2. Hotel Valuation David G. Pope, MAI, SRA, SGA Hotel and Club Associates, Inc. 3717-D West Market Street Greensboro, NC 27403 336-379-1400 dpope@hotelandclub.com Hotel and Club Associates, Inc.

3. Types of Lodging Full service – restaurant, lounge, large meeting spacesFull service – restaurant, lounge, large meeting spaces Select service – small restaurant or bistro, less meetingSelect service – small restaurant or bistro, less meeting Limited service – limited food/beverage, meetingLimited service – limited food/beverage, meeting Extended stay – longer guest stays, small kitchensExtended stay – longer guest stays, small kitchens Boutique – unique, usually upscaleBoutique – unique, usually upscale Bed and breakfast – owners quarters/lifestyle for innkeeperBed and breakfast – owners quarters/lifestyle for innkeeper Hotel and Club Associates, Inc.

4. Hotel

5. Motel

6. Hotel

7. Bed and Breakfast B&B Hotel and Club Associates, Inc.

8. ?????

9. Major Franchises Hilton Worldwide Hilton Worldwide Hilton – full serviceHilton – full service Embassy Suites – full serviceEmbassy Suites – full service DoubleTree – full serviceDoubleTree – full service Hilton Garden Inn – select serviceHilton Garden Inn – select service Hampton Inn – limited/select serviceHampton Inn – limited/select service Homewood Suites – upscale extended StayHomewood Suites – upscale extended Stay Home2 Suites – midscale extended stayHome2 Suites – midscale extended stay Hotel and Club Associates, Inc.

10. Major Franchises Marriott Hotels Marriott Hotels Marriott – full serviceMarriott – full service Ritz Carlton – full service luxuryRitz Carlton – full service luxury Renaissance Hotel – full serviceRenaissance Hotel – full service Courtyard by Marriott – select serviceCourtyard by Marriott – select service Springhill Suites – limited/select serviceSpringhill Suites – limited/select service Fairfield Inn and Suites – limited/select serviceFairfield Inn and Suites – limited/select service Residence Inn – upscale extended stayResidence Inn – upscale extended stay TownePlace Suites – midscale extended stayTownePlace Suites – midscale extended stay Hotel and Club Associates, Inc.

11. Major Franchises Intercontinental Hotels Group – IHG Intercontinental Hotels Group – IHG Holiday Inn – select/full service Crown Plaza – full service Hotel Indigo – full service Holiday Inn Express – limited/select service Staybridge Suites – upscale extended stay Candlewood Suites – midscale extended stay Hotel and Club Associates, Inc.

12. Major Franchise Choice Hotels Choice Hotels Clarion Hotel – full service, midscaleClarion Hotel – full service, midscale Comfort Suites/Comfort Inn – limited serviceComfort Suites/Comfort Inn – limited service Sleep Inn – limited serviceSleep Inn – limited service Quality Inn – limited/full service – typically reflaggedQuality Inn – limited/full service – typically reflagged EconoLodge – limited serviceEconoLodge – limited service Mainstay Suites – extended stayMainstay Suites – extended stay Hotel and Club Associates, Inc.

13. Other Franchises Hyatt Hotels – Hyatt Place, Hyatt HouseHyatt Hotels – Hyatt Place, Hyatt House Wyndham Hotels – Days Inn, Microtel, Ramada, etc.Wyndham Hotels – Days Inn, Microtel, Ramada, etc. Starwood Hotels – aloft, Four Points, Sheraton, WestinStarwood Hotels – aloft, Four Points, Sheraton, Westin LaQuintaLaQuinta Best WesternBest Western Carlson Redizor Group – Country Inn & SuitesCarlson Redizor Group – Country Inn & Suites Value PlaceValue Place Hotel and Club Associates, Inc.

14. Hotels vs. Other Investment Real Estate Length of tenancy - hotels tenancy nightly contracts Length of tenancy - hotels tenancy nightly contracts Hotels have varying sources of revenuesHotels have varying sources of revenues Hotels more labor intensiveHotels more labor intensive Operating expense ratios higher for hotelsOperating expense ratios higher for hotels PIP – Property Improvement Plans – Frequent RenovationsPIP – Property Improvement Plans – Frequent Renovations Risk levels – hotel vs. other real estateRisk levels – hotel vs. other real estate How are risk levels priced in the market? – capitalization rates, discount rates, multiples of incomeHow are risk levels priced in the market? – capitalization rates, discount rates, multiples of income Hotel and Club Associates, Inc.

15. Measures of Performance Occupancy = Occupied Rooms ÷ Rooms Available Occupancy = Occupied Rooms ÷ Rooms Available ADR - Average Daily Rate; Nightly Avg Rate for Rooms Sold ADR - Average Daily Rate; Nightly Avg Rate for Rooms Sold Rack Rate – Advertised Rate Rack Rate – Advertised Rate ADR Typically Lower than Rack RateADR Typically Lower than Rack Rate RevPar – Revenue per Available Room RevPar – Revenue per Available Room Hotel and Club Associates, Inc.

