PKF hotelexperts

Market Study for a project in Marysville, California

City of Marysville . July 2020 . report # DRAFT .

PKF hotelexperts GmbH I Schubertring 3 l 1010 Vienna l Austria tel +43 (1) 5120707 l fax + 43 (1) 5120607 e-mail [email protected] l www.pkfhotels.com

managing directors Michael Widmann Christian Walter l commercial register FN 245617 b PKF hotelexperts GmbH is a member firm of the PKF International Limited network. The network consists of legally independent member firms. PKF

 Table of contents chapter heading page

1 Introduction 4 1.1 Project 4 1.2 Assignment 4 1.3 Methodology 5

2 Location 6 2.1 Sacramento 6 2.2 Yuba City MSA 7 2.3 Marysville 8 2.4 Project site 11

3 Market 16 3.1 Overview 16 3.2 Supply and demand analysis 16 3.3 Relevant Market Segment 25

4 Revenue projection 31

5 Conclusion 33

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 Charts/Illustrations

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Chart 1 macro analysis of Sacramento (MSA) 7 Chart 2 macro analysis of Yuba City MSA 8 Chart 3 macro analysis of Marysville 10 Chart 4 location of the project site within Marysville 11 Chart 5 aerial view of the project site within Marysville and Yuba city 12 Chart 6 visibility of the micro site 13 Chart 7 development US hotel market trends 16 Chart 8 overview of the last months’ hotel performance in the US market 17 Chart 9 overview of US hotel market performance pre Covid-19 and recovery projections 18 Chart 10 overview of the hotel supply in Sacramento 18 Chart 11 hotel projects 19 Chart 12 historic development of Sacramento hotel performance 20 Chart 13 projected performance indicators for hotel market of Sacramento 20 Chart 14 overview of the hotel supply in Marysville and Yuba City 21 Chart 15 location overview of hotel projects 22 Chart 16 evolution of supply, demand and revenue in Marysville/Yuba City 23 Chart 17 seasonality 24 Chart 18 occupancy by day of the week (trailing 12 months) 25 Chart 19 capacity and location of relevant 26 Chart 20 overview of relevant hotels 27 Chart 21 historic performance of relevant hotels 28 Chart 22 analysis of key performance indicators of 2019 29 Chart 23 comparison of occupancy rate of 2019 with historical data (2013-2018) 30 Chart 24 room revenue projection 31

 Annexes

# title

1 Terms and Conditions

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1 Introduction 1.1 Project The City of Marysville is considering the development of a hotel in Marysville, California. The project site is located in Yuba County, East of B street, and adjacent to the North-Eastern corner of Ellis Lake.

At the moment of the assignment, the project is being evaluated. 1.2 Assignment The City of Marysville, represented by Mr. Jonathan Wright, has requested PKF to prepare a market study for a potential hotel in Marysville on 15 May 2020.

The study is intended to serve as a neutral basis for the client in terms of deciding whether to proceed with the planning of the hotel.

Subject matter of the assignment is the analysis of the following elements:

. location

. market

. short revenue projection

We conducted the assignment from June to July 2020. The study is based on the site and market conditions at the time of the site and market research as well as the relevant supply and demand at that time.

The audit of the legal terms, in particular the ownership, building, corporate and fiscal terms, is not subject of this assignment. We have prepared the market study on the basis of the General Terms and Conditions of Doing Business (see Annex 1). When preparing the study, we have acted in our position as a neutral expert to the best of our knowledge. However, we cannot guarantee the actual occurrence of any forecasted results.

The study was exclusively prepared for the client’s use. If it is forwarded to any third party, the above-mentioned General Terms and Conditions of Doing Business shall also apply vis-à-vis this third party. The report (or parts of it) may only be published after the consultant’s prior written approval.

New York, 03 July 2020

PKF hotelexperts Ltd

Baron Ah Moo Managing Director | Head of US

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1.3 Methodology 1.3.1 Ratios The following ratios are used throughout the reports:

 occupancy occupied rooms divided by the number of available rooms per period

 multiple occupancy factor number of guests divided by the number of occupied rooms per period

 published room rate (= rack rate) published room rate including VAT and – if applicable – breakfast

 net room rate rooms revenue (after deduction of breakfast, VAT and allowances/discounts) di- vided by the number of occupied rooms in each period

=x revenue per available room/revpar (= rooms yield) occupancy multiplied by the average net room rate respectively rooms revenue (excluding VAT, breakfast and allowances/discounts) divided by the number of available rooms per period 1.3.2 Classification The classification of hotels in this study is based on the internal hotel classifica- tion of PKF hotelexperts, which is orientated towards the strict international pa- rameters for the classification of hotels (maximum of five stars):

 outstanding standard; extraordinarily good service, extraordinarily large (mini- mum of 34 sqm) and luxuriously equipped rooms; excellent food & beverage facilities; extensive and outstanding sports, leisure and spa facilities (for resort hotels) or high-quality fitness & spa facilities (for city hotels)  very high standard; very good service; large (minimum of 28 sqm) and very com- fortably equipped rooms; very good food & beverage facilities; sports, leisure and spa facilities, which are adequate to the type and the site of the hotel  high standard; good service; spacious (minimum of 22 sqm) and comfortably equipped rooms; good food & beverage facilities; sports, leisure and spa facili- ties, which are adequate to the type and the site of the hotel  simple standard; limited service; relatively small (minimum of 16 sqm) and basic rooms; no or only simple food & beverage facilities; no or only simple sports, leisure and spa facilities  very simple standard; no or very limited service; very small and very simply equipped rooms; no food & beverage facilities; no sports, leisure and spa facilities

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2 Location 2.1 Sacramento 2.1.1 General Sacramento MSA, California, with a population of 2.36 million people is a combined statistical area of the Greater Sacramento area. The major airport serving the region is the Sacramento International Airport with Interstates 5, 80, and 505 being the main highways/freeways that run through the city. Although, Sacramento’s primary economic driver is governmental services due to its position as the State Capital of California, the Health Care Industry also plays a significant role in the region, and accounts for the city’s three largest private employers including Sutter Health (16,275 employees), Kaiser Permanente (16,244 employees) and Dignity Health (8039 employees. Research and Development, Retail, and Technology (Intel Corp -6,000 employees) are also major contributors to the region’s GDP.

