MARKET STUDY with FINANCIAL PROJECTIONS Hilton Convention Center Hotel

MARKET STUDY WITH FINANCIAL PROJECTIONS Hilton Convention Center Hotel

901 FLORIDA AVENUE WEST PALM BEACH, FLORIDA

SUBMITTED TO:PROPOSED PREPARED BY: Shannon R. LaRocque, PE HVS Consulting & Valuation Assistant County Administrator Division of CHR Consulting Services, Inc. Palm Beach County 8925 SW 148th Street, Suite 216 301 N. Olive Avenue Miami, Florida 33176 West Palm Beach, FL 33401

(561) 355‐2428 (305) 378‐0404

July‐2012

July 13, 2012

Shannon R. LaRocque, PE Assistant County Administrator Palm Beach County 301 N. Olive Avenue West Palm Beach, FL 33401

HVS MIAMI Re: Proposed Hilton Convention Center Hotel 8925 SW 148th Street, Suite 216 West Palm Beach, Florida Miami, Florida 33176 HVS Reference: 2012060023 +1 305 378‐0404 +1 305 378‐4484 FAX www.hvs.com Dear Ms. LaRocque:

Pursuant to your request, we herewith submit our market study pertaining to the Atlanta above‐captioned property. We have inspected the site and analyzed the hotel Boston market conditions in the West Palm Beach, Florida area. Boulder Chicago We hereby certify that we have no undisclosed interest in the property, and our Dallas employment and compensation are not contingent upon our findings. This study is Denver subject to the comments made throughout this report and to all assumptions and Las Vegas limiting conditions set forth herein. Mexico City Miami Minneapolis Sincerely, Nassau New York Newport

San Francisco Toronto Vancouver Washington N. Taylor Gray Athens Associate Buenos Aires HVS Consulting & Valuation ‐ Miami Dubai [email protected], +1 305 378‐0404 ext. 1021 Hong Kong Lima State of Florida Registered Trainee Appraiser #RZ‐23657 London Madrid Mumbai New Delhi Sao Paulo Shanghai Singapore John P. Lancet, MAI Director/Partner Specialists in Hotel Consulting and Appraisal Worldwide HVS Consulting & Valuation ‐ Miami [email protected], +1 305 378‐0404 ext. 1014 State‐certified General Real Estate Appraiser (FL) #RZ‐2554

Table of Contents

SECTION TITLE PAGE 1. Executive Summary 1 2. Description of the Site and Neighborhood 10 3. Market Area Analysis 18 4. Supply and Demand Analysis 31 5. Description of the Proposed Project 61 6. Projection of Occupancy and Average Rate 66 7. Projection of Income and Expense 76 8. Statement of Assumptions and Limiting Conditions 91 9. Certification 94

Addenda

Penetration Explanation i

Qualifications

1. Executive Summary

Subject of the The subject of the market study is the proposed development of a 400‐room, Market Study Hilton convention headquarters hotel that is located adjacent to the Palm Beach County Convention Center and within walking distance of the CityPlace entertainment complex and West Palm Beach’s Clematis District. The proposed hotel is projected to open in April 2015. In addition to guestrooms, the proposed full‐service hotel is expected to contain ±36,000 square feet of meeting and banquet space; a three‐meal restaurant and a lobby lounge; an outdoor pool, a fitness room, a business center, a retail/sundries outlet, and an appropriate complement of back‐of‐the‐house facilities.

The subject site is located at the northwest corner of Rosemary Avenue and Okeechobee Boulevard in West Palm Beach, Florida. According to the Palm Beach County Property Appraiser, the subject site is located at 901 Florida Avenue, West Palm Beach, Florida, 33401.

Pertinent Dates The effective date of this report is July 13, 2012. The subject site was inspected by Taylor Gray on May 26, 2011, as part of a previous HVS assignment. John P. Lancet, MAI participated in the analysis and reviewed the findings, but did not personally inspect the property.

Ownership, Ground Ownership Lease, Management/Franchise The developer of the proposed subject property is The Related Companies, L.P., Assumptions, Reserve for which is based in New York. The subject land that is being considered for Replacement development is owned by Palm Beach County, and as such, the proposed subject property will be subject to a ground lease.

Ground Lease

At the time of this report, the terms of the ground lease agreement were being negotiated between Palm Beach County and The Related Group. Our forecasted ground rent expenses are based upon calculations provided by Anthony P. Marshall of Harris Beach, PLLC.

July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 1

Management Company and Franchise Assumptions

The proposed subject property will operate as a Hilton Hotel, under its upper upscale chain (as defined by STR). At the writing of this report, the developer was considering two scenarios, which included (1) entering into a management agreement with Hilton Worldwide to manage the hotel or (2) operating the hotel under a franchise agreement with Hilton while utilizing a second‐tier management company, which provides management services alone but without a brand name affiliation. For the purposes of this study, we assume that a professional management company that has considerable experience operating convention center hotels will manage the proposed hotel. We have assumed a market‐ appropriate total management fee of 3.0% of total revenues in our study. Please refer to the income capitalization approach chapter for additional discussion pertaining to our management fee assumptions.

Reserve for Replacement

As stipulated in the draft ground lease agreement between Palm Beach County and The Related Group, we have deducted annual reserves for replacement from our forecast of income and expense to account for the ongoing cost of maintaining the facilities. In year one, the reserve for replacement is equal to 1.0% of total revenue, increasing to 2.0% of total revenue in the second projection year, and 3.0% of total revenue in third projection year, until stabilizing at 4.0% of total revenue thereafter.

Summary of Hotel Corporate and leisure travelers, the Palm Beach International Airport, and PBC Market Trends Convention Center continue to provide consistent sources of demand for the West Palm Beach market, which is favorably located along Florida's Atlantic Coast. According to the STR data presented on the following page, the competitive market has typically operated between the high‐60% and the low‐70% range over the last nine years, with the lone exception occurring in 2009 when marketwide occupancy was 64.8%, down 6.2 percentage points from the 2008 marketwide occupancy of 71.0%. The opening of the Hyatt Place (165 rooms) in February 2009, coupled with depressed demand levels caused occupancy to dip below historical levels. However, over the twelve‐year period (2000‐2011) reviewed the market has consistently absorbed new additions to supply, while demand has grown by an average annual compounded rate of 3.8%. In 2011, the competitive market registered a 2.6% increase in hotel demand and a 2.4% increase in ADR, resulting in a 5.0% increase in marketwide RevPAR. Year 2011 marked the first time in six years that the competitive market recorded ADR growth (this feat was not accomplished from 2006‐2010), which suggests that the market is poised for further gains in ADR over the next two to three years as it climbs back to historical levels.

July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 2

The following table provides a long‐term perspective on the supply and demand trends for a selected set of hotels, as provided by Smith Travel Research.

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

Average Daily Available Room Occupied Room Average Year Room Count Nights Change Nights Change Occupancy Rate Change RevPAR Change 2000 1,191 434,715 — 285,840 — 65.8 % $80.40 — $52.87 — 2001 1,234 450,474 3.6 % 298,668 4.5 % 66.3 82.19 2.2 % 54.49 3.1 % 2002 1,294 472,310 4.8 298,939 0.1 63.3 80.14 (2.5) 50.72 (6.9) 2003 1,294 472,310 0.0 314,924 5.3 66.7 82.03 2.4 54.69 7.8 2004 1,143 417,097 (11.7) 299,511 (4.9) 71.8 95.31 16.2 68.44 25.1 2005 1,021 372,567 (10.7) 270,212 (9.8) 72.5 134.63 41.3 97.64 42.7 2006 1,398 510,270 37.0 355,752 31.7 69.7 131.14 (2.6) 91.43 (6.4) 2007 1,498 546,770 7.2 400,543 12.6 73.3 129.43 (1.3) 94.82 3.7 2008 1,498 546,770 0.0 388,262 (3.1) 71.0 124.37 (3.9) 88.32 (6.9) 2009 1,649 601,880 10.1 389,999 0.4 64.8 102.04 (18.0) 66.12 (25.1) 2010 1,663 606,995 0.8 419,562 7.6 69.1 95.64 (6.3) 66.11 (0.0) 2011 1,663 606,995 0.0 430,374 2.6 70.9 97.90 2.4 69.41 5.0 Average Annual Compounded Change: 2000‐2011 3.1 % 3.8 % 1.8 % 2.5 %

Year‐to‐Date Through May 2011 1,663 251,113 — 204,380 — 81.4 % $111.79 — $90.98 — 2012 1,638 247,338 (1.5) % 204,191 (0.1) % 82.6 122.27 9.4 % 100.94 10.9 % Number Year Year Hotels Included in Sample of Rooms Affiliated Opened

Marriott West Palm Beach 352 Jun‐03 Jun 1981 Embassy Suites West Palm Beach Central 194 Jan‐12 Jun 1983 Converted from a Crowne Plaza and re‐opened as an Embassy Suites in Jan. 2012, following a property‐wide renovation; lowered room count from 219 rooms to 194 rooms.

Hilton Palm Beach Airport 245 Oct‐04 Jun 1984 Doubletree Hotel West Palm Beach Airport 175 Mar‐08 Feb 1987 Holiday Inn Palm Beach Airport 199 Nov‐05 Mar 1987 Courtyard West Palm Beach Airport 103 Aug‐01 Aug 2001 Guestrooms and lobby spaces were renovated in 2011. Hampton Inn West Palm Beach Arprt Central 105 Dec‐04 Dec 2004 Hilton Garden Inn West Palm Beach Airport 100 Jan‐07 Jan 2007 Hyatt Place West Palm Beach Downtown 165 Feb‐09 Feb 2009

Total 1,638 Source: STR Global

The following tables reflect our estimates of operating data for hotels on an individual basis. These trends are presented in greater detail in the Supply and Demand Analysis chapter of this report.

July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 3

FIGURE 1‐2 PRIMARY COMPETITOR – OPERATING PERFORMANCE

Est. Segm entation Estimated 2009 Estimated 2010 Estimated 2011

l d Weighted Weighted Weighted a n i a c p r t g Annual Annual Annual u c e n o e i a r r m t r Nu mber u t Ro om Average Room Average Room Average RevPAR Occupancy Yield e G s n m e i o o e Property of Rooms C M L C Count Occ.Rate RevPARCount Occ.Rate RevPARCount Occ. Rate RevPAR Change Penetration Penetration

Marriott West Palm Beach 352 45 % 35 % 15 % 5 % 352 72 % $122.00 $87.84 352 74 % $110.00 $81.40 352 75 % $117.00 $87.75 7.8 % 106.9 % 127.8 %

Sub‐Totals/Averages 352 45 % 35 % 15 % 5 % 352 72.0 % $122.00 $87.84 352 74.0 % $110.00 $81.40 352 75.0 % $117.00 $87.75 7.8 % 106.9 % 127.8 %

Secondary Competitors 1,869 45 % 26 % 18 % 11 % 749 64.5 % $93.67 $60.38 753 64.1 % $87.96 $56.40 715 67.8 % $87.40 $59.24 5.0 % 96.6 % 86.3 %

Totals/Averages 2,221 45 % 29 % 17 % 9 % 1,101 66.9 % $103.42 $69.16 1,105 67.3 % $95.69 $64.37 1,067 70.2 % $97.84 $68.65 6.7 % 100.0 % 100.0 %

FIGURE 1‐3 SECONDARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2009 Estimated 2010 Estimated 2011

l d Weighted Weighted Weighted a n i a c p r t g Total Annual Annual Annual u c n o e i a r r me t r Number u t Competitive Room Average Room Average Room Average e G m s n e i o e o Property of Ro oms C M L C LevelCount Occ. Rate RevPARCount Occ. Rate RevPARCount Occ. Rate RevPAR

Crowne Plaza/Embassy Suites 219 40 % 35 % 20 % 5 % 70 % 153 72 % $89.00 $64.08 153 71 % $84.00 $59.64 116 75 % $85.00 $63.75 Holiday Inn Palm Beach Ai rp or t 199 40 20 20 20 60 119 62 86.00 53.32 119 57 74.00 42.18 119 61 74.00 45.44 Doubletree Palm Beach Gardens 279 55 35 10 0 50 140 67 96.00 64.32 140 63 86.00 54.18 140 68 80.00 54.40 Marriott Palm Beach Gardens 279 40 30 30 0 40 112 69 99.00 68.31 112 66 97.00 64.02 112 69 98.00 67.62 Hilton Palm Beach Airport 245 35 25 5 35 30 74 68 98.00 66.64 74 72 90.00 64.80 74 74 91.03 67.54 Doubletree West Palm Beach Airport 175 40 15 15 30 30 53 55 98.00 53.90 53 59 86.00 50.74 53 68 79.84 54.13 Hyatt Place Downtown West Palm Beach 165 70 5 25 0 25 37 52 91.00 47.32 41 73 110.00 80.30 41 80 116.00 92.80 Hilton Garden Inn West Palm Beach 100 60 10 15 15 20 37 69 113.00 77.97 20 69 110.00 75.90 20 69 106.00 73.14 Courtyard West Palm Beach Airport 103 50 15 10 25 20 21 75 95.00 71.25 21 75 89.00 66.75 21 71 89.00 63.19 Hampton Inn West Palm Beach 105 65 5 20 10 20 21 67 104.00 69.68 21 70 99.00 69.30 21 72 99.32 71.31

Totals/Averages 1,869 45 % 26 % 18 % 11 % 40 % 749 64.5 % $93.67 $60.38 753 64.1 % $87.96 $56.40 715 67.8 % $87.40 $59.24

July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 4

Summary of Forecast Based on our analysis presented in the Projection of Occupancy and Average Rate Occupancy and chapter, we have chosen to use a stabilized occupancy level of 75% and a base‐ Average Rate year rate position of $122.85 for the proposed subject property. The following table reflects a summary of our market‐wide and proposed subject property occupancy and average rate projections.

FIGURE 1‐4 COMPETITIVE MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

Competitive Market (Calendar Year) Subject Property (Calendar Year)

Average Rate Average Average Rate Average Average Rate Year Occupancy Growth Rate Occupancy Growth Rate Penetration

Base Year 70.1 % — $97.82 — — $122.85 125.6 % 2012 70.2 8.0 % 105.65 — 8.0 % 132.68 125.6 2013 71.6 6.0 111.99 — 6.0 140.64 125.6 2014 72.9 3.0 115.34 — 3.0 144.86 125.6 2015 64.1 3.0 118.81 61.0 % 3.0 149.20 125.6 2016 63.8 3.0 122.37 64.0 3.0 153.68 125.6 2017 66.5 3.0 126.04 69.0 3.0 158.29 125.6 2018 69.7 3.0 129.82 74.0 3.0 163.04 125.6

The following table summarizes the proposed subject property’s forecast, reflecting fiscalization, with an anticipated opening date of April 2015.

FIGURE 1‐5 FORECAST OF AVERAGE RATE

Average Rate Year Occupancy Growth Average Rate RevPAR

2012/13 — 8.0 % $134.64 — 2013/14 — 6.0 141.68 — 2014/15 — 3.0 145.93 — Opening 2015/16 62 % 3.0 150.31 $93.19 2016/17 65 3.0 154.82 100.63 2017/18 70 3.0 159.46 111.62 Stabilization 2018/19 75 3.0 164.24 123.18

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

July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 5

FIGURE 1‐6 DETAILED FORECAST OF INCOME AND EXPENSE

2015/16 Begins April 2016/17 2017/18 Stabilized 2019/20 Number of Rooms: 400 400 400 400 400 Occupancy: 62% 65% 70% 75% 75% Average Rate: $150.31 $154.82 $159.46 $164.24 $169.17 RevPAR: $93.19 $100.63 $111.62 $123.18 $126.88 Days Open: 365 365 365 365 365 Occupied Rooms: 90,520 %Gross PAR POR 94,900 %Gross PAR POR 102,200 %Gross PAR POR 109,500 %Gross PAR POR 109,500 %Gross PAR POR REVENUE Rooms $13,606 66.1 % $34,015 $150.31 $14,692 66.1 % $36,730 $154.82 $16,297 66.1 % $40,743 $159.46 $17,985 66.1 % $44,963 $164.25 $18,524 66.1 % $46,310 $169.17 Food & Beverage Outlets 1,810 8.8 4,526 20.00 1,955 8.8 4,887 20.60 2,168 8.8 5,421 21.22 2,393 8.8 5,983 21.85 2,465 8.8 6,162 22.51 Catering and Banquet Revenue 4,073 19.8 10,184 45.00 4,399 19.8 10,997 46.35 4,879 19.8 12,198 47.74 5,384 19.8 13,461 49.17 5,546 19.8 13,865 50.65 Total Food & Beverage Revenue 5,884 28.6 14,710 65.00 6,354 28.6 15,884 66.95 7,048 28.6 17,619 68.96 7,777 28.6 19,444 71.03 8,011 28.6 20,027 73.16 Telephone 77 0.4 192 0.85 83 0.4 208 0.88 92 0.4 230 0.90 102 0.4 254 0.93 105 0.4 262 0.96 Garage/Parking 453 2.2 1,132 5.00 489 2.2 1,222 5.15 542 2.2 1,355 5.30 598 2.2 1,496 5.46 616 2.2 1,541 5.63 Other Departments 303 1.5 758 3.35 327 1.5 819 3.45 363 1.5 908 3.55 401 1.5 1,002 3.66 413 1.5 1,032 3.77 Rentals & Other Income 267 1.3 668 2.95 288 1.3 721 3.04 320 1.3 800 3.13 353 1.3 882 3.22 364 1.3 909 3.32 Total Revenues 20,590 100.0 51,474 227.46 22,233 100.0 55,583 234.28 24,662 100.0 61,655 241.31 27,216 100.0 68,041 248.55 28,032 100.0 70,081 256.00 DEPARTMENTAL EXPENSES * Rooms 3,259 24.0 8,147 36.00 3,322 22.6 8,304 35.00 3,475 21.3 8,687 34.00 3,614 20.1 9,034 33.00 3,722 20.1 9,305 33.99 Food & Beverage Outlets 1,629 90.0 4,073 18.00 1,720 88.0 4,301 18.13 1,865 86.0 4,662 18.25 2,010 84.0 5,025 18.36 2,070 84.0 5,176 18.91 Catering and Banquet Expense 2,729 67.0 6,823 30.15 2,771 63.0 6,928 29.20 2,927 60.0 7,319 28.64 3,069 57.0 7,673 28.03 3,161 57.0 7,903 28.87 Total Food & Beverage Expenses 4,359 74.1 10,896 48.15 4,491 70.7 11,229 47.33 4,792 68.0 11,981 46.89 5,079 65.3 12,698 46.39 5,232 65.3 13,079 47.78 Telephone 69 90.0 173 0.77 75 90.0 187 0.79 83 90.0 207 0.81 92 90.0 229 0.84 94 90.0 236 0.86 Garage/Parking 181 40.0 453 2.00 195 40.0 489 2.06 217 40.0 542 2.12 239 40.0 598 2.19 246 40.0 616 2.25 Other Departments 152 50.0 379 1.68 164 50.0 409 1.73 182 50.0 454 1.78 200 50.0 501 1.83 206 50.0 516 1.89 Total 8,019 38.9 20,048 88.59 8,247 37.1 20,617 86.90 8,749 35.5 21,871 85.60 9,224 33.9 23,060 84.24 9,501 33.9 23,752 86.77 DEPARTMENTAL INCOME 12,570 61.1 31,426 138.87 13,986 62.9 34,966 147.38 15,913 64.5 39,783 155.71 17,992 66.1 44,981 164.31 18,531 66.1 46,329 169.24 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 1,900 9.2 4,750 20.99 1,957 8.8 4,893 20.62 2,016 8.2 5,039 19.72 2,076 7.6 5,190 18.96 2,138 7.6 5,346 19.53 Marketing 1,096 5.3 2,739 12.11 1,052 4.7 2,631 11.09 988 4.0 2,470 9.67 921 3.4 2,302 8.41 948 3.4 2,371 8.66 Program Fee 544 2.6 1,361 6.01 588 2.6 1,469 6.19 652 2.6 1,630 6.38 719 2.6 1,799 6.57 741 2.6 1,852 6.77 Prop. Operations & Maint. 880 4.3 2,200 9.72 1,000 4.5 2,500 10.54 1,120 4.5 2,800 10.96 1,200 4.4 3,000 10.96 1,236 4.4 3,090 11.29 Utilities 1,080 5.2 2,700 11.93 1,112 5.0 2,781 11.72 1,146 4.6 2,864 11.21 1,180 4.3 2,950 10.78 1,216 4.3 3,039 11.10 Total 5,500 26.6 13,750 60.76 5,709 25.6 14,274 60.16 5,921 23.9 14,804 57.94 6,096 22.3 15,241 55.67 6,279 22.3 15,698 57.34 HOUSE PROFIT 7,070 34.5 17,676 78.11 8,277 37.3 20,692 87.22 9,992 40.6 24,980 97.77 11,896 43.8 29,740 108.64 12,252 43.8 30,631 111.89 Management Fee 618 3.0 1,544 6.82 667 3.0 1,667 7.03 740 3.0 1,850 7.24 816 3.0 2,041 7.46 841 3.0 2,102 7.68 INCOME BEFORE FIXED CHARGES 6,453 31.5 16,132 71.29 7,610 34.3 19,025 80.19 9,252 37.6 23,130 90.53 11,079 40.8 27,699 101.18 11,411 40.8 28,528 104.21 FIXED EXPENSES City of West Palm Beach 275 1.3 688 3.04 275 1.2 688 2.90 275 1.1 688 2.69 275 1.0 688 2.51 275 1.0 688 2.51 Non‐Ad Valorem Taxes 75 0.4 188 0.83 77 0.3 191 0.81 78 0.3 195 0.76 80 0.3 199 0.73 81 0.3 203 0.74 Parking Lease 250 1.2 625 2.76 258 1.2 644 2.71 265 1.1 663 2.60 273 1.0 683 2.49 281 1.0 703 2.57 Insurance 760 3.7 1,900 8.40 783 3.5 1,957 8.25 806 3.3 2,016 7.89 830 3.1 2,076 7.58 855 3.1 2,138 7.81 Incentive Management Fee 0 0.0 0 0.00 0 0.0 0 0.00 0 0.0 0 0.00 107 0.4 269 0.98 127 0.5 318 1.16 Reserve for Replacement 206 1.0 515 2.27 445 2.0 1,112 4.69 740 3.0 1,850 7.24 1,089 4.0 2,722 9.94 1,121 4.0 2,803 10.24 Total 1,566 7.6 3,915 17.30 1,836 8.2 4,591 19.35 2,164 8.8 5,411 21.18 2,654 9.8 6,636 24.24 2,742 9.9 6,854 25.04 NET INCOME BEFORE GROUND LEASE 4,887 23.9 12,217 53.99 5,773 26.1 14,433 60.84 7,088 28.8 17,719 69.35 8,425 31.0 21,063 76.94 8,670 30.9 21,674 79.18 Ground Lease 0 0.0 0 0.00 0 0.0 0 0.00 0 0.0 0 0.00 358 1.3 895 3.27 424 1.5 1,061 3.87 NET INCOME AFTER GROUND LEASE $4,887 23.9 % $12,217 $53.99 $5,773 26.1 % $14,433 $60.84 $7,088 28.8 % $17,719 $69.35 $8,067 29.7 % $20,167 $73.67 $8,246 29.4 % $20,614 $75.30 *Departmental expenses are expressed as a percentage of departmental revenues.

