Earth City Investment Opportunity

Residence Inn St. Louis Airport / Earth City Investment Opportunity April 2016 Residence Inn St. Louis Airport / Earth City Legal Disclosures THIS ...
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Residence Inn St. Louis Airport / Earth City Investment Opportunity

April 2016

Residence Inn St. Louis Airport / Earth City Legal Disclosures THIS PRESENTATION IS QUALIFIED IN ITS ENTIRETY AND WILL BE GOVERENED BY THE SUBSCRIPTION AGREEMENT, AS WELL AS THE OPERATING AGREEMENT AND THE SUBSCRIPTION MATERIALS RELATED THERETO, EACH OF WHICH MAY BE AMENDED AND/OR MODIFIED FROM TIME TO TIME PRIOR TO THE FINAL CLOSING OF THE INVESTMENT, AND EACH OF WHICH WILL BE MADE AVAILABLE UPON REQUEST. THIS PRESENTATION HAS BEEN PREPARED ON A CONFIDENTIAL BASIS SOLEY FOR YOUR BENEFIT AND ANY INFORMATION CONTAINED HEREIN IS NOT TO BE REPRODUCED OR REDISTRIBUTED. BY ACCEPTING AND VIEWING THIS PRESENTATION YOU AGREE TO KEEP ALL INFORMATION CONTAINED HEREIN STRICKLY CONFIDENTIAL AND NOT TO DISCLOSE THE SAME TO ANYONE OTHER THAN YOUR PROFESSIONAL ADVISORS ON A CONFIDENTIAL BASIS. YOU ALSO AGREE TO PROMPTLY RETURN THIS PRESENTATION AND/OR DESTROY ALL COPIES THEREOF UPON THE REQUEST OF DOMINION HOSPITALITY – EARTH CITY, LLC. THIS PRESENTATION IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, NOR SHALL ANY SECURITIES BE OFFERED OR SOLD TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER, SOLICITATION, PURCHASE OR SLAE WOULD BE UNLAWFUL. AN OFFER OF INTERESTS IN THE PROJECT SHALL BE MADE ONLY UPON THE DELIVERY OF THE CONFIDENTIAL SUBSCRIPTION AGREEMENT AND SHALL ONLY BE MADE TO ACCREDITED INVESTORS (AS DEFINED IN RULE 501 OF REGULATION D). THE INTERESTS IN THE INVESTMENT HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933 OF THE UNITED STATES OF AMERICA, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATED OF AMERIAC ABSENT REGISTERATION OR AN APPLICABLE EXEMPTION FROM REGISTRATION FROM SUCH ACT. THE INVESTMENT INTERESTS DESCRIBED IN THIS PRESENTATION WILL ALSO BE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE SET FORTH IN THE OPERATING AGREEMENT. EACH PROSPECTIVE INVESTOR SHOULD MAKE ITS OWN INVESTIGATION AND EVALUATION OF THE POTENTIAL INVESTMENT DESCRIBED HEREIN, INCLUDING THE MERITS AND RISKS THEREOF, AND SHOULD REVIEW THE “RISK FACTORS” SET FORTH IN THE SUBSCRIPTION AGREEMENT. PRIOR TO ANY INVESTMENT, EACH PROSPECTIVE INVESTOR WILL HAVE THE OPPORTINUTY TO ASK QUESTIONS OF AND RECEIVE ANSWERS AND ADDITIONAL INFORMATION FROM THE MANAGERS REGARDING THE TERMS AND CONDITIONS OF THE INVESTMENT AND OTHER RELEVANT MATTERS. EACH PROSPECTIVE INVESTOR SHOULD SEEK PROFESSIONAL ADVICE CONCERNING THE LEGAL AND TAX CONSEQUENCES OF SUCH INVESTMENT. PROSPECTIVE INVESTORS SHOULD HAVE THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT THE HIGH RISK AND LACK OF LIQUIDITY INHERENT IN SUCH AN INVESTMENT. THE OWNER RESERVES THE RIGHT TO MODIFY ANY OF THE TERMS HEREIN. THE INFORMATION CONTAINED HEREIN HAS BEEN COMPILED AS OF APRIL 2016 (UNLESS OTHERWISE STATED HEREIN). NO OBLIGATION IS UNDERTAKEN TO UPDATE SUCH INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, FURTHER EVENTS OR OTHERWISE. CERTAIN INFORMATION IN THIS PRESENTATION CONTAINS, OR IS OTHERWISE DERIVED FROM, ESTIMATES THAT ARE BASED ON VARIOUS ASSUMPTIONS MADE BY THE OWNER. THE USE OF ASSUMPTIONS IS INHERENTLY INEXACT AND SUBJECT TO THE OCCURRENCE OF FURTHER EVENTS, MANY OF WHICH ARE UNFORSEEN OR HAVE OTHERWISE NOT BEEN TAKEN INTO ACCOUNT. PRIOR PERFORMANCE INFORMATION OF THE SUBJECT PROPERTY OR THE OVERALL REAL ESTATE MARKET IS CALCULATED BASED ON UNAUDITED FINANCIAL DATA. IN CONSIDERING THE PRIOR PERFORMANCE INFORMATION CONTAINED HEREIN, THE RECIPIENT SHOULD BEAR IN MIND THAT PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND THERE CAN BE NO ASSURANCE THAT THE INVESTMENT WILL ACHIEVE COMPARABLE RESULTS. PRELIMINARY FINANCIAL INFORMATION CONTAINED HEREIN IS BASED ON UNCERTAIN MARKET CONDITIONS AND UNDERTAIN FINANCING. THE ACTUAL FINANCIAL PERFORMANCE OF ANY INVESTMENT WILL DIFFER FROM THE PERFORMANCE SET FORTH IN THE PRELIMINARY FINANCIAL INFORMATION, AN INVESTOR’S RETURN ON ITS INVESTMENT MAY VARY SUBSTANTIALLY FROM THE RESULTS SET FORTH IN THE PRELIMINARY FINANCIAL INFORMATION AND THERE CAN BE NO ASSURANCE THAT SUCH A VARIANCE MAY RESULT IN ACTUAL INVESTMENT RETURNS SUBSTANTIALLY LESS THAN THE INVESTMENT RETURNS SET FORTH IN THE PRELIMINIARY FINANCIAL INFORMATION.

