autograph Collection achieved the highest estimated average rate in the selected competitive market, by a significant margin, because of its high-quality upper-upscale product offering, location in Celebration, proximity to leisure and commercial demand generators, and Marriott affiliation. Other important rate aspects of this market include the relatively modest average rate growth in recent years given the focus on price-sensitive leisure travelers and the presence of lower-rated group demand in the market. The selected rate position for the proposed subject hotel, in base-year dollars, takes into consideration factors such as the hotel's proximity to area demand generators, location in Downtown Kissimmee, and proposed guestroom count, as well as the anticipated future growth in this downtown market. We have selected the rate position of $120.00, in base-year (2017) dollars, for the proposed subject.

Market-wide rates began to trend upward in 2011. Average rate declined minimally in 2016 given the influx of new supply that year. We expect average rates to continue to improve because of the year-to-date data as well as strong demand and occupancy levels. As previously noted, similar to other Orlando-area submarkets, market participants appear confident that going forward, RevPAR growth will be due to modest average rate increases related to aggressive yield management amid steady growth in room-night demand.

Based on these considerations, the following table illustrates the projected average rate and the growth rates assumed. As a context for the average rate growth factors, note that we have applied underlying inflation rates of 2.5%, 2.5%, and 3.0% thereafter for each respective year following the base year of 2017.


FIGURE 5-5 COMPARISON OF HISTORICAL AND PROJECTED OCCUPANCY, AVERAGE RATE, AND REVPAR – PROPOSED SUBJECT PROPERTY AND MARKET

2015 2016 2017 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Proposed Hotel at Lake Toho, Kissimmee, FL

Occupancy — % — % 68.5 % 72.3 % 73.9 % 73.9 %

Change in Points — — — 3.8 1.6 0.0

Occupancy Penetration — — 87.2 % 92.4 % 94.0 % 94.0 %

Average Rate $120.00 $125.61 $130.32 $127.10 $134.21 $142.51 $146.79

Change — 3.7 % (2.5) % 5.6 % 6.2 % 3.0 %

Average Rate Penetration 103.8 % 103.8 % 98.6 % 100.6 % 103.8 % 103.8 %

RevPAR — — $87.03 $97.03 $105.30 $108.45

Change — — — 11.5 % 8.5 % 3.0 %

RevPAR Penetration — — 86.0 % 93.0 % 97.5 % 97.5 %

2015 2016 2017 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Selected Competitive Set

Occupancy 79.0 % 76.0 % 82.6 % 81.8 % 81.9 % 78.5 % 78.3 % 78.6 % 78.6 %

Change in Points — (2.9) 6.5 (0.8) 0.0 (3.4) (0.2) 0.3 0.0

Average Rate $113.83 $113.80 $115.65 $121.05 $125.59 $128.94 $133.35 $137.35 $141.47

Change — (0.0) % 1.6 % 4.7 % 3.7 % 2.7 % 3.4 % 3.0 % 3.0 %

RevPAR $89.90 $86.54 $95.52 $99.03 $102.80 $101.20 $104.39 $107.97 $111.21

Change — (3.7) % 10.4 % 3.7 % 3.8 % (1.6) % 3.2 % 3.4 % 3.0 %

* The forecast for the proposed subject property does not include rate discounts that are expected to occur during the initial year(s) of operation.

Projected

Historical (Estimated) Projected


The final forecast reflects years beginning on March 1, 2020 and corresponds with our financial projections, as shown below.

FIGURE 5-6 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

Calendar Year 2017 2018 2019 2020 2021 2022 2023

Market ADR $115.65 $120.28 $125.09 $128.22 $132.70 $136.68 $140.78

Projected Market ADR Growth Rate — 4.0% 4.0% 2.5% 3.5% 3.0% 3.0%

Proposed Subject Property ADR (As-If Stabi l i zed) $120.00 $124.80 $129.79 $133.04 $137.69 $141.82 $146.08

ADR Growth Rate — 4.0% 4.0% 2.5% 3.5% 3.0% 3.0%

Proposed Subject Stabi l i zed ADR Penetration 104% 104% 104% 104% 104% 104% 104%

Fiscal Year 2020/21 2021/22 2022/23 2023/24

Proposed Subject Property Average Rate $133.79 $138.36 $142.51 $146.79

Opening Discount 5.0% 3.0% 0.0% 0.0%

Average Rate After Discount $127.10 $134.21 $142.51 $146.79

Real Average Rate Growth — 5.6% 6.2% 3.0%

Market ADR $128.94 $133.35 $137.35 $141.47

Proposed Subject ADR Penetration (After Discount) 99% 101% 104% 104%

ADR Expressed in Base-Year Dol lars Deflated @ Inflation Rate $117.45 $120.41 $124.13 $124.13

As illustrated above, a 4.0%% rate of change is expected for the proposed subject hotel's positioned 2017 room rate in 2018. This is followed by growth rates of 4.0%% and 2.5%% in 2019 and 2020, respectively. This selected Kissimmee and Lake Buena Vista market should experience ADR growth through the near term. The proposed subject hotel's rate position should reflect growth similar to market trends because of the proposed hotel's new facility, the recommended well-recognized brand affiliation, and anticipated economic growth in the Kissimmee and Osceola County area moving forward. The proposed subject hotel’s penetration rate is forecast to reach 103.8% by the stabilized period.

