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Hotel Values & CAP Rates Meet The Money® 2016 Presented by: Suzanne Mellen, MAI, CRE, FRICS, ISHC Senior Managing Director - Practice Leader Hotel and Casino Consulting & Valuation (415) 268-0351 [email protected] May 6, 2015 – Sheraton Gateway Hotel Los Angeles

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Historical Sales (Total Assets >$2.5M) $45

+30%

$200,000 $185,222

$40

$180,000

$35 $160,000 $140,000

$25 $138,361 $20

$120,000

$15 $100,000

Price Per Key

$ in Billions

$30

$10 $80,000

$5 $0

$60,000

Sales Volume ($ in Billions)

Source: Real Capital Analytics (RCA)

Price Per Key

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Historical Sales (Total Assets >$2.5M) $45

$200,000 $185,222

$40

$180,000

$35

$140,000

$25 $138,361 $20

-52%

$120,000

$15

Price Per Key

$ in Billions

$160,000

-25%

$30

$100,000 $10 $80,000

$5 $0

$60,000

Sales Volume ($ in Billions)

Source: Real Capital Analytics (RCA)

Price Per Key

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Major Hotel Sales Transactions $250,000 $200,000

200 $150,000 150 $100,000 100 $50,000

50

Number of Hotels

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

$0 1991

0 1990

Number of Major Sales

250

Avg. Price Per Room

300

Average Price per Room Source: HVS

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Hotel Sales Volume Trends $2.5-10M

$10M+

50.0 45.0 33.7

40.0

$ in Billion

35.0 30.0

27.4

27.8

26.7

22.7

21.4

25.0 17.5

20.0

14.2

15.0

8.6

10.8

9.3

10.0 5.0

0.0

4.9

2.0 5.0

5.6

4.8

3.2

1.2

Source: Real Capital Analytics (RCA)

1.6

2.6

3.5

4.7

5.2

6.5

1.6

1.1

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Hotel Sales Volume Trends 50.0

$2.5-10M

$10M+

45.0 33.7

40.0 35.0

$ in Billion

30.0

27.4

27.8

26.7

22.7

-55%

21.4

25.0 17.5

20.0

14.2

15.0

8.6

-32% 10.8

9.3

10.0 5.0 0.0

4.9

2.0 5.0

5.6

4.8

3.2

1.2

Source: Real Capital Analytics (RCA)

1.6

2.6

3.5

4.7

5.2

6.5

1.6

1.1

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Comparison of # Properties Sold $2.5-10M

$10M+

2,500 757

2,000

725 632

750

750 489

1,500 450

286

1,000

378

241 500 0

203 131

79 949 1,059 926

622

251

329

Source: Real Capital Analytics (RCA)

532

715

945 1,018 1,284

314

218

-35.5% -30.6%

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Portfolio Sales Drove Overall Sales Volume Notable Portfolio Sales Since 2015

December 2015

Buyout December 2015

Properties: 53 (Extended Stay) Buyer: DW Crossland Owner LLC Seller: ESH Hospitality, Inc. Price: $285,000,000 Price/Room: $57,046

Properties: 16 (Full Service) Buyer: Blackstone Real Estate Partners VIII L.P. Seller: Strategic Hotels & Resorts, Inc. Price: $6,000,000,000 Price/Room: $792,498

May 2015

Merger January 2015

Properties: 10 Waterpark Lodges Buyer: Centerbridge Seller: Great Wolf Lodge Price: $1,350,000,000 Price/Room: $377,200 Source: Real Capital Analytics (RCA)

183 (Select Service) Buyer: Starwood Capital Group Seller: TMI Hospitality, Inc. Price: $1,100,000,000 Price/Room: $81,857

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Major Hotel Sales Transactions (Assets $10M+) Year 2016Q1 2015Q1 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Hotels Sold 131 269 757 750 489 378 450 241 79 286 750 725 632

Source: Real Capital Analytics (RCA)

% Change -35%

1% 53% 29% -16% 87% 205% -72% -62% 3% 15%

Average Price Per Room $ 199,954 286,860 248,707 209,414 198,707 189,478 196,945 185,147 126,843 182,257 175,803 193,925 158,550

