Hotel Development & Investment Analysis Master of Science Real Estate Development Columbia University Fall, 2016 Class Overview

 Week 1 – State of the Industry/Development Overview/Feasibility  Week 2 – Development Overview/The Operating Statement/Underwriting/The Lender’s Perspective  Week 3 – The Role of Brands/Management & Franchise Agreements  Weeks 4 & 5 – Integrated Product/Resorts/Sharing Economy/Developer Case Studies  Week 6 – Final Presentations Class #1 Course Introduction  Current Market Overview/Trends  Today’s Investment Climate  Why invest/develop Hotels? Is now the time? Class#2 P&L Review/Capital Markets Overview Development Process Overview Development Costs Across Various Segments Review of Feasibility/Appraisal Process

P&L Review The Operating Statement (incl. various segments.) Fixed/Variable Nature of Hotels Analysis of Market Share, Occupancy, ADR Revenue & Expense Forecasting Underwriting Process (Valuation Methodologies)

Capital Markets Perspective Capital Sources & Financing Credit & Hotel-Specific Concerns Debt Yield Vs. DSCR EB-5, etc Class #3 Utilizing Brands/Management & Franchise Agreements Management contracts & franchise agreements. Roles/Uses/Necessity of a Brand Differences between Brands Which brand is right for your hotel? PIP’s Design features/Importance-of Takeaways

1. Analyze factors that influence the decision to develop/invest in hotel real estate, including: general economic trends, the hotel investment climate, business cycle issues, and alternative investment opportunities; 2. Apply the steps necessary to value a hotel; contrast the various techniques used by different parties to a transaction including the seller, buyer, broker, and lender; 3. Examine those considerations of ownership that are most germane in hotel property investing including the selection of a management company and franchise affiliation; 4. Formulate an opinion of value for a specific hotel property and communicate the findings;

5. An understanding of current trends and market dynamics;

5. Understand the management and asset management functions; 6. Determine effective sales and marketing strategies for a hotel asset. Where Are We Today? Where Are We Today?

(NOI of Actual Hotel)

$12,000,000

$10,000,000

$8,000,000

$6,000,000

$4,000,000

$2,000,000

$0 2006 2007 2008 2009 2010 2011 2012 2013 2014

-$2,000,000

Year EBITDA Transposed

$12,000,000

$10,000,000

$8,000,000

$6,000,000

$4,000,000

$2,000,000

$0 2006 2007 2008 2009 2010 2011 2012 2013 2014

-$2,000,000 Where are we today?

Rapid Accelerated Development Development Development ? Lodging Picks Up Decline, Leads U.S. is Here 2016/7 Other Sectors

Long Run Occupancy 2015

2014

ADR and Occupancy Margins Equilibrium Declines, ADR Recover ADR Follows 2013

Development Occupancy Slows 2012 Recovers

Development at Minimum Lodging Recovers, Lags Levels Other Sectors (Not this Time!) Overview . The fundamentals are solid across the vast majority of markets. . No threats from the factors that historically have brought an end to the good times. . Elevated industry growth will persist comfortably into 2017. . High occupancy levels will provide the leverage needed to achieve large real ADR increases for the next two-three years. . Competition for building materials and labor will continue to present challenges for developers in most markets. Modest (but increasing) hotel construction will be the result for the next two-three years. . Above long run average occupancy levels will lead to strong profit growth comfortably through 2017, enough to off-set increasing labor costs. . Ability to re-price on a daily basis provides greatest upside scenario of all real estate asset classes in a positive economic and low-supply environment. However… . 2016 likely to be remembered as the peak year of the post Great Recession cycle . New supply concerns and global economic factors impacting outlook for hotel performance and investment

. Debt more challenging to procure, though interest rates remain low . Gap between buyer and seller expectations stalling transaction market . Cap rates have risen 50 bps for most assets but remain low for high quality full service and luxury hotels in prime markets . Aging hotels once again challenged due to lender pullback, cap ex and new supply . Higher cap rates will be offset by rising NOI in strong markets sustaining values . Higher cap rates will negatively impact values in markets facing supply and demand challenges and stagnant or declining NOI Industry Observations (Cont’d) . The U.S. lodging industry will likely achieve 65.7% occupancy in 2015, the highest national occupancy rate since STR, Inc. began reporting data in 1987. . By year-end 2015, PKF projects that the demand for lodging accommodations will have increased ~26% since the depths of the recession in 2009, while the supply of hotel rooms will have grown by just 5.6%. . RevPAR growth driven by much stronger occupancy growth than previously expected. . Construction activity remains below historical averages, but is picking up. Accelerating supply growth, heading towards long-term average of 1.9% (though market specific) . With U.S. hotels achieving all-time high occupancy levels, hoteliers should be able to continue to drive ADR going forward. . Through 13/14, the economic recovery mostly benefitted higher-income segments of the population. This led to an imbalanced pattern of lodging recovery that has favored upper- priced properties and large coastal markets. Now, with employment levels on the rise across all employment sectors, we are seeing a commensurate uptick in performance across the entire U.S. lodging spectrum. . Being further along the business cycle, the upper-priced RevPAR gains are heavily influenced by ADR, while the lower-priced RevPAR growth is the result of a balance between occupancy and ADR increases. August 2016 YTD: Occ % Change Turned Negative.

% Change

• Room Supply 1.5% • Room Demand 1.3% • Occupancy 66.9% -0.2% • A.D.R. $124 3.1% • RevPAR $83 2.9%

August 2016 YTD, Total US Results August 2016 RevPAR: Three Markets Drag Results Down

Total US YTD: +2.9% NYC: - 2.8% Miami - 3.3% Houston: - 10.7%

Total US excluding NYC / Houston / Miami: +3.5%

*RevPAR % Change August 2016 YTD for Total US excluding NYC, Houston, Miami Tenets to live by… . Hotels are a unique combination of single purpose real estate that is inextricably linked with a complex operating business. That operating business usually accounts for up to 50% or more of the value of hotels mid scale or higher. . Unless you have extremely patient capital with a tolerance for volatility, very deep pockets, or little need/concern for return, if you cannot build a hotel that will open in early stages of a cycle recovery, you probably should not build it. The second or third investor in the property will have a higher likelihood of success (from a return perspective). . Hospitality sector typically leads into the recession, lags coming out (though bounced backed quickly this time). . Hotels Investments: . Are Highly Cyclical . Utilize Operating Leverage (which is perfect of upturns, though rapidly erodes profit during downturns) . Highly vulnerable to factors outside of our control (terrorism, airline strikes, oil spills, etc) . Require extensive human capital . Require high levels of capital reinvestment – or ultimately face obsolescence . Readily available construction financing generally means a top is fast approaching. . Cap rates are the inverse of what they should be. . Greater Fool Theory – Don’t be the greater Fool. . Leverage over 65% LTV is a high-risk proposition for hotels. Asset Vs. Operating Considerations

Asset Operating  Age & Condition of Property  Revenue, sources of revenue, revenue mix  Capex  Business mix and seasonality of business  Barriers to competitions, zoning and building codes,  Expenses and other land value considerations  Margin Performance  Existing and potential functional obsolescence issues  Volatility of Cash Flow  Insurance coverage and taxation  Operating Leverage  Regulatory issues  Performance versus financial barometers What if Bought/Developed here, where prospects were “modestly good?” What do we do now?