July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 6

FIGURE 1‐7 TEN‐YEAR FORECAST OF INCOME AND EXPENSE

2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25

Number of Rooms: 400 400 400 400 400 400 400 400 400 400 Occupied Rooms: 90,520 94,900 102,200 109,500 109,500 109,500 109,500 109,500 109,500 109,500 Occupancy: 62% 65% 70% 75% 75% 75% 75% 75% 75% 75% Average Rate: $150.31 % of $154.82 % of $159.46 % of $164.24 % of $169.17 % of $174.25 % of $179.47 % of $184.86 % of $190.40 % of $196.12 % of RevPAR: $93.19 Gross $100.63 Gross $111.62 Gross $123.18 Gross $126.88 Gross $130.69 Gross $134.61 Gross $138.64 Gross $142.80 Gross $147.09 Gross REVENUE Rooms $13,606 66.1 % $14,692 66.1 % $16,297 66.1 % $17,985 66.1 % $18,524 66.1 % $19,080 66.1 % $19,652 66.1 % $20,242 66.1 % $20,849 66.1 % $21,475 66.1 % Food & Beverage Outlets 1,810 8.8 1,955 8.8 2,168 8.8 2,393 8.8 2,465 8.8 2,539 8.8 2,615 8.8 2,693 8.8 2,774 8.8 2,857 8.8 Catering and Banquet Revenue 4,073 19.8 4,399 19.8 4,879 19.8 5,384 19.8 5,546 19.8 5,712 19.8 5,884 19.8 6,060 19.8 6,242 19.8 6,429 19.8 Total Food & Beverage Revenues 5,884 28.6 6,354 28.6 7,048 28.6 7,777 28.6 8,011 28.6 8,251 28.6 8,499 28.6 8,754 28.6 9,016 28.6 9,287 28.6 Telephone 77 0.4 83 0.4 92 0.4 102 0.4 105 0.4 108 0.4 111 0.4 114 0.4 118 0.4 121 0.4 Garage/Parking 453 2.2 489 2.2 542 2.2 598 2.2 616 2.2 635 2.2 654 2.2 673 2.2 694 2.2 714 2.2 Other Departments 303 1.5 327 1.5 363 1.5 401 1.5 413 1.5 425 1.5 438 1.5 451 1.5 465 1.5 479 1.5 Rentals & Other Income 267 1.3 288 1.3 320 1.3 353 1.3 364 1.3 374 1.3 386 1.3 397 1.3 409 1.3 421 1.3 Total 20,590 100.0 22,233 100.0 24,662 100.0 27,216 100.0 28,032 100.0 28,873 100.0 29,739 100.0 30,632 100.0 31,551 100.0 32,498 100.0 DEPARTMENTAL EXPENSES* Rooms 3,259 24.0 3,322 22.6 3,475 21.3 3,614 20.1 3,722 20.1 3,834 20.1 3,949 20.1 4,067 20.1 4,189 20.1 4,315 20.1 Food & Beverage Outlets 1,629 90.0 1,720 88.0 1,865 86.0 2,010 84.0 2,070 84.0 2,133 84.0 2,197 84.0 2,262 84.0 2,330 84.0 2,400 84.0 Catering and Banquet Expense 2,729 67.0 2,771 63.0 2,927 60.0 3,069 57.0 3,161 57.0 3,256 57.0 3,354 57.0 3,454 57.0 3,558 57.0 3,665 57.0 Total Food & Beverage Expenses 4,359 74.1 4,491 70.7 4,792 68.0 5,079 65.3 5,232 65.3 5,389 65.3 5,550 65.3 5,717 65.3 5,888 65.3 6,065 65.3 Telephone 69 90.0 75 90.0 83 90.0 92 90.0 94 90.0 97 90.0 100 90.0 103 90.0 106 90.0 109 90.0 Garage/Parking 181 40.0 195 40.0 217 40.0 239 40.0 246 40.0 254 40.0 261 40.0 269 40.0 277 40.0 286 40.0 Other Departments 152 56.8 164 56.8 182 56.8 200 56.8 206 56.8 213 56.8 219 56.8 226 56.8 232 56.8 239 56.8 Total 8,019 38.9 8,247 37.1 8,749 35.5 9,224 33.9 9,501 33.9 9,786 33.9 10,079 33.9 10,382 33.9 10,693 33.9 11,014 33.9 DEPARTMENTAL INCOME 12,570 61.1 13,986 62.9 15,913 64.5 17,992 66.1 18,531 66.1 19,088 66.1 19,660 66.1 20,250 66.1 20,857 66.1 21,484 66.1 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 1,900 9.2 1,957 8.8 2,016 8.2 2,076 7.6 2,138 7.6 2,203 7.6 2,269 7.6 2,337 7.6 2,407 7.6 2,479 7.6 Marketing 1,096 5.3 1,052 4.7 988 4.0 921 3.4 948 3.4 977 3.4 1,006 3.4 1,036 3.4 1,067 3.4 1,099 3.4 Program Fee 544 2.6 588 2.6 652 2.6 719 2.6 741 2.6 763 2.6 786 2.6 810 2.6 834 2.6 859 2.6 Prop. Operations & Maint. 880 4.3 1,000 4.5 1,120 4.5 1,200 4.4 1,236 4.4 1,273 4.4 1,311 4.4 1,351 4.4 1,391 4.4 1,433 4.4 Utilities 1,080 5.2 1,112 5.0 1,146 4.6 1,180 4.3 1,216 4.3 1,252 4.3 1,290 4.3 1,328 4.3 1,368 4.3 1,409 4.3 Total 5,500 26.6 5,709 25.6 5,921 23.9 6,096 22.3 6,279 22.3 6,468 22.3 6,662 22.3 6,861 22.3 7,067 22.3 7,279 22.3 HOUSE PROFIT 7,070 34.5 8,277 37.3 9,992 40.6 11,896 43.8 12,252 43.8 12,620 43.8 12,998 43.8 13,389 43.8 13,790 43.8 14,204 43.8 Management Fee 618 3.0 667 3.0 740 3.0 816 3.0 841 3.0 866 3.0 892 3.0 919 3.0 947 3.0 975 3.0 INCOME BEFORE FIXED CHARGES 6,453 31.5 7,610 34.3 9,252 37.6 11,079 40.8 11,411 40.8 11,754 40.8 12,106 40.8 12,470 40.8 12,844 40.8 13,229 40.8 FIXED EXPENSES City of West Palm Beach 275 1.3 275 1.2 275 1.1 275 1.0 275 1.0 275 1.0 275 0.9 275 0.9 275 0.9 275 0.8 Non‐Ad Valorem Taxes 75 0.4 77 0.3 78 0.3 80 0.3 81 0.3 83 0.3 84 0.3 86 0.3 88 0.3 90 0.3 Parking Lease 250 1.2 258 1.2 265 1.1 273 1.0 281 1.0 290 1.0 299 1.0 307 1.0 317 1.0 326 1.0 Insurance 760 3.7 783 3.5 806 3.3 830 3.1 855 3.1 881 3.1 907 3.1 935 3.1 963 3.1 992 3.1 Incentive Management Fee 0 0.0 0 0.0 0 0.0 107 0.4 127 0.5 148 0.5 169 0.6 191 0.6 213 0.7 236 0.7 Reserve for Replacement 206 1.0 445 2.0 740 3.0 1,089 4.0 1,121 4.0 1,155 4.0 1,190 4.0 1,225 4.0 1,262 4.0 1,300 4.0 Total 1,566 7.6 1,836 8.2 2,164 8.8 2,654 9.8 2,742 9.9 2,831 9.9 2,924 9.9 3,019 9.9 3,117 10.0 3,218 9.9 NET INCOME BEFORE GROUND LEASE 4,887 23.9 5,773 26.1 7,088 28.8 8,425 31.0 8,670 30.9 8,922 30.9 9,182 30.9 9,451 30.9 9,726 30.8 10,011 30.9 Ground Lease 0 0.0 0 0.0 0 0.0 358 1.3 424 1.5 493 1.7 563 1.9 635 2.1 710 2.2 787 2.4 NET INCOME AFTER GROUND LEASE $4,887 23.9 % $5,773 26.1 % $7,088 28.8 % $8,067 29.7 % $8,246 29.4 % $8,430 29.2 % $8,619 29.0 % $8,815 28.8 % $9,016 28.6 % $9,224 28.5 % 0 #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! *Departmental expenses are expressed as a percentage of departmental revenues.

July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 7

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

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

1. All information was collected and analyzed by the staff of HVS Consulting & Valuation. Information was supplied by the client and/or The Related Group. 2. The subject site has been evaluated from the viewpoint of its physical utility for the future operation of a hotel, as well as access, visibility, and other relevant factors. 3. The subject property's proposed improvements have been reviewed for their expected quality of construction, design, and layout efficiency. 4. The surrounding economic environment, on both an area and neighborhood level, has been reviewed to identify specific hostelry‐related economic and demographic trends that may have an impact on future demand for hotels. 5. Dividing the market for hotel accommodations into individual segments defines specific market characteristics for the types of travelers expected to utilize the area's hotels. The factors investigated include purpose of visit, average length of stay, facilities and amenities required, seasonality, daily demand fluctuations, and price sensitivity.

1 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of Real Estate Appraisers, 1978). 2 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies. (Chicago: American Institute of Real Estate Appraisers, 1983). 3 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990). 4 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations (Chicago: Appraisal Institute, 1992). 5 Stephen Rushmore and Erich Baum, Hotels and Motels – Valuations and Market Studies. (Chicago: Appraisal Institute, 2001).

July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 8

6. An analysis of existing and proposed competition provides an indication of the current accommodated demand, along with market penetration and the degree of competitiveness. Unless noted otherwise, we have inspected the competitive lodging facilities summarized in this report. 7. Documentation for an occupancy and average rate projection is derived utilizing the build‐up approach based on an analysis of lodging activity. 8. A detailed projection of income and expense made in accordance with the Uniform System of Accounts for the Lodging Industry sets forth the anticipated economic benefits of the subject property.

July‐2012 Executive Summary Hilton Convention Center Hotel – West Palm Beach, Florida 9

2. Description of the Site and Neighborhood

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

The subject site is located adjacent to the Palm Beach County Convention Center, directly southwest of the intersection formed by Rosemary Avenue and Okeechobee Boulevard. This site is in the city of West Palm Beach, Florida.

Physical Characteristics The subject site measures approximately 3.43 acres, or 149,363 square feet. The parcel's adjacent uses are set forth in the following table.

FIGURE 2‐1 SUBJECT PARCEL'S ADJACENT USES

Direction Adjacent Use

North CityPlace Shops & Restaurants South Palm Beach County Convention Center Parking Lot East CityPlace South Tower West Palm Beach County Convention Center

July‐2012 Description of the Site and Neighborhood Hilton Convention Center Hotel – West Palm Beach, Florida 10

VIEW OF SUBJECT SITE

AERIAL PHOTOGRAPH

Subject Site

July‐2012 Description of the Site and Neighborhood Hilton Convention Center Hotel – West Palm Beach, Florida 11

VIEW FROM SITE TO THE NORTH VIEW FROM SITE TO THE SOUTH

VIEW FROM SITE TO THE EAST VIEW FROM SITE TO THE WEST

Primary vehicular access to the proposed subject property will be provided by Okeechobee Boulevard. Access will also be available from Rosemary Avenue. The topography of the parcel gently slopes upward, rising from Okeechobee Boulevard to roughly the midline of the subject site, before sloping downward towards the southern boundary of the site. The site’s shape is irregular.

Site Utility Upon completion of construction, the subject site will not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. The site is expected to be fully developed with site or building improvements, which will contribute to the overall profitability of the hotel.

July‐2012 Description of the Site and Neighborhood Hilton Convention Center Hotel – West Palm Beach, Florida 12

Access and Visibility It is important to analyze the site in regard to ease of access with respect to regional and local transportation routes and demand generators. The subject site is readily accessible to a variety of local, county, state, and interstate highways.

MAP OF REGIONAL ACCESS ROUTES

I PalmBeach Country Club

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The subject market is served by a variety of additional local highways, which are illustrated on the map.

From Interstate 95, motorists take the Okeechobee Boulevard Exit and proceed east on this thoroughfare for approximately one and one‐half miles to the subject site, which is located on the motorists’ right‐hand side. The subject site is located at the intersection of Okeechobee Boulevard and Rosemary Avenue. The proposed subject property is expected to have adequate signage at the street; thus, the proposed hotel should benefit from very good visibility from within its local neighborhood. Overall, the subject site benefits from excellent accessibility, and the proposed hotel is expected to enjoy very good visibility attributes.

Airport Access The proposed subject property will be served by the Palm Beach International Airport, which is located approximately 4 miles to the southwest of the subject site. From the airport, motorists will follow signs to Australian Avenue and travel northeast on this thoroughfare to Okeechobee Boulevard. Motorists will then proceed eastbound on this thoroughfare until its intersection with Rosemary

July‐2012 Description of the Site and Neighborhood Hilton Convention Center Hotel – West Palm Beach, Florida 13

Avenue, continuing to the subject site as previously noted. The proposed hotel will also be served by the Fort Lauderdale‐Hollywood International Airport, which is located approximately 50 miles to the south of the subject site.

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

The subject neighborhood is generally defined by First Street to the north, Clear Lake to the west, N Street to the south, and Lake Worth to the east. In general, this neighborhood is in the growth stage of its life cycle, with pockets of moderate growth occurring in the retail/restaurant sector due to the presence of the CityPlace shopping and entertainment center. Within the immediate proximity of the site, land use is commercial, retail and tourism‐related with some pockets of residential development. The neighborhood is characterized by the Palm Beach County Convention Center and a confluence of retail stores, residential towers and office buildings.

Some specific businesses in the area include the Kravis Center for the Performing Arts, Intech Investment Management, and the Marriott West Palm Beach. This neighborhood has undergone an urban renaissance in the last ten years, transforming from a poverty‐stricken and high crime area to an upscale retail and entertainment center. In general, we would characterize the neighborhood as 70% office/retail use, 20% residential use, 5% hotel use, and 5% vacant. The proposed subject property's opening is viewed as a linchpin to the continued economic success of CityPlace, the convention center and Downtown West Palm Beach; the hotel will be in character with and will complement surrounding land uses.

July‐2012 Description of the Site and Neighborhood Hilton Convention Center Hotel – West Palm Beach, Florida 14

MAP OF NEIGHBORHOOD

Clearlake Lake Worth

Overall, the supportive nature of the development in the immediate area is considered appropriate for and conducive to the operation of a hotel.

Utilities The subject site will reportedly be served by all necessary utilities. We assume that these will be acquired from the most cost‐effective providers within the local market.

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

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

Flood Zone According to the Federal Emergency Management Agency map illustrated below, the subject site is located in flood zone B.

July‐2012 Description of the Site and Neighborhood Hilton Convention Center Hotel – West Palm Beach, Florida 15

COPY OF FLOOD MAP AND COVER

i ,__.:I~ I_.~ ; \\~:..- ·1 ,-· 1 ~-·1 - · ~ :_: · \',

·. FIRM HOOD INS URAN CE RAH MAP

{:]TY OF WEST PALM BEAf.H . FLORinA PAL:\! RU,CH CO [ Nf'I'

i: PAN EL150F 20

COMMUNllY -PANH NUMBER !20229 0015 B HfECTIV EOITE: MAR CH I, 1919

~= :.~~:i·~•;..~~-~~~'.~;:,t ~:5= -'.:~~'.'.';;",'!.:~ ::.·;;.',j.,: "'., ....,,.,i,,..-nt~ .,•~c•1 "' "Y t·•w L> ...., ' """" •ul.><•q.,.,,t. '"'h'" cl"' "ho, ~lk< ui<.,,,k r ... ,1,.,1 ..lHI p-<>W<: l.-·lu,··· .. ,i:x1::,L-.,u(N..,;.., . ., r k> ud~ ...... ,,c., ='""!]•nm ftno.1 m.op< d,e ,.k ,h~ ~,-VA l'"lonc MD~ '.'l.,,.,, ot ___.m~~ f~m.o 'J<",'

The flood zone definition for the B designation is as follows: areas between limits of the 100‐year and 500‐year flood; certain areas subject to 100‐year flooding with average depths of less than one foot or where the contributing drainage area is less than one square mile; areas protected by levees from the base flood.

Zoning According to the local planning office, the subject property is zoned as follows: CPD ‐ Commercial Planned Development. This zoning designation allows for most commercial uses, including small office complexes, retail centers, service industries, and hotels and motels. We assume that all necessary permits and approvals will be secured (including an appropriate liquor license) and that the subject property will be constructed in accordance with local zoning ordinances, building codes, and all other applicable regulations. Our zoning analysis should be verified before any physical changes are made to the site.

July‐2012 Description of the Site and Neighborhood Hilton Convention Center Hotel – West Palm Beach, Florida 16

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

Conclusion We have analyzed the issues of size, topography, access, visibility, and the availability of utilities. The subject site is favorably located adjacent to the Palm Beach County Convention Center and near Interstate 95. The proposed subject property is expected to be a powerful tourism attractor and key amenity that will stimulate job growth and enable the city of West Palm Beach to more effectively compete in the meetings and hospitality sectors. In general, the site should be well suited for future hotel use, with acceptable access, visibility, and topography for an effective operation.

July‐2012 Description of the Site and Neighborhood Hilton Convention Center Hotel – West Palm Beach, Florida 17

3. Market Area Analysis

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

Market Area Definition The market area for a lodging facility is the geographical region where the sources of demand and the competitive supply are located. The subject site is located in the city of West Palm Beach, Palm Beach County, and the state of Florida.

The subject property’s market area can be defined by its Metropolitan Statistical Area (MSA): Miami‐Fort Lauderdale‐Pompano Beach, FL MSA, which includes the: (1) West Palm Beach–Boca Raton–Boynton Beach, FL metropolitan division (2) Miami–Miami Beach–Kendall, FL metropolitan division and the (3) Fort Lauderdale–Pompano Beach–Deerfield Beach, FL metropolitan division. The MSA is the most standard definition used in comparative studies of metropolitan areas. The federal government defines an MSA as a large population nucleus, which, together with adjacent counties, has a higher degree of social integration.

The following exhibit illustrates the market area.

July‐2012 Market Area Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 18

MAP OF MARKET AREA

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

These data are summarized in the following table.

July‐2012 Market Area Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 19

FIGURE 3‐1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY

Average Annual Compounded Change 1990 2000 2010 2015 1990‐00 2000‐10 2010‐15

Resident Population (Thousands) Palm Beach County 871.6 1,135.3 1,303.6 1,422.8 2.7 % 1.4 % 1.8 % Miami‐Fort Lauderdale‐Pompano Beach, FL MSA 4,078.6 5,025.8 5,621.9 6,002.0 2.1 1.1 1.3 State of Florida 13,033.3 16,047.1 18,813.3 20,208.3 2.1 1.6 1.4 United States 249,622.8 282,172.0 310,009.2 325,343.4 1.2 0.9 1.0 Per‐Capita Personal Income* Palm Beach County $40,468 $48,717 $47,597 $50,607 1.9 (0.2) 1.2 Miami‐Fort Lauderdale‐Pompano Beach, FL MSA 30,565 35,403 37,037 39,455 1.5 0.5 1.3 State of Florida 26,940 32,391 33,646 35,764 1.9 0.4 1.2 United States 26,826 33,770 35,336 37,559 2.3 0.5 1.2

W&P Wealth Index Palm Beach County 154.3 147.7 144.0 143.9 (0.4) (0.3) (0.0) Miami‐Fort Lauderdale‐Pompano Beach, FL MSA 117.7 107.7 108.7 108.9 (0.9) 0.1 0.0 State of Florida 104.3 99.3 99.7 99.8 (0.5) 0.0 0.0 United States 100.0 100.0 100.0 100.0 0.0 0.0 0.0 Food and Be verage Sales (Millions)* Palm Beach County $1,240 $1,661 $2,001 $2,210 3.0 1.9 2.0 Miami‐Fort Lauderdale‐Pompano Beach, FL MSA 5,401 6,832 8,361 9,007 2.4 2.0 1.5 State of Florida 16,197 20,541 26,020 28,140 2.4 2.4 1.6 United States 257,805 341,525 409,983 434,221 2.9 1.8 1.2 Total Retail Sales (Millions)* Palm Beach County $12,199 $18,391 $21,314 $24,737 4.2 1.5 3.0 Miami‐Fort Lauderdale‐Pompano Beach, FL MSA 54,748 74,155 80,417 91,433 3.1 0.8 2.6 State of Florida 159,785 223,684 253,823 289,415 3.4 1.3 2.7 United States 2,620,710 3,613,909 3,880,980 4,325,045 3.3 0.7 2.2

* Inflation Adjusted Source: Woods & Poole Economics, Inc.

July‐2012 Market Area Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 20

The U.S. population has grown at an average annual compounded rate of 0.9% from 2000 through 2010. Palm Beach County’s population has grown at a quicker pace than the nation’s population, growing by an average annual growth rate of 1.4% between 2000 and 2010. Following this population trend, per‐capita personal income for Palm Beach County decreased modestly at 0.2% between 2000 and 2010. Local wealth indexes have remained stable in recent years, registering a relatively high 144.0 level for the county in 2010.

Food and beverage sales totaled $2,001 million in the county in 2010, versus $1,661 million in 2000. This reflects a 1.9% average annual change, which compares to the average annual change of 2.0%, which is forecast through 2015. Retail sales totaled $21,313.5 million in the county in 2010, versus $18,390.9 million in 2000. This represents an average annual change of 1.5%. A modestly stronger 3.0% average annual change is projected in county retail sales through 2015.