% Change -30%

19% 5% 5% -4% 6% 46% -30% 4% -9% 22%

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Major Hotel Sales Transactions (Assets $10M+) Year 2016Q1 2015Q1 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Hotels Sold 131 269 757 750 489 378 450 241 79 286 750 725 632

Source: Real Capital Analytics (RCA)

% Change -35%

1% 53% 29% -16% 87% 205% -72% -62% 3% 15%

Average Price Per Room $ 199,954 286,860 248,707 209,414 198,707 189,478 196,945 185,147 126,843 182,257 175,803 193,925 158,550

% Change -30%

19% 5% 5% -4% 6% 46% -30% 4% -9% 22%

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Major Hotel Sales Transactions (Assets $10M+) Year 2016Q1 2015Q1 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Hotels Sold 131 269 757 750 489 378 450 241 79 286 750 725 632

Source: Real Capital Analytics (RCA)

% Change -35%

1% 53% 29% -16% 87% 205% -72% -62% 3% 15%

Average Price Per Room $ 199,954 286,860 248,707 209,414 198,707 189,478 196,945 185,147 126,843 182,257 175,803 193,925 158,550

% Change -30%

19% 5% 5% -4% 6% 46% -30% 4% -9% 22%

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Major Hotel Sales Transactions (Assets $10M+) Year 2016Q1 2015Q1 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Hotels Sold 131 269 757 750 489 378 450 241 79 286 750 725 632

Source: Real Capital Analytics (RCA)

% Change -35%

1% 53% 29% -16% 87% 205% -72% -62% 3% 15%

Average Price Per Room $ 199,954 286,860 248,707 209,414 198,707 189,478 196,945 185,147 126,843 182,257 175,803 193,925 158,550

% Change -30%

19% 5% 5% -4% 6% 46% -30% 4% -9% 22%

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Sales Exceeding $1 Million Per Key Since 2015

Source: HVS and RCA

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Sales Exceeding $1 Million Per Key Since 2015

Source: HVS and RCA

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Rosewood, Washington D.C.

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% Percentage

Cap and Discount Rates – Derived from FS Sales Cap Rate based on Historical NOI

Cap Rate based on 1st Yr. Projected NOI

Unlevered Discount Rate

Equity Yield

24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: HVS

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% Percentage

Cap and Discount Rates – Derived from Sales Cap Rate based on Historical NOI

Cap Rate based on 1st Yr. Projected NOI

Unlevered Discount Rate

Equity Yield

24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: HVS

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Impact of Great Recession – Full Service Hotels Full Service Hotels Occupancy Avg. No. Rooms

2007

2009

70.0%

62.5%

306

292

Average Rate RevPAR % Change

$166.7 $116.7

$146.74 $91.7 -21%

Revenue PAR Expens es PAR

$67,301 $50,298

52,650 43,143

NOI PAR

$17,003

9,507

% change NOI % Multiple of NOI Change to RevPAR Change:

-44% 25.3%

18.1% 2.06 X

*Source: STR Annual HOST Reports – Composite US Performance

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Full-Service Hotels Have Fully Recovered* Illustration of Operating Leverage – Revenue and NOI Relationship Full Service Hotels Occupancy Avg. No. Rooms

2007

2009

2014

70.0%

62.5%

73.9%

306

292

299

Average Rate RevPAR % Change

$166.7 $116.7

$146.74 $91.7 -21%

$180.94 $133.7 46%

Revenue PAR Expens es PAR

$67,301 $50,298

52,650 43,143

74,975 55,911

NOI PAR

$17,003

9,507

19,064

% change NOI %

25.3%

Multiple of NOI Change to RevPAR Change:

-44%

101%

18.1%

25.4%

2.06 X

*Source: STR Annual HOST Reports – Composite US Performance

2.19 X - 19 -

Limited-Service Hotels Have Fully Recovered* Illustration of Operating Leverage – Revenue and NOI Relationship Limited Service Hotels