A new property must establish its reputation and a client base in the market during its ramp-up period; as such, the proposed subject hotel’s average rates in the initial operating period have been discounted to reflect this likelihood. We forecast 5.0% and 3.0% discounts to the proposed subject hotel’s forecast room rates in the first two operating years, which would be typical for a new operation of this type.

The following occupancies and average rates will be used to project the subject property's rooms revenue; this forecast reflects years beginning on March 1, 2020, which correspond with our financial projections.


FIGURE 5-7 FORECASTS OF OCCUPANCY, AVERAGE RATE, AND REVPAR

Year

2020/21 68 % $133.79 5.0 % $127.10

2021/22 72 138.36 3.0 134.21

2022/23 74 142.51 0.0 142.51

Occupancy

Average Rate

Before Discount Discount

Average Rate

After Discount

June-2018 Projection of Income and Expense Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 80

6. Projection of Income and Expense

In this chapter of our report, we have compiled a forecast of income and expense for the proposed subject hotel. This forecast is based on the facilities program set forth previously, as well as the occupancy and average rate forecast discussed previously.

The forecast of income and expense is expressed in current dollars for each year. The stabilized year is intended to reflect the anticipated operating results of the property over its remaining economic life, given any or all applicable stages of build-up, plateau, and decline in the life cycle of the hotel. Thus, income and expense estimates from the stabilized year forward exclude from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusual revenues or expenses. The ten-year period reflects the typical holding period of large real estate assets such as hotels. In addition, the ten-year period provides for the stabilization of income streams and comparison of yields with alternate types of real estate. The forecasted income streams reflect the future benefits of owning specific rights in income-producing real estate.

In order to project future income and expense for the proposed subject hotel, we have included a sample of individual comparable operating statements from our database of hotel statistics. All financial data are presented according to the three most common measures of industry performance: ratio to sales (RTS), amounts per available room (PAR), and amounts per occupied room night (POR). These historical income and expense statements will be used as benchmarks in our forthcoming forecast of income and expense.

Comparable Operating Statements


FIGURE 6-1 COMPARABLE OPERATING STATEMENTS: RATIO TO SALES

Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject

Year: 2017 2016/17 2016 2016 2015/16 2017

Edition: 11 11 11 11 10 11

Number of Rooms: 80 to 110 70 to 100 90 to 130 110 to 150 80 to 110 120

Days Open: 365 365 365 365 365 365

Occupancy: 77% 74% 80% 71% 80% 74%

Average Rate: $125 $118 $124 $121 $121 $124

RevPAR: $96 $88 $99 $86 $96 $91

REVENUE

Rooms 99.1 % 97.9 % 98.9 % 99.3 % 98.0 % 99.0 %

Other Operated Departments 0.9 1.3 0.7 0.4 1.0 0.8

Miscel laneous Income 0.0 0.8 0.0 0.3 1.0 0.2

Total 100.0 100.0 100.0 100.0 100.0 100.0

DEPARTMENTAL EXPENSES*

Rooms 19.2 20.5 22.2 24.2 22.4 21.5


Total 19.2 20.6 22.4 24.1 23.3 21.9

DEPARTMENTAL INCOME 80.8 79.4 77.6 75.9 76.7 78.1

OPERATING EXPENSES

Adminis trative & General 10.2 8.8 5.7 7.5 9.2 8.5

Info. and Telecom. Systems 1.5 0.7 1.5 0.8 0.0 1.3

Marketing 9.9 10.5 3.5 5.0 5.2 7.1

Franchise Fee 5.4 4.7 9.4 9.4 9.3 8.9

Property Operations & Maintenance 3.2 3.9 8.5 3.8 4.5 3.6

Uti l i ties 3.2 3.4 0.0 3.4 3.7 3.3

Total 33.4 32.1 28.6 29.9 31.9 32.6

HOUSE PROFIT 47.4 47.3 49.0 46.0 44.8 45.5

Management Fee 3.0 6.0 2.0 4.0 2.8 3.0

INCOME BEFORE FIXED CHARGES 44.4 41.2 47.0 42.0 42.1 42.5

* Departmental expense ratios are expressed as a percentage of departmental revenues

Stabilized $


FIGURE 6-2 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER AVAILABLE ROOM