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

The following table sets forth the county workforce distribution by business sector in 1990, 2000, and 2010, as well as a forecast for 2015.

July‐2012 Market Area Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 21

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

Average Annual Compounded Change Percent Percent Percent Percent 1990‐ 2000‐ 2010‐ Industry 1990 of Total 2000 of Total 2010 of Total 2015 of Total 2000 2010 2015

Farm 9.1 2.0 % 7.6 1.2 % 5.0 0.7 % 5.0 0.6 % (1.7) % (4.2) % 0.1 % Forestry, Fishing, Related Activities And Other 6.2 1.3 6.1 1.0 4.4 0.6 4.5 0.6 (0.2) (3.3) 0.7 Mining 1.0 0.2 0.9 0.1 1.7 0.2 1.8 0.2 (1.0) 6.7 1.0 Utilities 4.1 0.9 3.2 0.5 2.2 0.3 2.1 0.3 (2.2) (3.7) (0.6) Construction 34.0 7.4 40.8 6.4 31.2 4.4 34.1 4.3 1.8 (2.7) 1.8 Manufacturing 29.3 6.3 27.8 4.3 18.2 2.6 18.4 2.3 (0.5) (4.2) 0.3 Total Trade 75.0 16.3 96.8 15.1 100.4 14.1 111.2 14.1 2.6 0.4 2.1 Wholesale Trade 12.6 2.7 20.1 3.1 24.3 3.4 27.0 3.4 4.8 1.9 2.1 Retail Trade 62.5 13.5 76.7 11.9 76.1 10.7 84.2 10.7 2.1 (0.1) 2.0 Transportation And Warehousing 7.9 1.7 10.1 1.6 13.3 1.9 14.9 1.9 2.4 2.8 2.3 Information 9.5 2.0 14.2 2.2 12.6 1.8 13.2 1.7 4.2 (1.2) 1.0 Finance And Insurance 26.2 5.7 36.3 5.7 45.8 6.4 51.6 6.6 3.3 2.3 2.4 Real Estate And Rental And Lease 24.7 5.4 29.7 4.6 52.7 7.4 60.2 7.6 1.9 5.9 2.7 Total Services 186.6 40.4 307.8 48.0 352.5 49.6 393.0 49.9 5.1 1.4 2.2 Professional And Technical Services 27.5 6.0 44.6 7.0 56.5 8.0 63.9 8.1 5.0 2.4 2.5 Management Of Companies And Enterprises 4.0 0.9 7.8 1.2 11.6 1.6 12.9 1.6 6.9 4.0 2.1 Administrative And Waste Services 28.9 6.3 73.7 11.5 49.9 7.0 55.7 7.1 9.8 (3.8) 2.2 Educational Services 4.0 0.9 7.2 1.1 13.2 1.9 15.0 1.9 6.1 6.3 2.5 Health Care And Social Assistance 41.6 9.0 64.1 10.0 86.5 12.2 98.1 12.5 4.4 3.1 2.5 Arts, Entertainment, And Recreation 12.3 2.7 18.6 2.9 24.0 3.4 26.3 3.3 4.2 2.6 1.8 Accommodation And Food Services 35.9 7.8 44.8 7.0 55.1 7.8 60.0 7.6 2.3 2.1 1.7 Other Services, Except Public Administration 32.6 7.1 47.1 7.3 55.7 7.8 61.3 7.8 3.7 1.7 1.9 Total Government 48.1 10.4 60.2 9.4 70.2 9.9 77.1 9.8 2.3 1.5 1.9 Federal Civilian Government 4.2 0.9 5.8 0.9 6.8 1.0 7.6 1.0 3.3 1.6 2.4 Federal Military 2.6 0.6 2.5 0.4 2.5 0.3 2.5 0.3 (0.5) (0.2) 0.2 State And Local Government 41.3 8.9 51.9 8.1 61.0 8.6 67.0 8.5 2.3 1.6 1.9

TOTAL 461.8 100.0 % 641.5 100.0 % 710.1 100.0 % 787.2 100.0 % 3.3 % 1.0 % 2.1 %

MSA 2,151.8 — 2,746.2 — 3,112.6 — 3,417.1 — 2.5 % 1.3 % 1.9 % U.S. 138,331.0 — 165,371.0 — 174,062.6 — 186,999.8 — 1.2 0.5 1.4

Source: Woods & Poole Economics, Inc.

July‐2012 Market Area Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 22

Woods & Poole Economics, Inc. reports that during the period from 1990 to 2000, total employment in the county grew at an average annual rate of 3.0%. This trend was above the growth rate recorded by the MSA, and exceeded the national average, reflecting the growth recorded in the local economy during that decade. Most recently, the pace of total employment growth in the county decelerated to 1.0% on an annual average from 2000 to 2010.

Of the primary employment sectors, Mining recorded the highest increase in number of employees during the period from 2000 to 2010, increasing by an average annual compounded rate of 6.7%. Strong growth was also recorded in the Real Estate and Rental and Lease sector, as well as Educational Services, which expanded by 6.3% during the period 2000 to 2010.

Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will grow by 2.1% on average annually through 2015. The trend is above the forecast rate of change for the U.S., which has been forecast as a whole during the same period.

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

FIGURE 3‐3 MAJOR EMPLOYERS

Number of Rank Firm Employees

1Palm Beach County School District 21,495 2Palm Beach County 11,381 3Tenet Healthcare Corp. 6,100 4Florida Power & Light Headquarters 3,632 5 G4S 3,000 6Hospital Corporation of America 2,714 7Florida Atlantic University 2,706 8Bethesda Memorial Hospital 2,391 9Office Depot Headquarters 2,250 10 Boca Raton Regional Hospital 2,250

Source: Palm Beach County Development Board

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

• The Palm Beach International Airport (PBI) serves the Greater Palm Beach market and is a major transient‐demand generator for nearby hotels. The airport serves nearly six million commercial passengers each year, as well as over 100,000 private and general aircraft annually. Condé Nast Traveler magazine consistently ranks PBI as one of the ten best airports in the world, citing superior shops and restaurants in the airport terminals. The airport also consistently ranks in the top five for busiest airports servicing private aircraft/general aviation in the United States. • The tourism industry is an integral pillar of the West Palm Beach economy. From 2004 to 2009, Palm Beach County received roughly 4.3 million tourists each year who contributed a per‐person average of $1,535 annually. According to the Palm Beach County Tourist Development Office, an annual estimate of 2.1 million guests stayed at Palm Beach County hotels over the five‐year period. • CityPlace has been a major economic engine for the city of West Palm Beach’s growth over the last decade. Since opening in 2000, the $600 million mixed‐ use development has drawn more than 750 million visitors locally and from around the world; added $5 billion in taxable property value; created and attracted over 3,700 retail, restaurant and office jobs; and spurred growth in regional businesses. The shopping and entertainment complex has served as a destination for marquee cultural events, National Football League entertainment, and top national musical acts such as Vanessa Carlton and Michael Bolton. Furthermore, CityPlace paved the way for over $1 billion in private and public investments in the area, including the Palm Beach County Convention Center, revitalization of Flagler Drive, and more than 6,000 residences, all of which have opened since CityPlace’s construction in 2000. • West Palm Beach is home to an assortment of first‐class sport facilities, which stimulate lodging demand for hotels in the Greater West Palm Beach area. Some of these facilities include the: National Croquet Center, Jim Brandon Equestrian Center, Okeeheelee Park for water‐skiing, Dyer Park for dirt biking, Palm Beach Kennel Club for dog racing, Palm Beach Ice Works for ice skating, and Palm Beach County Convention for mat‐based or floor‐based sporting events such as martial arts, fencing, wrestling, boxing, dance, and cheer. • Palm Beach Atlantic University is located 1.3 miles from the subject site, and is a source of room night demand for nearby hotels. Palm Beach Atlantic University is a comprehensive, interdenominational Christian university founded in 1968. As of fall 2010, active enrollment was registered at 1,900 students.

July‐2012 Market Area Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 24

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

FIGURE 3‐4 UNEMPLOYMENT STATISTICS

Year West Palm Beac h FL U.S. 2002 6.6 % 5.7 % 5.8 % 2003 6.1 5.3 6.0 2004 5.5 4.7 5.5 2005 3.6 3.8 5.1 2006 3.3 3.3 4.6 2007 3.9 4.0 4.6 2008 6.2 6.3 5.8 2009 10.3 10.4 9.3 2010 11.1 11.3 9.6 2011 10.3 10.5 9.0 Recent Month ‐ April 2010 10.2 % 10.5 % 8.9 % 2011 8.5 8.6 8.2

So urce: U.S. Bureau of Labor Statistics

Historically, unemployment trends in the city of West Palm Beach have fluctuated above and below the statewide and nationwide rates. As a result of the nationwide economic downturn, unemployment rates in each statistical set increased significantly in 2009, and to a lesser degree in 2010. A positive trend emerged in 2011, as unemployment levels for the city, state, and nation recorded modest decreases, indicating steady improvements in the local, regional, and national economies.

In 2011, the city of West Palm Beach recorded an unemployment rate of 10.3%, an improvement over the 2010 unemployment rate of 11.1%. In April 2012, the unemployment rate was registered at 8.5%, versus 10.2% for the same month in 2011.

Bed Tax Collections Bed tax revenues for Palm Beach County reached $25.5 million in Fiscal Year 2011, representing a 9.7% increase over FY 2010 bed tax collections. Bed tax revenues grew by an annual average compounded rate of 3.2% over the 11‐year period pictured below. This upward trend has been forecast to continue into 2012, according to the Palm Beach County Tourism Development Council.

July‐2012 Market Area Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 25

FIGURE 3‐5 HISTORICAL BED TAX COLLECTIONS (FY 2001 ‐2011)

:o ed tax collections gr,ew by an annual average compounded rate of' 3 .. 2 10t 'o< last ,decade

.$30,000,000 Bed Tax CoHections 2010 - $23. 2 million $2$,000,000 2011 - $25.5 million up 9.7%

$11 19•,.H .$ 20,000,000 f---~------$ 11 HJ6 , .. $117 3 $11 161.16,' ,•

.$1 5-,000,000

.$10,000,000 )';earr 2001 2002 2003 20M 2005, 2006 2007 2008 2009 2010 2011

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

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FIGURE 3‐6 OFFICE SPACE STATISTICS

Vacany Net Submarket Total SF Vacant SF Under Construction SF Rate Asking Rent Absorption (AF)

West Palm CBD 2,424,181 567,988‐ 23.4 % $39.47 34,960 Boca Raton 11,649,223 2,595,628‐ 22.3 33.51 62,673 Boynton/Lantana 712,398 127,690‐ 17.9 19.78 (10,777) Delray Beach 1,750,549 800,232‐ 45.7 22.42 14,727 Jupiter 596,224 132,854‐ 22.3 23.91 9,906 N Palm Bch/Palm Bch Gardens 3,554,654 705,534‐ 19.8 29.01 28,108 Palm Beach 822,706 108,251‐ 13.2 56.82 (3,335) Palm Springs/Lake Worth 238,131 49,943‐ 21.0 18.70 (85) Royal Palm Bch/Wellington 304,640 34,491‐ 11.3 30.72 2,603 W Palm Beach Suburban 3,835,834 732,486‐ 19.10 31.82 35532

Totals 29,899,542 6,722,269‐ 22.6% $33.49 174,312 Source: Grubb & Ellis, First Quarter 2012 Trends Report

Office vacancy represented 22.6% across Palm Beach County, and the area’s lease rate was $33.49. The subject site is located in the West Palm Beach Central Business District (CBD). This submarket reported a vacancy rate of 23.4% and a lease rate of $39.47.

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

West Palm Beach is served by the Palm Beach International Airport, which is located approximately 3.0 miles southwest of the subject site. The following table illustrates recent operating statistics for this facility.

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FIGURE 3‐7 AIRPORT STATISTICS – PALM BEACH INTERNATIONAL AIRPORT

Pas senger Percent Percent Year Traffic Change* Change**

2002 5,483,662 — — 2003 6,014,186 9.7 % 9.7 % 2004 6,537,263 8.7 9.2 2005 7,014,237 7.3 8.6 2006 6,824,789 (2.7) 5.6 2007 6,936,449 1.6 4.8 2008 6,476,303 (6.6) 2.8 2009 5,994,606 (7.4) 1.3 2010 5,887,723 (1.8) 0.9 2011 5,769,583 (2.0) 0.6 Year‐to‐date, May 2011 2,848,907 — — 2012 2,706,885 (5.0) % —

*Annual aver age compounded percentage change from the previous year **Annual aver age compounded percentage change from first year of data

So urce: Palm Beach International Airport (PBIA)

FIGURE 3‐8 LOCAL PASSENGER TRAFFIC VS. NATIONAL TREND

12% 10% 8% 6% Activity 4% 2% 0% Passenger ‐2% in ‐4% ‐6%

Change ‐8% ‐10% 2003 2004 2005 2006 2007 2008 2009 2010 2011 • Local Passenger Volume National Passenger Volume

Source: HVS, Local Airport Authority

July‐2012 Market Area Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 28

This facility recorded 5,769,583 passengers in 2011, (2.0%) less than the passenger traffic recorded in 2010. The average annual change during the period shown was 0.6%. Passenger traffic has exhibited a downward trend since reaching almost 7,000,000 passengers in 2007. The cost of gas and the increasing popularity of “staycations,” in which air travel is avoided altogether within the State of Florida has influenced this downward trend. Improvements in the national economy and increased consumer confidence should boost passenger traffic towards historical levels in the near term, which averaged 6,293,880 annual passengers over the 10‐year period reviewed.

The following table illustrates recent operating statistics for the Fort Lauderdale‐ Hollywood International Airport, which also serves the greater Palm Beach County area.

FIGURE 3‐9 AIRPORT STATISTICS – FORT LAUDERDALE‐HOLLYWOOD INTERNATIONAL AIRPORT

Passenger Percent Percent Year Traffic Change* Change**

2002 17,037,261 — — 2003 17,937,708 5.3 % 5.3 % 2004 20,819,292 16.1 10.5 2005 22,390,285 7.5 9.5 2006 21,369,787 (4.6) 5.8 2007 22,681,903 6.1 5.9 2008 22,621,698 (0.3) 4.8 2009 21,061,024 (6.9) 3.1 2010 22,412,627 6.4 3.5 2011 23,349,845 4.2 3.6 Year‐to‐date, April 2011 8,501,525 — — 2012 8,516,293 0.2 % —

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

Source: Fort Lauderdale‐Hollywood International Airport

Air traffic registered 23,349,845 passengers in 2011, up 4.2% from 2010 passenger traffic. Over the ten‐year period reviewed (2002‐2011), airport passenger traffic at the Ft. Lauderdale‐Hollywood International Airport has

July‐2012 Market Area Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 29

increased by an average annual compounded rate of 3.6%. The year‐over‐year growth in passenger traffic can be attributed to the expansion of low cost carriers such as AirTran, Southwest, and JetBlue and the resurgence of international travel.

The Broward County Aviation Department (BCAD) is progressing with the expansion of the south runway and related projects at Fort Lauderdale‐Hollywood International Airport. The $791 million project will extend runway 9R/27L to an overall length of 8,000 feet and is estimated to be completed in 2014. Construction of the project began in January 2012 and, at its peak in 2013, will be contributing more than $1 million per day to the local economy in construction activity.

Conclusion This section discussed a wide variety of economic indicators for the pertinent market area. The economic health of this market area has remained relatively stable, despite the nation's economic fluctuations over the last two and one‐half years. Our market interviews and research revealed that the local economy produced stellar results in 2011 due to the resurgence in corporate demand and group travel. Downtown West Palm Beach continues to benefit from revitalization efforts, including new office space and residential construction, and the gradually improving national economy should help lift key economic indicators higher. Based on the diversity of West Palm Beach's economic and employment base, the outlook for the area is optimistic.

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4. Supply and Demand Analysis

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

Definition of Subject The proposed 400‐room Hilton Convention Center Hotel will be located adjacent Hotel Market to the Palm Beach County Convention Center in West Palm Beach, Florida. The competitive market surrounding the proposed subject property currently comprises five (5) branded, full‐service hotels and four (4) branded, select‐service hotels. The (5) full‐service hotels total 1,166 rooms and average 233 rooms, while the four (4) select‐service hotels contain 473 rooms with an average size of 118 rooms. The two largest hotels are the 352‐room Marriott West Palm Beach and the 245‐room Hilton Palm Beach Airport.

Lodging facilities in the greater West Palm Beach hotel market area are generally clustered into three submarkets:

1. Convention

2. Airport

3. Downtown

The proposed subject property will be located in the Convention sub‐market, which is currently only served by the 352‐room Marriott West Palm Beach. In fact, there are only two hotels equating to 517 rooms currently operating within a one‐ half mile radius of the PBC Convention Center, and those include the Marriott West Palm Beach and Hyatt Place Downtown (165 rooms).

We note that the Convention sub‐market and portions of the Downtown West Palm Beach sub‐market, have recently undergone a significant renaissance that replaced older, low‐ and medium‐rise residential and commercial developments with higher‐quality, upscale, high‐rise office and condominium developments. These developments spawned the revitalization of the Clematis Street District, the

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 31

multi‐million dollar redevelopment of the Waterfront Promenade, and the construction of CityPlace. The presence of these developments in conjunction with the proposed subject property is elevating the competitive standard and should allow for average rate growth for existing hotels in the market. Since the subject is conveniently located adjacent to the convention center and will be considered a headquarters hotel, the subject’s ADR will be appropriately positioned at a premium over the market. Moreover, the shift in the caliber of these developments is also expected to support further upgrades in the retail and restaurant sectors.

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

Smith Travel Research (STR) is an independent research firm that compiles and publishes data on the lodging industry, routinely used by typical hotel buyers. Figure 4‐1 presents annual hotel occupancy and average rate data since 1987. Information that is more recent is presented in Figures 4‐2, which is categorized by geography, price point, type of location, and chain scale. The statistics include occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 32

FIGURE 4‐1 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS

70.0% $120 - $100 - - 65.0% 7 -v $80 ~------\, - - / - - ~, - - 60.0% - _ .... ; v"__ $60 ------f\ - ...... - .., 7 55.0% - - - .... ------$40 .... ------50.0% $20 ------

$0 45.0% 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

RevPAR Average Rate Occupancy

Source: STR

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 33

FIGURE 4‐2 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS – CALENDAR YEAR 2011

Occupancy ‐ Thru April Average Rate ‐ Thru April RevPAR ‐ Thru April

2011 2012 % Change 20112012 % Change 2011 2012 % Change United States 56.3 % 58.0 % 3.1 % $99.90 $104.13 4.2 % $56.20 $60.41 7.5 % Region New England 50.9 % 52.1 % 2.4 % $107.23 $112.77 5.2 % $54.56 $58.77 7.7 % Middle Atlantic 56.7 58.2 2.7 130.71 136.27 4.3 74.05 79.30 7.1 South Atlantic 59.6 61.3 2.8 103.87 107.49 3.5 61.95 65.91 6.4 East North Central 48.7 51.3 5.3 81.52 86.11 5.6 39.74 44.21 11.3 East South Central 51.6 54.0 4.6 75.26 77.52 3.0 38.85 41.84 7.7 West North Central 48.4 50.3 3.8 77.36 80.50 4.1 37.46 40.45 8.0 West South Central 57.4 60.2 4.7 86.69 90.07 3.9 49.79 54.18 8.8 Mountain 57.2 57.0 (0.4) 98.53 102.76 4.3 56.39 58.56 3.8 Pacific 61.6 63.6 3.2 115.22 121.44 5.4 70.99 77.23 8.8 Price Luxury 67.0 % 68.9 % 2.9 % $167.40 $173.72 3.8 % $112.10 $119.66 6.7 % Upscale 59.6 61.5 3.3 121.42 125.55 3.4 72.34 77.25 6.8 Midprice 56.5 58.4 3.4 93.98 97.45 3.7 53.12 56.94 7.2 Economy 49.8 51.5 3.4 69.49 72.43 4.2 34.59 37.29 7.8 Budget 51.2 52.4 2.2 51.77 54.46 5.2 26.53 28.52 7.5 Location Urban 63.5 % 65.9 % 3.9 % $137.45 $144.00 4.8 % $87.25 $94.94 8.8 % Suburban 56.9 58.5 2.9 84.65 88.07 4.0 48.18 51.56 7.0 Airport 65.1 66.2 1.6 91.00 94.41 3.7 59.28 62.47 5.4 Interstate 47.7 50.1 4.9 68.36 70.85 3.6 32.63 35.46 8.7 Resort 62.0 63.5 2.4 143.61 150.57 4.8 88.99 95.57 7.4 Small Metro/Town 46.9 48.4 3.3 77.50 80.03 3.3 36.34 38.75 6.6 Chain Scale Luxury 69.7 % 72.4 % 3.9 % $261.62 $274.24 4.8 % $182.27 $198.55 8.9 % Upper Upscale 67.0 69.1 3.1 146.86 152.84 4.1 98.42 105.64 7.3 Upscale 66.8 68.7 2.8 110.15 114.89 4.3 73.60 78.91 7.2 Upper Midscale 56.8 58.9 3.7 90.67 93.92 3.6 51.52 55.32 7.4 Midscale 49.0 50.7 3.4 70.06 71.40 1.9 34.33 36.20 5.4 Economy 49.7 50.6 1.7 47.49 49.46 4.1 23.62 25.01 5.9 Independents 52.9 54.4 3.0 98.63 102.68 4.1 52.13 55.89 7.2

Source: STR ‐ April 2012 Lodging Review

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 34

Historical Supply Smith Travel Research (STR) is an independent research firm that compiles and and Demand Data publishes data on the lodging industry, routinely used by typical hotel buyers. At our request, STR has compiled historical supply and demand data for a select group of hotels considered in this analysis. This information is presented in the following table, along with the market‐wide occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 35

FIGURE 4‐3 HISTORICAL SUPPLY AND DEMAND TRENDS

Total 1,638 Source: STR Global

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 36

FIGURE 4‐4 HISTORICAL SUPPLY AND DEMAND GRAPH

700,000 100 600,000 90 % 500,000 -- 80 ~ ... Nights 400,000 -- ~ 70 - r-- ...._ r- ~ - - IE"" - ~ ... 300,000 = - - - ..... --- 60

- - - - Occupancy Room 200,000 ...... _ -- ...._ --- .... 50 ...._ - - - ...._ - 100,000 .... -- - - >- --- >- - 40 0 .... -4 -+ -4 -+ 30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Room Supply Room Demand Occupancy - Source: STR Global

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

A review of the preceding STR Trend reveals the following analysis:

Marketwide Supply

Marketwide supply has grown by an average annual compounded rate of 3.1% between 2000 and 2011. Following the active hurricane seasons in years 2004 and 2005, which forced many hotels in the area to close for repairs, marketwide supply increased with the openings of the 100‐room Hilton Garden Inn in 2007 and the 165‐room Hyatt Place Downtown in early 2009. Since then, there have been no new additions to the competitive market, excluding the conversion of the former 219‐room Crowne Plaza into the 194‐room Embassy Suites.