What if Bought/Developed here, when prospects were “Poor”? Total United States – Average Duration (PrePlanning to Open)

Luxury 70

Upper Upscale 58

Upscale 42

Months Upper Midscale 33

Midscale 33

Economy 30

5 15 25 35 45 55 65 75

Source: STR Total United States - Average Duration (Construction to Open)

Luxury 25

Upper Upscale 25

Upscale 18

Months Upper Midscale 21

Midscale 17

Economy 16

0 5 10 15 20 25 30 Source: STR Industry Snapshot

PROPERTY/ROOM BREAKDOWN By Location Property* Rooms+ Urban 4,936 768,145 Suburban 17,763 1,759,476 Airport 2,286 314,159 Interstate 7,456 506,840 Resort 3,840 603,773 Small Metro/Town 16,606 974,150

53k properties* By Rate 5M guestrooms Under $30 245 25,805 $178 billion in sales $30-$44.99 3,280 252,508 $45-$59.99 8,271 537,009 $60-$85 14,873 1,058,655 Over $85 26,218 3,052,566

By Size Under 75 rooms 29,264 1,252,647 75-149 rooms 17,536 1,839,031 150-299 rooms 4,408 882,146 300-500 rooms 1,142 424,887 Over 500 rooms 537 527,832 What Matters…

. A Lot: . Employment and Jobs . Personal Income . GDP . Somewhat: . Corporate Profits . Leading Economic Indicators . Not So Much: . Foreign Exchange Rates Economic Drivers of US Lodging Industry

 National & Regional 2011 2012 2013 2014 2015

 Real GDP, GPDI, & Metro GDP Real GDP 1.70% 2.20% 1.90% 2.40% 2.80%

 Total Employment CPI 3.20% 2.10% 2.0% 1.30% 0.50%

 Real Personal Income Corporate Profits 7.30% 5.90% 3.30% .5% 7.20% Disp. Personal  Consumer Confidence Income 1.30% 1.60% 1.70% 2.50% 2.80%

 Specific MSA Drivers Unemployment Rate 8.50% 8.20% 6.70% 6.20% 5.30%

Tracking Vs. Real GDP 10.0%

5.0%

0.0% Real GDP (% Δ) Occupancy (% Δ) -5.0%

-10.0%

-15.0%

Source: STR, HVS

. Gross Private Domestic Investment 2020 2019 2018 2017 2016 Forecast 2015 2014 2013 2012 2011 2010 2009 2008 2016.

2007 Q1 2006 2005 Advisors

2004 GDP

ending. 2003 of

necessarily 2002

2001 Econometric does danger 2000 RevPAR CBRE

rate 1999 1998

imminent 1997 growth Research, in 1996 is 1995 1994 cycle RevPAR Americas 1993 of the 1992 Hotels’ 1991 Slowing suggest 1990 CBRE , 1989 Inc. 1988 STR,

Source: 0% 5% 5% - 20% 10% 15% - - - GDP & RevPAR & GDP 2017 2016 2015 2014 2013 2012 2011 2010 2009 by 2008 2007 2006 2016. Q1

influenced 2005 cycles

2004 Income

2003 Advisors late strongly

in 2002 is 2001

2000 Econometrics

demand 1999 especially 1998 CBRE

1997 Demand Lodging income

1996 Research, 1995 1994 Americas 1993 1992 Hotels’ 1991 CBRE

1990 ,

1989 Inc.

1988 STR,

2% 0% 8% 6% 4% 4% 6% 8% 2% - - - - 10% Source: Income & Employment & Income Albuquerque Minneapolis Long Island Albany New York Omaha Dayton Cleveland Savannah 3.2% Louisville Oahu Cincinnati

US Average San Antonio Hartford Pittsburgh Baltimore the Saint Louis National

Kansas City be Chicago Boston Columbus Norfolk-VA Beach Washington DC Philadelphia continue Fort Worth activity.

Newark will Anaheim Houston Richmond

Oakland Coast Memphis Sacramento economic

Los Angeles of Charlotte West Austin

Detroit and Charleston San Diego centers Denver

Tucson Advisors Dallas Indianapolis Raleigh-Durham Southeast leading Nashville Salt Lake City

Columbia Econometric Miami West Palm Beach Atlanta CBRE Fort Lauderdale Portland San Jose-Santa Cruz

Phoenix Source: New Orleans Seattle Tampa

Orlando 2018) Growth Jacksonville - Personal

0% 3% 2% 1% 6% 5% 4% (2016 7% Income Personal income is a key economic indicator for hotel performance hotel for indicator economic key a is income Personal

Average Economic Fundamentals Economic 2017 2016 2015 2014

2007 and 2007 2013 2012 2011 2010 2009 2008 2007 2006 2016. Q1 2005

2004 Income

2003 Advisors 2002 2001

2000 Econometrics 1999 1998 CBRE

1997 Employment

1996 Research, 1995 1994 Americas 1993 1992 Hotels’ 1991 CBRE

1990 ,

1989 Inc.

1988 STR, Source:

Change

2% 0% 6% 4% 8% 2% 4% 6% - - -

Y -

o -

The economy is at full employment for the first time since since time first for the employment full at is economy The isgrowth strong income Income Income & Employment Y New Orleans Hartford Long Island Albany New York Baltimore Pittsburgh

Washington DC 1.7% Oahu Chicago Albuquerque Newark Boston Cleveland Average Omaha Philadelphia Houston

Indianapolis National Minneapolis Saint Louis Norfolk-VA Beach Kansas City Detroit Charleston Cincinnati Savannah Dayton Salt Lake City Los Angeles San Francisco Columbia Austin Louisville Seattle Anaheim San Diego Charlotte Denver Sacramento San Antonio Columbus Portland Advisors Nashville Memphis Oakland Richmond San Jose-Santa Cruz

Fort Worth Econometric Fort Lauderdale Miami Dallas CBRE Tampa Atlanta Jacksonville

Tucson Source: West Palm Beach Raleigh-Durham

Orlando Phoenix

0% 2% 1% 3% 4% (1)% Employment Growth Employment Industry Observations Unemployment Rate Source: 10% 12% 4% 6% 8% 0% 2%

1961

Moody’s 1962 1963 1964 1965

Analytics, 1966 1967 1968 1969 1970

PKF 1971 1972

Hospitality 1973 1974 1975 1976 1977

Research 1978 1979 Unemployment 1980 labor between There 1981 1982 | 1983 CBRE costs.

1984 is 1985 Rate inverse 1986 unemployment Hotels, 1987 1988 1989

Q1 1990 1991 Real 2016. 1992 relationship

Labor 1993 1994 1995 Costs 1996 1997 and 1998 1999 2000 real 2001 2002 2003 2004 2005 2006 2007 2008 2009

2010 Payroll 2011 ($/Available 2012

2013 & 2014 Related $5,000 $5,500 $6,000 $6,500 $7,000 $7,500 $8,000 $8,500 $9,000 Room) Cost Market Overview – 15 Year Perspective

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Occupancy % 59.0% 59.2% 61.3% 63.0% 63.2% 62.6% 59.6% 54.0% 57.5% 60.0% 61.5% 62.2% 64.4% 65.5% 65.3% 65.0%

YOY % Change -1.1% 0.3% 3.5% 2.8% 0.3% -0.9% -4.8% -9.4% 6.5% 4.3% 2.5% 1.1% 3.6% 1.7% -0.3% -0.4%

Pct Point Diff 0.7% 0.2% 2.1% 1.7% 0.2% -0.6% -3.0% -5.6% 3.5% 2.5% 1.5% 0.7% 2.2% 1.1% -0.2% -0.3%

ADR $82.5 $82.7 $86.2 $91.0 $97.6 $104.3 $107.4 $96.1 $96.0 $101.7 $106.4 $110.6 $115.0 $120.2 $124.3 $128.4

YOY % Change -1.3% 0.2% 4.2% 5.6% 7.2% 6.9% 2.9% -10.5% 0.0% 5.9% 4.6% 4.0% 3.9% 4.5% 3.4% 3.3%

Nominal RevPAR $48.7 $48.9 $52.8 $57.3 $61.7 $65.3 $64.0 $51.9 $55.2 $61.0 $65.4 $68.5 $74.1 $78.31 $81.2 83.5%

% Change from Prior Year -2.4% 0.5% 7.9% 8.6% 7.6% 5.9% -2.0% -18.9% 6.5% 10.5% 7.2% 4.7% 8.2% 6.2% 3.1% 2.9%

Inflation Adjusted RevPAR (2005 Base) $61.8 $60.8 $64.0 $67.6 $70.9 $73.4 $69.8 $58.2 $60.4 $63.7 $66.7 $69.4 $74.1 $78.7 $80.3 $81.0

YOY % Change -3.9% -1.6% 5.4% 5.6% 4.9% 3.5% -4.9% -16.6% 3.7% 5.5% 4.7% 4.0% 6.8% 6.5% 3.1% 3.3%

Inflation (CPI) 1.6% 2.3% 2.7% 3.4% 3.2% 2.9% 3.8% -0.3% 1.6% 3.1% 2.1% 1.4% 1.3% 0.4% 1.2% 2.2%