16. Sources of Market Information Smith Travel ResearchSmith Travel Research STAR ReportsSTAR Reports Custom Trends ReportsCustom Trends Reports Market ForecastsMarket Forecasts Revenue and Expense ReportsRevenue and Expense Reports www.str.comwww.str.comwww.str.com PKF HospitalityPKF Hospitality Investor SurveysInvestor Surveys Income and Expense BenchmarkingIncome and Expense Benchmarking www.pkfc.comwww.pkfc.comwww.pkfc.com Hotel Broker Specialists WebsitesHotel Broker Specialists Websites Hotel and Club Associates, Inc.

17. Valuation Considerations Franchise AffiliationFranchise Affiliation Not all brands are equalNot all brands are equal Is property eligible for re-licensingIs property eligible for re-licensing Example: Exterior Corridor Hampton InnExample: Exterior Corridor Hampton Inn Age/ConditionAge/Condition PIPs – Property Improvement Plan PIPs – Property Improvement Plan Market SegmentMarket Segment Interior or Exterior CorridorsInterior or Exterior Corridors Hotel and Club Associates, Inc.

18. Valuation Approaches Income Capitalization ApproachIncome Capitalization Approach Sales Comparison ApproachSales Comparison Approach Cost ApproachCost Approach Hotel and Club Associates, Inc.

19. Income Capitalization Approach Projection of Revenues and ExpensesProjection of Revenues and Expenses Room Revenues net of sales and occupancy taxesRoom Revenues net of sales and occupancy taxes Smith Travel Reports – STAR ReportsSmith Travel Reports – STAR Reports Historical Operating Statements from OwnersHistorical Operating Statements from Owners Uniform System of Accounts for HotelsUniform System of Accounts for Hotels Capitalization of Net IncomeCapitalization of Net Income Direct Capitalization – Overall Capitalization RateDirect Capitalization – Overall Capitalization Rate Common method especially for upper midscale and higherCommon method especially for upper midscale and higher Market for Hotel Investments – RegionalMarket for Hotel Investments – Regional Analyze Sales and Subject Using Market ExpensesAnalyze Sales and Subject Using Market Expenses Hotel and Club Associates, Inc.

21. Capitalization of Income Develop Appropriate Overall Capitalization RateDevelop Appropriate Overall Capitalization Rate Sources of Capitalization RatesSources of Capitalization Rates Analysis of Sales of Similar PropertiesAnalysis of Sales of Similar Properties Brand similaritiesBrand similarities Date of SaleDate of Sale Age/ConditionAge/Condition Many times necessary to include sales from other areasMany times necessary to include sales from other areas Investor SurveysInvestor Surveys PriceWaterhouseCoopersPriceWaterhouseCoopers PKF HospitalityPKF Hospitality Major Brokerage Firms – Research ReportsMajor Brokerage Firms – Research Reports Hotel and Club Associates, Inc.

22. Sample Capitalization Hotel and Club Associates, Inc.

23. How are You Feeling at this Point?? Hotel and Club Associates, Inc.

24. Room Revenue Multiplier Room Revenue Multiplier – RRMRoom Revenue Multiplier – RRM RRM = Sale Price/Value ÷ Room Revenue*RRM = Sale Price/Value ÷ Room Revenue* *exclude occupancy taxes and sales taxes*exclude occupancy taxes and sales taxes Value = Room Revenue x RRMValue = Room Revenue x RRM RRM - Income or Sales Comparison Approach?RRM - Income or Sales Comparison Approach? Frequently Used in Market – Especially for Mid Tier and Under Properties, Mom-and-pops, B&BsFrequently Used in Market – Especially for Mid Tier and Under Properties, Mom-and-pops, B&Bs Develop RRMs from Sales and Conversations with Market ParticipantsDevelop RRMs from Sales and Conversations with Market Participants Simple but Effective Valuation ToolSimple but Effective Valuation Tool Hotel and Club Associates, Inc.

25. Example RRM Hotel and Club Associates, Inc.

26. Sales Comparison Approach Comparison of Subject with Sales/Listings of Similar PropertiesComparison of Subject with Sales/Listings of Similar Properties ComparabilityComparability Franchise AffiliationFranchise Affiliation Exterior vs. Interior CorridorsExterior vs. Interior Corridors Age/ConditionAge/Condition Market SegmentMarket Segment Date of SaleDate of Sale LocationLocation RevParRevPar Hotel and Club Associates, Inc.