Supply growth is anticipated to be limited in the near term, as there is no new hotel development currently under construction and financing remains difficult to obtain for new hotel projects.

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 37

Marketwide Demand and Occupancy

Considering the impact of the hurricanes that struck the region mid‐decade, marketwide demand was somewhat skewed given the amount of emergency personnel, insurance adjusters, and displaced guests and residents that required hotel accommodations for shelter and refuge. While many hotels were forced to close for repairs, the majority of the subject market not only weathered the hurricanes with minimal damage, but also benefitted from the need for lodging facilities. As a result, marketwide demand was artificially inflated in the late 2004 and early 2005. After marketwide dynamics “reset” and most hotels completed repairs associated with hurricane damages, the marketwide occupancy was recorded at 69.7% in 2006. Supported by burgeoning economic conditions, marketwide demand grew by an additional 12.6% in 2007, considerably outpacing supply growth (7.2%) attributed to the opening of the Hilton Garden Inn.

Due to the impact of the latest recession, marketwide demand decreased by ‐3.1% in 2008 and was essentially flat in 2009. Such trends translated into occupancy falling to 64.8% in 2009, which was also influenced by the opening of the Hyatt Place to the competitive market. However, marketwide demand rebounded strongly in 2010, increasing by 7.6% due in part by the resurgence of corporate demand and increased international travel. In fact, marketwide demand recorded a record‐breaking year in 2010, in terms of the amount of occupied room nights. This upward trend continued into 2011, as marketwide demand increased an additional 2.6%. Marketwide demand has experienced strong growth in the past two years and, as such, marketwide occupancy is not anticipated to grow at such potent growth rates (i.e. year 2010). As the economic recovery intensifies, occupancy is anticipated to stabilize while local hotel operators turn their focus toward average rate growth.

Marketwide Average Rate and RevPAR

Since 2006, the marketwide ADR has illustrated a downward trend, recording five consecutive years of ADR declines from 2006 to 2010. The hurricane activity that occurred mid‐decade displaced a lot of lower‐rated contract business in the marketplace, causing the marketwide ADR to skyrocket to artificial levels. After the marketwide ADR peaked at $134.63 in 2005, average rates plummeted with steady decreases recorded in years 2006 (‐2.6%) and 2007 (‐1.3%), and more notable declines registered in years 2008 (‐3.9%) and 2009 (‐18.0%). In 2010, the marketwide ADR bottomed out at $95.64. A strong demand recovery in the marketplace led to a 2.4% jump in marketwide ADR in 2011, as continued occupancy increases and more aggressive yield‐management strategies allowed local hotel operators to increase average rates.

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 38

Changes observed in marketwide RevPAR are reflective of the previously discussed changes in marketwide occupancy and average rate.

Seasonality The subject market is subject to some degree of seasonality, due to strong demand during the winter months.

Monthly occupancy and average rate trends are presented in the following tables.

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 39

FIGURE 4‐5 MONTHLY OCCUPANCY TRENDS

Month 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 January 66.3 % 75.4 % 67.9 % 76.2 % 72.0 % 85.4 % 68.8 % 77.7 % 80.9 % 77.5 % 76.8 % 80.1 % 82.1 % February 81.9 85.1 79.0 88.7 79.5 93.6 85.8 85.6 84.2 74.5 88.2 87.9 87.2 March 83.7 87.6 73.6 86.3 80.6 88.9 85.8 90.1 87.6 79.2 86.1 89.9 89.9 April 68.0 65.6 62.8 72.8 71.5 79.5 71.3 79.7 77.0 73.6 79.1 80.9 80.3 May 59.1 63.4 55.2 58.8 61.3 68.8 69.9 72.2 67.2 61.0 63.2 68.8 73.8 June 67.4 69.6 65.5 67.9 65.9 70.2 73.8 73.7 71.3 63.9 64.7 71.2 — July 59.8 62.4 56.9 55.0 61.8 65.3 59.5 61.8 62.3 54.2 63.6 58.1 — August 53.0 59.3 59.1 58.9 62.5 66.7 60.4 68.1 63.2 59.6 64.1 58.9 — September 57.9 46.3 46.9 50.1 75.3 55.5 54.3 61.4 49.5 46.7 48.3 51.9 — October 57.1 59.7 59.4 61.7 83.8 55.6 63.3 66.3 67.9 56.3 59.5 67.7 — November 75.9 66.8 66.9 64.1 89.5 76.6 75.6 74.6 74.6 67.1 66.8 68.6 — December 60.9 59.1 67.4 61.4 69.8 66.8 69.5 69.0 67.4 65.9 70.3 68.2 — Annual Occupancy 65.8 % 66.3 % 63.3 % 66.7 % 71.8 % 72.5 % 69.7 % 73.3 % 71.0 % 64.8 % 69.1 % 70.9 % — Year‐to‐Date 71.6 75.3 67.5 76.3 72.9 83.1 76.2 % 81.0 % 79.3 % 73.0 % 78.5 % 81.4 % 82.6 % Source: STR Global

FIGURE 4‐6 MONTHLY AVERAGE RATE TRENDS

Month 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 January $95.44 $101.54 $98.85 $96.78 $100.45 $146.77 $171.80 $162.02 $166.89 $134.12 $114.83 $113.17 $125.14 February 98.35 110.83 105.43 103.14 108.18 172.24 186.87 188.79 182.17 139.30 125.67 124.46 137.02 March 99.05 106.70 102.53 100.16 108.98 175.83 179.06 177.32 178.17 130.97 117.33 123.73 134.89 April 83.95 86.93 84.93 85.04 94.37 156.46 146.89 131.38 133.30 112.41 97.79 104.82 113.83 May 72.44 75.20 74.82 74.04 81.19 114.52 112.48 112.18 109.26 91.84 87.15 87.88 96.88 June 66.03 67.69 67.51 69.26 76.37 98.76 102.66 101.58 100.38 87.18 82.01 87.04 — July 63.80 68.09 66.86 67.00 74.98 96.92 100.49 100.46 97.19 81.87 82.68 82.24 — August 67.53 72.23 63.63 66.43 75.36 101.69 98.63 99.00 92.91 82.46 85.43 81.40 — September 70.31 70.27 68.21 73.36 98.70 103.69 100.52 103.88 95.41 85.03 81.78 81.97 — October 77.60 65.65 73.70 75.71 105.47 131.82 111.73 113.82 96.96 87.52 83.89 88.22 — November 81.98 72.35 71.88 75.25 110.49 147.49 116.62 117.41 99.05 84.24 84.36 88.16 — December 73.45 69.43 69.39 76.97 107.74 129.88 112.55 113.90 97.91 83.40 82.07 86.52 — Annual Average Rate $80.40 $82.19 $80.14 $82.03 $95.31 $134.63 $131.14 $129.43 $124.37 $102.04 $95.64 $97.90 — Year‐to‐Date $90.86 $97.64 $94.49 $93.12 $99.44 $154.84 $160.82 $155.65 $155.96 $122.57 $109.66 $111.79 $122.27

Source: STR Global

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 40

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

Patterns of Demand A review of the trends in occupancy, average rate, and RevPAR by the night of the week over the past three fiscal years provides some insight into the impact that the current economic conditions have had on the competitive lodging market. The data, as provided by Smith Travel Research, are illustrated in the following table.

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FIGURE 4‐7 OCCUPANCY, AVERAGE RATE AND REVPAR BY DAY OF WEEK

Occupancy (%) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year

Jun 09 ‐ May 10 52.2 % 62.9 % 69.9 % 70.7 % 71.0 % 71.1 % 72.3 % 67.1 % Jun 10 ‐ May 11 55.8 66.0 73.1 74.4 73.6 73.4 75.8 70.3 Jun 11 ‐ May 12 57.6 67.2 73.8 76.1 74.6 73.3 76.4 71.3 Change (Occupancy Points) FY 09 ‐ FY 10 3.5 3.1 3.2 3.7 2.7 2.3 3.6 3.2 FY 10 ‐ FY 11 1.8 1.2 0.8 1.6 1.0 ‐0.1 0.6 1.0

ADR ($) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year

Jun 09 ‐ May 10 $93.99 $99.52 $100.98 $100.83 $96.99 $92.17 $92.03 $96.68 Jun 10 ‐ May 11 93.11 98.09 100.44 101.64 98.49 92.94 92.78 96.90 Jun 11 ‐ May 12 99.46 104.39 105.99 106.43 103.75 99.76 99.57 102.87 Change (Dollars) FY 09 ‐ FY 10 ‐$0.87 ‐$1.43 ‐$0.54 $0.82 $1.49 $0.77 $0.75 $0.22 FY 10 ‐ FY 11 6.35 6.30 5.55 4.78 5.26 6.82 6.78 5.97 Change (Percent) FY 09 ‐ FY 10 ‐0.9 % ‐1.4 % ‐0.5 % 0.8 % 1.5 % 0.8 % 0.8 % 0.2 % FY 10 ‐ FY 11 6.8 6.4 5.5 4.7 5.3 7.3 7.3 6.2

RevPAR ($) Sunday MondayTuesday Wednesday Thursday Friday Saturday Total Year

Jun 09 ‐ May 10 $49.10 $62.58 $70.56 $71.28 $68.85 $65.50 $66.51 $64.90 Jun 10 ‐ May 11 51.93 64.75 73.41 75.66 72.53 68.20 70.35 68.13 Jun 11 ‐ May 12 57.31 70.17 78.26 80.95 77.40 73.13 76.05 73.36 Change (Dollars) FY 09 ‐ FY 10 $2.82 $2.17 $2.85 $4.38 $3.68 $2.70 $3.84 $3.23 FY 10 ‐ FY 11 5.38 5.42 4.86 5.30 4.87 4.93 5.70 5.23 Change (Percent) FY 09 ‐ FY 10 5.8 % 3.5 % 4.0 % 6.1 % 5.3 % 4.1 % 5.8 % 5.0 % FY 10 ‐ FY 11 10.4 8.4 6.6 7.0 6.7 7.2 8.1 7.7

Source: STR Global

Similar to most markets, the subject market area benefits from individual business travelers and corporate groups from Monday through Thursday nights. Leisure travelers and non‐business‐related groups generate a majority of demand on Friday and Saturday nights.

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SUPPLY Based on an evaluation of the occupancy, rate structure, market orientation, chain affiliation, location, facilities, amenities, reputation, and quality of the area’s hotel, as well as the comments of management representatives, we expect the Marriott West Palm Beach to be primarily competitive with the proposed Hilton Convention Center Hotel. Nine additional hotels are judged to be only secondarily competitive; although the facilities, rate structures, and location of these hotels prevent their inclusion among the primarily competitive supply, they are expected to compete with the proposed subject property to some extent. The room count of each secondary competitor has been weighted to reflect the degree to which it will compete with the proposed Hilton Convention Center Hotel, the aggregate weighted room count of the secondary competitors is 715.

The table on the following page summarizes the important operating characteristics of the future primary competitor and the aggregate secondary competitors. This information was compiled from personal interviews, inspections, and our in‐house library of operating data. The table also sets forth each property’s penetration factors; penetration is the ratio between a specific hotel’s operating results and the corresponding data for the market. If the penetration factor is greater than 100%, the property is performing better than the market as a whole; conversely, if the penetration is less than 100%, the hotel is performing at a level below the market‐wide average.

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FIGURE 4‐8 COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2009 Estimated 2010 Estimated 2011

l d Weighted Weighted Weighted a n i a c p r t g Annual Annual Annual u e c n e o a i r m t r r Number u t Room Average Room Average Room Average RevPAR Occupancy Yield e G m s n e i o e o Propertyof Rooms C M L C Count Occ.Rate RevPARCount Occ.Rate RevPARCount Occ. Rate RevPAR Change Penetration Penetration

Marriott West Palm Beach 352 45 % 35 % 15 % 5 % 352 72 % $122.00 $87.84 352 74 % $110.00 $81.40 352 75 % $117.00 $87.52 7.5 % 106.7 % 127.6 %

Sub‐Totals/Averages 352 45 % 35 % 15 % 5 % 352 72.0 % $122.00 $87.84 352 74.0 % $110.00 $81.40 352 74.8 % $117.00 $87.52 7.5 % 106.7 % 127.6 %

Secondary Competitors 1,869 45 % 26 % 18 % 11 % 749 64.5 % $93.67 $60.38 753 64.1 % $87.96 $56.40 715 67.8 % $87.40 $59.24 5.0 % 96.7 % 86.4 %

Totals/Averages 2,221 45 % 29 % 17 % 9 % 1,101 66.9 % $103.42 $69.16 1,105 67.3 % $95.69 $64.37 1,067 70.1 % $97.82 $68.57 6.5 % 100.0 % 100.0 %

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

MAP OF COMPETITION

A /antic

0 c e a n

Our survey of the primarily and secondarily competitive hotels in the local market shows a range of lodging types and facilities. Each competitor was inspected and evaluated. Descriptions of our findings are presented below.

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PRIMARY COMPETITOR #1 ‐ MARRIOTT WEST PALM BEACH

Marriott West Palm FIGURE 4‐9 ESTIMATED HISTORICAL OPERATING STATISTICS Beach 101 Okeechobee Wtd. Annual Average Occupancy Yield Boulevard Year Room Count Occupancy Rate RevPAR Penetration Penetration West Palm Beach, FL Estimated 2009 352 72 % $122 $88 107.7 % 127.0 % Estimated 2010 352 74 110 81 110.0 126.5 Estimated 2011 352 75 117 88 128.2 147.6

The Marriott West Palm Beach was originally constructed in 1981 as a Sheraton Hotel. The property underwent an $18‐million renovation and conversion in 2004, when the Marriott Family Trust purchased the hotel; it is one of the last remaining hotels that is both corporately owned and operated. Facilities include the Bistro Ten Zero One restaurant and lounge, a Starbucks kiosk, an outdoor pool and whirlpool, a fitness center, a business center, a gift shop, and approximately 18,000 square feet of meeting space. The hotel is currently the largest in the market with 352 rooms, and its extensive meeting and banquet space, along with aggressive group marketing and skilled management, makes this property the most competitive product in the meeting and convention market. The property was last renovated in 2008; upgrades included a new bedding package, select guestroom furniture, and new carpet. Renovations to the restaurant included new furniture, tile flooring, and décor. This hotel benefits from its location near Interstate 95, CityPlace, and the Clematis District, enabling it to attract a sizable

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amount of weekend leisure demand along with a high level of commercial patronage. Renovations for this hotel are planned in 2012, and it should remain as the meeting and convention leader in the near term. Overall, the property appeared to be in very good condition. Its accessibility is similar to that of the subject site, and its visibility is similar to the expected visibility of the proposed Hilton Convention Center Hotel.

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Secondary We have considered nine other hotels that are anticipated to compete with the Competitors proposed Hilton Convention Center Hotel on a secondary level. It is important to note that while these hotels may compete with the proposed subject property to some extent, their existence will also aid in attracting citywide events that require a large amount of hotel inventory to accommodate out of town event attendees.

The secondary competitors were deemed less competitive due to differences in room count, facilities, location, amenities, rate structure, and market orientation. Considering these factors, we have assigned each secondary competitor a percentage of competitiveness that expresses the extent to which it may compete with the proposed subject property. The table on the following page sets forth the pertinent operating characteristics of the secondary competitors.

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FIGURE 4‐10 SECONDARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2009 Estimated 2010 Estimated 2011

Crowne Plaza/Embassy Suites 219 40 % 35 % 20 % 5 % 70 % 153 72 % $89.00 $64.08 153 71 % $84.00 $59.64 116 75 % $85.00 $63.75 Holiday Inn Palm Beach Airport 199 40 20 20 20 60 119 62 86.00 53.32 119 57 74.00 42.18 119 61 74.00 45.44 Doubletree Palm Beach Gardens 279 55 35 10 0 50 140 67 96.00 64.32 140 63 86.00 54.18 140 68 80.00 54.40 Marriott Palm Beach Gardens 279 40 30 30 0 40 112 69 99.00 68.31 112 66 97.00 64.02 112 69 98.00 67.62 Hilton Palm Beach Airport 245 35 25 5 35 30 74 68 98.00 66.64 74 72 90.00 64.80 74 74 91.03 67.54 Doubletree West Palm Beach Airport 175 40 15 15 30 30 53 55 98.00 53.90 53 59 86.00 50.74 53 68 79.84 54.13 Hyatt Place Downtown West Palm Beach 165 70 5 25 0 25 37 52 91.00 47.32 41 73 110.00 80.30 41 80 116.00 92.80 Hilton Garden Inn West Palm Beach 100 60 10 15 15 20 37 69 113.00 77.97 20 69 110.00 75.90 20 69 106.00 73.14 Courtyard West Palm Beach Airport 103 50 15 10 25 20 21 75 95.00 71.25 21 75 89.00 66.75 21 71 89.00 63.19 Hampton Inn West Palm Beach 105 65 5 20 10 20 21 67 104.00 69.68 21 70 99.00 69.30 21 72 99.32 71.31

Totals/Averages 1,869 45 % 26 % 18 % 11 % 40 % 749 64.5 % $93.67 $60.38 753 64.1 % $87.96 $56.40 715 67.8 % $87.40 $59.24

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Embassy Suites West The Embassy Suites West Palm Beach is a recently converted convention‐oriented Palm Beach Central hotel that competes with the Marriott for commercial and meeting and group patronage. The hotel features 194 rooms, an atrium restaurant and lounge, 18,000 square feet of meeting space, a heated outdoor pool, an outdoor whirlpool and dry sauna, tennis courts, a fitness center, a business center, and complimentary wireless Internet access throughout the hotel. Constructed in 1983, this property converted from a Crowne Plaza and reopened as an Embassy Suites on January 9, 2012, after undergoing a $7 million renovation. RLJ Real Estate Fund purchased the hotel from Lone Star Real Estate Fund in the summer of 2011, and implemented Windsor Hospitality Group as the hotel operator. Highlights of the renovation include larger two‐bedroom suites, which consequently lowered the room count from 219 guestrooms to 194 guestrooms; upgrades to the atrium lobby and public spaces with a new front desk, business center, sundry shop, buffet line, and a lobby water feature. The exterior facade was refreshed and the porte cochere was updated.

The Embassy Suites is expected to target a market mix similar to that of the Marriott (i.e., strong meeting and group, solid commercial, good leisure, and minimal contract). As a result, the Embassy Suites is expected to stabilize at a higher ADR than that of the Marriott due to its updated facilities, smaller room count, and all‐suite configuration which tends to attract higher rated commercial demand. We have weighted the projected Embassy Suites hotel as 70% competitive with the proposed subject hotel, which was lowered due to its location in the airport sub‐market and all‐suite product offering.

Holiday Inn/Possible Phillips Palm Beach Incorporated, an affiliate of the Phillips family who owns Conversion into a Phillips Seafood Restaurants and Phillips Foods brands, owns the Holiday Inn. Sheraton Hotel Marshall Management formerly operated the property, but as of February 2011, Chesapeake Hospitality Group signed an agreement to operate the 199‐room airport conference hotel. Area hotel operators predict that the Holiday Inn will undergo a brand conversion to a Sheraton Hotel, as this is one of Chesapeake's preferred brands and there are no Starwood affiliated hotels currently operating in the competitive market. Facilities at this property include Polly's restaurant and lounge, an outdoor pool, a sauna, an exercise room, a business center, and approximately 6,500 square feet of meeting space. The hotel, which was built in 1987, was renovated in 2007; upgrades included a new bedding package and select guestroom case goods and soft goods. The Holiday Inn also underwent significant renovations and repairs due to hurricane damage sustained in 2004 and 2005. As the lowest‐rated full‐service hotel in the market, the Holiday Inn captures a significant amount of leisure demand from more price‐sensitive travelers seeking full‐service accommodations. The hotel is well maintained and

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its market penetrations are expected to continue at similar levels. The projected Sheraton Hotel conversion will compete with the proposed subject property by virtue of its newer facilities and commercial‐oriented product, which will also cater to meeting and group demand. Assuming the Holiday Inn undergoes a renovation to reposition the asset as a Sheraton affiliated hotel, we have weighted the property as 60% competitive due to its smaller room count and meeting space.

Doubletree Palm Beach Although the Doubletree Palm Beach Gardens is located in a different submarket, Gardens the hotel is expected to compete with the proposed subject hotel on the basis of its market orientation and upscale executive center and meeting space. The 279‐room property features a brand new business center and state‐of‐the‐art fitness center, a restaurant and two lounges, a Starbuck’s grab‐and‐go counter, a heated outdoor swimming pool and whirlpool, and over 10,000 square feet of meeting space. This hotel is the host of the St. Louis Cardinals Minor League team, which produces 30 to 70 rooms per night for ten months. Due to the property’s updated facilities, executive meeting center, and shared Hilton affiliation, we have weighted this hotel as 50% competitive with the proposed Hilton Convention Center Hotel. Its location in Palm Beach Gardens prevents a higher competitive weighting.

Marriott Palm Beach The 279‐room Marriott Palm Beach Gardens competes with the proposed subject Gardens hotel based on its market orientation and extensive meeting space. The property features a fitness center, a restaurant bar and lobby lounge, a nightclub, an outdoor swimming pool, and a Starbuck’s grab‐and‐go counter. Its location over nine miles away prevents its inclusion among the primarily competitive set, and therefore, has been weighted at a 40% competitive level.