Real GDP (% Δ) 1.8% 2.5% 3.5% 3.1% 2.7% 1.9% -0.3% -3.1% 2.4% 1.8% 2.2% 2.4% 2.4% 2.7% 1.5% 2.3%

Real GDP (% Δ) (YOY) 1.9% 3.9% 2.9% 2.8% 2.4% 2.2% -3.3% -0.1% 2.4% 2.0% 1.8% 3.1% 2.4% 1.9% 1.8% 2.3%

Avg. Daily Rooms Sold 2,573 2,606 2,710 2,786 2,798 2,818 2,747 2,577 2,762 2,891 2,976 3,037 3,163 3,250 3,296 3,345

Percentage Change (From Prior Year) 0.5% 1.3% 4.0% 2.8% 0.4% 0.7% -2.5% -6.2% 7.2% 4.7% 2.9% 2.0% 4.4% 2.7% 1.4% 1.5%

Room Starts (000's) 68.4 76.6 81.3 83.4 138.9 145.9 132.2 47.9 29.8 45.7 57.2 72.4 99.0 109.5 129.9 132.5

Percentage Change (From Prior Year) -24.4% 12.0% 6.1% 2.6% 66.5% 5.0% -9.4% -63.8% -37.8% 53.4% 25.2% 26.6% 34.8% 10.6% 18.6% 2.0%

End-of-Year Supply (000's) 4,351 4,386 4,387 4,381 4,415 4,489 4,626 4,746 4,785 4,799 4,831 4,859 4,890 4,959 5,051 5,149

YOY % Change 1.5% 0.8% 0.0% -0.2% 0.8% 1.7% 3.0% 2.6% 0.8% 0.3% 0.7% 0.8% 0.7% 1.1% 1.7% 1.9%

Average Supply Change YOY 1.6% 1.0% -0.1% -0.1% 0.2% 1.2% 2.4% 2.8% 1.7% 0.5% 0.5% 0.7% 0.7% 1.1% 1.7% 1.9%

Source:PWC Examples of the Chain Scales (Full list in database)  Luxury – Fairmont, Four Seasons, Ritz Carlton, JW Marriott  Upper Upscale – Dolce, Hilton, Hyatt, Marriott, Gaylord  Upscale – Radisson, Hilton Garden Inn, Residence Inn, Springhill Suites, Homewood Suites, Courtyard  Upper Midscale – Fairfield Inn/Suites, Holiday Inn, Clarion, Hampton Inn/Suites, Best Western Premier/Plus  Midscale – Country Inn & Suites, Best Western, Candlewood Suites  Economy – Extended Stay America, Red Roof, Days Inn, Microtel

Alternatively - hotel properties can be grouped into three broader categories:  Limited Service - Originally defined as a hotel without restaurant or banquet facilities, the services and amenities offered to guests of limited-service hotels are typically simple. Ex: La Quinta, Hampton Inn, Element  Select Service: Select-service hotels offer the fundamentals of limited-service properties together with a selection of the services and amenities characteristic of full-service properties. Generally, this means certain restaurant and banquet facilities but on a less elaborate scale than one would find at full-service hotels. Ex: Aloft, Courtyard by Marriott  Full Service Hotel Product Categories and Brands

• Luxury – Service is key • Examples – Four Seasons, Mandarin Oriental, Ritz-Carlton (Marriott), St. Regis (Starwood)

• Boutique – Varying product type. Unique products that accentuate style and design • Examples – • Limited-to-Select Service – Ascend Collection (Choice), certain Joie de Vivre products • Independent Boutique Hotels – Manhattan examples – Duane Street Hotel, Time Hotel, Park Central, Paramount • Upscale-to-Luxury Boutique • Morgans Hotels – Morgans, Hudson, Mondrian, Delano • Thompson Hotels, W Hotels (Starwood), Dream (Wyndham), Kimpton , Andre Balazs Hotels Hotel Product Categories and Brands

• Extended-Stay - Suites featuring kitchens or kitchenettes. Longer average length of stay than transient hotels • Examples – • Mid-Tier – TownePlace Suites (Marriott), Home2Suites (Hilton), Candlewood Suites (InterContinental) • Upper-Tier – Residence Inn by Marriott, Homewood Suites (Hilton), Hyatt House, Staybridge Suites (InterContinental)

• Full-Service - Extensive scope of services and amenities, scope of food and beverage outlets, and meeting space • Examples – • Mid-Tier – Wyndham, Radisson (Carlson), Holiday Inn (InterContinental) • Upscale – Hilton, Sheraton, DoubleTree Guest Suites (Hilton), Embassy Suites (Hilton), Marriott • Upper-Upscale – InterContinental, Westin (Starwood), Le Meridien (Starwood), JW Marriott Hotel Product Categories and Brands

• Limited-Service - Simply rooms, minimal scope of services, no food and beverage scope – perhaps only complimentary breakfast, limited (if any) meeting space • Examples – • Economy – Econo Lodge (Choice), Quality Inn (Choice), Howard Johnson (Wyndham), Baymont (Wyndham) • Mid-Tier – Comfort Inn (Choice), Wingate (Wyndham) • Upper-Tier – Fairfield Inn (Marriott), Hampton Inn (Hilton)

• Select-Service – Hybrid of limited- and full-service hotels. Flexible scope of food and beverage services – lobby lounge, limited-service restaurant, evening room service. Limited meeting space • Examples – • Courtyard by Marriott, aloft by W Hotels (Starwood), Hilton Garden inn, Hotel Indigo (InterContinental), Hyatt Place, Cambria Suites (Choice), Four Points (Starwood), Tryp (Wyndham) Potential Challenges: The Economy Asset Price Bubble Unpredictable Demand Shock Oil/Energy Price Increases Over Building Occupancy is near its limit

7.5 6.8

5 3.3

0 0.3

-3.4

-5 Occ % Change ADR % Change -6.7

-10 -9.7 1990 2000 2010 Total U.S., ADR & OCC % Change, 12 MMA 1/1990 – 08/2016 Source: STR Occupancies Still Close to Peak

130 Occupancy (%) 122.85 ADR ($) Prior Peak: 110 Oct 2008 107.73

90

70 65.4

50 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Total US, Occupancy and ADR, 12 MMA Jan 1997 – Aug 2016 Source: STR Declining Occupancies and Rising ADRs Are Not Unprecedented

8

OCC % Change 6 ADR % Change

4

2 42 Months 0 24 Months

-2

-4 1990 1992 1994 1996 1998 Total U.S., ADR & OCC % Change, 12 MMA 1/1990 – 12/1999 Source: STR RevPAR Growth: Slowing Down After 6 Yrs. Of Growth 15

10

5

0 80 Months 31 Mo 56 Months 78 Mo. -5

-10

-15

-20

-25 1990 2000 2010

Total U.S., RevPAR % Change, 1/1990 – 08/2016 Source: STR The New Normal: ADR Gains Have To Make Up For Occ Drops

ADR % Change Occupancy % Change

3.5 2.9 2.6 2.3 2.5 1.6

-0.2 -0.3 -0.7 -0.6 -0.8 -1.0

Luxury Upper Upscale Upscale Upper Midscale Midscale Economy

*RevPAR % Change by Contribution of OCC / ADR % Change, by Scale, August 2016 YTD Source: STR High-End Hotels Still Very Busy

75.876.3 75.675.8 75.576.0 2016 2015

69.069.2

60.761.2 59.159.7

Luxury Upper Upscale Upscale Upper Midscale Midscale Economy

*OCC %, by Scale, August YTD 2016 & 2015 Source: STR

. Group Demand Growth Has Basically Stopped 6% Demand % Change 5% ADR % Change

4%

3%

2% 0.5% 1%

-1%

-2% 2012 2013 2014 2015 2016

*Group Demand and ADR % Change, 12 MMA, 1/2012 – 08/2016 Source: STR Transient ADR Growth: Slow Despite High Occupancy

6%

5%

4%

3%

2% Demand % Change 1.6% 1% ADR % Change

0% 2013 2014 2015 2016

*Transient Demand and ADR % Change, 12 MMA, 1/2012 – 08/2016 Source: STR Room Supply Projection