Residence Inn St. Louis Airport / Earth City Investment Opportunity

We are pleased to present this overview of a potential opportunity to invest in the Residence Inn by Marriott St. Louis Airport / Earth City property. This hotel was the first Residence Inn developed by the principals of EQUIS Hospitality Management. The core strength of EQUIS’ development, construction, project design, financing expertise, and hotel management were combined to develop the Residence Inn Earth City hotel. The Residence Inn brand is Marriott’s leading extended stay select service brand with over 700 hotels system wide achieving 79.5% system occupancy and a system average of $139.45 in average daily room rate. The strength of the Residence Inn Earth City is demonstrated by the March 2016 trailing twelve month performance statistics of 79.3% occupancy and $117.04 average daily rate. Even within the very strong performing Residence Inn brand the Earth City location is a standout facility yet still has plenty of room to continue growing. Started in 1971, the 1,175-acre Earth City Business Park is located in Northwest St. Louis County with frontage on I-70. The Park contains 12.3 million square feet of high quality office and industrial space in 168 buildings and is home to an estimated 300 businesses employing about 15,000 people. The hotel’s location in the northwest quadrant of St. Louis provides convenient access to the major employers such as Boeing, CCA Global, State Farm, Dent Wizard, FedEx, Sun Edison, US Bank, United HealthCare, AT&T, St. Louis Airport, and government related Department of Defense contractors. The Residence Inn Earth City is located on I-70 (a major arterial interstate providing access to the St. Louis Airport and metro area) and strategically located within the Earth City Business Park, 5 miles from the St. Louis International Airport, and approximately 20 miles from Downtown St. Louis. This 104 all-suites hotel was completed in 2002 and includes 40 studios, 42 one bedrooms, 22 two bedrooms, meeting space, business center, indoor pool, and fitness center. The hotel provides complimentary breakfast, a 24-hour sundry shop, full kitchens in all rooms and a shuttles that provides transportation to local businesses, the St. Louis International airport, and local events and attractions. Since opening, the hotel has developed a strong in-place cash flow with trailing twelve month Net Operating Income of $1.4 million. In March 2015, the hotel was substantially renovated completing its twelve year room renovation updating the hotel to the latest Residence Inn standards. The Residence Inn Earth City’s submarket is performing well with the trailing twelve month and year to date average daily rate growth of 6.2% and 7.5% respectively. Overall, the Earth City sub-market performs strongly due to its location near the airport, major employers, and location along a major interstate highway. The project is closing on a $12,000,000 first mortgage loan. At the time of the loan closing, the interest rate will be fixed at 4.25% during the loan term. The loan will have a 25-year amortization and be provided by either Midland States Bank. The principals of the Residence Inn Earth City are interested in raising $3.5 million of funds for the project and are offering an 8% preference on these funds along with a 45% participation in the cash flow and extraordinary income from the project. Upon receipt, the funds will be used to lower the existing debt, do some minor exterior renovation work, and be distributed to the principals. The principals will retain an ownership interest in the project. We believe the strong sponsorship, excellent physical improvements, and desirable sub-market for this property make this a very compelling investment opportunity.