Hilton Palm Beach The Hilton is owned and operated by Palm Beach County Lessor LLC. Facilities Airport include the Veranda Restaurant and the Lakeside Grill, an outdoor pool and whirlpool, two tennis courts, a fitness center, a business center, a gift shop, and roughly 10,000 square feet of meeting space. The hotel, which was built in 1984, was renovated in 2005 as a result of hurricane damage; upgrades included new carpet throughout the hotel, as well as the replacement of select furniture and wall vinyl. The Hilton serves the Palm Beach International Airport due to its nearby location and larger rooms inventory; as a result, it captures a lot of contract demand from airline passenger crews and lower rated commercial and meeting and group demand. The hotel’s market mix reflects strong contract demand, and lower rated meeting and group and commercial‐related demand. It is evident in the hotel’s ADR that the property’s yield management strategy places a premium on occupied room nights rather than ADR growth. The market penetrations presently achieved by the Hilton Palm Beach Airport hotel are expected to continue at similar levels into the future, and as such, has been weighted as 30% competitive in our analysis.

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Doubletree West Palm The Doubletree West Palm Beach is a commercially oriented property that opened Beach in 1987 as a Radisson Hotel, and then underwent a $5‐million renovation in 2008 to convert to a Doubletree branded hotel; upgrades included new guestroom soft goods, select case goods, and a new bedding package, as well as a refresh of the public areas and meeting space. Facilities include Gecko's restaurant and lounge, an outdoor pool, a fitness center, a business center, a sundries counter, and roughly 2,100 square feet of meeting space. Although the property was recently renovated, the hotel has averaged the lowest RevPAR penetration since 2008. The hotel offers little meeting space (2,102 square feet), rendering it somewhat uncompetitive in the meeting and convention segments, but it does attract rate‐ sensitive commercial demand. Due to its market orientation towards lower rated commercial and contract demand and its below‐average operating results; we have weighted the Doubletree as 30% competitive in our analysis.

Hyatt Place Downtown The Hyatt Place opened in February 2009, achieving an immediate penetration of West Palm Beach all market segments, with particular strength demonstrated in the commercial and leisure markets. Its excellent location in the heart of Downtown West Palm Beach, strong management, and market acceptance as an upscale, select‐service product should make it the RevPAR leader among the other select‐service hotels in the competitive market. With only three years of operating history and gradually improving lodging fundamentals, the Hyatt Place has not yet achieved a stabilized level of competitiveness. Gains are expected in all three market segments. Although the Hyatt Place is located less than one mile from the subject site, its select‐service product offering prevents its inclusion among the primarily competitive set. As such, we have weighted the hotel as 25% competitive with the proposed Hilton Convention Center Hotel.

Hilton Garden Inn West The 100‐room Hilton Garden Inn is owned and operated by Green Park Palm Beach Management LLC, an affiliate of RLJ Development. The property, which opened in 2007, features a stylish pool area for its product type. Other facilities include a full‐ service restaurant and lounge, a market pantry, a business center, a fitness center, and approximately 750 square feet of meeting space. The hotel benefits from updated facilities and a market orientation that caters to leisure travelers, which is reflected in the property’s ADR penetration. In the last three years, the Hilton Garden Inn has achieved the highest ADR among the primarily competitive set; however, year‐to‐date statistics show that the Hyatt Place has usurped the Hilton Garden Inn in both occupancy and ADR penetration. Due to its inferior location by the airport, the Hilton Garden Inn should undercut the Hyatt Place in room rate, capturing the more price‐sensitive travelers, particularly in the leisure segment. The Hilton Garden Inn’s lack of meeting space and location near the airport result in a competitive weighting of 20%.

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Courtyard West Palm The 103‐room Courtyard by Marriott is owned by 1A Lodging West Palm Beach Beach Centre Park TRS, LLC, and is operated by Concord Hospitality. The property is located approximately five miles south of the subject site. Facilities include a light‐ fare restaurant serving breakfast, lunch and dinner, an outdoor pool and whirlpool, an exercise room, and approximately 1,274 square feet of meeting space. The hotel, which was built in 2001, was renovated in 2011; upgrades included new guestroom soft goods, select case goods, and a redevelopment of the lobby spaces to reflect the Courtyard brand’s Refreshing Business Concept. The entrance of the Hilton Garden Inn and Hyatt Place hotels to the competitive market has caused the Courtyard to lose market share since 2007. The market mix of the Courtyard is similar to that of the Hilton Garden Inn and Hyatt Place, but at a lower ADR due to its location inside an office park. We have weighted the Courtyard at a 20% competitive level.

Hampton Inn West The 105‐room Hampton Inn is located side‐by‐side to the Hilton Garden Inn, and is Palm Beach also owned and operated by Green Park Management LLC, an affiliate of RLJ Development. Facilities include a breakfast dining area (a complimentary hot breakfast is served), an outdoor pool, an exercise room, and approximately 1,000 square feet of meeting space. The hotel, which was built in 2004, was renovated in 2006; upgrades included new guestroom soft goods. This hotel employs a sound yield‐management strategy that targets commercial‐related business and group demand, which is evidenced in the property's above market‐average yield penetration rate. Due to its relatively older facilities, the Hampton Inn is expected to be less competitive than the Hyatt Place and Hilton Garden Inn for meeting and group business and leisure demand, and almost as competitive in the commercial segment. As such, we have weighted this hotel at a 20% competitive level.

Supply Changes In addition to these existing hotels, there are two (including the proposed subject property) proposed hotels planned for the market: (1) the 400‐room proposed Hilton Convention Center Hotel and (2) the 150‐room proposed aloft Hotel in Downtown West Palm Beach. New supply considered in our analysis is presented in the following table.

FIGURE 4‐11 NEW SUPPLY

Total Weighted Number Competitive Room Estimated Proposed Property of Rooms Level Count Opening Date Development Stage

Hilton Convention Center Hotel 400 100 % 400 April 1, 2015 Early Development Proposed aLoft Downtown West Palm Beach 150 25 38 January 1, 2015 Seeking Financing

Totals/Averages 550 438

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The proposed aLoft Hotel will be located approximately one mile northwest of the subject site in Downtown West Palm Beach. It will be the second (depending if the Holiday Inn converts to a Sheraton Hotel) Starwood product in the marketplace. It is expected to open January 1, 2015, and will cater to the commercial traveler and the rate‐sensitive weekend leisure patronage. Meeting space will be limited, so its competiveness in this segment is anticipated to be minimal. The proposed aLoft has building plans that look attractive, but the property will have an inferior location near the redevelopment areas of Downtown West Palm Beach. Based on this competitive analysis, the proposed aloft Hotel should be slightly less competitive than the nearby Hyatt Place for commercial‐related patrons. Its competitiveness in the leisure segment is expected to be just below the Hilton Garden Inn, which is also a relatively new property with limited meeting space. Therefore, the proposed hotel has been weighted at a total competitive level of 25%.

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

Supply Conclusion We have identified various properties that are expected to be competitive to some degree with the proposed subject property. We have also investigated potential increases in competitive supply in this West Palm Beach submarket. The Hilton Convention Center Hotel should enter a dynamic market of varying product types and price points. Next, we will present our forecast for demand change, using the historical supply data presented as a starting point.

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

July‐2012 Supply and Demand Analysis Hilton Convention Center Hotel – West Palm Beach, Florida 54

FIGURE 4‐12 HISTORICAL MARKET TRENDS

Accommodated Room Nights Market Market Year Room Nights % Change Available % Change Occupancy Market ADR % Change RevPAR % Change Est. 2009 268,670 — 401,754 — 66.9 % $103.42 — $69.16 — Est. 2010 271,224 1.0 % 403,197 0.4 % 67.3 95.69 (7.5) % 64.37 (6.9) % Est. 2011 272,965 0.6 389,400 (3.4) 70.1 97.82 2.2 68.57 6.5

Avg. Annual Compounded Chg., Est. 2009‐Est. 2011: 0.8 % (1.5) % (2.7) % (0.4) %

Demand Analysis For the purpose of demand analysis, the overall market is divided into individual Using Market segments based on the nature of travel. Based on our fieldwork, area analysis, and Segmentation knowledge of the local lodging market, we estimate the 2011 distribution of accommodated‐room‐night demand as follows.

FIGURE 4‐13 ACCOMMODATED ROOM NIGHT DEMAND

Marketwide Accommodated Percentage Market Segment Demand of Total

Commercial 123,710 45 % Meeting and Group 79,203 29 Leisure 45,572 17 Contract 24,480 9

Total 272,965 100 %

The market’s demand mix is weighted most heavily toward commercial demand, with this segment representing roughly 45% of the accommodated room nights in this West Palm Beach submarket. The other segments consist of meeting and group at 29%, leisure at 17%, and contract at 9% of room night demand.

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

Commercial Segment Over the last five years, the commercial segment has grown considerably in the West Palm Beach market, garnering a larger percentage of total accommodated room night demand than in previous years. Numerous office parks, as well as the

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city's Central Business District, are located close to the airport and house a diversified group of commercial entities such as CEMEX, AT&T, and Office Depot. These corporations encompass a multitude of business sectors, which should fuel growth of the commercial segment into the future. Considering both current and historical trends, we project demand growth rates of 4.0% in 2012, 2.0% in 2013, and 2.0% in 2014. After these first three projection years, we have forecast demand growth rates of 5.0% in years 2015 and 2016.

Meeting and Group The meeting and group market includes meetings, seminars, conventions, trade Segment association shows, and similar gatherings of ten or more people. Peak convention demand typically occurs in the spring and fall. Although there are numerous classifications within the meeting and group segment, the primary categories considered in this analysis are corporate groups, associations, and SMERFE (social, military, ethnic, religious, fraternal, and educational) groups. Corporate groups typically meet during the business week most commonly in the spring and fall months. These groups tend to be the most profitable for hotels, as they typically pay higher rates and usually generate ancillary revenues including food, beverage and banquet revenue. SMERFE groups are typically price‐sensitive and tend to meet on weekends and/or during the summer months or holiday season, when greater discounts are usually available. These groups generate limited ancillary revenues. The profile and revenue potential of associations varies depending on the group and the purpose of their meeting or event.

Meeting and group demand in this market is highly driven by the local corporate entities in this area and regional/national associations in the southeastern US. As such, the high concentration of commercial and professional services firms is expected to continue to bolster group room‐block needs locally. Growth in the corporate meetings market is contingent on the strength of the US and local economies, and the amount of meeting volume is driven by local corporations. Association meetings are drawn to this market from local, regional, and national organizations that desire a warm, leisure destination near the ocean in which to hold their events. Furthermore, a large portion of meeting and group demand in the market is associated with SMERFE‐related sources. This market receives "spillover" demand from Palm Beach, which is a first‐class destination for weddings and upscale social events. We expect strong growth to occur in this segment in 2012 and beyond, as the economy stabilizes and convention activity strengthens.

Considering both current and historical trends, we project demand growth rates of 4.0% in 2012, 2.0% in 2013, and 2.0% in 2014. After these first three projection years, we have forecast demand growth rates of 12.0% in 2015 and 9.0% in 2016.

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Leisure Segment Leisure demand consists of individuals and families spending time in an area or passing through en route to other destinations. Travel purposes include sightseeing, recreation, or visiting friends and relatives. Leisure demand also includes room nights booked through Internet sites such as Expedia, hotels.com, and Priceline; however, leisure may not be the purpose of the stay. This demand may also include business travelers and group and convention attendees who use these channels to take advantage of any discounts that may be available on these sites. Leisure demand is strongest Friday and Saturday nights and all week during holiday periods and the summer months. These peak periods represent the inverse of commercial visitation trends, underscoring the stabilizing effect of capturing weekend and summer tourist travel. Future leisure demand is related to the overall economic health of the region and the nation. Trends showing changes in state and regional unemployment and disposable personal income correlate strongly with leisure travel levels.

Leisure demand in Palm Beach County is primarily generated by the popular beaches, sporting events, and upscale shopping venues, most notably the shores and shops located along Palm Beach. Palm Beach County features over 150 golf courses, 1,100 tennis courts, 47 miles of sandy beaches, and various water sports such as boating, fishing, sailing, and scuba diving. West Palm Beach benefits from leisure demand generated by weekend travelers visiting family and friends. This area draws both international and domestic demand throughout the year, especially among Free Independent Travelers (FIT). Bed tax revenues increased considerably in 2011 (up 9.7% in PBC), suggesting that the popularity of West Palm Beach as a leisure destination should continue to support the recovery of this segment in 2012 and beyond. The pace of recovery in the leisure segment will be influenced by trends in tourist expenditures, employment growth, and consumer spending.

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

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FIGURE 4‐14 AVERAGE ANNUAL COMPOUNDED MARKET SEGMENT GROWTH RATES

Annual Growth Rate Market Segment 2012 2013 2014 20152016 2017 2018

Commercial 4.0% 2.0% 2.0% 5.0% 5.0% 3.0% 3.0% Meeting and Group 4.0 2.0 2.0 12.0 9.0 3.0 3.0 Leisure 4 .0 2.0 2 .0 3.0 3.0 3.0 3.0 Contract 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Base Demand Growth 3.7% 1.9% 1.9% 6.4% 5.6% 2.8% 2.8%

Latent Demand A table presented earlier in this section illustrated the accommodated room night demand in the subject property’s competitive market. Because this estimate is based on historical occupancy levels, it includes only those hotel rooms that were used by guests. Latent demand reflects potential room night demand that has not been realized by the existing competitive supply; this type of demand can be divided into unaccommodated demand and induced demand. For the purposes of this report, we have only considered induced demand in our analysis.

Induced Demand Induced demand represents the additional room nights that are expected to be attracted to the market following the introduction of a new demand generator. The opening of the proposed Hilton Convention Center Hotel as the headquarter hotel for the PBC Convention Center is expected to induce room night demand for the West Palm Beach submarket.

HVS uses the term “induced” room night demand to mean only those room nights that are expected to be new to the West Palm Beach market because of the headquarters hotel. This analysis focuses on those overnight visits that would not occur in the West Palm Beach market without the proposed hotel.

To augment our understanding of potential demand that could be induced by the proposed Hilton Convention Center Hotel, the Palm Beach County CVB provided HVS an estimate of lost room night demand, which was extrapolated from their “lost business” reports. The CVB reported 134,169 lost room nights from 2003 to 2012 due to the following reasons:

• Lack of a headquarters hotel • No direct flights • Hotel room rates were too high • Insufficient hotel inventory to accommodate larger groups • Wanted a hotel/convention center that was “all under one roof” • Dates were not available

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It is important to note that the bulk of room nights lost over the illustrated period took place from 2007 to 2011, indicating there is pent up meeting and convention demand for the Greater West Palm Beach market. Furthermore, while the PBCCC would not capture all of these ‘lost demand groups’ even with a convention headquarters hotel, there are numerous meeting planners who did not consider West Palm Beach as a destination based on their own research and knowledge of the Greater West Palm Beach hotel market and Palm Beach County Convention Center. Thus, it is reasonable to assume that estimated induced demand is considerably higher than merely the lost demand estimate (134,169 room nights) from the CVB.

The following table summarizes our estimate of induced demand.

FIGURE 4‐15 HVS ESTIMATE OF INDUCED DEMAND WITH A HEADQUARTERS HOTEL

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Induced Room Night Demand 0 0 0 25,000 28,750 34,500 43,125 43,125 43,125 43,125 Room Night Growth 15% 20% 25% ‐‐‐

The above table illustrates HVS’ estimate of induced room night demand that the proposed Hilton Convention Center Hotel will generate for the Greater West Palm Beach market. Upon the proposed subject hotel’s opening, this is projected to be April 1, 2015, demand projections for the first year show an estimate of 25,000 room nights, increasing by 15% in 2016 to 28,750 room nights. In 2017, demand growth is projected to increase by 20% to 34,500 room nights, and then increasing by 25% upon stabilization in 2018/19, resulting in 43,125 room nights annually throughout the balance of the projection period.

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

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

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FIGURE 4‐16 FORECAST OF MARKET OCCUPANCY

2012 2013 2014 2015 2016 2017 2018 2019 Commercial Base Demand 128,658 131,231 133,856 140,549 147,576 152,003 156,564 161,260 Growth Rate 4.0% 2.0% 2.0% 5.0% 5.0% 3.0% 3.0% 3.0%

Meeting and Group Base Demand 82,372 84,019 85,699 95,983 104,622 107,761 110,993 114,323 Growth Rate 4.0% 2.0% 2.0% 12.0% 9.0% 3.0% 3.0% 3.0%

Leisure Base Demand 47,395 48,343 49,310 50,789 52,313 53,882 55,499 57,163 Growth Rate 4.0% 2.0% 2.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Contract Base Demand 24,725 24,972 25,222 25,474 25,729 25,986 26,246 26,508 Growth Rate 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Induced Demand Induced Demand 0 0 0 25,000 28,750 34,500 43,125 43,125 Growth Rate 0.0 % 0.0 % 0.0 % 0.0 % 15.0 % 20.0 % 25.0 % 0.0 %

Totals Base Demand 283,150 288,565 294,087 312,795 330,239 339,632 349,301 359,255 Induced Demand 0 0 0 25,000 28,750 34,500 43,125 43,125 Total Demand 283,150 288,565 294,087 337,795 358,989 374,132 392,426 402,380 less: Residual Demand 00000000 Total Accommodated Demand 283,150 288,565 294,087 337,795 358,989 374,132 392,426 402,380 Overall Demand Growth 3.7% 1.9% 1.9% 14.9% 6.3% 4.2% 4.9% 2.5%

Market Mix Commercial 45.4 % 45.5 % 45.5 % 41.6 % 41.1 % 40.6 % 39.9 % 40.1 % Meeting and Group 29.1 29.1 29.1 28.4 29.1 28.8 28.3 28.4 Leisure 16.7 16.8 16.8 15.0 14.6 14.4 14.1 14.2 Contract 8.7 8.7 8.6 7.5 7.2 6.9 6.7 6.6 Induced Demand 0.0 0.0 0.0 7.4 8.0 9.2 11.0 10.7

Existing Hotel Supply 1,088 1,088 1,088 1,088 1,088 1,088 1,088 1,088 Proposed Hotels Hilton Convention Center Hotel ¹ 301 400 400 400 400 Proposed aLoft Downtown West Palm Beach ² 37 38 38 38 38

Available Rooms per Night 397,248 397,248 397,248 520,935 556,935 556,935 556,935 556,935 Nights per Year 365 365 365 365 365 365 365 365 Total Supply 1,088 1,088 1,088 1,427 1,526 1,526 1,526 1,526 Rooms Supply Growth 2.0 % 0.0 % 0.0 % 31.1 % 6.9 % 0.0 % 0.0 % 0.0 % Marketwide Occupancy 71.3 % 72.6 % 74.0 % 64.8 % 64.5 % 67.2 % 70.5 % 72.2 %

¹ Opening in April 2015 of the 100% competitive, 400‐room Hilton Convention Center Hotel ² Opening in January 2015 of the 25% competitive, 150‐room Proposed aLoft Downtown West Palm Beach A Reduced room count to 195 room from 219 rooms due to conversion from Crowne Plaza to Embassy Suites in January 2012

These room‐night projections for the market area will be used in forecasting the proposed subject property's occupancy and average rate in Chapter 6.

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5. Description of the Proposed Project

The quality of a lodging facility's physical improvements has a direct influence on marketability, attainable occupancy, and average room rate. The design and functionality of the structure can also affect operating efficiency and overall profitability. This section investigates the subject property's proposed physical improvements and personal property in an effort to determine how they are expected to contribute to attainable cash flows.

Project Overview The proposed Hilton Convention Center Hotel will be a full‐service, convention headquarters lodging facility containing 400 rentable units. For the purposes of this study, we have assumed an opening date of April 1, 2015.

The proposed subject property will operate as a Hilton hotel, under its upper upscale chain (as defined by STR). At the time of our analysis, the developer was considering two scenarios, which included (1) entering into a management agreement with Hilton Worldwide to manage the hotel or (2) operating the hotel under a franchise agreement with Hilton while utilizing a second‐tier management company, which provides management services alone but without a brand name affiliation. We assume that a professional management company who has considerable experience operating convention center hotels will manage the proposed hotel.

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Summary of the Based on information provided by the proposed subject property’s development Facilities team, the following table summarizes the facilities that are expected to be available at the proposed subject property.

FIGURE 5‐1 PROPOSED FACILITIES SUMMARY

Guestroom Configuration Number of Units Double/Double 220 King 147 Junior Suite 32 Presidential Suite 1

Total 400

Food & Beverage Facilities Seating Capacity Lobby Bar 135 3‐Meal Restaurant 199

Indoor Meeting & Banquet Facilities Square Footage Ballroom 12,065 Meeting Rooms 6,035 Pre‐Function Space 7,277 Toilets 1,754 Storage 2,189 Service Corridor 6,753

Total 36,073

Amenities & Services Retail/Sundries Fitness Center Laundry Services Business Center

Infrastructure Parking Spaces 620

Site Improvements and Once guests enter the site, ample parking will be available in a parking garage that Hotel Structure is connected to the hotel structure; valet service should also be available. We Lobby assume that all signage will adequately identify the property and meet Hilton brand standards. Planned landscaping and design features will allow for a positive guest impression and be in character with the surrounding land uses such as the CityPlace South Tower and CityPlace shops and restaurants, real estate developments that were also created by the Related Group. The architects'

July‐2012 Description of the Proposed Project Hilton Convention Center Hotel – West Palm Beach, Florida 62

rendering of the proposed subject hotel suggests that the facilities and lodging accommodations will be housed in three connected high‐rise buildings that are similar in style to the CityPlace South Tower residential building. We assume that the development plans will also include several walkways that integrate the Palm Beach County Convention Center with the proposed subject hotel, since it is expected to serve as the headquarters facility.

The hotel structure will most likely be comprised of an arrivals building that will house the lobby, reception area, business center, food and beverage outlets and the retail shops. Multiple buildings will house the 400 guestrooms. Construction details were not available at the time of our analysis; however, The Related Group has provided a program summary that sets forth the space requirements we assume the architects will incorporate in their design. Overall, the planned building components appear normal for a convention‐oriented hotel and should meet the standards for this market. We assume that all structural components will meet local building codes and that no significant defaults will occur during construction that may impact the future operating potential of the hotel or delay its assumed opening date.

Lobby Guests are expected to enter the hotel into an expansive lobby that is appropriate for a full‐service, Hilton branded hotel. The lobby entrance and reception area are planned to collectively measure 2,874 square feet. The lobby walls should be attractively finished with an upscale material that is in line with brand standards. The furnishings and finishes in this space should offer an appropriate first impression, and the design of the space should lend itself to adequate efficiency. The specific design concept will be finalized with input from Hilton Worldwide. We assume that all property management and guestroom technology will be appropriately installed for the effective management of hotel operations.