Year: 2017 2016/17 2016 2016 2015/16 2017

Edition: 11 11 11 11 10 11


Days Open: 365 365 365 365 365 365

Occupancy: 77% 74% 80% 71% 80% 74%

Average Rate: $125 $118 $124 $121 $121 $124

RevPAR: $96 $88 $99 $86 $96 $91

REVENUE

Rooms $34,976 $31,980 $36,022 $31,557 $35,160 $33,364

Other Operated Departments 312 440 264 111 361 270

Miscel laneous Income 0 256 0 102 365 81

Total 35,288 32,677 36,407 31,771 35,886 33,715

DEPARTMENTAL EXPENSES

Rooms 6,709 6,569 7,987 7,637 7,869 7,158

Other Operated Departments 79 168 159 4 479 216

Total 6,788 6,737 8,148 7,642 8,348 7,374

DEPARTMENTAL INCOME 28,501 25,940 28,259 24,129 27,538 26,341

OPERATING EXPENSES

Adminis trative & General 3,602 2,889 2,062 2,376 3,289 2,850

Info. and Telecom. Systems 546 242 555 247 0 450

Marketing 3,477 3,447 1,285 1,604 1,867 2,400

Franchise Fee 1,906 1,552 3,422 3,001 3,320 3,003

Property Operations & Maintenance 1,122 1,270 3,104 1,208 1,615 1,200

Uti l i ties 1,122 1,102 0 1,073 1,345 1,100

Total 11,775 10,502 10,429 9,508 11,436 11,003

HOUSE PROFIT 16,726 15,438 17,830 14,621 16,102 15,339

Management Fee 1,059 1,961 728 1,272 1,009 1,011

INCOME BEFORE FIXED CHARGES 15,667 13,476 17,102 13,349 15,094 14,327

Stabilized $


FIGURE 6-3 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER OCCUPIED ROOM


Year: 2017 2016/17 2016 2016 2015/16 2017

Edition: 11 11 11 11 10 11


Days Open: 365 365 365 365 365 365

Occupancy: 77% 74% 80% 71% 80% 74%

Average Rate: $125 $118 $124 $121 $121 $124

RevPAR: $96 $88 $99 $86 $96 $91

REVENUE

Rooms $124.94 $117.70 $123.92 $121.10 $120.76 $123.52


Miscel laneous Income 0.00 0.94 0.00 0.39 1.25 0.30

Total 126.05 120.26 125.25 121.92 123.25 124.82

DEPARTMENTAL EXPENSES

Rooms 23.96 24.18 27.48 29.31 27.02 26.50


Total 24.25 24.79 28.03 29.32 28.67 27.30

DEPARTMENTAL INCOME 101.80 95.47 97.21 92.59 94.58 97.52

OPERATING EXPENSES

Adminis trative & General 12.87 10.63 7.09 9.12 11.29 10.55

Info. and Telecom. Systems 1.95 0.89 1.91 0.95 0.00 1.67

Marketing 12.42 12.69 4.42 6.15 6.41 8.89

Franchise Fee 6.81 5.71 11.77 11.51 11.40 11.12

Property Operations & Maintenance 4.01 4.67 10.68 4.63 5.55 4.44

Uti l i ties 4.01 4.06 0.00 4.12 4.62 4.07

Total 42.06 38.65 35.88 36.49 39.28 40.74

HOUSE PROFIT 59.75 56.82 61.34 56.11 55.31 56.79

Management Fee 3.78 7.22 2.50 4.88 3.46 3.74

INCOME BEFORE FIXED CHARGES 55.96 49.60 58.83 51.23 51.84 53.04

Stabilized $

The departmental income of the comparable properties ranged from 75.9% to 80.8% of total revenue. The comparable properties achieved a house profit ranging from 44.8% to 49.0% of total revenue. We will refer to the comparable operating data in our discussion of each line item, which follows later in this section of the report.

HVS uses a fixed and variable component model to project a lodging facility's revenue and expense levels. This model is based on the premise that hotel revenues and expenses have one component that is fixed and another that varies directly with

Fixed and Variable Component Analysis


occupancy and facility usage. A projection can be made by taking a known level of revenue or expense and calculating its fixed and variable components. The fixed component is then increased in tandem with the underlying rate of inflation, while the variable component is adjusted for a specific measure of volume such as total revenue.

The actual forecast is derived by adjusting each year’s revenue and expense by the amount fixed (the fixed expense multiplied by the inflated base-year amount) plus the variable amount (the variable expense multiplied by the inflated base-year amount) multiplied by the ratio of the projection year’s occupancy to the base-year occupancy (in the case of departmental revenue and expense) or the ratio of the projection year’s revenue to the base year’s revenue (in the case of undistributed operating expenses). Fixed expenses remain fixed, increasing only with inflation. Our discussion of the revenue and expense forecast in this report is based upon the output derived from the fixed and variable model. This forecast of revenue and expense is accomplished through a systematic approach, following the format of the Uniform System of Accounts for the Lodging Industry. Each category of revenue and expense is estimated separately and combined at the end in the final statement of income and expense.

In consideration of the most recent trends, the projections set forth previously, and our assessment of probable property appreciation levels, we have applied underlying inflation rates of 2.5%, 2.5%, and 3.0% thereafter for each respective year following the base year of 2017. This stabilized inflation rate takes into account normal, recurring inflation cycles. Inflation is likely to fluctuate above and below this level during the projection period. Any exceptions to the application of the assumed underlying inflation rate are discussed in our write-up of individual income and expense items.

Based on an analysis that will be detailed throughout this section, we have formulated a forecast of income and expense. The following table presents a detailed forecast through the fifth projection year, including amounts per available room and per occupied room. The second table illustrates our ten-year forecast of income and expense, presented with a lesser degree of detail. The forecasts pertain to years that begin on March 1, 2020, expressed in inflated dollars for each year.