Residence Inn St. Louis Airport / Earth City Property Photos

Residence Inn St. Louis Airport / Earth City Property Photos Typical Studio Suite

Newly Renovated Guestroom – Completed March 2015

Residence Inn St. Louis Airport / Earth City Property Photos Newly Renovated Guestroom – Completed March 2015

One Bedroom Suite with Fireplace

Residence Inn St. Louis Airport / Earth City Property Photos Newly Renovated Guestroom – Completed March 2015

Newly Renovated Guestroom – Completed March 2015

Residence Inn St. Louis Airport / Earth City Location Map

Residence Inn St. Louis Airport / Earth City

St. Louis Metropolitan Area Map showing location of the Residence Inn St. Louis Airport / Earth City hotel.

Residence Inn St. Louis Airport / Earth City Aerial

Residence Inn St. Louis Airport / Earth City aerial photograph showing easy access to the I-70 and I-270 freeway interchange at Rider Trail South and the proximity to the various businesses which occupy the Earth City / Maryland Heights Business Park. The hotel is also located five (5) miles from the St. Louis International Airport, and approximately 20 miles from Downtown St. Louis.

Residence Inn St. Louis Airport / Earth City Certain Proposed Key Terms of the Potential Investment Opportunity* Investment:

A limited number of Accredited Investors (as defined by applicable securities law) may be offered the opportunity to invest in the Residence Inn St. Louis Airport/Earth City hotel owned by the principals of Mullenix Hospitality Partners. The 104 room select service extended-stay property was developed in 2002 by the principals of Mullenix Hospitality Partners and completed its most recent renovation in 2015. The Residence Inn Brand is Marriott’s leading Select Service Extended-Stay Brand with nearly 700 hotels system wide, achieving 79.5% occupancy and an average of $139.45 in average daily room rate. The Residence Inn St. Louis Airport/Earth City is located next to I-70 (a main arterial interstate providing access to the St. Louis Airport and Metropolitan Area) and strategically located within the Earth City Business park, five (5) miles from the St. Louis Airport and approximately 20 miles from Downtown St. Louis. The hotel’s location in the northwest quadrant of St. Louis provides convenient access to major employers such as Boeing, US Bank, CCA Global, Sun Edison, United HealthCare, AT&T, the St. Louis Airport and government related Department of Defense business.

Owner:

Mullenix Hospitality Partners, LLC, a Missouri limited liability company

Control:

The Owner is controlled by Michael C. Mullenix

Investment:

$3,500,000

Investor Preference:

8.0% per annum, payable quarterly (and accrued with a priority repayment if funds from operations do not satisfy the preference)

Leverage:

The first mortgage loan for the property provide a 5-year term, $12,000,000 principal amount, 25-year amortization, and a fixed interest rate at 4.25%. This loan will be recourse to the principals of Mullenix Hospitality Partners and pre-payable at any time.

