Proposed La Quinta Inn & Suites La Habra

MARKET STUDY Proposed La Quinta Inn & Suites La Habra

701 EAST IMPERIAL HIGHWAY LA HABRA, CALIFORNIA

SUBMITTED TO:PR OPOSED PREPARED BY: Mr. Kamlesh Patel HVS Consulting & Valuation Kamlesh Patel Division of TS Worldwide, LLC 7736 Atlantic Avenue 10121 SE Sunnyside Road, Suite 235 Cudahy, California, 90201 Clackamas, Oregon, 97015

+1 (323) 253-7894 +1 (970) 227-7799

April-2018

April 16, 2018

Mr. Kamlesh Patel Kamlesh Patel 7736 Atlantic Avenue Cudahy, California, 90201

HVS PORTLAND Re: Proposed La Quinta Inn & Suites La Habra 10121 SE Sunnyside Road, Suite 235 Clackamas, Oregon, 97015 La Habra, California +1 (970) 227-7799 HVS Reference: 2017021345 +1 (415) 896-0516 FAX www.hvs.com Dear Mr. Patel:

Pursuant to your request, we herewith submit our market study pertaining to the

above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the La Habra, California area. We have studied the proposed project, and the results of our fieldwork and analysis are presented in this report. We have also reviewed the proposed improvements for this site.

We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings. This study is subject to the comments made throughout this report and to all assumptions and limiting conditions set forth herein.

Sincerely, TS Worldwide, LLC

Kasia M. Russell, MAI, Managing Director, Senior Partner [email protected], +1 (970) 227-7799

Superior results through unrivaled hospitality intelligence. Everywhere.

Table of Contents

SECTION TITLE PAGE 1. Executive Summary 1 Subject of the Market Study 1 Ownership, Franchise, and Management Assumptions 2 Summary of Hotel Market Trends 2 Summary of Forecast Occupancy and Average Rate 6 Summary of Forecast Income and Expense Statement 6 Scope of Work 9 2. Description of the Site and Neighborhood 11 Physical Characteristics 11 Access and Visibility 14 Airport Access 16 Neighborhood 16 Proximity to Local Demand Generators and Attractions 17 Flood Zone 19 Zoning 21 3. Market Area Analysis 22 Workforce Characteristics 26 Radial Demographic Snapshot 30 Unemployment Statistics 32 Major Business and Industry 33 Office Space Statistics 35 Convention Activity 37 Airport Traffic 39 Tourist Attractions 43 4. Supply and Demand Analysis 47 Definition of Subject Hotel Market 47 National Trends Overview 47

Anaheim-Santa Ana, CA Lodging Market 51 Historical Supply and Demand Data 53 Seasonality 55 Patterns of Demand 58 Primary Competitors 61 Secondary Competitors 71 Supply Changes 73 Demand Analysis Using Market Segmentation 75 Base Demand Growth Rates 77 Latent Demand 78 Unaccommodated Demand 78 Induced Demand 79 Accommodated Demand and Market-wide Occupancy 79 5. Description of the Proposed Improvements 82 Project Overview 82 Summary of the Facilities 83 Site Improvements and Hotel Structure 83 Public Areas 84 Guestrooms 87 Back-of-the-House 89 ADA and Environmental 89 Capital Expenditures 89 6. Projection of Occupancy and Average Rate 90 Historical Penetration Rates by Market Segment 90 Forecast of Subject Property’s Occupancy 91 Average Rate Analysis 94 Competitive Position 94 7. Projection of Income and Expense 99 Comparable Operating Statements 99 Forecast of Revenue and Expense 103 Rooms Revenue 106

Other Operated Departments Revenue 106 Miscellaneous Income 106 Rooms Expense 107 Other Operated Departments Expense 107 Administrative and General Expense 108 Information and Telecommunications Systems Expense 108 Marketing Expense 108 Franchise Fee 109 Property Operations and Maintenance 109 Utilities Expense 110 Management Fee 111 Property Taxes 111 Insurance Expense 112 Reserve for Replacement 113 Forecast of Revenue and Expense Conclusion 114 8. Statement of Assumptions and Limiting Conditions 116

Addenda

Qualifications

1. Executive Summary

Subject of the The subject of the market study is a 92,114-square-foot (2.11-acre) parcel to be Market Study improved with a Limited-Service lodging facility; the hotel will be affiliated with the La Quinta Inn & Suites brand. The property, which is expected to open on March 1, 2020, will feature 91 rooms, a breakfast dining area, a bar, an outdoor pool, a fitness room, a business center, a market pantry, a guest laundry room, and vending areas. The hotel will also contain the appropriate parking capacity (144 surface) and all necessary back-of-the-house space.