Inflation Assumption

Forecast of Income and Expense


FIGURE 6-4 DETAILED FORECAST OF INCOME AND EXPENSE

2020/21 Begins March 2021/22 Stabilized 2023/24 2024/25

Number of Rooms: 120 120 120 120 120

Occupancy: 68% 72% 74% 74% 74%

Average Rate: $127.10 $134.21 $142.51 $146.79 $151.19

RevPAR: $86.43 $96.63 $105.46 $108.62 $111.88

Days Open: 365 365 365 365 365

Occupied Rooms: 29,784 %Gross PAR POR 31,536 %Gross PAR POR 32,412 %Gross PAR POR 32,412 %Gross PAR POR 32,412 %Gross PAR POR

OPERATING REVENUE

Rooms $3,786 98.8 % $31,550 $127.12 $4,232 98.9 % $35,267 $134.20 $4,619 99.0 % $38,492 $142.51 $4,758 99.0 % $39,650 $146.80 $4,900 99.0 % $40,833 $151.18





Rooms 904 23.9 7,531 30.34 952 22.5 7,931 30.18 991 21.5 8,258 30.57 1,021 21.5 8,506 31.49 1,051 21.5 8,761 32.44


Total Expenses 932 24.3 7,765 31.28 981 22.9 8,172 31.10 1,021 21.9 8,507 31.50 1,051 21.9 8,762 32.44 1,083 21.9 9,025 33.41



Administrative & General 360 9.4 2,999 12.08 378 8.8 3,148 11.98 395 8.5 3,288 12.17 406 8.5 3,387 12.54 419 8.5 3,488 12.91


Marketing 303 7.9 2,526 10.18 318 7.4 2,651 10.09 332 7.1 2,769 10.25 342 7.1 2,852 10.56 352 7.1 2,937 10.88

Franchise Fee 341 8.9 2,840 11.44 381 8.9 3,174 12.08 416 8.9 3,464 12.83 428 8.9 3,569 13.21 441 8.9 3,675 13.61

Prop. Operations & Maint. 121 3.2 1,010 4.07 135 3.2 1,127 4.29 166 3.6 1,384 5.13 171 3.6 1,426 5.28 176 3.6 1,469 5.44

Utilities 139 3.6 1,158 4.66 146 3.4 1,215 4.62 152 3.3 1,269 4.70 157 3.3 1,307 4.84 162 3.3 1,346 4.98

Total Expenses 1,321 34.5 11,006 44.34 1,417 33.1 11,811 44.94 1,523 32.7 12,694 47.00 1,569 32.7 13,075 48.41 1,616 32.7 13,467 49.86


Management Fee 115 3.0 958 3.86 128 3.0 1,070 4.07 140 3.0 1,167 4.32 144 3.0 1,202 4.45 149 3.0 1,238 4.58



Property Taxes 212 5.5 1,766 7.11 218 5.1 1,819 6.92 225 4.8 1,873 6.93 232 4.8 1,929 7.14 238 4.8 1,987 7.36

Insurance 91 2.4 761 3.07 94 2.2 784 2.98 97 2.1 808 2.99 100 2.1 832 3.08 103 2.1 857 3.17

Reserve for Replacement 77 2.0 638 2.57 128 3.0 1,070 4.07 187 4.0 1,556 5.76 192 4.0 1,603 5.93 198 4.0 1,651 6.11

Total Expenses 380 9.9 3,165 12.75 441 10.3 3,672 13.97 508 10.9 4,237 15.69 524 10.9 4,364 16.16 539 10.9 4,495 16.64

EBITDA LESS RESERVE $1,084 28.3 % $9,029 $36.38 $1,312 30.7 % $10,932 $41.60 $1,475 31.5 % $12,292 $45.51 $1,520 31.5 % $12,664 $46.89 $1,565 31.5 % $13,039 $48.27



FIGURE 6-5 TEN-YEAR FORECAST OF INCOME AND EXPENSE

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30

Number of Rooms: 120 120 120 120 120 120 120 120 120 120

Occupied Rooms: 29,784 31,536 32,412 32,412 32,412 32,412 32,412 32,412 32,412 32,412

Occupancy: 68% 72% 74% 74% 74% 74% 74% 74% 74% 74%

Average Rate: $127.10 % of $134.21 % of $142.51 % of $146.79 % of $151.19 % of $155.73 % of $160.40 % of $165.21 % of $170.17 % of $175.27

RevPAR: $86.43 Gross $96.63 Gross $105.46 Gross $108.62 Gross $111.88 Gross $115.24 Gross $118.69 Gross $122.26 Gross $125.92 Gross $129.70

OPERATING REVENUE

Rooms $3,786 98.8 % $4,232 98.9 % $4,619 99.0 % $4,758 99.0 % $4,900 99.0 % $5,047 99.0 % $5,199 99.0 % $5,355 99.0 % $5,515 99.0 % $5,681 99.0 %





Rooms 904 23.9 952 22.5 991 21.5 1,021 21.5 1,051 21.5 1,083 21.5 1,115 21.5 1,149 21.5 1,183 21.5 1,219 21.5


Total Expenses 932 24.3 981 22.9 1,021 21.9 1,051 21.9 1,083 21.9 1,116 21.9 1,149 21.9 1,183 21.9 1,219 21.9 1,256 21.9



Administrative & General 360 9.4 378 8.8 395 8.5 406 8.5 419 8.5 431 8.5 444 8.5 457 8.5 471 8.5 485 8.5


Marketing 303 7.9 318 7.4 332 7.1 342 7.1 352 7.1 363 7.1 374 7.1 385 7.1 397 7.1 409 7.1

Franchise Fee 341 8.9 381 8.9 416 8.9 428 8.9 441 8.9 454 8.9 468 8.9 482 8.9 496 8.9 511 8.9