 Since the 2008 – 2009 recession, U.S. hotels have realized an overall surge in performance over the past several years, and one of the most critical factors has been the lack of new supply; averaging less than 1.0% annually from 2010 to 2013.  After the North American lodging market bottomed out in late 2009, demand rebounded, and the stalled introduction of new rooms has proven a boon to existing hotels.  HVS forecasts an annual increase of 1.5% for 2014 and 2015 and 1.8% in 2016, below the historical 20 year average of 2.0% Historical Room Supply 55,000 5,000,000 Projected Room Supply 5,500,000 +1.8% +2.5% 50,000 4,500,000 +9% 5,000,000

4,500,000 45,000 4,000,000 4,000,000

Number of Rooms Hotels 3,500,000 40,000 3,500,000 3,000,000 Number of Rooms 2,500,000 35,000 3,000,000 2,000,000

1,500,000 30,000 2,500,000

1,000,000

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1987 2013 2014 2015 2016 Source: STR

Source: HVS Total US - Opened Hotels and Rooms – 1980-2013

2,000  Limited supply since 2009  Current supply cycle more 180,000 1,800 compressed than previous two. 160,000 1,600 140,000 1,400

120,000 1,200

100,000

1,000

Hotels # # ofHotels 80,000 800

600 60,000

400 40,000 Number of Opened Hotels Number of Opened Rooms

200 20,000

0 0

Source: STR Supply/Demand Dynamic

8 7.2

6 4.7 4.4

4 3.3 2.8 2.9 2.9 2.4 2.2 2.2 2.3 1.9 1.7 1.7 1.8 2 1.2 0.9 0.4 0.7 0.8 0.5 0.5 0.2 Supply 0 Demand 2005-0.1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20 Yr Avg

-2

-2.5

-4

-6 -6.2

-8

Source: STR Strong Demand (though growth slowing), Increasing New Supply

2015 Supply-Demand Trends By Segment

5.9 6

5 4.7

4 4

3.3

% Change % Supply 3 Demand 2.3 2.2

2 1.8

1.3 1.1 1 0.9 1

0 0 Luxury Upper Upscale Upscale Upper Midscale Midscale Economy

Source: PWC Demand Drivers Across Us Current Supply Pipeline

Source: STR, PKF, PWC

15%+

Source: STR Total US – Correlating Actual Supply and Demand

1,900 1,200 • Number of US Hotel Rooms has grown from 3M to 5M in the last 27 years. 1,800 • Annual Supply has grown from 1,100M to 1,800M. 1,100 1,700 • Annual Demand has grown from 700M to 1,150M rooms. 1,600 1,000

1,500

1,400 900

Compound Annual Growth Rates: Compound Annual Growth Rates: 1,300

Supply 1.9% Supply 1.9% Rooms Sold (millions) Sold Rooms

Rooms Available (millions) Available Rooms 800 1,200 Demand 1.8% Revenue 4.8% Occupancy -0.1% RevPAR 2.8% 1,100 700 Supply (Rooms Available) 1,000 Demand (Rooms Sold)

900 600

Source: STR Historical Supply Growth by Scale

Luxury Chains Upper Upscale Chains 1,000,000 Upscale Chains Upper Midscale Chains Midscale Chains Economy Chains 800,000

600,000

400,000

200,000

0

Source: STR *Total US Supply Growth over 27 years by Scale Number of Rooms, 12-month moving average Jan 1988 through June 2015 171K In Construction Is Nearing The Prior Peak (2008)

250 Mar 08: 207.5K 200 July 16: 171K 150

100

50

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total US Pipeline, Rooms In ConstructionJan 2005 – Jul 2016 Source: STR Demand Growth 10 Feb 2011 7.7% June 2015 5 4.1%

20 Year CAGR: 1.7% 0

-5

Aug 2009 -7.1% -10 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 *Total US Demand Percent Change Source: STR 12 MMA – 2007 to June 2015 Total United States

Feb ’11 7.7% 8 Supply & Demand % Change – 12 MMA (1989 – 2015) June ’89 6 5.3% 4 Jan ’89 2 4.6% 0 Aug ’06 -2 Oct ’91 -0.2% -0.9% Supply % Change -4 Demand % Change Mar ’02 -6 -4.7% Sept ’09 -8 -7.1% 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: STR Rooms In Construction vs Supply Change

250 3.5 3 200 Supply percent change 2.5 seems to trail Rooms In 2 150 Construction by 1.5-2 years 1.5 1 100 0.5 0 50 -0.5 Rooms In Construction Supply % Change 0 -1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: STR *Total US Monthly Rooms Under Construction (in thousands) & Supply Percent Change 2005 to June 2015 Historical Look at Rooms In Construction

250 100 Rooms In Construction % Change 80 200 60 40 150 20 0 100 -20

50 -40 -60 0 -80 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 *Total US Monthly Rooms Under Construction (in thousands) Source: STR & Under Construction Percent Change 2005 to June 2015 US Supply Overview – Broken Down

200,000 Independents Economy Midscale Upper Midscale Upscale Upper Upscale Luxury

150,000

100,000

50,000

-

(50,000) Upper Upscale: 11.7% Upper Upscale: 11.4% Upper Upscale: 12.6% Upper Upscale: 17.3% Upscale: 15.6% Upscale: 19.4% Upscale: 32.9% Upscale: 49.9% Upper Upscale: 11.7% (100,000) 27.3% 30.8% 45.5% 67.2% Upscale: 30.4% 42.1% Source: PKF Hospitality Research, STR, Inc. Total United States – Opened and Closed Hotels

Opened and Closed (Annual 2004 through YTD 2015) 1800 • 2007-2009 saw surge in Opens decrease in Closes 1600 • 2011 & 2012 lowest number opens in history 1400 1200 Opened Closed 1000 800 600 400 200

0

2000 2015 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: STR Total United States – Opened and Closed Rooms

Opened and Closed (Annual 2004 through YTD 2015 in thousands) 170 150 130 110 Opened Closed 90 70 50 30 10

-10

1993 1987 1988 1989 1990 1991 1992 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: STR Pipeline accelerates, but still below long-term average

Phase 2016 2015 % Change

In Construction 170 132 29%

Final Planning 198 175 13% Planning 174 132 32% Under Contract 542 440 23% *Total US Pipeline, by Phase, ‘000s Rooms, August 2015 and 2016 Source: STR Supply Growth Perspective`

Supply Growth T12 August 2016 1.4%

Supply Growth Forecast 2016 1.6%

Supply Growth CAGR 1987-Present 1.9%

Source: PKF Supply growth by Chain Scale

58.5 55.1

67%

20.0 22.1

6.1 6.9 1.5

Luxury Upper Upscale Upper Midscale Economy Unaffiliated Upscale Midscale Source: STR

*US Pipeline, Rooms Under Construction , ‘000s Rooms, by Scale, August 2016 Run - >2% above Supply Growth Average Average Long Houston

Albany

New York

Omaha

Austin

Pittsburgh Laggards Raleigh-Durham

New Orleans

Seattle

Minneapolis

Jacksonville Research Sacramento

Boston Americas | Anaheim Hotels Salt Lake City

San Diego CBRE

Portland Inc., STR, Orlando Leaders

Oakland Source: San Jose-Santa Cruz

1% 0% 2% Supply Increase & Divergence & Increase Supply Houston

Albany

New York

Omaha

Austin

Pittsburgh

Raleigh-Durham

New Orleans Laggards Seattle Average Minneapolis Run - Jacksonville Long

Sacramento Research

Boston Americas Anaheim | Forecast

Salt Lake City Hotels

San Diego CBRE

In Line In Inc., – Portland

Orlando STR,

Leaders

Oakland Source: San Jose-Santa Cruz Demand Growth Growth Demand 0% 2% 1% 3% 4% 5% 6% Houston

Albany

New York

Omaha

Austin

Pittsburgh

Raleigh-Durham Laggards

New Orleans

Seattle

Minneapolis

Jacksonville

Sacramento Research the

Years! Boston in Americas | Reach Anaheim Will Record Occupancy Levels Coming Salt Lake City Hotels

San Diego CBRE

Portland Inc., Leaders STR, Orlando

Oakland Source:

San Jose-Santa Cruz

Average 4% 2% 0% 8% 6% 4% 2% - - 12% 10% 16% 14% Supply/Demand Dynamics Supply/Demand Historical & Projected Occupancy Performance Occupancy has returned to peak levels. This is most pronounced at luxury and upscale levels, which are often overlooked in high barrier-to-entry markets. Both factors lend to pronounced ADR and value growth. Occupancy By Chain Scale 80%