Distributions:

The distributions of both Operating Cash Flow and Extraordinary Cash Flow are described in Exhibit A

*These certain proposed key terms may or may not be included in the Subscription Agreement once available. In the event of any conflict between these proposed key terms and the Subscription Agreement, the terms of the Subscription Agreement shall control.

Residence Inn St. Louis Airport / Earth City Preliminary Financial Information

FINANCING RATIOS STABILIZED CASH FLOW NOI CAP. RATE CAPITALIZED VALUE LOAN TO VALUE LOAN AMOUNT

SALES ASSUMPTIONS NOI GROWTH RATE NOI IN YEAR 5 EXIT CAP RATE EXIT VALUE TRANSACTION COSTS NET SALES PROCEEDS MORTGAGE BALANCE SYNDICATED INVESTOR BALANCE SPONSOR EQUITY NET EXCESS PROCEEDS

$1,452,979 8.50% 17,093,874 70.20% 12,000,000

FIRST MORTGAGE DEBT ASSUMPTIONS 5 YEAR DEAL LOAN AMOUNT 12,000,000 RATE 4.25% AMORTIZATION 25 ANNUAL PAYMENT 780,103 DEBT COVERAGE RATIO 1.86x DEB YIELD 12.1% SYNDICATED INVESTOR INVESTMENT AMOUNT PREFERENCE RATE PAYMENT SPLIT

1.6% 1,547,210 8.50% 18,202,468 3.00% 17,656,394 10,498,216 3,500,000 1,480,600 2,177,578

3,500,000 8.00% 45.00%

TOTAL PROJECT CASH FLOWS PROJECT CASH FLOW BEFORE DEBT SERVICE FIRST MORTGAGE DEBT INVESTOR PREFERENCE CASH FLOW AFTER PREF AND FIRST MTG

8.00%

ANNUAL LOAN AMORTIZATION

YEAR 1 1,452,979 (780,103) (398,448) 274,428

YEAR 2 1,514,496 (780,103) (398,448) 335,945

YEAR 3 1,476,831 (780,103) (398,448) 298,280

YEAR 4 1,501,621 (780,103) (398,448) 323,070

YEAR 5 1,547,210 (780,103) (398,448) 368,659

275,427

287,363

299,817

312,810

326,367

YEAR 1 280,000 123,493

YEAR 2 280,000 151,175

YEAR 3 280,000 134,226

YEAR 4 280,000 145,382

YEAR 5 3,500,000 280,000 165,897

11.5%

12.3%

11.8%

12.2%

12.7%

403,493

431,175

414,226

425,382

SYNDICATED INVESTOR CASH FLOW EQUITY PROCEEDS / RETURN PREFERENCE 8.00% SPLIT CASH FLOW

(3,500,000)

ANNUAL CASH ON CASH RETURNS SALES PROCEEDS NET CASH STREAM INVESTOR IRR

(3,500,000) 16.1%

979,910 4,925,807

Residence Inn St. Louis Airport / Earth City Proforma Income Statement Forecast Year 1 Amount Rooms Available Room Nights Occupied Room Nights Occupancy ADR RevPAR Revenues Rooms Food & Beverage Telecommunications Other Income Total Revenues Departmental Expenses Rooms Food & Beverage Telecommunications Other Expense Total Departmental Expenses Gross Operating Income