Prop. Operations & Maint. 121 3.2 135 3.2 166 3.6 171 3.6 176 3.6 182 3.6 187 3.6 193 3.6 198 3.6 204 3.6

Utilities 139 3.6 146 3.4 152 3.3 157 3.3 162 3.3 166 3.3 171 3.3 177 3.3 182 3.3 187 3.3

Total Expenses 1,321 34.5 1,417 33.1 1,523 32.6 1,569 32.6 1,616 32.6 1,664 32.6 1,714 32.6 1,766 32.6 1,819 32.6 1,873 32.6


Management Fee 115 3.0 128 3.0 140 3.0 144 3.0 149 3.0 153 3.0 158 3.0 162 3.0 167 3.0 172 3.0



Property Taxes 212 5.5 218 5.1 225 4.8 232 4.8 238 4.8 246 4.8 253 4.8 261 4.8 268 4.8 276 4.8

Insurance 91 2.4 94 2.2 97 2.1 100 2.1 103 2.1 106 2.1 109 2.1 112 2.1 116 2.1 119 2.1

Reserve for Replacement 77 2.0 128 3.0 187 4.0 192 4.0 198 4.0 204 4.0 210 4.0 216 4.0 223 4.0 230 4.0

Total Expenses 380 9.9 441 10.3 508 10.9 524 10.9 539 10.9 556 10.9 572 10.9 589 10.9 607 10.9 625 10.9

EBITDA LESS RESERVE $1,084 28.3 % $1,312 30.7 % $1,475 31.6 % $1,520 31.6 % $1,565 31.6 % $1,612 31.6 % $1,660 31.6 % $1,710 31.6 % $1,761 31.6 % $1,814 31.6 %1 1 1 1 1 1 1 1 1 1


% of

Gross


The following description sets forth the basis for the forecast of income and expense. We anticipate that it will take three years for the subject property to reach a stabilized level of operation. Each revenue and expense item has been forecast based upon our review of the proposed subject hotel’s operating budget and comparable income and expense statements. The forecast is based upon fiscal years beginning March 1, 2020, expressed in inflated dollars for each year.

Rooms revenue is determined by two variables: occupancy and average rate. We projected occupancy and average rate in a previous section of this report. The proposed subject hotel is expected to stabilize at an occupancy level of 74% with an average rate of $142.51 in 2022/23. Following the stabilized year, the subject property’s average rate is projected to increase along with the underlying rate of inflation.

According to the Uniform System of Accounts, other operated departments include any major or minor operated department other than rooms and food and beverage. The proposed subject hotel's other operated departments revenue sources are expected to include the hotel's telephone charges, market pantry sales, and guest laundry fees. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel.

FIGURE 6-6 OTHER OPERATED DEPARTMENTS REVENUE

#1 #2 #3 #4 #5 2020/21

Percentage of Revenue 0.9 % 1.3 % 0.7 % 0.4 % 1.0 % 0.9 % 0.8 %

Per Avai lable Room $312 $440 $264 $111 $361 $287 $270

Per Occupied Room $1.11 $1.62 $0.91 $0.43 $1.24 $1.15 $1.00

Comparable Operating Statements Proposed Subject Property Forecast

Deflated Stabilized

The miscellaneous income sources comprise those other than guestrooms, food and beverage, and the other operated departments. The proposed subject hotel's miscellaneous income revenues are expected to be generated primarily by the commissions earned on the vending sales and other minor collections, such as cancelation fees. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel. Changes in this revenue item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy.

Rooms Revenue

Other Operated Departments Revenue

Miscellaneous Income


FIGURE 6-7 MISCELLANEOUS INCOME

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

Rooms expense consists of items related to the sale and upkeep of guestrooms and public space. Salaries, wages, and employee benefits account for a substantial portion of this category. Although payroll varies somewhat with occupancy and managers can generally scale the level of service staff on hand to meet an expected occupancy level, much of a hotel's payroll is fixed. A base level of front desk personnel, housekeepers, and supervisors must be maintained at all times. As a result, salaries, wages, and employee benefits are only moderately sensitive to changes in occupancy.

Commissions and reservations are usually based on room sales, and thus are highly sensitive to changes in occupancy and average rate. While guest supplies vary 100% with occupancy, linens and other operating expenses are only slightly affected by volume. The proposed subject hotel's rooms department expense has been positioned based upon our review of the comparable operating data and our understanding of the hotel's future service level and price point.

FIGURE 6-8 ROOMS EXPENSE

#1 #2 #3 #4 #5 2020/21


Per Avai lable Room $6,709 $6,569 $7,987 $7,637 $7,869 $7,531 $7,158


Deflated Stabilized


Other operated departments expense includes all expenses reflected in the summary statements for the divisions associated in these categories. This was previously discussed in this chapter. The proposed subject hotel's other operated departments revenue sources are expected to include the hotel's telephone charges, market pantry sales, and guest laundry fees. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel.

Rooms Expense

Other Operated Departments Expense


FIGURE 6-9 OTHER OPERATED DEPARTMENTS EXPENSE

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

Administrative and general expense includes the salaries and wages of all administrative personnel who are not directly associated with a particular department. Expense items related to the management and operation of the property are also allocated to this category.