75%

70% Overall Luxury 65% Upper Upscale Upscale Upper Midscale 60% Midscale Economy 55% Independent

50%

45% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sources: STR, HVS * 2014 & 2015 are PWC Projections Occupancy % Change

8

6 5.5

4.2 3.9 4 2.9 2.3 2 1.5 1.6

0.2 0.6 0.1 0.6 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F -0.5 -2

10 Yr. Avg. -4

-4.8 -6

-8

-8.8 -10 Source: STR Occupancy Performance (’07 Vs. ’15)

80.0% 75.2% 74.5% 74.7% 71.7% 70.5% 69.6% 67.8% 70.0% 65.3% 59.8% 62.0% 61.0% 58.4% 58.8% 60.0% 57.0%

50.0%

40.0% 2007 2015 30.0%

20.0%

10.0%

0.0% Luxury Upper Upscale Upper Midscale Economy Independent Upscale Midscale Source: STR 2015 OCC/ADR YTD % – the shift continues

6 6

5.3 5.1 5.1 5.1 5 5 4.6

4

Occupancy 3 ADR 2.4 2.2 2.2 2.1

2

1.2 1.1

1

0.3

0 Luxury Upper Upscale Upscale Upper Midscale Midscale Economy Independent

Source: STR Rate Dynamics

 In the mature US lodging market, with demand growth for hotel rooms over the last 20 years averaging ~1.8% per year, and indications that this pattern is likely to continue for the foreseeable future, the primary expectation of hotel from their distribution channel partners will be shifting demand share, rather than generating new incremental demand.  Aggregate hotel room demand was found to be relatively inelastic. A reduction in room rate will yield growth in demand, but not enough to offset the lower price charged for the room resulting in a net negative result in room revenue. This generally applies at the property level as well, but can play out differently under certain competitive conditions.  If increases in hotel room rates are not at or above the inflation rate, then the price increases year-over-year are not sufficient to cover the increased cost of doing business. When ADR growth was examined over time the US industry wide ADR in 2010 was approximately $10 below the inflation-adjusted rate charged in 2000. ADR % Change

10

8 7.5 6.6 6.1 6 5.6 5 4.5 4.2 3.8 3.9 4 2.9 10 Yr. Avg. 2

0.1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F

-2

-4

-6

-8

-8.6 -10

Source: STR Real ADR Performance – Previous Cycle

O c 66.0% c u Start: Q1 2001 p 64.0% a n 62.0% c End: Q1 2007 y 60.0% L e v 58.0% e l 56.0%

54.0% $95.00 $100.00 $105.00 $110.00 $115.00 $120.00 $125.00 $130.00

Real Average Daily Rate Level (2014 $’s) OCC Performance – US – Current Cycle

O c 66.0% c Present u p 64.0% Start - 2008 Q1 a n 62.0% c y 60.0% L e v 58.0% e l 56.0%

54.0% $95.00 $100.00 $105.00 $110.00 $115.00 $120.00 $125.00 $130.00

Real Average Daily Rate Level (2014 $’s)

Source: PKF Hospitality Research, STR, Inc. Real ADR Performance – U.S – Current Cycle The Path and Duration of Occupancy and Real ADR Recovery

End - 2016 Q2 O 2014 Q4 c 66.0% c u p 64.0% Forecast a n 62.0% Occupancy Level c y At Real Cycle Cycle ADR 60.0% L Start - 2008 Q1 Cycle Start Peak Recovery Delta e 1990 64.4% 64.8% 64.3% -0.1% v 58.0% 62.9% -0.2% e 2001 63.1% 63.5% l 2008 62.3% 65.8% 65.4% 3.1% 56.0% Current Cycle – March 2015 Forecast

54.0% $95.00 $100.00 $105.00 $110.00 $115.00 $120.00 $125.00 $130.00

Real Average Daily Rate Level (2014 $’s) Real ADR Performance - US

The Path and Duration of Occupancy and Real ADR Recovery

O 66.0% c 1997 Q1 c u 64.0% p 1990 Q2 a n 62.0% c Duration: y 6 Years – 3 Quarters 60.0% L e v 58.0% e l 56.0%

54.0% $95.00 $100.00 $105.00 $110.00 $115.00 $120.00 $125.00 $130.00

Source: PKF Hospitality Research, STR, Inc. ADR – Nominal (-’05 – ’15) By year-end 2013, nationwide average rate surpassed the prior 2008 peak. Due to the limited amount of new supply and the strong demand over the past several years, hoteliers will continue to focus on rate growth, which should outpace the rate of inflation over the next several years. Nominal ADR 140

120 120 115.18 110.34 107.4 104.32 106.15 101.7 97.82 98.07 98.06 100 91.04 86.19 84.66 83.62 82.54 82.67 80

Nominal ADR 60

40

20

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: STR ADR – Actual Vs. CPI Adjusted

125

120.73 120 117.37 116.79 115.29 115.00 115 112.91

110.59 110.06 110 107.4 107.21 105.85 105.48 106.15 105 104.32 101.94 101.7 Nominal ADR 99.12 100 97.82 98.07 98.06 CPI Adjusted ADR 96.02

95 92.87

90.46 91.04 90 88.45 87.07 86.19 84.66 85 83.62 82.54 82.67

80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: STR Houston

rates Albany nation

grow New York the

will Omaha than Austin laggards slower Pittsburgh All Raleigh-Durham

New Orleans

Seattle Laggards

Minneapolis

Jacksonville

Sacramento Research

Boston Americas

Anaheim |

Salt Lake City Hotels

San Diego CBRE

Portland Inc., Leaders

Orlando STR,

Oakland Source:

Growth San Jose-Santa Cruz

steady demand steady ADR 2% 0% 8% 6% 4% 2% - 10%

Average

Market ADR Market

behind behind Leaders will continue to grow ADR as new development lags new ADR development as grow to continuewill Leaders Houston

Albany

New York

Omaha

Austin

Pittsburgh

Raleigh-Durham

New Orleans

Seattle Forecast Laggards Minneapolis

Jacksonville National Sacramento Research Boston

Anaheim Americas | Forecast Salt Lake City Hotels

San Diego Leaders CBRE Portland Inc.,

Orlando STR,

Oakland Source: San Jose-Santa Cruz

2% 0% 6% 4% 8% 4% 2% - - 10%

Market ADR Market Supply Growth erodes pricing power pricing erodes Growth Supply Real RevPAR Change

10.0% 5.9% 5.3% 5.3% 6.6% 3.9% 4.7% 4.9% 3.3% 4.4% 4.5% 3.8%4.1% 5.0% 3.4% 3.0% 1.8% 0.6% 1.2% 0.4% 0.5% 0.0%

-1.4%

-5.0% Forecast

-4.1% -4.6% RealADR^ -6.1% -10.0% -6.7% Occ

Supply^

-15.0% -12.7%

Lower Supply Growth Leads to Higher RevPAR Increases this Time Around -20.0% RevPAR Components and Changes in NOI

20%

10%

0%

-10%

-20%

-30%

-40%

Occupancy A.D.R. Change in NOI*

Source: PKF Hospitality Research, a CBRE Company, 2015 Trends® in the Hotel Industry report. US Overview Colors represent 2015 year over year change in RevPAR

12 36 11 NYC Monthly RevPAR % Change: Declining

3.0 3.2

0.5

-1.5 -1.7 -2.4

-4.1 -4.0 -4.3 -4.5 -4.9

-6.5

Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug

* NYC RevPAR % Change, by Month, 9/2015 – 8/2016 Source: STR, Inc. Historical RevPAR Trend By Chain Scale Projected RevPAR Growth RevPAR Growth is anticipated to be in the 5.5% -6.5% range across 8% all chain scales for the next two years, with outperformance coming 6% from the Luxury and Upper Upscale Segments. RevPAR growth will 4% decelerate after that, though should remain strong through 2017. 2% 2014 0% 2015

RevPAR Growth By Chain Scale $300

$250

$200

$150

$100

$50

$0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Overall Luxury Upper Upscale Upscale Upper Midscale Midscale Economy Independent

Source: STR RevPAR % Change

10 8.7 8.2 8.3 7.7 7.3 6.6 6.5 6.1 5.4 5.4 5

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F

-2

-5 Long Term Avg % Change%

-10

-15

-16.7

-20

Source: STR Historical RevPAR Trend - Luxury Categorized By Larger RevPAR Swings

Nominal RevPAR - %Δ

15.0%

10.0%

5.0%

Overall

0.0% Luxury 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Upper Upscale Upscale -5.0% Upper Midscale Midscale -10.0% Economy Independent

-15.0%

-20.0%

-25.0%

Source: STR Historical Profitability

Total Revenue & Profitability 200

180

160

140

120

100

80

60

40

20

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Revenue House Profit

Source: STR Bottom-line performance Percent of Hotels** Posting an Increase in Total Revenue or Profits From Prior Year

(*) - Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.