Sacramento’s low business costs in comparison to other California MSAs has attracted major global corporations such as Intel, Apple, and Siemens, to establish a significant presence in the region. The lower cost basis not only has not only incentivized larger corporations in growth sectors such as R&D, and Life Science to open offices in the region, but has also brought mid-size corporations and start-ups. Specifically, tech companies in the San Francisco Bay Area (1 hour drive from Sacramento) looking to stay in California, but seeking an exit from Silicon Valley’s high cost business environment are now relocating to Sacramento Valley.

In addition, the decommissioning of Mather Air Force Base to Mather Airport 27 years ago, has improved infrastructure and has allowed for the region to become a trade and transportation hub for air freight and shipping. Major companies such as Airborne Express and United Parcel Service (UPS), were increasing operations (pre-Covid) and regularly using the airport as a global base for both its international and domestic routes.

This business expansion has led to an increase in air travel to the region with total passengers up 27% (9.6 mil in 2015 vs 13.2 mil in 2018) and an increase in GDP per capita (2.45%) and income per capita (10.13%) over the same period. In addition, the MSA posted a 3.9% unemployment rate in 2018, which was a 36% decline over 2015.

The MSA is also a destination that boasts a plethora of historic sites including Old Sacramento, which hosts the California State Railroad Museum, Capitol Park, and Sutter’s Fort. Furthermore, Sacramento is home to several professional sports teams and venues, including the Sacramento Kings of the NBA, who currently play in the Golden 1 Center arena (Capacity 20,000 ) opened in 2016, the Sacramento River Cats, a AAA Minor League Baseball team that plays at Sutter Health Park (Capacity 24,000) and the Sacramento Republic FC, the city’s professional soccer team that will play in a 21,000-capacity soccer-specific stadium due to be completed by 2022.

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Chart 1 macro analysis of Sacramento (MSA)

Sacramento (MSA) important sights and the

population . inhabitants 2.36 million . growth increase 9.76% from 2010 . education Over 180,000 students in 18 higher education institutes economy 2015 2018 ch. # ch. % . GDP per capita $ 45,710 46,825 1,115 2.45 . per-capita personal income $ 51,100 56,278 5,178 10.13 . employment 000s 975 1,050 75 7.69 . unemployment rate % 6.1 3.9 2.2 -36.07 . median household income is $73,142 (2018) which is 21,3% higher than the national average of $60,293 . The biggest employers in the private sector in Sacramento compromise primarily of Healthcare & retail traffic 2015 2019 ch. # ch. % . Sacramento International Airport . airline passengers m 9.6 13.2 3.6 27.27 . airfreight: Mather Airport . Interstate highways 5, 80, and 505 tourism . Professional Sports: Sacramento Kings (NBA), Sacramento Republic FC (MLS) . Historic museums: State railroad, Crocker Art, State Capitol . Cultural Events in Sacramento: Aloha Festival, Greek Festival, State fair, winter wonderland, Farm-to-fork festival © PKF hotelexperts sources: US Census Bureau; Federal Reserve bank of St. Louis 2.2 Yuba City MSA 2.2.1 General Yuba City MSA, is the metropolitan community including Yuba and Sutter counties, and borders the Sierra, Nevada, Placer, Yolo, Sacramento, Colusa, Butte, and Plumas counties within the greater Sacramento area.

The population of an estimated population of 175,000 residents has also benefitted from a boom in the Sacramento Valley area with a rise in personal income of 7.8% (39.8k in 2015 vs 42.9k in 2018) and a 34% decline in the unemployment rate from 13.8% in 2015 to 9.1% in 2018.

The largest industry in the Yuba City MSA is Health Care (8,722 workers), followed by Agriculture, Forestry, Fishing, and Hunting (6,495), and Retail Trade (6,252), together making up 38.4% of the total work force. The single, largest occupation group is Office and Administrative Support, employing 5,670 workers, closely

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followed by Sales Related positions (5,005 workers). In addition to Sacramento International Airport, there are regional airports in Yuba and Sutter county.

Chart 2 macro analysis of Yuba City MSA

Yuba City MSA important sights and the

population . inhabitants 174,848 . growth increase 4.63% from 2010 . education In 2018, 44,800 students obtained a high school degree or higher economy 2015 2018 ch. # ch. % . per-capita personal income $ 39,833 42,925 3,092 7.8 . employment 68,649 73,579 4,930 7.2 . unemployment rate % 13.8 9.1 4.7 -34.1 . median household income is $55,018 (2018) compared to the national average of $60,293 . health care, industry sector with best job growth: +1,704 jobs between 2014-2018 traffic

. Yuba county airport . yuba-sutter transit, local transportation for yuba and sutter counties . Sutter county airport . california state route 99 tourism . yuba city sikh festival . hiking and active leisure . california swan festival © PKF hotelexperts sources: US Census Bureau; Yuba Shutter Economic Development Corporation

2.3 Marysville 2.3.1 General Marysville, California, population 12,476, is the county seat of Yuba County, and is included in the Yuba City MSA. Marysville is located at the confluence of the Feather and Yuba rivers, east of Yuba City and 40 miles north of Sacramento. Dating back to 1843, Marysville has a history as one of California’s most important gold rush cities. The pristine mountain rivers allow for an array of outdoor recreational activities such as fishing, hiking, hunting, and biking to take place throughout the year.

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Similar to most of the region, Marysville saw an increase in its per capita income (14%) and a decline in unemployment (decrease of 50%) from 2015-2019 (Chart 3). It is interesting to note that the 2019 average annual salary for healthcare practitioners in the area is $107,700, however the per capita income for the city was only $22,208.

The largest industry in the City of Marysville is Health Care, followed by Public Administration and Accommodation and Food Services. Together, they make up 61.3% of the total workers. The single largest occupation group is healthcare practitioners and related (1,147 workers), which are primarily employed by the Adventist Health and Rideout System.