Most administrative and general expenses are relatively fixed. The exceptions are cash overages and shortages; commissions on credit card charges; provision for doubtful accounts, which are moderately affected by the number of transactions or total revenue; and salaries, wages, and benefits, which are very slightly influenced by volume. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject hotel, we have positioned the administrative and general expense level at a market- and property-supported level.

FIGURE 6-10 ADMINISTRATIVE AND GENERAL EXPENSE

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

Information and telecommunications systems expense consists of all costs associated with a hotel’s technology infrastructure. This includes the costs of cell phones, administrative call and Internet services, and complimentary call and Internet services. Expenses in this category are typically organized by type of technology, or the area benefitting from the technology solution. We expect the proposed subject hotel's information and telecommunications systems to be well managed. Expense levels should stabilize at a typical level for a property of this type.

Marketing expense consists of all costs associated with advertising, sales, and promotion; these activities are intended to attract and retain customers. Marketing

Administrative and General Expense

Information and Telecommunications Systems Expense

Marketing Expense


can be used to create an image, develop customer awareness, and stimulate patronage of a property's various facilities.

The marketing category is unique in that all expense items, with the exception of fees and commissions, are totally controlled by management. Most hotel operators establish an annual marketing budget that sets forth all planned expenditures. If the budget is followed, total marketing expenses can be projected accurately.

Marketing expenditures are unusual because although there is a lag period before results are realized, the benefits are often extended over a long period. Depending on the type and scope of the advertising and promotion program implemented, the lag time can be as short as a few weeks or as long as several years. However, the favorable results of an effective marketing campaign tend to linger, and a property often enjoys the benefits of concentrated sales efforts for many months. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject hotel, we have positioned the marketing expense level at a market- and property-supported level.

FIGURE 6-11 MARKETING EXPENSE

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

We have used an average of typical franchise fees for hotels that offer a limited-service product within the upper-midscale chain scale.

Property operations and maintenance expense is another expense category that is largely controlled by management. Except for repairs that are necessary to keep the facility open and prevent damage (e.g., plumbing, heating, and electrical items), most maintenance can be deferred for varying lengths of time.

Maintenance is an accumulating expense. If management elects to postpone performing a required repair, they have not eliminated or saved the expenditure; they have only deferred payment until a later date. A lodging facility that operates with a lower-than-normal maintenance budget is likely to accumulate a considerable amount of deferred maintenance.

The age of a lodging facility has a strong influence on the required level of maintenance. A new or thoroughly renovated property is protected for several years

Franchise Fee

Property Operations and Maintenance


by modern equipment and manufacturers' warranties. However, as a hostelry grows older, maintenance expenses escalate. A well-organized preventive maintenance system often helps delay deterioration, but most facilities face higher property operations and maintenance costs each year, regardless of the occupancy trend. The quality of initial construction can also have a direct impact on future maintenance requirements. The use of high-quality building materials and construction methods generally reduces the need for maintenance expenditures over the long term.

We expect the proposed subject hotel's maintenance operation to be well managed. Expense levels should stabilize at a typical level for a property of this type. Changes in this expense item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy.

FIGURE 6-12 PROPERTY OPERATIONS AND MAINTENANCE EXPENSE

#1 #2 #3 #4 #5 2020/21





Deflated Stabilized

The utilities consumption of a lodging facility takes several forms, including water and space heating, air conditioning, lighting, cooking fuel, and other miscellaneous power requirements. The most common sources of hotel utilities are electricity, natural gas, fuel oil, and steam. This category also includes the cost of water service.

Total energy cost depends on the source and quantity of fuel used. Electricity tends to be the most expensive source, followed by oil and gas. Although all hotels consume a sizable amount of electricity, many properties supplement their utility requirements with less expensive sources, such as gas and oil, for heating and cooking. The changes in this utilities line item through the projection period are a result of the application of the underlying inflation rate and projected changes in occupancy.

Utilities Expense


FIGURE 6-13 UTILITIES EXPENSE

#1 #2 #3 #4 #5 2020/21


Per Avai lable Room $1,122 $1,102 $0 $1,073 $1,345 $1,158 $1,100



Deflated Stabilized

Management expense consists of the fees paid to the managing agent contracted to operate the property. Some companies provide management services and a brand-name affiliation (first-tier management company), while others provide management services alone (second-tier management company). Some management contracts specify only a base fee (usually a percentage of total revenue), while others call for both a base fee and an incentive fee (usually a percentage of defined profit). Basic hotel management fees are often based on a percentage of total revenue, which means they have no fixed component. While base fees typically range from 2% to 4% of total revenue, incentive fees are deal specific and often are calculated as a percentage of income available after debt service and, in some cases, after a preferred return on equity. Total management fees for the proposed subject hotel have been forecast at 3.0% of total revenue.

Property (or ad valorem) tax is one of the primary revenue sources of municipalities. Based on the concept that the tax burden should be distributed in proportion to the value of all properties within a taxing jurisdiction, a system of assessments is established. Theoretically, the assessed value placed on each parcel bears a definite relationship to market value, so properties with equal market values will have similar assessments and properties with higher and lower values will have proportionately larger and smaller assessments.

Depending on the taxing policy of the municipality, property taxes can be based on the value of the real property or the value of the personal property and the real property. We have based our estimate of the proposed subject property's market value (for tax purposes) on an analysis of assessments of comparable hotel properties in the local municipality.