(**) - Trends® in the Hotel Industry sample.

100%

86.2% 80.8% 79.3% 80% 77.1% 78.2% 70.2% 72.3% 70.4% 70.4% 67.4% 61.6% 58.9% 60% 47.9% 44.4%

40%

20% 8.6% 4.5%

0% 2007 2008 2009 2010 2011 2012 2013 2014 Revenue Profits**

Source: PKF Hospitality Research, a CBRE Company, Trends® in the Hotel Industry reports. Performance Forecast

Outlook

2016 2017 Forecast Forecast

Supply 1.6% 2.0%

Demand 1.6% 1.6%

Occupancy 0.0% -0.3%

ADR 3.2% 3.1%

RevPAR 3.2% 2.8%

Source: PKF Hospitality Research, a CBRE Company, Trends® in the Hotel Industry reports. US 2016 Performance Forecast

Occupancy ADR RevPAR ChainScale (%chg) (%chg) (%chg)

Luxury -0.4% 2.8% 2.3% UpperUpscale -0.1% 3.0% 2.9% Upscale -0.4% 3.0% 2.6% UpperMidscale -0.1% 2.8% 2.7% Midscale -0.3% 2.8% 2.5% Economy -0.5% 3.3% 2.8% Independent 0.4% 3.3% 3.6% Total US 0.0% 3.2% 3.2%

Source: PKF Hospitality Research, a CBRE Company, Trends® in the Hotel Industry reports. US 2017 Performance Forecast

2017 Year End Outlook

Occupancy ADR RevPAR ChainScale (%chg) (%chg) (%chg)

Luxury -0.3% 3.5% 3.2% UpperUpscale -0.3% 3.4% 3.0% Upscale -1.1% 2.7% 1.5% UpperMidscale -0.8% 2.7% 1.9% Midscale 0.1% 2.7% 2.8% Economy 0.0% 2.6% 2.6% Independent -0.4% 3.2% 2.8% Total US -0.3% 3.1% 2.8%

Source: PKF Hospitality Research, a CBRE Company, Trends® in the Hotel Industry reports. Performance Forecast

Long Run Average 2013 2014 2015 2016 2017 Supply 1.9% 0.6% 0.7% 1.1% 1.8% 2.3%

Demand 2.0% 2.0% 4.3% 2.9% 2.1% 1.8%

Occupancy 62.0% 62.2% 64.4% 65.5% 65.7% 65.4%

ADR 3.0% 3.8% 4.5% 4.4% 5.2% 5.3%

RevPAR 3.2% 5.2% 8.2% 6.3% 5.5% 4.7%

Source: CBRE Hotels’ Americas Research -- Hotel Horizons® March – May 2015, 2016 STR, Inc. Global RevPAR Performance Global recovery underway since 2010, though growth has been market-specific and uncorrelated.

North America Asia +3.2% Europe -0.3% +2.8% Central America +1.8% Middle East Northern Africa -10.2% South America-2.8% +4.3% Australia& Oceania Southern Africa +7.0% +4.2%

Source: STR RevPAR Growth

30 Europe AsiaPac Middle East / Africa Americas

20

10

0

-10

-20

-30 2009 2010 2011 2012 2013 2014 2015

*Luxury Class, RevPAR % Change in US $, by Region, 12 MMA 1/2009 – 8/2014 Source: STR. Supply & Demand % Change, July 2016 YTD

Supply Demand 5.0% 5.1% 3.6% 3.6% 3.1% 2.8% 1.6% 1.5%1.3% 1.1% 1.2% 1.3% 0.8% 0.7%

-2.8% -3.7%

North Central South Europe Middle East Africa Asia Australia & America & America America Oceania Caribbean

Source: STR. Top Global Markets By Active Pipeline (Next 5 Years)  Future global pipeline continues to be weighted towards Asia.  Supply growth below historical averages, coupled with strong demand, should continue to drive RevPAR growth over foreseeable future. Stage of RevPAR growth very market dependent.

0 100 200 300 400 500 600 700 East China excl Hangzhou South Central China Regional Western China Saudi Arabia Number of Rooms New York, NY Indonesia excluding Bali Number of Projects Hainan Russia • 7 of top 21 markets are in China. Central India • 14 of top 21 markets are in Asia and Mideast Dubai regions South India Greater London • Only other markets: NY, Russia, London, Malaysia Turkey, Brazil, Las Vegas, and DC. Brazil Area Las Vegas, NV Philippines Northeast China Washington, DC-MD-VA Shanghai North China excl Tianjin Delhi-NCR 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 *Pipeline includes current construction, and all phases of development pipeline Source: STR What is being developed?? Top Global Markets – Supply (Last 5 Years)

 Global development heavily weighted to Asia, and primarily China.  Western supply growth has been largely constrained, particularly in context of growing demand.

0 250 500 750 East China excl Hangzhou South Central China Regional Western China Shanghai Rooms Hotels Beijing Dubai Northeast China New York, NY Indonesia excluding Bali • 7 of top 11 markets are in China. Greater London North China excl Tianjin • 17 of top 21 markets are in Asia and Mideast regions Turkey • Only other markets: NY, London, Turkey, Russia, and Bangkok Las Vegas. Russia Central India Saudi Arabia South India Abu Dhabi Las Vegas, NV Malaysia Singapore Hainan

0 25,000 50,000 75,000 Source: STR Development/Investment Climate Is now a good time to be investing?  Expected RevPAR gains now through 2017 to be in-line of historical average (2.9%).  Supply growth is accelerating  Occupancy levels are reaching their cyclical peak  Robust ADR Growth  Hotel values exceeding replacement cost  Interest rates for development and acquisition purposes remain at historically low levels, yet tougher to acquire. However, how will they trend in the future?  Combination of attractive interest rates, increased availability of capital, and healthy industry performance has made the lodging sector very attractive.  Many assets for sale.  Cap rates are at some of lowest levels on records – a function of interest rates, dearth of product, equity and debt coming to market and aggressive buyers.  Lodging assets have consistently offered the most attractive yields when compared with other major real estate classes. Ho % Percentage 10.0 11.0 12.0 t 5.0 6.0 7.0 8.0 9.0 el s Source: Mai Regional PWC PWC n PWC - - t Select Full ain Mall Real - Service - R Service Estate e turn Investor P r Survey emium Apartment Suburban PWC - Luxury Office CDB PWC Office - Limited - Service Transaction Market Overview  Key Issues to Consider going forward: How long is the cycle? – During the 1990’s, the hotel industry saw 9 years of positive RevPAR growth – Last cycle was 5.5 years – We’re about 6.5 years into this uptrend – If you average the last two, means you have .5 more years to go

Second key issue: – Terminal Cap Rates – where should they be? • Over the last ten years – Full service about 250 bps above 10 year treasuries – Select Service about 350 bps above 10 year treasuries – Treasuries today are artificially manipulated to be lower than they should be to stimulate economic growth – Result is cap rates across the spectrum.