RENDERING OF PROJECT

The proposed subject hotel will located within a mixed-use development; however, the hotel component will be solely owned by the hotel developer, Kamlesh Patel and Janak Patel, and independent of the remaining portion of the development. Reportedly, the mixed-use development will include a medical office and two restaurants. However, the development plan is tentative and the site is currently vacant. It should be noted that the subject hotel, once developed, will be the first branded hotel in La Habra. According to the developer, the proposed hotel will be developed based on La Quinta's Del Sol prototype. The subject site’s location is 701 East Imperial Highway, La Habra, California, 90631.

Pertinent Dates The effective date of the report is April 9, 2018. The subject site was originally inspected by Kirsten Z. Smiley on June 15, 2016. The subject site was not inspected as a part of this engagement. In addition to the inspection, Kirsten Z. Smiley participated in the research for this assignment and assisted in the report’s preparation. Kasia M. Russell, MAI participated in the analysis and reviewed the findings, but did not personally inspect the property.

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Ownership, Franchise, The developers of the proposed subject hotel are Kamlesh Patel and Janak Patel. The and Management subject site is now under contract for purchase by Janak Patel for a reported price Assumptions of $2,993,705 (approximately $32.50 per square foot); the site was listed for sale for $35.00 per square foot by the seller, Sunny Investments LLC and the Gregory S. Jones Revocable Trust. The seller has owned the site since 2004 when it purchased the parcel from Jacques and Henriette Y. D'Arlin for an undisclosed price. No transfers of the property have reportedly occurred since 2004.

Details pertaining to management terms were not yet determined at the time of this report; however, we assume that the proposed hotel will be managed by a professional hotel-operating company, with fees deducted at rates consistent with current market standards. We have assumed a market-appropriate total management fee of 3.0% of total revenues in our study.

The proposed subject hotel will operate under a franchise agreement with La Quinta Franchising LLC as a La Quinta Inn & Suites; the agreement has been executed and will span 20 years. Based on our review of the agreement’s terms or expected terms, the La Quinta Inn & Suites franchise is reflected in our forecasts with a royalty fee of 4.5% of rooms revenue, and a marketing assessment of 2.5% of rooms revenue.

Summary of Hotel We note that the Embassy Suites Brea is not included in the trend report due to the Market Trends ordering restrictions placed by STR. RevPAR first peaked at approximately $71 for this selected set of hotels in the northern Orange County market in 2007, before declining to a low point of roughly $53.54 by year-end 2009 because of the recession. A recovery began in 2010 that extended through 2013, at which time the 2007 RevPAR peak was exceeded. RevPAR continued to rise from 2014 through 2017, with growth driven largely by the export and manufacturing industries. Furthermore, the gradually recovered housing market enables the rebound of the mortgage lending industry, which is a key factor of economic growth for the Los Angeles Basin. Additionally, the emerging information technology industry helps Orange County slowly transition into a knowledge-based, high-tech economy, which provides more high-wage jobs and stronger economic growth potential. The increasing personal disposable income and the lower gas prices have also contributed to the stronger domestic travel.

Year-to-date data illustrate a softening in occupancy and a roughly $2.00 gain in average rate. The near term outlook is cautionary due to the entrance of new supply. However, low gas prices and increased personal income are expected to strengthen domestic travel, which should continue to boost the tourism in the area. The several industrial developments in the northern Orange County also mark a positive note for the demand growth in the market.

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The following table provides a historical perspective on the supply and demand trends for a selected set of hotels, as provided by STR.