Food and Beverage The hotel is expected to offer a full‐service restaurant and a lobby lounge, poolside Facilities food and beverage service, as well as room service. Both the restaurant and lobby lounge will be upscale in nature, and are anticipated to be located on the lobby level of the property. The furnishings of the restaurant and lounge will be of a similar style and finish as lobby and guestroom furnishings.

We note that the proposed food and beverage offering at the subject hotel is limited when compared to other similar‐sized convention center hotels. Typical food and beverage facilities for a hotel of this type include a casual restaurant, a lounge and/or lobby bar, an optional specialty concept restaurant with bar, and a snack/pantry outlet. However, given the subject hotel’s proximity to CityPlace and the Clematis District, this outlet mix appears reasonable. The multitude of restaurant options currently provided by the CityPlace development and the

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Clematis District significantly diminishes the need for multiple in‐house food and beverage facilities.

Meeting and Banquet The proposed hotel should offer a significant amount of modern and Space technologically up‐to‐date meeting space. The program summary supplied by the client indicated that there would be approximately 18,100 square feet of dedicated meeting space, including a 12,000‐square‐foot ballroom, secondary meeting rooms, and boardroom‐type spaces. We anticipate that public restrooms and a business center, as well as additional reception and hallway areas will be incorporated into this space.

Recreational Amenities The hotel will offer a fitness center, which is anticipated to be located on the hotel's ground level.

Additional Amenities Other amenities are expected to include a full‐service business center with various workstations, a retail/sundries shop, and wireless Internet access in the public areas. Overall, the supporting facilities should be appropriate for a hotel of this type, and we assume that they will meet brand standards.

Guestrooms The hotel will feature standard guestroom and suite‐style room configurations, and rooms will be present on each of the four floors of the property within the one building. The standard guestrooms will measure approximately 385 square feet and will offer typical amenities for this product type. Standard guestrooms will comprise king or double/double configurations, featuring an armoire with a flat‐ panel television, an armchair with ottoman, a work desk with chair, bedside tables, and appropriate, adequate lighting. All guestrooms will provide high‐speed, wireless Internet access.

32 junior suites and one presidential suite will offer larger living areas and more amenities than the standard guestrooms.

Back‐of‐the‐House, The hotel will be served by the necessary back‐of‐the‐house space, including an in‐ ADA, and house laundry facility, administrative offices, and multiple full‐service kitchens to Environmental serve the needs of the food and beverage outlets. These spaces should be adequate for a hotel of this type and should allow for the efficient operation of the property under competent management.

We assume that the property will be built according to all pertinent codes and brand standards. Moreover, we assume its construction will not create any environmental hazards (such as mold) and that the property will fully comply with the Americans with Disabilities Act.

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Capital Expenditures Our analysis assumes that, after its opening, the hotel will require ongoing upgrades and periodic renovations in order to maintain its competitive level in this market. These costs should be adequately funded by the forecasted reserve for replacement, as long as a successful, ongoing preventive‐maintenance program is employed by hotel staff.

Conclusion Overall, the subject property should offer a well‐designed, functional layout of support areas and guestrooms. All typical and market‐appropriate features and amenities appear to be included in the hotel's design. We assume that the building will be fully open and operational on the assumed opening date and will meet all local building codes and brand standards. Furthermore, we assume that the hotel staff will be adequately trained to allow for a successful opening and that pre‐ marketing efforts will have introduced the product to major local accounts at least six months in advance of the opening date.

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6. Projection of Occupancy and Average Rate

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

Penetration Rate The subject property's forecasted market share and occupancy levels are based Analysis upon its anticipated competitive position within the market, as quantified by its penetration rate. The penetration rate is the ratio of a property's market share to its fair share. A complete discussion of the concept of penetration is presented in the addenda.

Historical Penetration In the following table, the penetration rates attained by the Marriott West Palm Rates by Market Beach and the aggregate secondary competitors are set forth for each segment for Segment 2011.

FIGURE 6‐1 HISTORICAL PENETRATION RATES

l d a n i a c p r g t e u c l in o e a l m t r r r a u t r e G s m e i n e o e o v Property C M L C O

Marriott West Palm Beach 106 % 129 % 96 % 59 % 107 % Secondary Competition 97 86 102 120 97

As detailed in the preceding table, the Marriott West Palm Beach achieved the highest overall penetration rate, specifically within the commercial and meeting and group segments. The aggregate secondary competition achieved a higher penetration rate within the leisure and contract segments due to their proximity to the airport and lower average rate positioning.

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

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

Our projections of penetration, demand capture and occupancy performance for the subject property account for these types of adjustments to market share within the defined competitive market. Consequently, the actual penetration factors applicable to the subject property and its competitors for each market segment in each projection year may vary somewhat from the penetration factors delineated in the previous tables.

The following tables set forth, by market segment, the projected adjusted penetration rates for the subject property and each hotel in the competitive set.

FIGURE 6‐2 COMMERCIAL SEGMENT ADJUSTED PENETRATION RATES

Hotel 2011 2012 2013 2014 2015 2016 2017 2018 2019

Marriott West Palm Beach 106 % 108 % 108 % 108 % 116 % 113 % 112 % 111 % 111 % Secondary Competition 97 99 99 99 106 104 102 102 102 Hilton Convention Center Hotel ————7185898989 Proposed aLoft Downtown West Palm Beach — — — — 99 102 105 107 107

Within the commercial segment, the proposed subject hotel’s penetration is positioned below that of the Marriott West Palm Beach, secondary competition, and the proposed aLoft Downtown West Palm Beach. While other full‐service hotels in this market focus extensively on corporate and contract demand, the proposed subject property will be ideally suited for meeting and group business.

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FIGURE 6‐3 MEETING AND GROUP SEGMENT ADJUSTED PENETRATION RATES

Hotel 2011 2012 2013 2014 2015 2016 2017 2018 2019

Marriott West Palm Beach 129 % 131 % 131 % 131 % 127 % 123 % 122 % 120 % 120 % Secondary Competition 868787878582818080 Hilton Convention Center Hotel — — — — 118 120 123 126 126 Proposed aLoft Downtown West Palm Beach————4958666565

The proposed subject property is expected to become the foremost choice for meeting and group business in the Greater West Palm Beach area. While several properties in the competitive market, including the nearby Marriott West Palm Beach and the Embassy Suites, encompass substantial meeting space for this market, the location and amount of space proposed for the subject property will provide the hotel with a significant competitive advantage. The function space at other competitive properties is generally dated and somewhat limited based on the number of available rooms. Therefore, we believe that the proposed hotel will become the leading choice for corporate and moderately sized meetings/banquet events given the upper upscale nature of the proposed function space and the assumed modern, technologically advanced product. This segment is exclusive of any induced demand; induced demand is accounted for separately and follows the narrative that pertains to the contract segment.

FIGURE 6‐4 LEISURE SEGMENT ADJUSTED PENETRATION RATES

Hotel 2011 2012 2013 2014 2015 2016 2017 2018 2019

Marriott West Palm Beach 96 % 97 % 97 % 97 % 106 % 111 % 113 % 113 % 113 % Secondary Competition 102 104 104 104 113 118 120 120 120 Hilton Convention Center Hotel ————6658535353 Proposed aLoft Downtown West Palm Beach — — — — 110 122 129 129 129

Given its convention‐orientation, the proposed subject property’s leisure penetration rate is positioned appropriately within the range of existing competitors. While the proposed subject property’s location is favorable to weekend uses, including the Clematis Street District and CityPlace, its convention‐ oriented focus will displace leisure demand and instead focus on meeting and group and commercial‐related patronage.

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FIGURE 6‐5 CONTRACT SEGMENT ADJUSTED PENETRATION RATES

Hotel 2011 2012 2013 2014 2015 2016 2017 2018 2019

Marriott West Palm Beach 59 % 60 % 60 % 60 % 67 % 71 % 74 % 77 % 77 % Secondary Competition 120 121 121 121 135 144 149 154 154 Hilton Convention Center Hotel ————5648372626 Proposed aLoft Downtown West Palm Beach————113108999090

The proposed Hilton’s contract penetration rate is positioned well below its competitors by the stabilized year, 2018/19. We would expect the proposed subject hotel to fill room nights with some contract‐related demand in the initial years of operation, as a method to build occupancy and gain customer acceptance. As the market improves, and in particular the meeting and convention segments, we would expect the proposed Hilton to attract less contract accounts and instead focus on maximizing yield with meeting and group demand.

Induced Demand The above forecasted penetration rates by market segment are exclusive of the induced demand. Induced demand for room nights from the convention center will heavily favor the proposed adjacent Hilton Convention Center Hotel; however, not all of the induced demand will be accommodated by the subject convention center hotel. In cases where an event attendee or delegate is looking for an additional value, a different experience, different amenities, or in the event that the hotel is full, some event attendees and delegates will be accommodated at competing hotels. The following table illustrates the adjusted penetration rates for the induced demand segment of demand.

FIGURE 6‐6 INDUCED DEMAND ADJUSTED PENETRATION RATES

Hotel 20122013201420152016201720182019

Marriott West Palm Beach 0% 0% 0% 88% 87% 92% 97% 97% Secondary Competition 0 0 0 44 35 31 28 28 Hilton Convention Center Hotel — — — 243 243 246 248 248 Proposed aLoft Downtown West Palm Beach — — — 22 17 15 14 14

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

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FIGURE 6‐7 MARKET SEGMENTATION FORECAST – SUBJECT PROPERTY

2015 2016 20172018 2019

Commercial 31%35%35%33%34% Meeting and Group3535343334 Leisure 108777 Contract 43222 Induced Demand 19 18 21 25 24

Total 100 % 100 % 100 % 100 % 100 %

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

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FIGURE 6‐8 FORECAST OF SUBJECT PROPERTY'S OCCUPANCY – CALENDAR YEAR BASIS

Market Segment 20152016 2017 2018

Commercial Demand 140,549 147,576 152,003 156,564 Market Share 14.9 % 22.2 % 23.2 % 23.2 % Capture 20,899 32,719 35,272 36,312 Penetration 71% 85% 89% 89%

Meeting and Group Demand 95,983 104,622 107,761 110,993 Market Share 24.7 % 31.1 % 31.9 % 32.7 % Capture 23,683 32,536 34,345 36,291 Penetration 118 % 120 % 123 % 126 %

Leisure Demand 50,789 52,313 53,882 55,499 Market Share 13.8 % 15.1 % 13.7 % 13.7 % Capture 7,026 7,877 7,403 7,626 Penetration 66% 58% 53% 53%

Contract Demand 25,474 25,729 25,986 26,246 Market Share 11.8 % 12.4 % 9.7 % 6.7 % Capture 2,997 3,200 2,509 1,751 Penetration 56% 48% 37% 26%

Induced Demand Demand 25,000 28,750 34,500 43,125 Market Share 50.8 % 59.5 % 60.7 % 61.7 % Capture 12,701 17,100 20,949 26,604 Penetration 243 % 229 % 234 % 238 % Total Room Nights Captured 67,306 93,432 100,479 108,584 Available Room Nights 110,000 146,000 146,000 146,000 Subject Occupancy 61% 64% 69% 74% Marketwide Available Room Nights 526,885 562,885 562,885 562,885 Fair Share 21% 26% 26% 26% Marketwide Occupied Room Nights 337,795 358,989 374,132 392,426 Market Share 20% 26% 27% 28% Marketwide Occupancy 64% 64% 66% 70% Total Penetration 95 % 100 % 104 % 107 %

Based on our analysis of the proposed subject property and market area, we have selected a stabilized occupancy level of 75% by the stabilized year, 2018/19 (the stabilized occupancy of 74.0% presented above reflects calendar year 2018), following a four‐year ramp‐up. The subject’s overall penetration is projected to steadily increase as the hotel ramps up operations and gains market acceptance, stabilizing at 107% in 2018.

The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life, given any and all changes in the life

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cycle of the hotel. Thus, the stabilized occupancy excludes from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusually high or low occupancies. Although the subject property may operate at occupancies above this stabilized level, we believe it equally possible for new competition and temporary economic downturns to force the occupancy below this selected point of stability.

Fiscalized Occupancy The preceding projections have been adjusted to reflect fiscal years beginning April 1, 2015, when the subject hotel is anticipated to open.

FIGURE 6‐9 FORECAST OF OCCUPANCY – FISCAL YEAR BASIS

Subject Property's Year Occupancy

2015/16 62 % 2016/17 65 2017/18 70 2018/19 75 Stabilization 2019/20 75

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

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

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FIGURE 6‐10 BASE‐YEAR AVERAGE RATE AND REVPAR OF THE COMPETITORS

Estimated 2011 Average Rooms Revenue Average Room Room Rate Pe r Available RevPAR Property Rate Penetration Room (RevPAR) Penetration

Marriott West Palm Beach $117.00 119.5 % $87.52 126.1 % Hyatt Place Downtown 116.00 118.5 92.80 133.7 Hilton Garden Inn 106.17 108.4 73.26 105.5

Average $113.06 115.5 % $84.52 121.8 % Average ‐ Samp le of Hotels In cluded in STR Trend $97.90 100.0 $69.41

The average rate leaders within the local market realized an average rate of $113.06 in the 2011 base year, which was composed of the 1) Marriott West Palm Beach, 2) Hyatt Place Downtown (opened 2009), and 3) Hilton Garden Inn (opened 2007). While the Marriott West Palm Beach is most comparable to the proposed subject property in terms of product type and room size, we also benchmarked the proposed subject hotel against the newer Hyatt Place Downtown and the Hilton Garden Inn, since they also compete at a similar rate‐tier as the Marriott West Palm Beach even though they are categorized as upscale vs. upper upscale. As the above table illustrates, these three hotels topped the competitive market in 2011 with an average rate of roundly $113, which represents a 15% ADR premium over the competitive market while producing an overall RevPAR penetration of 122%.

We have selected the rate position of $122.85, in 2011 dollars (reflecting a 5.0% premium over the Marriott West Palm Beach to account for the subject’s newer facilities and amenities, anticipated meeting and group‐orientation, and proximity to the PBCCC), for the proposed Hilton hotel. Prior to the subject hotel’s anticipated opening date of April 2015, we have based our ADR growth assumptions on the growth potential of the West Palm Beach hotel market at large (i.e. the defined airport, convention, and downtown submarkets). It should be noted that, when projecting rate growth over the next several years, we relied heavily on our forecasts for the subject’s closest competitors, which include the Marriott and the recently converted Embassy Suites. In 2011, the Marriott West Palm Beach budgeted an average rate of approximately $125 or a 13.6% increase over the 2010 average rate of $110, according to hotel management. However, the Marriott West Palm Beach fell short of that goal and finished 2011 at an ADR of $117, posting a solid but less robust growth of 6.4% in ADR. Moreover, the marketwide ADR increased by a modest 2.4% in 2011, which suggests that while an ADR recovery is underway, local hotel operators are yield managing less aggressively than what was previously forecasted.

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Based on these considerations, the following table illustrates the projected average rate and the growth rates assumed. As a context for the average rate growth factors, note that we have applied a base underlying inflation rate of 3.0% annually throughout our projection period.

FIGURE 6‐11 SUBJECT PROPERTY AVERAGE RATE FORECAST – CALENDAR YEAR BASIS

Subject Property (Calendar Year)

Average Rate Average Average Rate Year Occupancy Growth Rate Penetration

Base Year — — $122.85 125.6 % 2012 — 8.0 % 132.68 125.6 2013 — 6.0 140.64 125.6 2014 — 3.0 144.86 125.6 2015 61.0 % 3.0 149.20 125.6 2016 64.0 3.0 153.68 125.6 2017 69.0 3.0 158.29 125.6 2018 74.0 3.0 163.04 125.6

As illustrated above, a growth rate of 8.0% has been forecast for the subject property's positioned 2011 room rate in 2012 to account for the strong rebound in corporate travel and meeting and group demand that was first exhibited in 2011 and has continued into 2012. This growth rate is followed by rates of 6.0% in 2012, and 3.0% thereafter. After a period of rate decline, the West Palm Beach market should enjoy positive rate growth in the near term, concurrent with the expected strengthening of the national economy. The proposed subject property's rate position should reflect growth trends similar to the market because of its product type and market positioning as the City's headquartered convention center hotel, Hilton brand affiliation, as well as its proximity to CityPlace and the Clematis District.

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As indicated by the following table, the proposed subject property is forecast to stabilize in 2018/19 at an occupancy of 75% and an ADR of $164.24. This forecast reflects years beginning on April 1, 2015, which corresponds with our financial projections.

FIGURE 6‐12 FORECAST OF OCCUPANCY, AVERAGE RATE, AND REVPAR

Average Rate Year Occupancy Growth Average Rate RevPAR

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7. Projection of Income and Expense

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

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

Comparable Operating In order to project future income and expense for the proposed subject property, Statements we have relied upon comparable operating statements of other branded, upper upscale convention‐oriented hotels located across the U.S., which share similar operational and physical characteristics as the proposed Hilton hotel. These historical operating statements will be used as benchmarks in our forthcoming forecast of income and expense.

All financial data are presented according to the three most common measures of industry performance: ratio to sales (RTS), amounts per available room (PAR), and amounts per occupied room night (POR). These historical income and expense statements will be used as benchmarks in our forthcoming forecast of income and expense.

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FIGURE 7‐1 COMPARABLE OPERATING STATEMENTS: RATIO TO SALES

Subject Comp 1Comp 2Comp 3Comp 4Comp 5Subject Stabilized $ Year: 2015/16 2010/11 2007 2007 2005/06 2008 2012 Number of Rooms: 400 350 to 430 390 to 480 360 to 450 720 to 880 400 to 500 400 Occupied Rooms: 90,520 113,415 110,125 109,586 217,400 123,740 109,500 Days Open: 365 365 365 365 365 366 365 Occupancy: 62.0% 80% 69% 75% 74% 75% 75% Average Rate: $150.31 $165 $178 $165 $145 $136 $134 RevPAR: $93.19 $131 $123 $123 $108 $103 $100 REVENUE Rooms 66.1 % 66.1 % 74.5 % 55.7 % 60.9 % 65.6 % 66.1 % Food & Beverage 28.6 29.6 19.9 39.5 30.1 28.8 28.6 Telephone 0.4 0.0 0.1 1.0 1.3 1.3 0.4 Other Operated Departments4.03.40.12.65.33.94.0 Other Income 1.3 0.8 5.5 2.1 3.7 1.7 1.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 DEPARTMENTAL EXPENSES* Rooms 24.0 24.8 15.0 21.8 24.3 22.6 20.9 Food & Beverage 74.1 56.2 45.5 69.3 68.0 70.7 65.3 Other Operated Departments 48.3 28.3 189.8 32.6 44.7 47.3 48.2 Other Expenses 0.0 0.0 4.0 0.0 58.0 20.0 50.0 Total 38.9 34.0 20.7 40.4 39.8 37.4 34.4 DEPARTMENTAL INCOME 61.1 66.0 79.3 59.6 60.2 62.6 65.6 OPERATING EXPENSES Administrative & General 9.2 9.0 12.8 7.0 6.5 8.6 7.6 Marketing 5.3 6.5 2.7 5.1 6.6 7.2 6.6 Franchise Fee 0.00.06.50.00.00.00.0 Property Operations & Maintenance 4.3 5.1 4.3 5.6 3.7 3.9 4.4 Utilities 5.2 4.5 2.4 2.2 5.0 4.7 4.3 Total 24.1 25.2 28.7 20.0 21.8 24.3 23.0 HOUSE PROFIT 37.0 40.8 50.6 39.6 38.4 38.3 42.6 Management Fee 3.03.93.05.93.42.83.0 INCOME BEFORE FIXED CHARGES 34.0 36.8 47.6 33.7 35.1 35.4 39.6

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

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FIGURE 7‐2 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER AVAILABLE ROOM

Subject Comp 1Comp 2Comp 3Comp 4Comp 5Subject Stabilized $ Year: 2015/16 2010/11 2007 2007 2005/06 2008 2012 Number of Rooms: 400 350 to 430 390 to 480 360 to 450 720 to 880 400 to 500 400 Occupied Rooms: 90,520 113,415 110,125 109,586 217,400 123,740 109,500 Days Open: 365 365 365 365 365 366 365 Occupancy: 62.0% 80% 69% 75% 74% 75% 75% Average Rate: $150.31 $165 $178 $165 $145 $136 $134 RevPAR: $93.19 $131 $123 $123 $108 $103 $100 REVENUE Rooms $34,015 $47,921 $44,881 $44,809 $39,283 $37,527 $36,558 Food & Beverage 14,710 21,464 11,988 31,782 19,410 16,500 15,810 Telephone 192 0 76 819 843 767 207 Other Operated Departments 2,082 2,497 76 2,117 3,400 2,253 2,238 Other Income 668 595 3,312 1,692 2,390 953 718 Total 51,474 72,477 60,257 80,400 64,483 57,233 55,323 DEPARTMENTAL EXPENSES Rooms 8,147 11,903 6,728 9,749 9,536 8,476 7,623 Food & Beverage 10,896 12,056 5,459 22,040 13,198 11,658 10,325 Other Operated Departments 1,005 708 144 690 1,520 1,067 1,080 Other Expenses 0 0 133 0 1,386 191 0 Total 20,048 24,667 12,463 32,479 25,640 21,391 19,028 DEPARTMENTAL INCOME 31,426 47,810 47,794 47,921 38,843 35,842 36,295 OPERATING EXPENSES Administrative & General 4,750 6,556 7,733 5,653 4,170 4,916 4,220 Marketing 2,739 4,733 1,602 4,104 4,261 4,093 3,663 Franchise Fee 0 0 3,916 0 0 0 0 Property Operations & Maintenance 2,200 3,700 2,609 4,541 2,408 2,253 2,439 Utilities 2,700 3,290 1,421 1,747 3,219 2,664 2,399 Total 12,389 18,279 17,281 16,045 14,058 13,927 12,721 HOUSE PROFIT 19,037 29,531 30,513 31,876 24,785 21,915 23,573 Management Fee 1,544 2,833 1,808 4,774 2,174 1,627 1,660 INCOME BEFORE FIXED CHARGES 17,493 26,697 28,705 27,102 22,611 20,289 21,913

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FIGURE 7‐3 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER OCCUPIED ROOM

Subject Comp 1Comp 2Comp 3Comp 4Comp 5 Subject Stabilized $ Year: 2015/16 2010/11 2007 2007 2005/06 2008 2012 Number of Rooms: 400 350 to 430 390 to 480 360 to 450 720 to 880 400 to 500 400 Occupied Rooms: 90,520 113,415 110,125 109,586 217,400 123,740 109,500 Days Open: 365 365 365 365 365 366 365 Occupancy: 62.0% 80% 69% 75% 74% 75% 75% Average Rate: $150.31 $165 $178 $165 $145 $136 $134 RevPAR: $93.19 $131 $123 $123 $108 $103 $100 REVENUE Rooms $150.31 $164.78 $177.69 $164.78 $144.55 $136.47 $133.55 Food & Beverage 65.00 73.81 47.46 116.88 71.43 60.00 115.50 Telephone 0.85 0.00 0.30 3.01 3.10 2.79 0.76 Other Operated Departments 9.20 8.59 0.30 7.78 12.51 8.19 8.17 Other Income 2.95 2.05 13.11 6.22 8.79 3.47 2.62 Total 227.46 249.23 238.57 295.67 237.29 208.14 202.09 DEPARTMENTAL EXPENSES Rooms 36.00 40.93 26.64 35.85 35.09 30.82 27.85 Food & Beverage 48.15 41.46 21.61 81.05 48.56 42.40 37.72 Other Operated Departments 4.44 2.43 0.57 2.54 5.59 3.88 3.94 Other Expenses 0.00 0.00 0.53 0.00 5.10 0.70 0.00 Total 88.59 84.82 49.34 119.44 94.35 77.79 69.51 DEPARTMENTAL INCOME 138.87 164.41 189.22 176.23 142.93 130.35 132.58 OPERATING EXPENSES Administrative & General 20.99 22.55 30.62 20.79 15.34 17.88 15.42 Marketing 12.11 16.28 6.34 15.09 15.68 14.89 13.38 Franchise Fee 0.00 0.00 15.50 0.00 0.00 0.00 0.00 Property Operations & Maintenance 9.72 12.72 10.33 16.70 8.86 8.19 8.91 Utilities 11.93 11.31 5.62 6.42 11.84 9.69 8.76 Total 54.75 62.86 68.42 59.00 51.73 50.65 46.47 HOUSE PROFIT 84.12 101.55 120.80 117.22 91.21 79.70 86.11 Management Fee 6.82 9.74 7.16 17.56 8.00 5.92 6.06 INCOME BEFORE FIXED CHARGES 77.30 91.80 113.65 99.67 83.21 73.78 80.05

The comparables’ achieved departmental income ranging from 59.6% to 79.3% of total revenue and a house profit ranging from 38.3% to 50.6% of total revenue.