Source: STR % Percentage 2015 10 15 20 25 Comparative 0 5 Source: Historical 6.4 HVS 8.2 Rates NOI 9.2 Full of Return Service 7.1 1st Year 8.7 NOI SS 9.9 & ES Ltd. 10.4 Discount Service 10.7 Rate 12.2 17.5 Equity 18.9 IRR 21.4 Derived % Percentage 10.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Source: Cap 6.1 Rates HVS 5.8 Full Hotels Ticking Service 6.2 6.7 (based 6.4 Up For on 7.7 historical Select 7.4 SS 7.4 & Service ES 7.8 NOI) 8.2 9.5 9.3 Ltd. 9.2 Service 9.0 9.2 2015 2014 2013 2012 2011 Slight % Percentage 10.0 12.0 0.0 2.0 4.0 6.0 8.0 Source: Uptick PWC 9.8 PWC - 5 in Full Real 8.3 Years Terminal - Service Estate 8.4 Ago Investor (2011H1) PWC Cap Survey 9.1 7.4 - Rates Luxury 7.3 1 Year For Ago PWC Select 10.0 (2015H1) Service - 9.6 Limited Service 9.5 - 2016H1 Hotels 10.5 PWC Service 8.7 - Select 9.0 - Major Hotel Sales Transactions (Assets $10M+)

Average Price Year Hotels Sold % Change Per Room % Change 2016Q1 131 -35% $199,954 -30% 2015Q1 269 286,860

2015 757 1% 248,707 19% 2014 750 53% 209,414 5% 2013 489 29% 198,707 5% 2012 378 -16% 189,478 -4% 2011 450 87% 196,945 6% 2010 241 205% 185,147 46% 2009 79 -72% 126,843 -30% 2008 286 -62% 182,257 4% 2007 750 3% 175,803 -9% 2006 725 15% 193,925 22% 2005 632 158,550

Source: Real Capital Analytics (RCA) Portfolio Sales Drove Overall Sales Volume Notable Portfolio Sales Since 2015

December 2015 Buyout December 2015 Properties: 53 (Extended Stay) Properties: 16 (Full Service) Buyer: DW Crossland Owner LLC Buyer: Blackstone Real Estate Partners VIII L.P. Seller: ESH Hospitality, Inc. Seller: Strategic Hotels & Resorts, Inc. Price: $285,000,000 Price: $6,000,000,000 Price/Room: $57,046 Price/Room: $792,498

May 2015 Properties: 10 Waterpark Lodges Merger January 2015 Buyer: Centerbridge 183 (Select Service) Seller: Great Wolf Lodge Buyer: Starwood Capital Group Price: $1,350,000,000 Seller: TMI Hospitality, Inc. Price/Room: $377,200 Price: $1,100,000,000 Price/Room: $81,857

Source: Real Capital Analytics (RCA) Sales Exceeding $1 Million Per Key Since 2015

Source: HVS and RCA Sales Exceeding $1 Million Per Key Since 2015

Source: HVS and RCA Luxury Hotel Cap Rates in High Barrier to Entry Markets

Location Sale Date Price Rooms Price/Rm Overall Cap San Diego, California Apr-15 $260,227,273 249 $1,045,089 2.2%

San Francisco, California Feb-15 $530,000,000 1,024 $517,578 5.0% Malibu, California Feb-15 $79,900,000 47 $1,700,000 3.2% Laguna Beach, California Jan-15 $360,000,000 248 $1,451,613 5.0% Honolulu, Hawaii Oct-14 $286,238,820 338 $846,860 2.6% Seattle, Washington Jul-14 $62,000,000 120 $516,667 3.4% Wailea Maui, Hawaii Jul-14 $325,500,000 544 $598,346 5.2% Fort Lauderdale, Florida Jul-14 $159,000,000 296 $537,162 2.2% New York, New York Jun-14 $273,600,000 480 $570,000 2.1% Coronado, California Jun-14 $787,000,000 757 $1,039,630 4.8% Napa, California Jun-14 $60,000,000 86 $697,674 5.4%

Source: Real Capital Analytics (RCA)/HVS Hotel Cap Rates in Energy Driven Markets With Low Barriers to Entry

Location Sale Date Price Rooms Price/Rm Overall Year Cap Opened Kenedy, Texas Jan-15 $8,700,000 68 $127,941 33.6% 2013

Pearsall, Texas Aug-14 $9,300,000 66 $140,909 8.5% 2012 Cotulla, Texas Aug-14 $9,990,000 73 $136,849 23.1% 2013 Pleasanton, Texas Aug-14 $8,900,000 63 $141,270 25.1% 2012 Beeville, Texas Dec-13 $8,700,000 70 $124,286 9.9% 2012 Odessa, Texas Aug-13 $12,000,000 118 $101,695 35.4% 1973 Sonora, Texas Aug-13 $3,900,000 54 $72,222 18.6% 2000 Midland, Texas Apr-13 $6,500,000 66 $98,485 16.0% 2009 Victoria, Texas Feb-13 $9,500,000 82 $115,854 25.0% 2009 Hobbs, New Mexico Jan-13 $2,750,000 54 $50,926 15.6% 1996

Source: Real Capital Analytics (RCA)/HVS Long-Term Compound Growth – 1987-2017 1Miami 11% 2Austin 10% 3New York 9% 4Omaha 8% 5Oahu 8% 6Houston 7% 7San Francisco 7% 8Portland 7% 9Denver 6% 10New Orleans 6% United States 5%

Source: HVS Development Climate Is now the time to develop? Hotel development outlook.

New hotel construction increases when two factors occur concurrently:  Hotel operating fundamentals are strong and;  Reasonably priced financing for new construction is readily available.  Hotel fundamentals are strong, aided by the lack of significant new supply over the past several years.  The occupancy levels of many hotel markets have fully recovered, leading the way for strong ADR growth.  Hotel net income in strong markets has or will soon reach the level necessary to support new development of certain lodging products. However, many markets continue to lag the recovery and will not be supportive of new hotel development for several years. While developers in strong markets look to finance their projects, favorably priced debt for new projects has remained scarce.  Those seeking financing are reaching out to other sources than traditional lenders such as debt REITs, private debt funds, and EB-5 programs. The EB-5 program allows investors with a minimum investment of $500,000 to $1,000,000 depending on the area, to receive a visa for a two-year residency which can be converted into a green card if the investment generated at least 10 jobs. Sourcing financing for development projects remains challenging in the current environment.  Despite the strong improvement in operating fundamentals, the volume of new hotel construction remains below the peak, though this will change.  Another key consideration also motivates hotel developers: that building a new hotel will offer a better investment opportunity than buying an existing asset.

Source: STR, HVS, Capital West Buy Vs. Build

Acquisition Cost Development Cost

800

600

400 Thousands

200

0 Luxury Upper Upscale Upscale Upper Midscale Midscale Economy

Source: HVS Construction In Top 26 Markets: 24 With 2%+ Of Supply

Market RoomsU/C %OfExisting

Orlando,FL 1,129 1%

Norfolk/VirginiaBeach,VA 456 1%

Atlanta,GA 1,580 2%

OahuIsland,HI 585 2%

LasVegas,NV 3,859 2%

StLouis,MO-IL 943 2%

Detroit,MI 1,054 2%

Phoenix,AZ 1,674 3%

SanDiego,CA 1,866 3%

SanFrancisco/SanMateo,CA 1,580 3%

Washington,DC-MD-VA 3,501 3%

Anaheim/SantaAna,CA 1,954 3%

Chicago,IL 3,970 4%

NewOrleans,LA 1,381 4%

Boston,MA 2,076 4%

Tampa/StPetersburg,FL 1,878 4%

Philadelphia,PA-NJ 2,220 5%

Minneapolis/StPaul,MN-WI 1,951 5%

Miami/Hialeah,FL 3,067 6%

LosAngeles/LongBeach,CA 5,633 6%

Dallas,TX 5,143 6%

Houston,TX 5,625 7%

Nashville,TN 2,703 7%

Seattle,WA 3,358 8%

Denver,CO 4,297 10%

NewYork,NY 16,301 14% *US Pipeline, Top 26 Markets, U/C Rooms as % of Existing Supply, August 2016 Source: STR Supply impacting some markets differently

Market OCC% ADR%Change LosAngeles/LongBeach,CA 83.3 9.2 Nashville,TN 76.2 6.3 Denver,CO 76.0 6.2 SanFrancisco/SanMateo,CA 85.1 6.1 Tampa/StPetersburg,FL 74.9 6.1

NewOrleans,LA 69.6 0.1 Chicago,IL 69.4 -0.3 Miami/Hialeah,FL 78.7 -2.0 Houston,TX 64.5 -2.5 NewYork,NY 84.4 -2.9

* August 2016 YTD ADR % Change in Top 25: 5 Best / 5 Worst PerformingADR % Markets Highest Short-Term Supply Risk