Beale Air Force Base, just 16 miles east of the city, is one of the larger US military bases on the west coast and is a significant economic contributor to Marysville. The installation has historical significance as it is the home for the 9th Reconnaissance Wing, a military unit known famous for its global missions on intelligence and surveillance. Beale was also the base for the Lockheed SR-71, the current world record holder as the “fastest airplane in the world” and was used as a spy plane in the Cold War until it was decommissioned in 1998. This installation is expected to be a big demand driver for the site.

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Chart 3 macro analysis of Marysville

Marysville

population . inhabitants 12,476 . growth increase 3.34 % from 2010 . education 2,219 students in Yuba College economy 2015 2019 ch. # ch. % . per-capita personal income $ 19,476 22,208 2,732 14.03 . unemployment rate % 14.6 7.3 -7.3 -50.0 . median household income in 2018 was $49,759, which is 17.5% lower than the national average of $60,293 . major employers in Marysville compromise of public services (Schools, Hospitals and Military)

traffic

. international airports - Sacramento International Airport . main railway station - AMTRAK - Sacramento Valley Station . AMTRAK throughway connecting bus service is only transport between Marysville and a major railroad service . main highways are state route 70 and 20

tourism . Oldest little city in California' . Colusa Casino Baseball Stadium . Historic Gold Rush city . Ellis Lake . Peach Festival . Bok Kai Temple © PKF hotelexperts sources: US Census Bureau; Yuba Sutter Economic Development Corporation

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2.4 Project site 2.4.1 Location and expansion The proposed project site is located in Yuba County at the City of Marysville. The site is located alongside B street, which is adjacent to the north-eastern corner of Ellis Lake and opposite to the Colusa Casino Baseball Stadium.

The following chart indicates the location of the project site within Marysville, California:

Chart 4 location of the project site within Marysville reference points

2 project site

1 Ellis Lake 12 Colusa Baseball Stadium 1 32 Bok Kai Temple

4 Adventist Health and Rideout 5 River Front park 6 Marysville Stampede 7 7 Yuba-Sutter Transit stop Tahoe National Forest 5 Sacramento

6 Y uba City

4

3

sources: Google Maps, PKF hotelexperts

The project site is bordered by highway 70 to the east and active railroad tracks operated by both the Burlington Northern Santa Fe (BNSF) Railway and the Union Pacific Railroad company, to the West. Opposite to the north east corner of the site is the Colusa Casino Baseball Stadium, home to the Yuba-Sutter Gold Sox, a collegiate wood bat league. In addition, Ellis lake, located West of the project site, is a man-made lake, which was completed in 1939.

The distances from the project site to selected places of interest can be summarised as follows (non-linear distances, rounded):

. Ellis Lake: less than one mile

. Bok Kai Temple: one mile

. Colusa Baseball Stadium: less than one mile

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. Sacramento: 40 miles

. Tahoe National forest: 40 miles

The following chart shows an aerial view of the project site within Marysville and Yuba City:

Chart 5 aerial view of the project site within Marysville and Yuba city reference points

project site 1 Yuba College 2 3 2 Feather river 3 Yuba river 4 Yuba County Airport 5 Sutter County Airport 7 6 Peach Tree Golf Club 6 7 Yubba Sutter Mall 8 8 MMX Racing Track Beale Air Force Base 5 1

4

sources: Google Maps, PKF hotelexperts 2.4.2 Accessibility State Route 70 is the highway that runs adjacent to the property and is easily accessible from the project site. This state highway provides a direct connection to Sacramento and the Sierra Nevada pass. The distance from the project site to Sacramento is approximately 40 miles and is approximately 100 miles to Lake Tahoe via State Route 20, a highway which connects the California Coastline to the Tahoe National Forest.

The Sacramento International Airport (SIA) can be accessed via car (35 minutes) and public transportation (1 hour). The nearest regional bus station, Yuba Co. Government Center & I and 9th street stop, is one mile west of the project site, and is operated by Yuba-Sutter Transit, providing services to Sacramento. The Yuba County Airport is less than 5 miles from the project site and approximately a 10-minute drive. Additionally, the Sutter County airport is under 4 miles from the project site.

In 1999, Amtrak removed Marysville from its operating line and thus there are no operating passenger railway stations in the immediate area. The nearest AMTRAK station is the Sacramento Valley Station and is accessible via a direct route

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between Yuba Co. Government bus transit center (1-hour travel time). Most access to neighboring towns and cities is either via car or bus. 2.4.3 Visibility The project site benefits from very good visibility from all directions. According to information provided to PKF, no other projects are currently planned which could negatively impact the site’s visibility. Conversely, the city does have a plan to further develop the area around Ellis Lake to provide community attractions which is designed to attract further foot traffic to the immediate area.

As previously mentioned, the site is located adjacent to State Route 70, one of the busiest truck routes in the area, and any development on the site will be impacted by this traffic and noise. Additionally, the site has an obstructed view to the east due to adjacent the elevated railroad tracks (Chart 6-North View). The project site’s visibility can currently be described as good due to the low heights of the surrounding buildings and its view of the Ellis Lake park immediately to the west.

However, noise and traffic mitigation should be considered during the detailed feasibility of the site.

Chart 6 visibility of the micro site

North facing view West facing view (Ellis Lake)

source: client

2.4.4 Demand generators With a rich history as one of California’s main gold rush cities, Marysville is now undergoing a development renaissance and has begun the strategic planning on revitalizing the infrastructure and the core of the city. This is evident in the city’s interest in developing the proposed site beyond just the hotel and seeking to incorporate other retail and restaurant amenities to form a mixed use hub for the surrounding neighbourhood.

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A majority of the current hotel room nights are generated by drive through guests, corporate stays from people participating in the regions ongoing development (extended stay), guests associated with Beale Air Force Base, and occasional annual events, including larger events that book the limited number of available rooms in the region beyond capacity.

Many events in and around Yuba City and Marysville occur annually, driving a large number of inbound travellers to the vicinity. The biggest Sikh Festival in the U.S. and outside of India takes place in Yuba City, a festival attracting the participation of over 100,000 ethnic Sikhs to the multi-day event. Another large event is the Marysville Bokkai Festival, in the Chinatown of Marysville, which celebrates the Chinese Americans’ historic role in the development of California, attracting many tourists. Finally, the annual Yuba-Sutter fair takes place every June, and is a four-day event boasting cultural activities and exhibits, food, and entertainment for the entire community. Other mid-scale events such as the California Square Dance convention and Two Cities Kennel Club dog shows, attract overnight travellers not only in Yuba-Sutter Counties, but also the neighbouring cities.