Forecast Year 2 Ratio

Amount

Forecast Year 3 Ratio

Amount

Forecast Year 4 Ratio

Amount

Forecast Year 5 Ratio

Amount

Ratio

104

104

104

104

104

38,064

37,960

37,960

37,960

37,960

30,912

30,748

29,609

29,609

81.2%

81.0%

-0.2%

78.0%

-3.0%

78.0%

0.0%

78.0%

0.0%

$120.28

$126.29

5.0%

$130.08

3.0%

$133.98

3.0%

$138.00

3.0%

$97.68

$102.29

4.7%

$101.46

-0.8%

$104.51

3.0%

$107.64

3.0%

29,609

$3,717,972

98.9%

$3,883,109

98.9%

$3,851,468

98.9%

$3,967,012

98.9%

$4,086,023

98.9%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

0

0.0%

1,231

0.0%

1,537

0.0%

1,525

0.0%

1,571

0.0%

1,618

0.0%

38,693

1.0%

39,858

1.0%

41,054

1.1%

42,285

1.1%

43,554

1.1%

3,757,896

100.0%

3,924,504

100.0%

3,894,047

100.0%

4,010,868

100.0%

4,131,194

100.0%

690,379

18.6%

703,875

18.1%

684,584

17.8%

705,121

17.8%

726,275

17.8%

0

N/A

0

0.0%

0

0.0%

0

0.0%

0

0.0%

68,663

5577.8%

69,845

4543.1%

70,543

4626.2%

72,660

4626.2%

74,839

4626.2%

15,093

39.0%

15,943

50.0%

16,421

50.0%

16,914

50.0%

17,422

50.0%

774,135

20.6%

789,663

20.1%

771,548

19.8%

794,695

19.8%

818,536

19.8%

2,983,761

79.4%

3,134,841

79.9%

3,122,499

80.2%

3,216,173

80.2%

3,312,659

80.2%

280,827

7.5%

288,462

7.4%

291,346

7.5%

300,087

7.5%

309,089

7.5%

125,126

3.3%

128,528

3.3%

129,813

3.3%

133,707

3.3%

137,719

3.3%

115,881

3.1%

119,031

3.0%

120,222

3.1%

123,828

3.1%

127,543

3.1%

112,530

3.0%

115,289

2.9%

112,130

2.9%

115,494

2.9%

118,958

2.9%

285,786

7.7%

310,649

8.0%

308,117

8.0%

317,361

8.0%

326,882

8.0%

Undistributed Expenses Administrative & General Sales & Marketing Property Operation & Maint. Utilities Franchise Fees Management Fees Total Undistributed Expenses

130,737

3.5%

135,735

4.3%

134,821

4.3%

138,326

4.3%

141,936

4.3%

1,050,887

28.0%

1,097,694

28.0%

1,096,449

28.2%

1,128,803

28.1%

1,162,127

28.1%

Gross Operating Profit

1,932,874

51.4%

2,037,147

51.9%

2,026,049

52.0%

2,087,371

52.0%

2,150,532

52.1%

260,000

6.9%

267,800

6.8%

275,834

7.1%

284,109

7.1%

292,632

7.1%

44,301

1.2%

45,505

1.2%

45,960

1.2%

47,339

1.2%

48,759

1.2%

12,717

0.3%

39,245

1.0%

38,940

1.0%

40,109

1.0%

41,312

1.0%

12,561

0.3%

13,120

0.3%

13,252

0.3%

13,649

0.3%

14,059

0.3%

329,579

8.8%

365,671

9.3%

373,987

9.6%

385,206

9.6%

396,762

9.6%

Income Before Reserves

1,603,295

42.7%

1,671,476

42.6%

1,652,063

42.4%

1,702,165

42.4%

1,753,770

42.5%

Replacement Reserves

150,316

4.0%

156,980

4.0%

175,232

4.5%

200,543

5.0%

206,560

5.0%

$1,452,979

38.7%

$1,514,496

38.6%

$1,476,831

37.9%

$1,501,621

37.4%

$1,547,210

37.5%

Fixed Charges Property Taxes Insurance Asset Management Fee Leases Total Fixed Charges

Net Operating Income Unleveraged Return Flow Through:

8.6%

Note: FF&E Reserves for the hotel are budgeted at 5% of Total Revenue

8.9% 62.6%

8.7% 63.6%

8.8% 52.5%

9.1% 52.5%

Residence Inn St. Louis Airport / Earth City Source and Use of Funds USE OF FUNDS

$ Amount

First Mortgage Loan Payoff First Mortgage Fees Mezzanine Loan Payoff Mezzanine Fees Other

Sub-Total

Acquisition Hotel Purchase Price Site Prep Costs SUBTOTAL

$

-

Per Room 104 Rooms

Per Sq Ft 71,386 Sq Ft

94.8% of Total Cost

16,100,000 16,100,000

154,808 154,808

225.53 225.53

Building Costs Capital Reserve Exterior Painting Equipment Mechanical Supplies FF&E Design Fees Contingency - Constr Only SUBTOTAL