Management Fee

Property Taxes


FIGURE 6-14 COUNTY-ASSESSED VALUE OF COMPARABLE HOTELS

Year

Hotel Open

Bohemian Hotel Celebration Autograph Col lection 1999 $14,633,200 $1,170,122

Embassy Suites Orlando Lake Buena Vis ta South 2012 26,045,000 5,289,274

Hampton Inn & Suites Orlando South Lake Buena Vis ta 2008 5,396,600 1,257,168

Fairfield Inn & Suites Orlando Kiss immee Celebration 2016 10,218,300 Not Avai lable

SpringHi l l Sui tes Orlando Kiss immee 2000 13,444,500 1,768,063

Hol iday Inn Express & Suites South Lake Buena Vis ta 2001 5,951,900 537,640

Assessments per Room

Bohemian Hotel Celebration Autograph Col lection 115 $127,245 $10,175

Embassy Suites Orlando Lake Buena Vis ta South 300 86,817 17,631

Hampton Inn & Suites Orlando South Lake Buena Vis ta 125 43,173 10,057

Fairfield Inn & Suites Orlando Kiss immee Celebration 150 68,122 Not Avai lable

SpringHi l l Sui tes Orlando Kiss immee 150 89,630 11,787

Hol iday Inn Express & Suites South Lake Buena Vis ta 162 36,740 3,319

Positioned Subject - Per Room 120 $80,000 $10,000

Positioned Subject - Total $9,600,000 $1,200,000

# of Rms

Source: Osceola County Tax Col lector

Real Personal

Tax rates are based on the city and county budgets, which change annually. The most recent tax rate in this jurisdiction was reported at $14.383 per $1,000 of assessed value. The following table shows changes in the tax rate during the last several years.

FIGURE 6-15 COUNTY TAX RATES

Real Property

Year

2017 $14.383 $4.501 $18.884

School Personal Property

Source: Osceola County Tax Col lector

Millage Rate Millage Rate Millage Rate

Based on comparable assessments and the tax rate information, the proposed subject property's projected property tax expense levels are calculated as follows.


FIGURE 6-16 PROJECTED PROPERTY TAX BURDEN (BASE YEAR)

Personal

Real Property Total School Property

Pos itioned (Assessed Value) $9,600,000 $9,600,000 $9,600,000 $1,200,000

Mil lage Rate 14.38300 4.50100 18.88400

Tax Burden as of Base Year $138,077 $43,210 $22,661

Real Property

FIGURE 6-17 PROJECTED PROPERTY TAX EXPENSE - REAL PROPERTY

Taxes

Year Payable

Pos itioned $181,286 — $181,286

2020/21 $181,286 8.2 % 100 % $196,178

2021/22 196,178 3.0 100 202,063

2022/23 202,063 3.0 100 208,125

2023/24 208,125 3.0 100 214,369

Burden Increase

Real Property

Total Tax Burden

(Positioned Prior to Increase)

Base Rate of Tax % Positioned

Tax Burden

FIGURE 6-18 PROJECTED PROPERTY TAX EXPENSE – PERSONAL PROPERTY

Taxes

Year Payable

Pos itioned $22,661 — $22,661

2020/21 $22,661 8.2 % 100 % $24,522

2021/22 24,522 3.0 100 25,258

2022/23 25,258 3.0 100 26,016

2023/24 26,016 3.0 100 26,796

Burden Increase Tax Burden

Personal Property

Personal Tax Burden

(Positioned Prior to Increase)

Base Rate of Tax % of Positioned

FIGURE 6-19 PROJECTED PROPERTY TAX EXPENSE – SUMMARY

Year Real Personal Total Early Payment

Pos itioned $181,286 $22,661 $203,947 4 % $195,789

2020/21 $196,178 $24,522 $220,700 4 % $211,872

2021/22 202,063 25,258 227,321 4 218,228

2022/23 208,125 26,016 234,141 4 224,775

2023/24 214,369 26,796 241,165 4 231,518

Taxes Payable Total Tax

Payable


The insurance expense category consists of the cost of insuring the hotel and its contents against damage or destruction by fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, and so forth. General insurance costs also include premiums relating to liability, fidelity, and theft coverage.

Insurance rates are based on many factors, including building design and construction, fire detection and extinguishing equipment, fire district, distance from the firehouse, and the area's fire experience. Insurance expenses do not vary with occupancy.

FIGURE 6-20 INSURANCE EXPENSE

#1 #2 #3 #4 #5 2020/21




Deflated Stabilized


Furniture, fixtures, and equipment are essential to the operation of a lodging facility, and their quality often influences a property's class. This category includes all non-real estate items that are capitalized, rather than expensed. The furniture, fixtures, and equipment of a hotel are exposed to heavy use and must be replaced at regular intervals. The useful life of these items is determined by their quality, durability, and the amount of guest traffic and use.

Periodic replacement of furniture, fixtures, and equipment is essential to maintain the quality, image, and income-producing potential of a lodging facility. Because capitalized expenditures are not included in the operating statement but affect an owner's cash flow, a forecast of income and expense should reflect these expenses in the form of an appropriate reserve for replacement.