In addition, demand can be expected to be generated by Beale Air Force Base, which is one of the largest US Air Force bases on the west coast. The base is located approximately 16 miles from the site, covers an area of 23,000 acres and is home to almost 4,000 military personnel. The anticipated demand is coming from travellers related to the installation including military staff that temporarily work or train on the base as well as from visitors i.e. family members or friends.

The CalTrans Department of Transportation District 3 office is located just 2 blocks south of the project site on B street. It is the hub responsible for maintaining and operating 1,491 center-line miles and 4,385 lane miles in the counties of Butte, Colusa, El Dorado, Glenn, Nevada, Placer, Sacramento, Sierra, Sutter, Yolo and Yuba. As Employees can on occasion spend a period of time working between different offices and transferring around the different districts this building will also be a source of demand for the proposed hotel and site.

In addition to the DOT Regional Office, CalTrans Regional Maintenance office is located 2 miles south of the site in South Yuba, with the main function of performing highway and equipment maintenance as needed. This also hosts employees who travel from the surrounding counties and will contribute to the occupancy and guest mix.

Finally, the Hard Rock Casino, located 9 miles South of Marysville is projected to be another source of demand for the local region. The casino attracts thousands of visitors annually and are currently looking to expand its leisure activities in the area. A planned acquisition of the Toyota Amphitheatre, a multi-use concert venue south of the casino, which currently hosts a large number of concerts annually, would see a boost in leisure demand under the management of Hard Rock Casino.

Through previous gaming hotel engagements, PKF has identified a segment of casino guests who choose not to stay onsite at a casino hotel and prefer to stay at a non-gaming hotel for reputational and travel reimbursement purposes. As the site is a 13-minute drive from the casino, it can be envisioned that the proposed Marysville hotel will be an attractive option to this segment.

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3 Market 3.1 Overview According to our assignment, we have analysed the national and regional trends of the lodging market in order to provide context for the forecast of supply and demand for the proposed hotel project’s competitive set. In addition, we have reviewed the current supply and demand of the general accommodation market in Marysville and Yuba City, specifically hotels of the midscale and upper- midscale segments (according to national classification; see 3.3 Relevant market segment). Hotels of other categories and other types of accommodation facilities may stand in competition to the planned hotel or may have an impact on the general accommodation market. In the following section, supply and demand of the hotel market are analysed. 3.2 Supply and demand analysis 3.2.1 National Trends a) Historic Development

The client’s hotel project and local hotel markets are mostly affected by the supply and demand trends within the immediate geographical area. However, to support the in-depth analysis of the local area, conditions in the national lodging market should not be neglected. Therefore, we have reviewed the national hotel market trends according to information provided by Smith Travel Research (STR) in the period from 2015 to 2019:

Chart 7 development US hotel market trends

National occupancy, net room rate and revPAR (2015 - 2019)

$140.00 100%

90% $120.00 80%

$100.00 70%

60% $80.00 50% $60.00 40%

$40.00 30% 20% $20.00 10%

$- 0% 2015 2016 2017 2018 2019

net room rate RevPAR Occupancy

source: STR Global

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Over the course of the last 10 years, Revenue Per Available Room (RevPAR) progressed in an upward growth trend. Although the absolute numbers have represented record high values, the US hotel industry’s Y-o-Y RevPAR growth was flat at 0.9% in 2019. Given that the US economy had experienced 10 consecutive years of growth, a decline/stagnation of room rate growth was not unexpected. Despite this economic slowdown, the Average Hotel Room Rate in the US was $131.21 in 2019, the highest recorded number since the inception of its tracking.

b) Impact of the Covid-19

No industry has been more severely impacted by Covid-19 than the hotel sector. Due to air travel restrictions implemented by various countries, including the US, the number of international travellers has decreased to all-time lows, and most hotels that were heavily reliant on inbound flights have been suffering the worst revenue losses in the history of the industry. The nature of Covid-19 has made any type of group travel, meetings and events due to take place in hotels virtually impossible. In addition to observing the worst declines in the history of recorded hotel performance, convention hotels catering to a majority of these group travellers were hit the hardest in terms of their occupancy and RevPAR declines. Any type of room demand during stay-at-home orders and the initial opening phases have come from healthcare first responders and leisure travellers journeying by car (where allowed).

With a record setting decline in financial performance it is estimated that over 60% of employees associated with the hospitality industry were furloughed or laid off at the peak of the crisis.

The following table summarises selected key performance indicators of the US hotel market over the first five months of 2020:

Chart 8 overview of the last months’ hotel performance in the US market occupancy net room rate revpar current change current change current change month - 2020 % in % 1) $ in % 1) $ in % 1) January 55.1% 0.80 126.06 1.40 69.47 2.20 February 62.2% 0.20 130.78 1.40 81.33 1.70 March 39.4% -42.30 110.66 -16.50 43.54 -51.90 April 24.5% -63.90 73.23 -44.40 17.93 -79.90 May 33.1% -51.70 79.57 -39.90 26.35 -71.00 2019 YTD May 64.4% 130.42 84.02 2020 YTD May 43.3% -32.70 112.27 -13.80 48.61 -42.00

note 1) refers to change to previous year sources: STR Global; PKF hotelexperts © PKF hotelexperts When stay-at-home orders had been issued nationwide in March, hotel performance began free fall. Nationwide occupancy, net room rate, and RevPAR year-over-year change depicted the worst numbers in the history of the industry. However, after the steep but short drop in occupancy in March (-42.3%) and April (-63.9%), by the month of May, a slight uptick of 8.6% was supported by new travel trends and existing ‘indispensable’ demand. Even during lockdown, US room demand did not drop below a base of 1 million room nights sold per night

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These overnight stays mostly consisted of the essential workers, first responders and leisure travellers at ‘drive-to’ markets.