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Summary of Based on an analysis that will be detailed throughout this section, we have Projections formulated a forecast of income and expense. The following table presents a detailed forecast through the fifth projection year, including amounts per available room and per occupied room. The second table illustrates our ten‐year forecast of income and expense, presented with a lesser degree of detail. The forecasts pertain to years beginning April 1, 2015 and are expressed in inflated dollars for each year.

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FIGURE 7‐4 DETAILED FORECAST OF INCOME AND EXPENSE

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FIGURE 7‐5 TEN‐YEAR FORECAST OF INCOME AND EXPENSE

2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25

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Forecast of Income and The following description sets forth the basis for the forecast of income and Expense expense. We anticipate that it will take four years for the subject property to reach a stabilized level of operation. Each revenue and expense item has been forecast based upon our review of comparable income and expense statements. Our forecast is based upon fiscal years beginning April 1, 2015 and is expressed in inflated dollars for each year.

Rooms Revenue Rooms revenue is determined by two variables: occupancy and average rate. We projected occupancy and average rate in a previous section of this report. The proposed subject property is expected to stabilize at an occupancy level of 75% with an average rate of $164.24 in 2018/19. Following the stabilized year, the subject property’s average rate is projected to increase by inflation.

Food and Beverage We have based our projections of food and beverage revenue on comparable Revenue operating data from five convention‐oriented hotels located nationally in large, metropolitan markets with high concentrations of meeting and group demand (which also included Hilton‐managed properties).

Food and beverage revenue at the proposed subject property will be generated by the full‐service restaurant, lobby bar, poolside bar and grill, room service, minibar, and over 36,000 square feet of meeting and function space that will host banquet and catering events. In projecting food and beverage revenue at the proposed Hilton hotel, we analyzed the relationship between the comparables’ food and beverage revenue as a percentage of rooms revenue, and used this relationship as a basis for our projections. Among the comparables, food and beverage revenue as a percentage of rooms revenue, ranged between 26.7% to 70.9%, or $47.46 and $116.88 per occupied room. Based on the subject’s anticipated facilities, including the F&B outlets and extensive meeting and banquet space, the subject property’s food and beverage revenue as a percentage of rooms revenue has been forecast in the middle of this range at 43.2% of rooms revenue throughout the projection period. This ratio of F&B revenue to rooms revenue equates to $65.00 per occupied room in the first projection year, increasing to $71.03 per occupied room by the stabilized year, 2018/19.

Telephone Revenue According to the Uniform System of Accounts, other operated departments include any major or minor operated department other than rooms and food and beverage. Telephone revenue and expense is being allocated to other operated departments more frequently now that telephone revenue has less of an impact on a hotel’s financial performance. The proliferation of cell phones and other wireless communications has resulted in a trend of declining telephone revenue in the lodging industry.

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The comparables reported telephone revenue ranging from $0.30 to $3.44 per occupied room. The subject’s telephone revenue has been forecast at $0.85 per occupied room in year one, stabilizing at $0.93 per occupied room in year 2018/19.

Garage/Parking The subject property is expected to utilize a parking garage that will be constructed on land that is adjacent to the subject site. The land is owned by Palm Beach County, and as such, the parking garage will be subject to a land lease. Given the assumed structure of the garage operation, the hotel would assume all revenue and expenses generated by this department.

The subject’s garage parking revenues have been forecast at 5.00 per occupied room, or 3.3% of rooms revenue in year one, stabilizing at $5.46 per occupied room in 2018/19.

Other Departments This line item represents revenue to be generated from the subject property’s retail/sundries outlet, in‐room movie charges, business center services, and guest laundry. Based on the subject’s anticipated facilities, and the comparable operating data, other departments revenue has been forecast at 2.2% of rooms revenue or $3.35 per occupied room in year one, stabilizing at $3.66 per occupied room.

Note: It is important to note that the departmental revenues that comprise both a) Other Departments and b) Rentals & Other Income vary for the comparable properties. As such, we have also relied upon operating data for similarly‐sized Hilton convention center hotels, which was provided by representatives of Hilton Worldwide.

Rentals & Other The rentals and other income sources comprise vending sales, cancellation fees, Income and outside vendor commissions and will be reported net of expenses. Rentals and other income revenue for the comparables ranged from 1.2% to 7.4% of rooms revenue or $2.05 to $13.11 on a per‐occupied‐room basis. Changes in this revenue item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy. We forecast the proposed subject property’s rentals and other income to stabilize at $3.22 per occupied room by the stabilized year, 2018/19.

Rooms Expense Rooms expense consists of items related to the sale and upkeep of guestrooms and public space. Salaries, wages, and employee benefits account for a substantial portion of this category. Although payroll varies somewhat with occupancy and managers can generally scale the level of service staff on hand to meet an expected occupancy level, much of a hotel's payroll is fixed. A base level of front desk personnel, housekeepers, and supervisors must be maintained at all times. As a

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result, salaries, wages, and employee benefits are only moderately sensitive to changes in occupancy.

Commissions and reservations are usually based on room sales, and thus are highly sensitive to changes in occupancy and average rate. While guest supplies vary 100% with occupancy, linens and other operating expenses are only slightly affected by volume.

The comparables illustrated rooms expense ranging between 15.0% and 24.8% of rooms revenue; on a per‐occupied‐room basis, the range was between $26.64 and $40.93. We have projected rooms expense for the proposed subject property at 24.0% in the first year (or $36.00 per occupied room), stabilizing at 20.1% in 2018/19 (or $33.00 per occupied room). The proposed subject property's rooms department expense has been positioned based upon our review of the comparable operating data and our understanding of the hotel's future service level and price point.

Food and Beverage Food expenses consist of items necessary for the primary operation of a hotel's Expense food and banquet facilities. The costs associated with food sales and payroll are moderately to highly correlated to food revenues. Items such as china, linen and uniforms are less dependent on volume. Although the other expense items are basically fixed, they represent a relatively insignificant factor. Beverage expenses consist of items necessary for the operation of a hotel’s lounge and bar areas. The costs associated with beverage sales and payroll are moderately to highly correlated to beverage revenues.

The comparables illustrate total food and beverage expense ranging between 45.5% and 70.7% of food and beverage revenue. We have projected a stabilized total food and beverage expense ratio of 65.3% in 2018/19. The proposed subject property's food and beverage operation is expected to be efficiently managed and operate at an expense level that is in line with other comparable operations.

Telephone Expense Telephone expense consists of all costs associated with this department. The bulk of telephone expense is related to the cost of local and long‐distance calls billed by the telephone companies that provide these services. Because most calls are made by in‐house guests, these costs are moderately correlated to occupancy. Due to the proliferation of cellular phones, which has contributed to declining phone revenues, most markets have experienced an increase in telephone expense ratios.

The subject property’s telephone expense has been forecast at 90.0% of telephone revenue throughout the projection period.

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Garage/Parking The proposed subject’s garage/parking expense has been forecast at 40.0% of Expense garage/parking revenue throughout the forecast period.

Other Departments Based on the subject’s anticipated facilities and the comparable operating data, Expense other departments expense has been forecast at 50.0% of other departments revenue throughout the projection period.

Administrative and Administrative and general expense includes the salaries and wages of all General Expense administrative personnel who are not directly associated with a particular department. Expense items related to the management and operation of the property are also allocated to this category.

Most administrative and general expenses are relatively fixed. The exceptions are cash overages and shortages; commissions on credit card charges; provision for doubtful accounts, which are moderately affected by the number of transactions or total revenue; and salaries, wages, and benefits, which are very slightly influenced by volume.

As a percentage of total revenue, the comparable operations indicate an administrative and general expense ranging from 6.5% to 12.8% of total revenue, or $4,170 to $7,733 per available room. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject property, we have positioned the administrative and general expense at a market‐ and property‐supported level.

In the first projection year, we have forecast administrative and general expense to be $4,750 per available room, or 9.2% of total revenue. By the 2018/19 stabilized year, these amounts change to $5,190 per available room and 7.6% of total revenue.

Marketing Expense Marketing expense consists of all costs associated with advertising, sales, and promotion; these activities are intended to attract and retain customers. Marketing can be used to create an image, develop customer awareness, and stimulate patronage of a property's various facilities.

The marketing category is unique in that all expense items, with the exception of fees and commissions, are totally controlled by management. Most hotel operators establish an annual marketing budget that sets forth all planned expenditures. If the budget is followed, total marketing expenses can be projected accurately.

Marketing expenditures are unusual because although there is a lag period before results are realized, the benefits are often extended over a long period. Depending on the type and scope of the advertising and promotion program implemented, the

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lag time can be as short as a few weeks or as long as several years. However, the favorable results of an effective marketing campaign tend to linger, and a property often enjoys the benefits of concentrated sales efforts for many months.

As a percentage of total revenue, the comparable operations indicate a marketing expense range from 2.7% to 7.2%, or $1,602 to $4,733 per available room. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject property, we have positioned the marketing expense level at a market‐ and property‐supported level. In the first projection year, we have projected marketing expense for the proposed subject property to be $4,100 per available room, or 7.9% of total revenue. By the 2018/19 stabilized year, marketing expense is forecast at $4,100 per available room and 6.0% of total revenue.

Note: Our projections for the marketing expense line item described above are inclusive of the Hilton program fee, which is based on 4.0% of gross rooms revenue.

Property Operations Property operations and maintenance expense is another expense category that is and Maintenance largely controlled by management. Except for repairs that are necessary to keep the facility open and prevent damage (e.g., plumbing, heating, and electrical items), most maintenance can be deferred for varying lengths of time.

Maintenance is an accumulating expense. If management elects to postpone performing a required repair, they have not eliminated or saved the expenditure; they have only deferred payment until a later date. A lodging facility that operates with a lower‐than‐normal maintenance budget is likely to accumulate a considerable amount of deferred maintenance.

The age of a lodging facility has a strong influence on the required level of maintenance. A new or thoroughly renovated property is protected for several years by modern equipment and manufacturers' warranties. However, as a hostelry grows older, maintenance expenses escalate. A well‐organized preventive maintenance system often helps delay deterioration, but most facilities face higher property operations and maintenance costs each year, regardless of the occupancy trend. The quality of initial construction can also have a direct impact on future maintenance requirements. The use of high‐quality building materials and construction methods generally reduces the need for maintenance expenditures over the long term.

As a percentage of total revenue, the comparable operations indicate a property operations and maintenance expense range from 3.7% to 5.6%, or $2,253 to $4,541 per available room. We expect the proposed subject property's

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maintenance operation to be well managed, and expense levels should stabilize at a typical level for a property of this type.

In the first projection year, we have projected property operations and maintenance expense for the proposed subject property to be $2,200 per available room, or 4.3% of total revenue. By the 2018/19 stabilized year, these amounts change to $3,000 per available room and 4.4% of total revenue.

Utilities Expense The utilities consumption of a lodging facility takes several forms, including water and space heating, air conditioning, lighting, cooking fuel, and other miscellaneous power requirements. The most common sources of hotel utilities are electricity, natural gas, fuel oil, and steam. This category also includes the cost of water service.

Total energy cost depends on the source and quantity of fuel used. Electricity tends to be the most expensive source, followed by oil and gas. Although all hotels consume a sizable amount of electricity, many properties supplement their utility requirements with less expensive sources, such as gas and oil, for heating and cooking.

As a percentage of total revenue, the comparable operations indicate a utilities expense range from 2.2% to 5.0%, or $1,421 to $3,290 per available room. The changes in this utilities line item through the projection period are a result of the application of the underlying inflation rate and projected changes in occupancy. In the first projection year, we have projected utilities expense for the proposed subject property to be $2,700 per available room, or 5.2% of total revenue. By the 2018/19 stabilized year, these amounts change to $2,950 per available room and 4.3% of total revenue.

Base Management Fee Management expense consists of the fees paid to the managing agent contracted to operate the property. Based on our discussions with Gopal Rajegowda of The Related Group, we have forecast base management fees for the proposed subject property to be 3.0% of total revenue.

City of West Palm Beach This expense has been forecast at $275,000 throughout the projection period.

Non‐Ad Volarem Taxes Non‐Ad Volarem taxes have been forecast at $75,000 in year one, increasing by 2.0% thereafter.

Ground Rent Our forecasted ground rent expenses are based upon calculations provided by Anthony P. Marshall of Harris Beach, PLLC.

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Parking Lease Parking lease expense has been forecast at $250,000 in year one, increasing by 3.0% thereafter. Our forecasted parking lease expenses are based upon information provided by Gopal Rajegowda of The Related Group.

Insurance Expense The insurance expense category consists of the cost of insuring the hotel and its contents against damage or destruction by fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, and so forth. General insurance costs also include premiums relating to liability, fidelity, and theft coverage. Insurance rates are based on many factors, including building design and construction, fire detection and extinguishing equipment, fire district, distance from the firehouse, and the area's fire experience. Insurance expenses do not vary with occupancy.

Based on comparable data and the structural attributes of the proposed project, we have forecast the proposed subject property's insurance expense at $2,076 per available room by the stabilized year (positioned at $1,900 on a per‐available‐ room basis in the first projection year, 2015/16). This forecast equates to 3.1% of total revenue on a stabilized basis. In subsequent years, this amount is assumed to increase in tandem with inflation.

Incentive Management In addition to the base management fee of 3.0% of total revenue, we have assumed Fee that Hilton Worldwide or a third‐party operator will be entitled to an incentive management fee, equal to 10.0% of net operating income in excess of 10.0% of the developer’s total project cost, which has been budgeted to be $71 million.

Reserve for Furniture, fixtures, and equipment are essential to the operation of a lodging Replacement facility, and their quality often influences a property's class. This category includes all non‐real estate items that are capitalized, rather than expensed. The furniture, fixtures, and equipment of a hotel are exposed to heavy use and must be replaced at regular intervals. The useful life of these items is determined by their quality, durability, and the amount of guest traffic and use.

Periodic replacement of furniture, fixtures, and equipment is essential to maintain the quality, image, and income‐producing potential of a lodging facility. Because capitalized expenditures are not included in the operating statement but nevertheless affect an owner's cash flow, a forecast of income and expense should reflect these expenses in the form of an appropriate reserve for replacement.

The International Society of Hospitality Consultants (ISHC) undertook a major industry‐sponsored study of the capital expenditure requirements for full‐ service/luxury, select‐service, and extended‐stay hotels. The most recent findings

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of the study were published in a report in 2007.6 Historical capital expenditures of well‐maintained hotels were investigated through the compilation of data provided by most of the major hotel companies in the United States. A prospective analysis of future capital expenditure requirements was also performed based upon the cost to replace short‐ and long‐lived building components over a hotel's economic life. The study showed that the capital expenditure requirements for hotels vary significantly from year to year and depend upon both the actual and effective ages of a property. The results of this study showed that hotel lenders and investors are requiring reserves for replacement ranging from 4% to 5% of total revenue.

Conclusion In conclusion, our analysis reflects a profitable operation, with net income expected to equal 29.7% of total revenue by the stabilized year, 2018/19. The stabilized total revenue comprises primarily rooms and food and beverage revenue, with a secondary portion derived from the garage/parking operation and other income sources. On the cost side, departmental expenses total 33.9% of revenue by the stabilized year, while undistributed operating expenses total 22.3% of total revenues; this assumes that the property will be operated competently by a well‐known hotel operator. After deducting 3.0% of total revenue to account for the base management fee, and 11.1% of total revenue in fixed expenses, a net income ratio of 29.7% is forecast for the stabilized year, 2018/19.

6 The International Society of Hotel Consultants, CapEx 2007, A Study of Capital Expenditure in the U.S. Hotel Industry.

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8. Statement of Assumptions and Limiting Conditions

1. This report is set forth as a market study of the proposed subject property; this is not an appraisal report. 2. This report is to be used in whole and not in part. 3. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed to be marketable and free of any deed restrictions and easements. The property is evaluated as though free and clear unless otherwise stated. 4. We assume that there are no hidden or unapparent conditions of the sub‐ soil or structures, such as underground storage tanks, that would impact the property’s development potential. No responsibility is assumed for these conditions or for any engineering that may be required to discover them. 5. We have not considered the presence of potentially hazardous materials or any form of toxic waste on the project site. The consultants are not qualified to detect hazardous substances, and we urge the client to retain an expert in this field if desired. 6. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have assumed the proposed hotel would be designed and constructed to be in full compliance with the ADA. 7. We have made no survey of the site, and we assume no responsibility in connection with such matters. Sketches, photographs, maps, and other exhibits are included to assist the reader in visualizing the property. It is assumed that the use of the described real estate will be within the boundaries of the property described, and that no encroachment will exist. 8. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS Consulting & Valuation are assumed to be true and correct. We can assume no liability resulting from misinformation. 9. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property. 10. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including a liquor license where appropriate), and that all

July‐2012 Statement of Assumptions and Limiting Conditions Hilton Convention Center Hotel – West Palm Beach, Florida 91

licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser. 11. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless specified otherwise. 12. None of this material may be reproduced in any form without our written permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media. 13. We are not required to give testimony or attendance in court by reason of this analysis without previous arrangements, and only when our standard per‐diem fees and travel costs are paid prior to the appearance. 14. If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this report, it is recommended that the reader contact us. 15. We take no responsibility for any events or circumstances that take place subsequent to the date of our field inspection. 16. The quality of a lodging facility's on‐site management has a direct effect on a property's economic viability. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any departure from this assumption may have a significant impact on the projected operating results. 17. The financial analysis presented in this report is based upon assumptions, estimates, and evaluations of the market conditions in the local and national economy, which may be subject to sharp rises and declines. Over the projection period considered in our analysis, wages and other operating expenses may increase or decrease due to market volatility and economic forces outside the control of the hotel’s management. We assume that the price of hotel rooms, food, beverages, and other sources of revenue to the hotel will be adjusted to offset any increases or decreases in related costs. We do not warrant that our estimates will be attained, but they have been developed on the basis of information obtained during the course of our market research and are intended to reflect the expectations of a typical hotel investor as of the stated date of the report. 18. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first. 19. Many of the figures presented in this report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity,

July‐2012 Statement of Assumptions and Limiting Conditions Hilton Convention Center Hotel – West Palm Beach, Florida 92

most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors. 20. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client, and use of this report by third parties shall be solely at the risk of the client and/or third parties. The use of this report is also subject to the terms and conditions set forth in our engagement letter with the client. 21. Evaluating and comprising financial forecasts for hotels is both a science and an art. Although this analysis employs various mathematical calculations to provide value indications, the final forecasts are subjective and may be influenced by our experience and other factors not specifically set forth in this report. 22. This study was prepared by HVS Consulting & Valuation. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of HVS Consulting & Valuation as employees, rather than as individuals.

July‐2012 Statement of Assumptions and Limiting Conditions Hilton Convention Center Hotel – West Palm Beach, Florida 93

9. Certification

The undersigned hereby certify that, to the best of our knowledge and belief:

1. the statements of fact presented in this report are true and correct; 2. the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions; 3. we have no (or the specified) present or prospective interest in the property that is the subject of this report and no (or the specified) personal interest with respect to the parties involved; 4. we have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment; 5. our engagement in this assignment was not contingent upon developing or reporting predetermined results; 6. our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined result or direction in performance that favors the cause of the client, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this study; 7. our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice; 8. Taylor Gray personally inspected the property described in this report; John P. Lancet participated in the analysis and reviewed the findings, but did not personally inspect the property; 9. Taylor Gray provided significant assistance to John P. Lancet, and that no one other than those listed above and the undersigned prepared the analyses, conclusions, and opinions concerning the real estate that are set forth in this report; 10. the reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute;

July‐2012 Certification Hilton Convention Center Hotel – West Palm Beach, Florida 94

11. the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives; and 12. as of the date of this report, John P. Lancet, MAI has completed the Standards and Ethics Education Requirement of the Appraisal Institute for Associate Members; and as of the date of this report, John P. Lancet, MAI has completed the requirements of the continuing education program of the Appraisal Institute.