2007

2009

2014

Occupancy Avg. No. Rooms

69.2% 117

63.3% 113

74.2% 116

Average Rate RevPAR

$94.94 $65.70

$85.26 $53.97

$102.45 $76.01

-18%

41%

$20,128 $13,583 $6,545

28,516 17,710 10,806

-33%

65%

32.5%

37.9%

% Change Revenue PAR Expens es PAR NOI PAR

$24,349 $14,606 $9,743

% Change NOI %

40.0%

Multiple of NOI Change to RevPAR Change:

1.84 X

*Source: STR Annual HOST Reports – Composite US Performance

1.59 X - 20 -

2015 Comparative Rates of Return Full Service

SS & ES

Ltd. Service

25 21.4 18.9

20

% Percentage

17.5 15 12.2 10

8.2

9.2

6.4

8.7

9.9

10.4 10.7

7.1

5

0 Historical NOI

1st Year NOI

Discount Rate

Source: Derived from hotels appraised by HVS at time of sale

Equity IRR

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Derived Cap Rates Ticking Up For Select Service Hotels (based on historical NOI) 10.0

9.5 9.3 9.2 9.0 9.2

9.0 7.7

8.0 6.7

% Percentage

7.0 6.1

6.0

5.8

6.2

7.4 7.4

7.8

8.2

6.4 2011 2012

5.0

2013

4.0

2014

3.0

2015

2.0 1.0

0.0 Full Service

SS & ES

Source: Derived from hotels appraised by HVS at time of sale

Ltd. Service

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Slight Uptick in Terminal Cap Rates For Select Service Hotels 5 Years Ago (2011H1)

1 Year Ago (2015H1)

2016H1

12.0 10.0

9.8

% Percentage

8.3 8.4 8.0

10.0 9.6 9.5

9.1

10.5

8.7 9.0

7.4 7.3

6.0 4.0 2.0 0.0 PWC - Full-Service

PWC - Luxury

Source: PWC Real Estate Investor Survey

PWC - LimitedService

PWC - SelectService

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Hotels Maintain Cap Rate Premium PWC - Full-Service

PWC - Luxury

PWC - Limited-Service

PWC - Select-Service

Suburban Office

CDB Office

Regional Mall

Apartment

% Percentage

12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0

Source: PWC Real Estate Investor Survey

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Publicly Traded REIT Cap Rates Trending Up Implied REIT Cap Rates 14.0%

12.5%

12.0% 10.0%

9.0%

8.3%

8.0%

6.6%

6.3%

6.5%

7.0%

7.2%

5.1%

6.0% 4.0% 2.0% YE 2007

YE 2008

YE 2009

YE 2010

YE 2011

Source: Investment Banking Bulletins, SEC, HVS

YE 2012

YE 2013

YE 2014

YE 2015

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REITS Outlook is Positive Implied REIT Cap Rates 14.0%

12.5%

12.0% 10.0%

9.0%

8.3%

8.0%

6.6%

6.3%

6.5%

7.0%

7.2%

5.1%

6.0% 4.0% 2.0% YE 2007

YE 2008

YE 2009

YE 2010

YE 2011

Source: Investment Banking Bulletins, SEC, HVS

YE 2012

YE 2013

YE 2014

YE 2015

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Capitalization Rates Derived from REIT Valuations (Without Strategic) 10.0

9.0

9.3% 8.6%

8.6%

8.0

7.3%

7.1%

7.0

6.0

5.0

4/29/2016

1/15/2016

YE 2015

YE 2014

YE 2013

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Summary  2015 will be remembered as the peak year of the post Great Recession cycle  New supply concerns and global economic factors impacting outlook for hotel performance and investment  Debt more challenging to procure, though interest rates remain low  Gap between buyer and seller expectations stalling transaction market  Cap rates have risen 50 bps for most assets but remain low for high quality full service and luxury hotels in prime markets  Aging hotels once again challenged due to lender pullback, cap ex and new supply

 Higher cap rates will be offset by rising NOI in strong markets sustaining values  Higher cap rates will negatively impact values in markets facing supply and demand challenges and stagnant or declining NOI - 28 -

Suzanne Mellen, MAI, CRE, FRICS, ISHC Practice Leader [email protected] | (415) 268-0351

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