With all eyes on recovery, a more optimistic outlook exists for hotel performance in the long run. In PKF’s base case scenario for the recovery of US lodging sector, demand is predicted to return to pre-crisis levels by the end of 2022 with primary markets leading the way. It should also be noted that as hotels normally decrease rates to generate demand, occupancy historically recovers faster than ADR growth and thus RevPAR, a more accurate measure of sales, will lag but return to pre-crisis levels by the end of 2023.

The following table depicts US hotel market performance pre Covid-19 and our recovery projections:

Chart 9 overview of US hotel market performance pre Covid-19 and recovery projections

year Occ Occ ADR ADR RevPAR RevPAR

2016 65.40% 0.10% $ 124.06 3.00% $ 81.14 3.10% 2017 65.90% 0.70% $ 126.81 2.20% $ 83.52 2.90% 2018 66.10% 0.40% $ 129.96 2.50% $ 85.94 2.90% 2019 66.10% -0.10% $ 131.11 0.90% $ 86.73 0.90% 2020 41.00% -38.00% $ 101.67 -22.50% $ 41.67 -51.90% 2021 55.90% 36.30% $ 110.69 8.90% $ 61.83 48.40% 2022 65.00% 16.40% $ 122.93 11.10% $ 79.95 29.30% 2023 66.60% 2.40% $ 130.47 6.10% $ 86.92 8.70% sources: STR; PKF hotelexperts 3.2.2 Sacramento a) Overview of Hotel Supply

The following table provides an overview of the current hotel supply in the city of Sacramento (status: Q1, 2020):

Chart 10 overview of the hotel supply in Sacramento

Upper-Priced Lower-Priced Total submarket # Rooms # Rooms # Rooms Properties Properties Properties

Central Business District 9 2,028 22 2,051 31 4,079

Northwest 17 2,724 57 4,047 74 6,771

South Lake Tahoe 39 4,226 89 4,878 128 9,104

East 13 1,611 43 3,489 56 5,100

Total 78 10,589 211 14,465 289 25,054

source: CBRE Hotels; STR Global

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Based on the review of the data, the room count in Sacramento has remained relatively flat in recent years and is projected to remain flat for the next 5 years. From 2015-19, the compounded average annual supply change was 0.9% with a projected 1.2% for 2021-25.

In comparison, our research found that the compounded average annual demand change for hotels in Sacramento will see significant growth from 2021-2025 when compared to the previous 5 years, due to historically low demand for rooms projected for 2020. While the compounded average annual demand change for hotels in Sacramento was 3.0% from 2015-19, the projected forecast is 13.1% for the years 2021-25. This bodes well for the potential hotel development on B street as not only will the property open into an upward trend, but growth is projected to continue into year 2 and 3 of its operations.

b) Future Supply

Within the region of Sacramento there are 66 hotels with a total of 9,373 rooms that are currently planned or under development. Though the Covid-19 crisis may cause a delay or a shuttering of some of these projects, a slight increase in the number of hotel rooms overall is expected in the short to mid-term.

The following table gives an overview of selected hotel projects which are currently known to us:

Chart 11 hotel projects Phase Upper-Priced Lower-Priced Independent Total projects rooms projects rooms projects rooms projects rooms # # # # # # # # Unconfirmed 0 0 2 168 1 120 3 288 Planning 3 391 11 1,001 28 5,300 42 6,692 Final Planning 5 629 6 628 0 0 11 1,257 Construction 6 699 4 437 0 0 10 1,136 Total 14 1,719 23 2,234 29 5,420 66 9,373 status: Q1 2020 sources: STR, Dodge, CBRE, PKF hotelexperts

The above chart may not be complete. Furthermore, not all projects are subject to public knowledge, and sometimes details (operator, financing, etc.) are unclear.

According to our experience, not all planned hotels will be implemented, and delays in the development are common. To account for delays and attrition, PKF normally prescribes a completion probability based on the project’s stage in the development cycle as follows:

. Ongoing construction - 95 %, . Final planning - 80 % . Conceptual Planning 60 % . Unconfirmed- 30 %

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However, based on the current crisis and both the capital and operational challenges facing the industry, it is projected that 50% of the projects that are in ongoing construction will be completed but will be delayed and less than 10% of the projects that are planned or unconfirmed will be completed in the next 5-7 years.

c) Historic Development of Demand

The following table gives an overview of the historic development of the performance indicators of Sacramento’s hotel market between 2015 and 2019:

Chart 12 historic development of Sacramento hotel performance

year Occ Occ ADR ADR RevPAR RevPAR

2015 66.60% 6.90% $ 104.61 5.90% $ 69.69 13.10% 2016 69.00% 3.50% $ 111.36 6.50% $ 76.80 10.20% 2017 71.40% 3.50% $ 118.37 6.30% $ 84.47 10.00% 2018 71.80% 0.60% $ 122.33 3.30% $ 87.81 4.00% 2019 72.20% 0.50% $ 126.03 3.00% $ 90.96 3.60%

sources: CBRE; PKF hotelexperts

As shown in the table above, the Sacramento market continuously increased their performance in terms of occupancy, Average Daily Rate and RevPAR during the examined years. The average room occupancy of the analysed hotels in 2019 reached 72.2 % which was an 8.4 % increase from 2015 but represents the lowest YOY growth (0.5%) when compared to the previous five years. Conversely, the average rate increased by 20 % between 2015 and 2019 from $ 104.61 to $ 126.03 and posted a 3 % increase when compared to 2018. The RevPAR followed the same trend as ADR, growing by approximately 31 % from 2015 ($ 69.69 to $ 90.96) while growing 3.6 % over 2018.

d) Future Development of Demand

Chart 13 projected performance indicators for hotel market of Sacramento

year Occ Occ ADR ADR RevPAR RevPAR

2020 44.70% -38.10% $ 95.31 -24.40% $ 42.57 -53.20% 2021 57.60% 29.00% $ 103.37 8.50% $ 59.57 39.90% 2022 65.60% 13.80% $ 121.08 17.10% $ 79.42 33.30% 2023 69.30% 5.60% $ 131.52 8.60% $ 91.13 14.70% 2024 69.70% 0.70% $ 138.04 5.00% $ 96.27 5.60% sources: CBRE; PKF hotelexperts