27. Sales Comp – Units of Comparison Price Per RoomPrice Per Room Room Revenue Multiplier - RRMRoom Revenue Multiplier - RRM Gross Income Multiplier – GIMGross Income Multiplier – GIM Observation – properties with higher revenue/income per room tend to sell at higher prices per room – assuming all other things reasonably similarObservation – properties with higher revenue/income per room tend to sell at higher prices per room – assuming all other things reasonably similar Observation - Price per room comparisons based on physical features and adjustments based on physical features can be difficult and potentially misleading.Observation - Price per room comparisons based on physical features and adjustments based on physical features can be difficult and potentially misleading. Hotel and Club Associates, Inc.

28. Hampton Inn 1 st Generation Hotel and Club Associates, Inc.

29. Hampton Inn 2 nd Generation Hotel and Club Associates, Inc.

30. Hampton Inn Newest Generation Hotel and Club Associates, Inc.

31. Hampton Inn 2 nd Generation – Requires Exterior Renovation Hotel and Club Associates, Inc.

32. Hampton Inn Forever Young Renovation Underway Hotel and Club Associates, Inc.

33. Hampton Inn Forever Young Renovation Underway Hotel and Club Associates, Inc.

34. Hampton Inn Forever Young Renovation Hotel and Club Associates, Inc.

35. Sales Comparison cont. Advice – In using price per room comparison with comparable sales, try to select sales that have similar franchise affiliations with similar RevPar potentialAdvice – In using price per room comparison with comparable sales, try to select sales that have similar franchise affiliations with similar RevPar potential If using traditional adjustment grid, be mindful of RevPar differencesIf using traditional adjustment grid, be mindful of RevPar differences Don’t compare an “apple” and an “orange” and try to compensate for differences with adjustmentsDon’t compare an “apple” and an “orange” and try to compensate for differences with adjustments Other Issues to considerOther Issues to consider PIP – Property Improvement PlansPIP – Property Improvement Plans Hotel and Club Associates, Inc.

36. Sales Comparison Cont. Sources of Sales DataSources of Sales Data Hotel broker specialistsHotel broker specialists Published Research ReportsPublished Research Reports Hotel and Club Associates, Inc.

37. Cost Approach Land ValuationLand Valuation Hotels developers frequently buy the “rear” sitesHotels developers frequently buy the “rear” sites Hotels are destination commercial propertiesHotels are destination commercial properties Don’t typically buy the prime retail/frontage sitesDon’t typically buy the prime retail/frontage sites Units of comparisonUnits of comparison Price per Square FootPrice per Square Foot Price per RoomPrice per Room Hotel and Club Associates, Inc.

38. Replacement Cost Replacement/Reproduction CostReplacement/Reproduction Cost Cost Manuals can be challengingCost Manuals can be challenging Actual Cost Comparables betterActual Cost Comparables better Hotel and Club Associates, Inc.

39. Depreciation Types of Depreciation – Physical Depreciation Functional Obsolescence, External ObsolescenceTypes of Depreciation – Physical Depreciation Functional Obsolescence, External Obsolescence How to Measure Depreciation?How to Measure Depreciation? Franchised hotels – major renovations/PIP every 5-7 yearsFranchised hotels – major renovations/PIP every 5-7 years Many hotels block and plank construction – buildings potentially have very long physical lives – BUT…..Many hotels block and plank construction – buildings potentially have very long physical lives – BUT….. Consumer taste change frequently – exterior corridor hotelsConsumer taste change frequently – exterior corridor hotels Hotel and Club Associates, Inc.

40. Reconciliation Market Typically Prices Hotels Based on Revenue/Income ConsiderationsMarket Typically Prices Hotels Based on Revenue/Income Considerations Most Meaningful Methods (most cases)Most Meaningful Methods (most cases) Overall Capitalization – Income ApproachOverall Capitalization – Income Approach RRM – Sales Comparison – Income ApproachRRM – Sales Comparison – Income Approach Cost Approach Least Reliable in Most SituationsCost Approach Least Reliable in Most Situations These Approaches Reflect Value of Total Going ConcernThese Approaches Reflect Value of Total Going Concern Hotel and Club Associates, Inc.

41. Allocation of Value Total Going Concern ComponentsTotal Going Concern Components Real Property (land and buildings)Real Property (land and buildings) Tangible Business Personal Property – FF&ETangible Business Personal Property – FF&E Intangible Business ValueIntangible Business Value Necessary to Allocate for Taxation PurposesNecessary to Allocate for Taxation Purposes Start Allocation with Total Going ConcernStart Allocation with Total Going Concern Total Going Concern generally what is bought/sold in marketTotal Going Concern generally what is bought/sold in market Building value based on individual components would be subjectiveBuilding value based on individual components would be subjective Tangible Business Personal Property Set by Property Tax FilingsTangible Business Personal Property Set by Property Tax Filings Hotel and Club Associates, Inc.

42. Intangible BEV Intangible Business Enterprise ValueIntangible Business Enterprise Value Much controversy within appraisal community as to how to measure itMuch controversy within appraisal community as to how to measure it Discussion as time permitsDiscussion as time permits Hotel and Club Associates, Inc.

43. Sample Allocation Hotel and Club Associates, Inc.