N. Taylor Gray Associate HVS Consulting & Valuation ‐ Miami [email protected], +1 305 378‐0404 ext. 1021 Registered Trainee Appraiser #RZ‐23657

John P. Lancet, MAI Director/Partner HVS Consulting & Valuation ‐ Miami [email protected], +1 305 378‐0404 ext. 1014 State‐certified General Real Estate Appraiser #RZ‐2554

July‐2012 Certification Hilton Convention Center Hotel – West Palm Beach, Florida 95

Addenda

Addenda 1

Penetration Explanation

Let us illustrate the penetration adjustment with an example.

A market has three existing hotels with the following operating statistics:

BASE‐YEAR OCCUPANCY AND PENETRATION LEVELS

Number Meeting and Property of Rooms Fair Share Commercial Group Leisure Occupancy Penetration

Hotel A 100 23.5 % 60 % 20 % 20 % 75.0 % 100.8 % Hotel B 125 29.4 70 10 20 65.0 87.4 Hotel C 200 47.1 30 60 10 80.0 107.5

Totals/Average 425 100.0 % 47 % 38 % 15 % 74.4 % 100.0 %

Based upon each hotel’s room count, market segmentation, and annual occupancy, the annual number of room nights accommodated in the market from each market segment can be quantified, as set forth below.

MARKET‐WIDE ROOM NIGHT DEMAND

Annual Room Market Night Percentage of Segment Demand Total

Commercial 54,704 47.4 % Meeting and Group 43,481 37.7 Leisure 17,246 14.9 Total 115,431 100.0 %

The following discussion will be based upon an analysis of the commercial market segment. The same methodology is applied for each market segment to derive an estimate of a hotel’s overall occupancy. The table below sets forth the commercial demand accommodated by each hotel. Each hotel’s commercial penetration factor is computed by:

July‐2012 Penetration Explanation Hilton Convention Center Hotel – West Palm Beach, Florida i

1) calculating the hotel’s market share % of commercial demand (commercial room nights accommodated by subject hotel divided by total commercial room nights accommodated by all hotels) and

2) dividing the hotel’s commercial market share % by the hotel’s fair share %.

The following table sets forth each hotel’s fair share, commercial market share, and commercial penetration factor.

COMMERCIAL SEGMENT PENETRATION FACTORS

Number Commercial Commercial Commercial Property of Rooms Fair Share Capture Market Share Penetration

Hotel A 100 23.5 % 16,425 30.0 % 127.6 % Hotel B 125 29.4 20,759 37.9 129.0 Hotel C 200 47.1 17,520 32.0 68.1

Totals/Average 425 100.0 % 54,704 100.0 % 100.0 %

If a new 100‐room hotel enters the market, the fair share of each hotel changes due to the new denominator, which has increased by the 100 rooms that have been added to the market.

COMMERCIAL SEGMENT FAIR SHARE

Number of Property Rooms Fair Share

Hotel A 100 19.0 % Hotel B 125 23.8 Hotel C 200 38.1 New Hotel 100 19.0 Total 525 100.0 %

The new hotel’s penetration factor is projected for its first year of operation. It is estimated that the hotel will capture (penetrate) only 85% of its fair share as it establishes itself in the market. The new hotel’s market share and room night capture can be calculated based upon the hotel’s estimated penetration factor. When the market share of the existing hotels and that of the new hotel are added up, they no longer equal 100% because of the new hotel’s entry into the market. The market share of each hotel must be adjusted to reflect the change in the denominator that comprises the sum of each hotel’s market share.

July‐2012 Penetration Explanation Hilton Convention Center Hotel – West Palm Beach, Florida ii

This adjustment can be mathematically calculated by dividing each hotel’s market share percentages by the new denominator of 97.1%. The resulting calculations reflect each hotel’s new adjusted market share. The sum of the adjusted market shares equals 100%, indicating that the adjustment has been successfully completed. Once the market shares have been calculated, the penetration factors can be recalculated (adjusted market share divided by fair share) to derive the adjusted penetration factors based upon the new hotel’s entry into the market. Note that each existing hotel’s penetration factor actually increases because the new hotel is capturing (penetrating) less than its fair share of demand.

COMMERCIAL SEGMENT PROJECTIONS (YEAR 1)

Hist./Proj. Hist./Proj. Adjusted Adjusted Number Penetration Market Market Penetration Projected Property of Rooms Fair Share Factor Share Share Factor Capture

Hotel A 100 19.0 % 127.6 % 24.3 % 25.0 % 131.4 % 13,688 Hotel B 125 23.8 129.0 30.7 31.6 132.8 17,299 Hotel C 200 38.1 68.1 25.9 26.7 70.1 14,600 New Hotel 100 19.0 85.0 16.2 16.7 87.5 9,117 Totals/Average 525 100.0 % 97.1 % 100.0 % 54,704

In its second year of operation, the new hotel is projected to penetrate above its fair share of demand. A penetration rate of 130% has been chosen, as the new hotel is expected to perform at a level commensurate with Hotel A and Hotel B in this market segment. The same calculations are performed to adjust market share and penetration factors. Note that now the penetration factors of the existing hotels decline below their original penetration rates because of the new hotel’s above‐market penetration. Also note that after the market share adjustment, the new hotel retains a penetration rate commensurate with Hotel A and Hotel B, though the penetration rates of all three hotels have declined by approximately nine percentage points due to the reapportionment of demand.

Once the market shares of each hotel have been adjusted to reflect the entry of the new hotel into the market, the commercial room nights captured by each hotel may be projected by multiplying the hotel’s market share percentage by the total commercial room‐night demand. This calculation is shown below.

July‐2012 Penetration Explanation Hilton Convention Center Hotel – West Palm Beach, Florida iii

COMMERCIAL SEGMENT PROJECTIONS (YEAR 2)

Hist./Proj. Hist./Proj. Adjusted Adjusted Number Penetration Market Market Penetration Projected Property of Rooms Fair Share Factor Share Share Factor Capture

Hotel A 100 19.0 % 131.4 % 25.0 % 23.1 % 121.5 % 12,662 Hotel B 125 23.8 132.8 31.6 29.3 122.9 16,004 Hotel C 200 38.1 70.1 26.7 24.7 64.8 13,507 New Hotel 100 19.0 130.0 24.8 22.9 120.3 12,531 Totals/Average 525 100.0 % 108.1 % 100.0 % 54,704

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Qualifications

Qualifications 1

N. Taylor Gray

Employment

2010 to Present HVS Consulting & Valuation Associate Miami, Florida

2009 to 2010 Raffles L’Ermitage Assistant Manager Food & Beverage Beverly Hills, California

2007 to 2009 Hotel Bel‐Air Assistant Food & Beverage Manager Los Angeles, California

2006 to 2007 Hotel Bel‐Air Management Trainee Los Angeles, California

Education Cornell University, School of Hotel Administration Bachelor of Science Ithaca, New York

Professional State of Florida Registered Trainee Appraiser ‐ #RI 23657 Affiliations Associate Member of the Appraisal Institute

Cornell Hotel Society

1 Partial List of Properties Appraised or Evaluated: North Carolina ‐ Hilton Executive Park Hotel, Charlotte UNITED STATES South Carolina Florida ‐ Planned Expansion of Condo‐Hotel Development at ‐ Casa Moderna Hotel & Spa, Miami Wild Dunes Resort, Isle of Palms ‐ Savoy Hotel, Miami Beach ‐ Soho Beach House, Miami Beach Texas ‐ Four Points by Sheraton, Cocoa Beach ‐ Hill Country Resort, Canyon Lake ‐ Perry's Ocean Edge Resort, Daytona Beach ‐ Holly Lake Ranch, Hawkins ‐ Proposed Circ Hotel, Hollywood ‐ Lake O' The Woods, Flint ‐ Hampton Inn, Bonita Springs ‐ Piney Shores Resort, Conroe ‐ Orlando Breeze Resort, Davenport ‐ Seaside Resort, Galveston ‐ Clarion Hotel, DeLand ‐ The Villages, Flint ‐ Proposed aLoft, Orlando ‐ Proposed aLoft, West Palm Beach ‐ Proposed Hilton Convention Center Hotel, West Palm INTERNATIONAL Beach ‐ Proposed Hotel at Promenade Condominiums, Boynton Antigua Beach ‐ Curtain Bluff Resort, Old Road ‐ Kenilworth Lodge, Sebring Belize Georgia ‐ Proposed Ultra‐Luxury Resort, Sanctuary Bay ‐ Apple Mountain Resort, Clarksville ‐ Ka’ana Boutique Resort, San Ignacio ‐ Quality Inn and Suites, Bremen Canada Illinois ‐ Brand Development Research for Howard Johnson ‐ Fox River Resort, Sheridan Curacao Missouri ‐ Hilton Hotel and Casino ‐ Holiday Hills Resort, Branson ‐ Ozark Mountain Resort, Kimberling City Puerto Rico ‐ Timber Creek Resort, Desoto ‐ Aquarius Vacation Club at Boquerón Beach Resort, New Jersey Cabo Rojo ‐ Atlantic Palace Suites, Atlantic City Turks & Caicos Islands ‐ Gansevoort T + C, A Wymara Resort, Providenciales

John P. Lancet

Employment

1995 to present HVS Miami Director/Partner for the Consulting and Valuation Services and Shared Ownership Services divisions Miami, Florida

Education Florida International University Bachelor of Science in Hospitality Management North Miami, Florida

Course 410-Standards of Professional Practice, Part A, Appraisal Institute

Course 420-Standards of Professional Practice, Part B, Appraisal Institute

Course 510-Advanced Income Capitalization, Appraisal Institute

Course 520-Highest and Best Use and Market Analysis, Appraisal Institute

Course 530-Advanced Sales Comparison and Cost Approaches

Course 540-Report Writing and Valuation Analysis

Course 550-Advanced Applications

Professional Affiliations State-certified general real estate appraiser #RZ-0002554

Associate Member of the Appraisal Institute

Completion of education requirements for Certified General Appraiser through the Appraisal Institute

Partial List of Properties Appraised or Evaluated: - Land Valuation, Dania Beach - Proposed Best Western, Dania Beach UNITED STATES - Proposed Hotel, Daytona Beach - Proposed Hilton Garden Inn-Delray Arizona Beach - Wyndham Garden, Chandler - Proposed Seagate Resort, Delray Beach - Wyndham Garden, North Phoenix - Extended Stay America, Doral - Residence Inn, Phoenix - Hawk’s Cay Resort & Marina, Duck - Wyndham Garden, Phoenix Airport Key - Courtyard by Marriott, Scottsdale - Seaside Inn, Fernandina Beach - Scottsdale Villa Mirage, Scottsdale - Proposed Convention Center Hotel, Ft. Lauderdale - Sedona Summit, Sedona - Proposed Mandarin Oriental, Fort Lauderdale - Proposed PRC, Fort Lauderdale California - Proposed St. Regis Hotel, Fort Laud. - Proposed TownePlace Suites, Ft. - San Luis Bay Inn, Avila Beach Lauderdale - Four Seasons Aviara, Carlsbad - Ritz-Carlton / St. Regis Resort, Fort Lauderdale - Hilton Ontario, Ontario - Sheraton Airport, Fort Lauderdale - ANA Hotel, San Francisco - Hilton Garden Inn, Ft. Myers - Embassy Vacation Resort, South - Radisson Inn, Fort Myers Lake Tahoe - Ramada Inn Redevelopment, Fort Myers -Wyndham Resort, Steamboat Springs - Proposed Hotel, Fort Pierce - Doubletree Hotel, Westminster - Homewood Suites, Gainesville - Howard Johnson Hotel, Hialeah Florida - Ramada Hotel, Hialeah - Hilton, Altamonte Springs - Proposed Hotel, Hollywood - Proposed aLoft Hotel, Aventura - Ambassador Hotel, Hollywood - Turnberry Isle Resort, Aventura Beach - Boca Raton Resort & Club, Boca Raton - Proposed Courtyard by Marriott, Homestead - Holiday Inn, Boca Raton - Adam’s Mark Hotel, Jacksonville - Holiday Inn Express, Bonita Springs - Homestead Village, Jacksonville - Hyatt Coconut Plantation, - Proposed Courtyard by Marriott, Jacksonville Bonita Springs - Proposed Residence Inn, Jacksonville - Proposed Hotel, Boynton Beach - Fairfield Inn, Jacksonville Beach - Proposed Hotel, Bradenton - Holiday Inn Sunspree, Jacksonville Beach - Homestead Village, Brandon - Proposed Hotel, Jupiter - Homestead Village, Clearwater - Proposed Ritz-Carlton, Key Biscayne - Hyatt Aqualea Resort, Clearwater Beach - Project Key West, Key West - Proposed SpringHill Suites, Clearwater Beach - Courtyard by Marriott, Kissimmee - Proposed Ritz-Carlton, Coconut - Doubletree Guest Suites, Kissimmee Grove - Proposed Fractional Development, - Extended Stay America, Coral Gables Kissimmee - Courtyard by Marriott, Dania Beach - Radisson Resort Worldgate, Kissimmee - Conrad Hotel, Miami - Sheraton Four Points, Lakeland - Extended Stay America, Miami - Super 8, Lantana - Homestead Studio Suites, Miami - Proposed Hotel, Mayport - J.W. Marriott Hotel, Miami - Baymont Inn & Suites, Miami

- Miami Airport Hilton, Miami - Winterhaven Hotel, Miami Beach - Four Seasons Hotel, Miami - Extended Stay America, Miami Springs - Proposed Convention-Oriented Hotel, Miami - MainStay Suites, Miami Springs - Proposed Hotel, Miami Dadeland - Wingate Inn, Miramar - Proposed Hotel, Miami Design District - Hilton Hotel, Naples - Proposed Kubik Hotel, Miami - Proposed Hotel, Naples, FL - Proposed MUD, Miami-Downtown - Proposed Holiday Inn and Suites, Ocala - Proposed Shangri-La Resort and PRC, Miami (Watson - Baymont Inn & Suites, Orlando Island) - Blue Tree Resort, Orlando - Radisson Hotel & Suites, - Cypress Pointe Resort, Orlando Miami - Crowne Plaza Hotel, Orlando - Residence Inn, Miami-Airport - Embassy Vacation Resort, Orlando - 524 Suites, Miami Beach - Floridian Hotel, Orlando - Beacon Hotel, Miami Beach - Grand Hyatt Cypress, Orlando - Best Western, Miami Beach - Hilton Grand Vacations Club- - Betsy Ross Hotel, Miami Beach - SeaWorld Resort - Blue Moon Hotel, Miami Beach - Tuscany Village - Comfort Inn, Miami Beach - Ruby Lake Resort - Coral Sands, Miami Beach - International Plaza Resort, Orlando - Days Inn, Miami Beach - Land Valuation-Western Beltway, Orlando - Eden Roc Resort, Miami Beach - Marriott Hotel, Orlando-downtown - Edgewater Hotel, Miami Beach - Nickelodeon Family Suites, Orlando - Fairfield Inn, Miami Beach - Peabody Hotel, Orlando - Fairwind Hotel, Miami Beach - Proposed Universal Hotel Complex, - Fontainebleau Resort, Miami Beach Orlando - Four Points by Sheraton, Miami Beach - Proposed Palazzo del Lago, Orlando - Greystone Hotel, Miami Beach - Proposed Condo-Hotel, Orlando - Habana Libre Beach Resort, Miami Beach - Brazilian Court Hotel, Palm Beach - Henrosa Hotel, Miami Beach - Proposed Palm House Hotel, Palm Beach - Hotel Ocean, Miami Beach - Ocean Club Beach Resort, Palm Beach - Loews Hotel, Miami Beach - Proposed Marina Village Hotel, Panama City - Marlin Hotel, Miami Beach - Hampton Inn, Pensacola Beach - Marriott South Beach, Miami Beach - Hilton Garden Inn, Pensacola Beach - Plaza Hotel, The, Miami Beach - Proposed Bradford Homesuites, - Proposed Bijou Hotel, Miami Beach Pinellas Park - Ritz-Carlton Resort, Miami Beach - Proposed Hotel, Pompano Beach - Royal Polo Hotel, Miami Beach - Club Med Sandpiper, Port St. Lucie - Sagamore Hotel, Miami Beach - Proposed Hotel, St. Petersburg - Shore Club, The, Miami Beach - Proposed Hampton Inn and Suites, Sarasota - SoHo Beach House, Miami Beach - Proposed Residence Inn, Sarasota - Sovereign Hotel, Miami Beach - Proposed Island Spa Resort, Singer Island - Traymore Hotel, Miami Beach - Loews Don Cesar Resort, St. Pete Beach - W Hotel, Miami Beach - Proposed Hotel and Vacation Ownership Resort, St. Pete - Ritz-Carlton Resort, South Beach Beach - Doubletree Ocean Point Resort, Sunny Isles - Sirata Beach Resort, St. Pete Beach - Proposed Solis Hotel, Sunny Isles - Beach House Resort, Surfside

- Holiday Inn Downtown, Tampa Maine - Proposed Hotel, Tampa - Proposed Resort, Brownville - Proposed Westin Hotel, Tampa - Tampa Airport Hilton, Tampa Maryland - Wyndham Harbour Island, Tampa - Baltimore Hilton and Towers, - Homestead Village, Tampa Airport Baltimore - Costa D’Este Hotel, Vero Beach - Proposed aLoft Hotel, West Palm Beach Michigan - Proposed Clematis Hotel, West Palm - Waterfront Inn, Traverse City Beach - Proposed Renaissance Hotel, West Palm Beach - Proposed Courtyard by Marriott, Minnesota Weston - The DeCathlon Club, Minneapolis

Georgia Mississippi - Proposed Boutique Hotel, Atlanta - Proposed Timeshare Resort, Tunica - Wyndham Garden, Atlanta - Wyndham Garden, Atlanta Nevada - Best Western, Savannah - Residence Inn by Marriott, Las - Proposed Fractional Resort, Savannah Vegas - Staybridge Suites, Savannah - Ridge Pointe, Stateline - Ocean Plaza Beach Resort, Tybee Island - Hilton Grand Vacations Club- - Las Vegas Flamingo Hawaii - Las Vegas Blvd I & II - Hilton Grand Vacations Club- - Lake Las Vegas - Kalia Tower - Waikoloa Beach Resort New Jersey - Hilton Hawaiian Village - Proposed Radisson Hotel, Atlantic - Waikoloa King’s Land City - The Grand Waikikian - Proposed condo-hotel, Ocean City - Ritz-Carlton Kapalua - Proposed Hotel, Wildwood

Illinois New York - Proposed Hotel and Spa, Glencoe - Hilton Grand Vacations Club- - Holiday Inn, Gurnee - Proposed Orrington Hotel, Evanston North Carolina South Carolina - Autumn Woods, Carrboro - Proposed Hotel, Bay Point Island - Proposed Resort, Cashiers - Two Proposed Hotels, Columbia - Hilton Executive Park, Charlotte - Proposed Condo-Hotel, Daniel Island - Wyndham Garden, Charlotte - Inter-Continental Hotel, Hilton Head - Radisson, Research Triangle Park - Hilton Oceanfront Resort, Hilton Head

Tennessee INTERNATIONAL - Days Inn, Nashville Anguilla Texas - Cap Juluca Resort - Proposed Temenos Resort - Flying L Guest Ranch, Bandera - Marriott Suites, Dallas Antigua - Sheraton North Houston, Houston - Courtyard by Marriott, Plano - Halcyon Cove, Dickenson Bay - MainStay Suites, Plano - Proposed Le Meridien Resort, - Residence Inn by Marriott, Plano Willikies - Proposed Radisson, San Antonio - San Antonio Hilton, San Antonio Aruba - Proposed Fractional Resort, Eagle Beach Virginia - Wyndham Resort, Casino, and Spa - Embassy Suites, Tysons Corner - Greensprings Plantation, Australia Williamsburg - Timeshare Research - Powhatan Plantation, Williamsburg - Proposed Hotel, Woodbridge Bahamas - Abaco Beach Resort & Boat Harbour Washington - Green Turtle Cay, Abaco - Courtyard by Marriott, Seattle - Breezes Resort, Cable Beach - Proposed Resort, Cat Island Wyoming - British Colonial Hilton, Nassau - Proposed Hotel, Jackson Hole Belize - Proposed Resort, Plasensia

Canada - Georgian Manor Resort, Collingwood

Cayman Islands - Proposed Condo/Fractional Development, North Point, Grand Cayman Island - Grand Cayman Marriott Beach Resort, Grand Cayman

Costa Rica - Four Seasons Resort, Peninsula Papagayo - Proposed Novotel Hotel, San Jose Puerto Rico Curacao - Mayaguez Resort and Casino - Breezes Hotel and Casino - San Juan Beach Resort - Floris Hotel - Hilton Hotel and Casino Dominica - Proposed Mixed-Use Resort, Hampstead Estate

- Proposed Resort, Woodford Hill St. Kitts - Proposed Mandarin Oriental Resort, Majors Bay Dominican Republic - Casa de Campo St. Lucia - Proposed Hotel and Residences, Cabrera - Ladera Resort, Soufreire - Club Med Punta Cana - LTI Beach Resort, Punta Cana St. Maarten - Timeshare research - Proposed Martin Quarter MUD

Dubai Trinidad - Proposed Sheraton Hotel - Palm Crescent Vacation Club @ The Palm Sun Resort, Palm Island Turks and Caicos Islands Grenada - Amanyara Resort - Proposed Mandarin Oriental, Dellis Cay - Grand Beach Hotel - Beaches Resort, Providenciales - Proposed Resort, Prickly Bay - Proposed Luxury Hotel and Villas - Proposed Hotel, St. George - Third Turtle Club, Providenciales

- Parrot Cay Resort, Parrot Cay Honduras

- Proposed Hotel and Fractional Units, Roatan United States Virgin Islands - Bluebeard’s Beach Club, Bluebeard’s Castle, and Elysian Mexico Beach Resort – St. Thomas - Proposed Puerto Cancun Project, -Proposed Crowne Plaza – St. Thomas Cancun - Proposed Hotel, Playa del Carmen Zanzibar Proposed Timeshare Resort Panama - Buenaventura Resort and PRC, Farallon EXPERT WITNESS EXPERIENCE - Proposed Luxury Resort, Isla del Rey - Proposed Albrook Hotel, Panama City - Fourth Judicial Circuit Court - Proposed City Center MUD, Panama City - United States Bankruptcy Court, - Proposed Panama Bay Hotel and Casino, Panama City Southern District of Florida - Proposed Riviera Hotel, Panama City Miami-Dade Division - Proposed Lazur Resort and Convention Hotel, Naos - United States Bankruptcy Court, Harbour Island Southern District of Georgia Savannah St. Barths - Proposed Ultra-Luxury Resort, Pointe Milou