Looking toward the future development of demand as depicted in the table above, Sacramento will see a different recovery in comparison to the overall current US hotel market projections (Chart 9). Though US hotel occupancy is projected to recover in 2023, Sacramento’s Pre-Covid 19 levels (72 %), will not recover by

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2024. However, ADR is projected to exceed 2019 ADR ($ 126.03) by 2023. Similarly, RevPAR, will return to its pre-Covid performance ($ 90.96) by 2023, which is in line with the US hotel market’s forecasted recovery. 3.2.3 Marysville and Yuba City a) Overview of Hotel Supply

In order to provide a clear understanding of the current hotel supply, we have gathered in the table below an overview of the lodging properties present in Marysville and Yuba City:

Chart 14 overview of the hotel supply in Marysville and Yuba City hotel location brand category opening rooms

name city name stars1) year # Americas Best Value Inn Marysville Marysville RLH Corporation 2 1964 42 6 Marysville Marysville G6 Hospitality 1 2015 (ren.) 39 Comfort Suites Marysville-Y uba City Marysville Marriott 2 2006 65 Town House Motel Marysville 1 n.a. 17 Budget Inn Marysville independent 1 n.a. n.a. Rio Inn and Suites Marysville independent 2 1959 75 Peach City inn Marysville independent 1 n.a. 39 Travel inn and suites Marysville independent 2 n.a. 62 Bonanza Inn and suites Y uba City Fairbridge Suites 2 1990 121 Yuba City Y uba City Best Western 3 1987 91 by W yndham Y uba City W yndham 2 1970 40 Hampton Inn & Suites Y uba City Hilton 3 2006 88 by Wyndham Y uba City W yndham 2 2003 84 Inn and Suites Y uba City choice hotels 2 n.a. 52 Nice Inn Motel Y uba City independent 1 2011 (ren.) 40 total Σ x x x 894 Ø x x x 64 note 1) according to tripadvisor source: PKF hotelexperts

Currently Marysville and Yuba City have an estimated total of 894 rooms amongst 15 hotels, with an average of approximately 64 rooms per property. The market is currently quite limited in terms of its existing supply. Hotels are mostly limited to economy and midscale segment, without any properties in the luxury, upper upscale, and upscale segments.

The nearest upscale property is the Hard Rock Hotel Casino, located just south of Marysville. Located next to the Yuba County airport, the Hotel Casino has 169 rooms and suites and attracts a significant amount of leisure demand to the regions. Current plans call for an expansion of its operations in and around the existing site. In addition, there is a planned acquisition of the Toyota amphitheatre, a multi-purpose venue which hosts concerts and similar events throughout the year.

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b) Future Supply

Through phone interviews conducted by the group, PKF has ascertained that there are two hotel projects are currently under construction in Yuba city. At the time of this report, a Express was scheduled to begin construction with an estimated opening date of late 2021. The hotel is proposed to have 95 rooms, a restaurant or two and a 10,000 sqft event center. In addition, land use and building permits have been filed for a 100 room Springhill Suites with additional convention space.

Chart 15 location overview of hotel projects reference points

project site

1 2 Springhill Suites

2

1

sources: Google Maps, PKF hotelexperts

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c) Historical Supply and Demand Trends

In order to provide an understanding of the development of demand in hotels in the city of Marysville and Yuba City, we have analysed the evolution of supply, demand and revenue between 2013 and 2019 (PKF has selected the most relevant hotels for consideration; this includes: Best Western Yuba City Inn, Comfort Suites Marysville-Yuba City, Inn & Suites Yuba City and Holiday Inn Express & Suites Oroville Lake):

Chart 16 evolution of supply, demand and revenue in Marysville/Yuba City

Evolution of supply, demand and revenue in Marysville/Yuba City

millions 140,000 16.0

120,000 14.0

12.0 100,000 10.0 80,000 8.0 60,000 6.0 40,000 4.0

20,000 2.0

0 0.0 2013 2014 2015 2016 2017 2018 2019

supply (available room nights) demand (occupied room nights) revenue

source: STR Global Per the chart above, the hotel supply within the competitive set remained stable between 2013 and 2017, with 113,150 available room nights offered per year. However, the addition of 12 rooms in 2018 and 2019 has stabilized the competitive set at 117,530 available room nights an increase of 3.9 % over 2019.

Excluding a slight decrease in 2016, the hotel demand within the competitive set increased between 2013 and 2019, from 77,915 overnights spent to 105,754 overnights spent. This represents a significant increase of 35.7 % over the analysed period. The region has relatively limited offerings in terms of tourist attractions, therefore, we would assume that the main demand is generated by drive through guests, visits related to Beale Air Force Base, workers participating in the regions ongoing development (extended stay), and occasional annual events that fully book the limited number of available rooms in the region.

Following the same trend as the demand, the revenue generated by these four hotels in the competitive set drastically grew from $ 7.6 million in 2013 to $ 14 million in 2019, which represents a substantial increase of 86 %.

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d) Seasonality

The following table displays the seasonality of the competitive set based on the data provided in the STR report:

Chart 17 seasonality

Seasonality

2013 2014 2015 2016 2017 2018 2019 High season1) Occupancy 73.7% 81.8% 78.2% 80.3% 88.3% 87.2% 86.8% Net room rate $ 100.20 $ 104.12 $ 109.70 $ 114.10 $ 122.57 $ 129.13 $ 137.50 RevPAR $ 73.86 $ 85.13 $ 85.77 $ 91.56 $ 108.26 $ 112.58 $ 119.36 Shoulder season2) Occupancy 69.8% 72.4% 77.1% 74.8% 80.4% 85.0% 90.2% Net room rate $ 95.41 $ 99.04 $ 104.04 $ 109.83 $ 117.82 $ 125.03 $ 135.64 RevPAR $ 66.65 $ 71.74 $ 80.16 $ 82.14 $ 94.85 $ 106.56 $ 122.25 Low season3) Occupancy 60.5% 59.4% 64.7% 65.2% 71.9% 83.6% 81.1% Net room rate $ 95.33 $ 97.74 $ 102.10 $ 106.87 $ 114.70 $ 127.32 $ 130.33 RevPAR $ 57.69 $ 58.13 $ 65.95 $ 69.74 $ 82.51 $ 107.19 $ 105.95 notes: 1) May, June, July, August, September and October source: STR Global; PKF hotelexperts 2) February, March, April and November

3) January and December

As PKF defines a strong pattern of seasonality as REVPAR Changes of 20% or more, it can be concluded that hotels of the competitive set do not exhibit a highly seasonal pattern. Occupancy remained strong year around with peak season being during the summer months, when increased leisure demand generated additional room nights. A similar trend can be observed in the net room rate. The lack of seasonality in the competitive set is often viewed as a sign of inelastic demand and/or that demand exceeds supply in the market.