5.0% Project Cost 2.5% of Total Cost

200,000 95,000 105,000 20,000 420,000

1,923 913 1,010 192 4,038

2.80 1.33 1.47 0.28 5.88

Soft Costs - Improvements Developer Fee Construction Management Fee SUBTOTAL

0.0% of Total Cost 0.1% of Total Cost 0.1% of Total Cost

16,000 16,000

154 154

0.22 0.22

1.0% of Total Cost

50,000 120,000 170,000

481 1,154 1,635

0.70 1.68 2.38

30,000 10,000 175,000 50,000 9,600 274,600

288 96 1,683 481 92 2,640

0.42 0.14 2.45 0.70 0.13 3.85

16,980,600

163,275

237.87

$ Amount

Per Room

Per Sq Ft

$ $ $ $ $ $

12,000,000 4,980,600 -

115,385 47,890 -

168.10 69.77 -

TOTAL

$

16,980,600

163,275

237.87

Balance

$

Other Soft Costs FM Interest Reserve Working Capital Existing A/P Payoff Franchise Application Fee Appraisal Reports Survey SUBTOTAL Closing Costs Lender Origination Fee Lender Legal & Due Diligence Costs Broker Fees - Lender Equity Fees Equity Legal/Closing Costs Title Policy Zoning & Licensing Contingency - General SUBTOTAL

0.25% of Total Loan

0.0% of Total Cost 1.6% of Total Cost TOTAL

$

SOURCE OF FUNDS First Mortgage Loan SBA Loan Cash Equity Historic Tax Credits City Incentive New Market Tax Credits

70.7% 0.0% 29.3% 0.0% 0.0% 0.0%

-

Mullenix Hospitality Partners, LLC. Senior Management

Michael C. Mullenix

Gregory S. Mullenix

Chief Executive Officer / Founder 20+ yrs Industry Experience

Chief Development Officer 20+ yrs Industry Experience

Conor G. Pandl

Michael P. Manna

Vice President – Investments 10 yrs Industry Experience

Corporate Controller 25+ yrs Industry Experience

Mohammed Kashif

Madeleine N. Leritz

Corporate Director of Hotel Operations

Corporate Associate 5+ yrs Industry Experience

25 yrs Industry Experience

Mullenix Hospitality Partners, LLC. Hotel Portfolio & Pipeline HOTELS - OWNED / MANAGED (Current Portfolio)

Keys

HOTELS - UNDER DEVELOPMENT (Anticipated Opening Date)

Keys

1 Fairfield Inn & Suites St. Charles, Missouri

80

1 HOME2 Suites Leavenworth, Kansas

2 Hampton Inn & Suites Clayton, Missouri

106

2 TownePlace Suites Brentwood St. Louis, Missouri

Spring 2018

3 Homewood Suites St. Louis Galleria Richmond Heights, Missouri

158

3 Brand TBD St. Louis (Downtown), Missouri

Fall 2018

4 Residence Inn St. Louis Airport / Earth City Earth City, Missouri

104

4 Brand TBD St. Louis / Clayton, Missouri

Planning Phase

5 TownePlace Suites St. Charles, Missouri

93

6 Residence Inn Alexandria Old Town / Duke St. Alexandria, Virginia

240

Total OWNED / MANAGED

781

Total UNDER DEVELOPMENT

Total Portfolio HOTELS - DEVELOPED (Sold / No Longer Managing)

Keys

1 Fairfield Inn St. Louis / Fenton Fenton, Missouri

106

2 TownePlace Suites St. Louis / Fenton Fenton, Missouri

95

3 TownePlace Suites Park 100 Indianapolis, Indiana

95

4 TownePlace Suites Keystone Indianapolis, Indiana

83

5 Fairfield Inn & Suites Northwest Indianapolis, Indiana

79

6 Fairfield Inn & Suites East Indianapolis, Indiana

63

7 Residence Inn St. Louis Downtown St. Louis (Downtown) Missouri

188

8 Homewood Suites St. Louis Riverport Maryland Heights, Missouri

104

9 Hotel Ignacio St. Louis (Downtown), Missouri

51

Total DEVELOPED / SOLD

864

Summer 2017

107 127 130 230

594

2,239