Highest Short-Term Supply Risk 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% • New York City Area, NY 63.4% • Miami CBD/North, FL 62.6% • Austin CBD, TX 47.6% • Houston CBD, TX 47.2% • Houston North/Woodlands, TX 46.5% Bellevue/East, WA 45.5% Nashville CBD, 43.7% TN West Plano/Frisco, TX 40.0%

Lower Manhattan, NY 35.5%

Source: HVS Total US – Rooms In Construction & Under Contract – 12MMA

Monthly Numbers of Room Opens, 12-Month Moving Average, July 2015 – December 2019 18,000 16,000 • Dates could slip, rounding off the peak. 14,000 • Openings after that could be affected by 12,000 projects entering Pipeline now. 10,000

8,000 In Construction 6,000 Under Contract 4,000 2,000 0 201507 201601 201607 201701 201707 201801 201807 201901 201907

Source: STR Historical Supply Growth by Scale

Luxury Chains Upper Upscale Chains 1,000,000 Upscale Chains Upper Midscale Chains Midscale Chains Economy Chains 800,000

600,000

400,000

200,000

0

*Total US Supply Growth over 27 years by Scale Number of Rooms, 12-month moving average Jan 1988 through June 2015

Source: STR What’s In Construction Today (by Scale)?

(Rooms in 000’s)

*US Pipeline, Rooms Under Construction by Scale June 2015

Source: STR New Hotels w/ 50,000+ Sqft Meeting Space

9 8

6

3 2 2 2 2

2008 2009 2010 2011 2013 2014 2015 YTD 2016 Total U.S. Count of New Hotels with 50k+ Sqft of meeting space By year, 2008 – YTD 2016

Source: STR What’s In Construction (by Size)?

*Total US – Hotel Rooms In Construction by Size Category June 2015

Source: STR Who’s Building?

Holiday Inn Express 30,558 Hampton Inn & Suites 21,286 Residence Inn 19,241 Fairfield Inn 19,148 Home2 Suites 18,973 Courtyard 17,250 Hilton Garden Inn 15,445 TownePlace Suites 12,851 Homewood Suites 12,750 Springhill Suites 11,611 Holiday Inn 11,508 La Quinta Inns & Suites 11,497 Hampton Inn 8,836 Staybridge Suites 8,527 Hyatt Place 7,208 *US Pipeline, Under Contract Pipeline by Brand June 2015

Source: STR Top Countries – New Opens in Last 5 Years 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 United States China United Kingdom India United Arab Emirates Rooms Hotels Germany Indonesia Canada Thailand • US and China far surpass other countries Mexico Japan • Next group: UK, India, and UAE. Turkey • Third group: Germany, Indonesia, Canada, Spain Thailand, and Mexico. Australia Russia • Additional countries include: Turkey, Russia, Saudi Italy Arabia, Malaysia, and Brazil. Saudi Arabia France Malaysia Singapore Brazil 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000

Source: STR Top Global Markets – New Opens in Last 5 Years 0 250 500 750 East China excl Hangzhou South Central China Regional Western China Shanghai Rooms Hotels Beijing Dubai Northeast China New York, NY Indonesia excluding Bali • 7 of top 11 markets are in China. Greater London • 17 of top 21 markets are in Asia and Mideast North China excl Tianjin regions Turkey • Only other markets: NY, London, Turkey, Russia, Bangkok and Las Vegas. Russia Central India Saudi Arabia South India Abu Dhabi Las Vegas, NV Malaysia Singapore Hainan 0 25,000 50,000 75,000

Source: STR Top Countries with Most Rooms in Active Pipeline 0 500 1,000 1,500 2,000 2,500 3,000 3,500 United States China India United Kingdom Number of Rooms United Arab Emirates Saudi Arabia Number of Projects Indonesia Canada Brazil • US and China still at top. Russia Malaysia • 15 of top 21 countries are in Asia Pacific and Thailand Mideast regions Philippines • Others include: UK, Canada, Brazil, Russia, Germany Germany, and Mexico Mexico Turkey Japan Qatar Australia Vietnam Egypt Morocco 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000

Source: STR Top Global Markets with Most Rooms in Active Pipeline 0 100 200 300 400 500 600 700 East China excl Hangzhou South Central China Regional Western China Saudi Arabia Number of Rooms New York, NY Indonesia excluding Bali Number of Projects Hainan Russia Central India Dubai • 7 of top 21 markets are in China. South India Greater London • 14 of top 21 markets are in Asia and Malaysia Mideast regions Brazil Area Las Vegas, NV • Only other markets: NY, Russia, Philippines London, Turkey, Brazil, Las Vegas, and Northeast China DC. Washington, DC-MD-VA Shanghai North China excl Tianjin Delhi-NCR 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Source: STR US Supply Growth over 27 years by Scale – ’88 – ‘14

Luxury Upper Upscale

800,000 Upscale Upper Midscale

Midscale Economy

600,000

400,000

200,000

0

• Economy leveling off since Q1 of 2010 (99%) • Midscale decreasing since Q2 of 2010 (24%) Source: STR US Supply Growth over 27 years by Location

1,800,000 Urban Suburban

1,600,000 Airport Interstate Resort Small Town 1,400,000 • Largest growth in Suburban (90%) • then Interstate (80%) • then Airport (70%) 1,200,000 • then Small Town (59%)

1,000,000

800,000

600,000

400,000

200,000

0

• Moderate growth in Resort (42%) and less in Urban (35%) for understandable reasons US Supply Growth over 27 years by Size

1,800,000 Less Than 75 Rms 75-149 Rooms 150-299 Rooms

1,600,000 300-500 Rooms GT 500 Rooms

1,400,000

1,200,000 • Largest growth in “75-149” group (156%) • then “GT 500” group (96%) 1,000,000 • then “150-299” group (81%)

800,000

600,000

400,000

200,000

• Moderate growth in “300-500” group (64%) • Decline in “Under 75” group (-1%), peaked in 2001 US Supply Growth over 27 years by Hotel Type

Extended Stay Boutique All-Suite Convention Casino Destination Resort

600,000 • Largest growth in Extended Stay (2000%), then All-Suites (350%). • Next largest growth in Casino 400,000 (188%), then Boutique (115%, but note increase since 2008).

200,000

0

• Moderate growth for Convention (68%), then Destination Resort (63%).

Source: STR New York – Past Room Opens by Scale over time

600 Indep • Lots of Upscale (2013) and Independent Upscale 500 throughout. Upper Midscale Upper Upscale • Upper Midscale in 2009. 400 Luxury Midscale Economy 300

200

100

0 2006 2007 2008 2009 2010 2011 2012 2013 2014

• Luxury and Upper Upscale in 2010. • Little bits of Midscale (2011) and Economy throughout. New York – Past Room Opens by Tract over time

• Most growth in Lower Manhattan in 2009-11. NY Area • Next most in Times Square Lower Manhattan 250 in 2010-11, then 2014. Upper/Midtown Rockland/Westchester • Moderate growth in NY Times Square 200 Area throughout time.

150

100

50

0 2006 2007 2008 2009 2010 2011 2012 2013 2014

• Minimal growth in Upper/Midtown and Rockland/Westchester. New York - Top 10 Chains for Last 9 Years – Room Opens by Year

2006 2007 2008 2009 2010 2011 2012 2013 2014 1,000 • Most Rooms Opened in 2013 (2923). • Then in 2010, 2009, and 2008 (1843, 1688, and 1575).

800

600

400

200

0

• Moderate Opens in 2006 and 2007 (721 and 585). • Fewest Opens in 2012 and 2011 (274 and 330) Markets 100 120 140 160 60 80 U.S. 20 40 0 Source: 1989 Decline Markets Growth 1990

STR 1991 1992 1993 TTM 1994 1995

1996 RevPAR 1997 1998 1999

2000 Change 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 - - - - 0% 5% 10% 15% 20% 15% 10% 5%

U.S. RevPAR Change U.S. Tracts by TTM RevPAR Change

Source: STR $ in Billions Historical $35 $40 $45 $10 $15 $20 $25 $30 $0 $5 Source: Sales Real Capital (Total Analytics Sales Assets (RCA) Volume ($ >$2.5M) in Billions) +30% Price Per Key $185,222 $138,361 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000

Price Per Key