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Moreover, we have reviewed the trends in occupancy and net room rates by day of the week to provide some insight on the patterns of the demand. The following chart shows the occupancy and ADR by day of the week over the past 12 months (May 2019 to April 2020) for the competitive set:

Chart 18 occupancy by day of the week (trailing 12 months)

Occupancy and ADR by day of the week (Trailing 12 Months)

90.0% $138.00

80.0% $136.00

70.0% $134.00 60.0% $132.00 50.0% $130.00 40.0% $128.00 30.0% $126.00 20.0%

10.0% $124.00

0.0% $122.00 Monday Tuesday Wednesday Thursday Friday Saturday Sunday

occupancy ADR

source: STR Global

As can be observed in the chart above, the competitive set has historically recorded the highest occupancy levels on Monday through Thursday nights, reflecting the strong business demand base of the market. Despite a small increase in occupancy and average rates on Saturday night, the weekend periods register lower occupancy. The significant drop in net room rate on Sunday can be explained partially by the initiative of properties to offer significant discount rates in order to fill rooms with price-sensitive travellers. 3.3 Relevant Market Segment To begin to draw conclusions regarding the feasibility of a hotel on the client’s proposed project, we carried out a comprehensive analysis of the local hotel market with a focus on the current and likely future competitors (existing capacities, hardware, quality of services offered, etc). Within the scope of our market analysis, we compiled a market sample which includes – to our judgement – some selected competitors to the future hotel project.

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3.3.1 Overview The following chart provides an overview of the competitive set hotels:

Chart 19 capacity and location of relevant hotels

map of competitive set hotels

4

1

3

2

key information hotel group distance1) opening rooms meeting fitness room name miles year keys sq. ft. yes/no project site competitive set 1 Best W estern Y uba City Inn Best Western 3.2 1989 91 n.a. yes 2 Comfort Suites Marysville - Y uba City Choice Hotels 2.2 2006 65 n.a. yes 3 Hampton by Hilton Inn & Suites Y uba City Hilton 3.6 2006 88 912 yes 4 Holiday Inn Express & Suites Oroville Lake IHG 25.3 2009 78 1,200 yes

total Σ x x x 322 2,112 x Ø x x x 81 1,056 x note: 1) distance from project site sources: hotel websites; PKF hotelexperts

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In the following, the competitive set hotels are described in more detail:

Chart 20 overview of relevant hotels

Best W estern Y uba City Inn Comfort Suites Marysville - Y uba City

picture picture building building

. 3 stars; 91 rooms . 2 stars; 65 rooms . fitness room, outdoor swimming pool and hot tub . fitness room, indoor pool, guest laundry facilities, . outdoor parking business center and outdoor parking  located in the centre of Y uba City  near Highway 70  near the Highway 99  proximity to Beale Air Force

comments  vicinity to shopping and dining venues  outdated rooms comments

Hampton by Hilton Inn & Suites Y uba City Holiday Inn Express & Suites Oroville Lake

picture picture building building

. 3 stars; 88 rooms . 2 stars; 78 rooms . outdoor pool, fitness room and business center . indoor pool, fitness center and business center . three meeting rooms (about 912 sq. ft.) . two meeting rooms (about 1,200 sq. ft.)  near the Y uba Sutter Mall  rooms are not too outdated  vicinity to shopping and dining venues  vicinity to shopping and dining venues comments comments  located in the centre of Y uba City  located in neighboring city

sources: hotel website; PKF hotelexperts

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3.3.2 Key performance indicators The following table summarises selected key performance indicators of the - relevant hotels (Best Western Yuba City Inn, Comfort Suites Marysville-Yuba City, Hampton by Hilton Inn & Suites Yuba City and Holiday Inn Express & Suites Oroville Lake):

Chart 21 historic performance of relevant hotels occupancy net room rate revpar current change current change current change year % in % -pt.2) $ in % 2) $ in % 2) 2012 68.00 - 94.96 - 64.61 - 2013 70.20 2.20 97.94 3.14 68.76 6.42 2014 74.90 4.70 101.69 3.83 76.18 10.79 2015 75.50 0.60 106.65 4.88 80.57 5.76 2016 76.00 0.50 111.66 4.70 84.80 5.25 2017 83.00 7.00 120.02 7.49 99.60 17.45 2018 85.90 2.90 127.76 6.45 109.77 10.21 2019 87.00 1.10 135.74 6.25 118.03 7.52 ø 77.56 2.71 112.05 5.25 87.79 9.06 2019 YTD April 95.00 133.88 127.20 2020 YTD April 59.10 -37.79 125.18 -6.50 74.04 -41.79

notes 1) hotels listed in Chart 19 sources: STR Global; PKF hotelexperts 2) refers to change to previous year © PKF hotelexperts

As shown in the table above, the analysed hotels continuously increased their performance in terms of occupancy rate, net room rate and RevPAR during the examined years. According to information received, the average room occupancy of the analysed hotels in 2019 reached 87 % which represents a significant increase of approximately 28 % when compared to 2012. In addition, the net room rate increased by approximately 43%, from $ 95 in 2012 to $136 in 2019. This resulted in RevPAR moving from $65 in 2012 to $118 in 2019, which represents an 81% increase during the analysed period.

As noted previously, the global pandemic in 2020 negatively impacted the hotel industry at a national as well as local level. This is summarized at the bottom of Chart 21, when comparing the KPIs of 2019 (YTD April) with 2020 (YTD April). Occupancy and RevPAR showed significant decreases of 37.8% and 41.8 %, respectively. Interestingly, the net room rate was less impacted and dropped by 6.5 %, most likely due to extended stay or frequent clients who are on pre-Covid negotiated corporate rates.