The International Society of Hospitality Consultants (ISHC) oversees a major industry-sponsored study of the capital expenditure requirements for full-service/luxury, select-service, and extended-stay hotels. The most recent study was published in 2014.6 Historical capital expenditures of well-maintained hotels were investigated through the compilation of data provided by most of the major hotel companies in the United States. A prospective analysis of future capital expenditure

6 The International Society of Hotel Consultants, CapEx 2014, A Study of Capital

Expenditure in the U.S. Hotel Industry.

Insurance Expense

Reserve for Replacement


requirements was also performed based upon the cost to replace short- and long-lived building components over a hotel's economic life. The study showed that the capital expenditure requirements for hotels vary significantly from year to year and depend upon both the actual and effective ages of a property. The results of this study showed that hotel lenders and investors are requiring reserves for replacement ranging from 4% to 5% of total revenue.

Based on the results of our analysis and on our review of the proposed subject asset and comparable lodging facilities, as well as on our industry expertise, we estimate that a reserve for replacement of 4% of total revenues is sufficient to provide for the timely and periodic replacement of the subject property's furniture, fixtures, and equipment. This amount has been ramped up during the initial projection period.

Projected total revenue. House profit, and EBITDA less replacement reserves are set forth in the following table.

FIGURE 6-21 FORECAST OF REVENUE AND EXPENSE CONCLUSION

Year Total

%

Change Total % Change Total % Change

Projected 2020/21 $3,831,000 — $1,578,000 — 41.2 % $1,084,000 — 28.3 %

2021/22 4,279,000 11.7 % 1,881,000 19.2 % 44.0 1,312,000 21.0 % 30.7

2022/23 4,668,000 9.1 2,123,000 12.9 45.4 1,475,000 12.4 31.5

2023/24 4,808,000 3.0 2,188,000 3.1 45.4 1,520,000 3.1 31.5

2024/25 4,952,000 3.0 2,253,000 3.0 45.4 1,565,000 3.0 31.5

Total Revenue House Profit House

Profit

Ratio

EBITDA Less Replacement Reserve

As a % of

Ttl Rev

Forecast of Revenue and Expense Conclusion

June-2018 Statement of Assumptions and Limiting Conditions Proposed Hotel at Lake Toho, Kissimmee, FL – Kissimmee, Florida 97

7. Statement of Assumptions and Limiting Conditions

1. This report is set forth as a market study of the proposed subject hotel; this is not an appraisal report.

2. This report is to be used in whole and not in part.

3. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed marketable and free of any deed restrictions and easements. The property is evaluated as though free and clear unless otherwise stated.

4. We assume that there are no hidden or unapparent conditions of the sub-soil or structures, such as underground storage tanks, that would affect the property’s development potential. No responsibility is assumed for these conditions or for any engineering that may be required to discover them.

5. We have not considered the presence of potentially hazardous materials or any form of toxic waste on the project site. We are not qualified to detect hazardous substances and urge the client to retain an expert in this field if desired.

6. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have assumed the proposed hotel would be designed and constructed to be in full compliance with the ADA.

7. We have made no survey of the site, and we assume no responsibility in connection with such matters. Sketches, photographs, maps, and other exhibits are included to assist the reader in visualizing the property. It is assumed that the use of the described real estate will be within the boundaries of the property described, and that no encroachment will exist.

8. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS Consulting & Valuation are assumed true and correct. We can assume no liability resulting from misinformation.

9. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property.

10. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including the appropriate liquor license if applicable), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser.


11. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless specified otherwise.

12. None of this material may be reproduced in any form without our written permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media.

13. We are not required to give testimony or attendance in court because of this analysis without previous arrangements, and shall do so only when our standard per-diem fees and travel costs have been paid prior to the appearance.

14. If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this report, it is recommended that the reader contact us.

15. We take no responsibility for any events or circumstances that take place subsequent to the date of our field inspection.

16. The quality of a lodging facility's onsite management has a direct effect on a property's economic viability. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any departure from this assumption may have a significant impact on the projected operating results.

17. The financial analysis presented in this report is based upon assumptions, estimates, and evaluations of the market conditions in the local and national economy, which may be subject to sharp rises and declines. Over the projection period considered in our analysis, wages and other operating expenses may increase or decrease because of market volatility and economic forces outside the control of the hotel’s management. We assume that the price of hotel rooms, food, beverages, and other sources of revenue to the hotel will be adjusted to offset any increases or decreases in related costs. We do not warrant that our estimates will be attained, but they have been developed based upon information obtained during the course of our market research and are intended to reflect the expectations of a typical hotel investor as of the stated date of the report.

18. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first.

19. Many of the figures presented in this report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors.


20. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client, and use of this report by third parties shall be solely at the risk of the client and/or third parties. The use of this report is also subject to the terms and conditions set forth in our engagement letter with the client.

21. Evaluating and comprising financial forecasts for hotels is both a science and an art. Although this analysis employs various mathematical calculations to provide value indications, the final forecasts are subjective and may be influenced by our experience and other factors not specifically set forth in this report.

22. This study was prepared by HVS Consulting & Valuation. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of HVS Consulting & Valuation as employees, rather than as individuals.

MARKET STUDY Proposed Hotel at Lake Toho, Kissimmee, FL...Re: Proposed Hotel at Lake Toho, Kissimmee, FL Kissimmee, Florida HVS Reference: 2018020960 Dear Mr. Wayland: Pursuant to

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