As the proposed hotel project and development is a minimum of 24 months away from opening, PKF’s Midterm/3 year view of the market remains very positive based on the past financial performance of the competitive set. We would expect the market to recover quickly as demand in the immediate and extended areas is not heavily reliant on international travellers and we anticipate an increase in “drive vacations” both from within California and the rest of the country. Moreover, the city’s master plan to continue develop the area around the

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proposed hotel site including Ellis Lake would improve neighbourhood visibility and perception, and thus positively impact the demand for hotel rooms.

To provides further detail on the competitive set, please find below occupancy, ADR and RevPAR of a monthly basis (status: 2019):

Chart 22 analysis of key performance indicators of 2019 net room r. occupancy / net room rate / revpar (2019) OCC revpar Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec $ % 200 100 180 90 160 80 140 70 120 60 100 50 80 40 60 30 40 20 20 10 0 0 net room rate 132 134 133 136 137 136 135 138 138 140 139 129 Revpar 127 126 127 128 126 120 113 119 115 123 107 85 occupancy 96 94 96 94 92 88 84 86 83 88 77 66 sources: STR; PKF hotelexperts

As seen in the chart above, the lowest net room rate of the selected competitors is recorded in December ($ 129) and the highest in October ($ 140). The lowest occupancy is registered in December (66 %), followed by November (77 %), and the highest in January and March (96 %), followed by February, April and May.

In the analysis PKF noticed a change in the seasonality, which is expressed in the chart below, which provides a comparison on a monthly basis of the average occupancy rate of the past six years (2013 – 2018) vs the monthly occupancy rate for 2019:

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Chart 23 comparison of occupancy rate of 2019 with historical data (2013-2018)

National occupancy, net room rate and revPAR (2015 - 2019)

120%

100%

80%

60%

40%

20%

0% Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.

occ. Average 2013-2018 occ. 2019

source: STR Global As per the above chart, occupancy in 2019 did not follow the same trend as the previous years in terms of seasonality during the months from January to May. The hotels from the competitive set reached their highest occupancy rate in January with 96 % which is 29 percentage points higher when compared to the average occupancy for January the previous 5 years.

Based on the historical performance from 2013-2018 (Chart 17), the local hotel market showed very little seasonality with a strong performance in the peak periods of May, June, July, August and September. However, in 2019 (Chart 23) it appears that the highest occupancy rates were registered between January and May, which can be partially attributed to the continued growth in demand and limited supply. The inelasticity of demand can also be seen in November and December of 2019, whereby occupancy dropped by 10-15 percentage points, but average rate declined less than 8%, which can be interpreted as business/corporate/government travellers whose travel to the area is essential and thus is rate indiscriminate.

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4 Revenue projection Based on our analysis of the historical performance of the selected competitive set, we have calculated a preliminary 5-year forecast for room revenue for the hotel on the proposed B Street Site.

PKF’s methodology involves an assessment of both current and future supply and demand trends for the national, regional and local markets and applying this analysis to the hotel market segment (Economy through Luxury) that is either a) deemed most suitable by PKF’s analysis or b) as requested by the client.

Through this review, a projection is created for the stabilized year and then is discounted back to the opening year, and carried forward, taking into consideration market forces, inflation, and applying typical ramp up scenarios for hotels.

In this case, the forecast assumes a select service hotel product with limited Food and Beverage facilities and minimal conference and meeting space.

The following parameters were adopted for the room revenue projection:

. opening date: 1 January 2023

. number of keys: 80

. positioning: upper midscale segment (according to PKF standards)

. management: international hotel management company and brand

. ramp-up phase: three years (2023 to 2025)

stabilised year: 2025 = first full business year at the end of the ramp-up phase

Chart 24 room revenue projection Year 3 Year 1 Year 2 Year 4 Year 5 stabilised year 2023 2024 2025 2026 2027 operating days # 365 366 365 365 365 rooms # 80 80 80 80 80 room occupancy 74% 80% 87% 87% 87% rooms nights occupied 21,593 23,436 25,404 25,404 25,404 net room rate $ 115 $ 125 $ 136 $ 143 $ 149 Total room revenue $ 2,491,425 $ 2,926,670 $ 3,448,339 $ 3,620,756 $ 3,787,311 revPAR $ 85 $ 100 $ 118 $ 124 $ 130

The calculation of the room revenue resulted in the following projections:

. occupancy: 74 % in the first operating year, 80 % in the second operating year and 87 % from the third operating year onwards. Due to the limited supply of hotel rooms in the market, we would expect the hotel to have a relatively high

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occupancy from the first operating year and stabilising at 87 % in 2025. The ramp-up period for occupancy is typically historically 3-5 years from a hotel’s opening but will skew closer to three years due to the nature of the select service hotel product (e.g. limited f&b and meeting spaces which take longer to stabilize)

. average net room rate: upon opening the net room rate will be $115 in 2023 and the stabilized year 3 operating ADR will be $136. Therefore, 2025 forecasted net room rate reflects the 2019 average net room rate of the competitive set ($135.74), which would confirm the projected assumptions that the US market will recover from Covid-19 by 2023

. RevPAR: $85 during first operational year 2023 and will reach $130 at year 5

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5 Conclusion Based on PKF’s analysis of the Sacramento MSA, the Sub-Market of Yuba-Sutter County and the microclimate of Yuba City and Marysville, there is a strong indication that there is significant Market Demand for a select service hotel at the site.

Though the current crisis does amplify the risk and volatility in a hotel investment, the industry relies on a benchmark of 80% occupancy to initially confirm additional supply opportunity. A pre-Covid occupancy of 87% for a current competitive set whose most recent major addition was 2006 is a strong indication that there is room in the marketplace for additional accommodations.

A detailed feasibility analysis which would include a comprehensive review of the concept and demand (i.e. Beale Air Force Base, Colusa Stadium, Hard Rock Hotel) and the creation of a financial model that would incorporate both development and operational costs, is recommended to confirm the initial findings in this report.

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