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

Average Annual Compounded Change: 2007 - 2010 0.0 (1.4) (4.5) (5.8) 2010 - 2016 (0.0) 2.8 4.9 7.8 Competitive Number Year Year Hotels Included in Sample Class Status of Rooms Affiliated Opened Holiday Inn Buena Park Near Knott's Upper Midscale Class Secondary 249 Dec 1973 Dec 1973 Holiday Inn La Mirada Upper Midscale Class Secondary 292 Apr 2010 Ma r 1984 Days Inn Fullerton Economy Class Secondary 123 Apr 2011 Ma r 1986 Fairfield Inn & Suites Anaheim North Buena Park DisneyUpper Midscale Class Primary 137 Aug 2011 Nov 1986 Courtyard Anaheim Buena Park Upscale Class Secondary 145 Dec 1986 Dec 1986 Chas e Sui tes Brea Upper Midscale Class Secondary 88 Jun 2008 Aug 1987 La Quinta Inns & Suites Buena Park Midscale Class Primary 160 Jan 1994 Nov 1987 Holiday Inn & Suites Anaheim Fullerton Upper Midscale Class Primary 96 Dec 2008 Aug 1989 Marriott Fullerton @ California State University Upper Upscale Class Secondary 224 Oct 1989 Oct 1989 Courtyard Los Angeles Hacienda Heights Upscale Class Secondary 150 Mar 1990 Ma r 1990 Holiday Inn Express Fullerton Anaheim Upper Midscale Class Primary 100 Jun 2017 Jun 2017

Total 1,764 Source: STR

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

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FIGURE 1-2 PRIMARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Weighted Weighted Annual Annual Number of Room Room Occupancy Yield

Property Rooms Commercial Leisure Group Count Occ. Average Rate RevPAR Count Occ. Average Rate RevPAR Penetration Penetration

Embassy Suites Brea 228 50 % 30 % 20 % 228 75 - 80 % $160 - $170 $125 - $130 228 80 - 85 % $170 - $180 $150 - $160 100 - 110 % 140 - 150 %

La Quinta Inn & Suites Buena 160 60 25 15 160 80 - 85 105 - 110 85 - 90 160 75 - 80 105 - 110 85 - 90 100 - 110 80 - 85 Park Fairfield Inn & Suites Anaheim 137 40 30 30 137 75 - 80 120 - 125 95 - 100 137 75 - 80 125 - 130 95 - 100 95 - 100 90 - 95 Buena Park Disney North Holiday Inn Hotel & Suites 96 45 35 20 96 75 - 80 140 - 150 110 - 115 96 70 - 75 140 - 150 105 - 110 90 - 95 100 - 110 Anaheim Fullerton

Holiday Inn Express Fullerton 100 45 45 10 0 — — — 59 60 - 65 130 - 140 85 - 90 80 - 85 85 - 90

Sub-Totals/Averages 721 49 % 31 % 20 % 621 78.1 % $136.10 $106.35 680 78.9 % $143.20 $112.94 100.8 % 111.8 %

Secondary Competitors 1,271 51 % 30 % 20 % 877 79.9 % $116.53 $93.09 871 77.8 % $117.88 $91.74 99.4 % 90.8 %

Totals/Averages 1,992 50 % 30 % 20 % 1,499 79.2 % $124.54 $98.59 1,551 78.3 % $129.06 $101.03 100.0 % 100.0 % * Specific occupancy and average rate data were utilized in our analysis, but are presented in ranges in the above table for the purposes of confidentiality.

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FIGURE 1-3 SECONDARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Weighted Weighted Total Annual Annual Number of Competitive Room Room

Property Rooms Commercial Leisure Group Level Count Occ. Average Rate RevPAR Count Occ. Average Rate RevPAR

Holiday Inn La Mirada 292 55 % 25 % 20 % 75 % 219 80 - 85 % $105 - $110 $85 - $90 219 75 - 80 % $105 - $110 $80 - $85

Holiday Inn Buena Park 249 40 35 25 75 187 80 - 85 100 - 105 85 - 90 187 80 - 85 100 - 105 80 - 85 Near Knotts Courtyard by Marriott 150 65 20 15 75 113 75 - 80 140 - 150 110 - 115 113 75 - 80 140 - 150 110 - 115 Hacienda Heights Courtyard by Marriott 145 45 30 25 75 109 75 - 80 125 - 130 100 - 105 109 75 - 80 125 - 130 100 - 105 Anaheim Buena Park Marriott Fullerton at 224 60 20 20 60 135 75 - 80 140 - 150 105 - 110 134 75 - 80 140 - 150 105 - 110 California State University

Chase Suites Hotel Brea 88 35 55 10 55 54 80 - 85 115 - 120 90 - 95 48 75 - 80 115 - 120 90 - 95

Days Inn & Suites Fullerton 123 45 50 5 50 62 70 - 75 70 - 75 50 - 55 62 65 - 70 75 - 80 50 - 55

Totals/Averages 1,271 51 % 30 % 20 % 69 % 877 79.9 % $116.53 $93.09 871 77.8 % $117.88 $91.74

* Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality.

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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 68% and a base-year Average Rate rate position of $118.00 for the proposed subject hotel. The following table reflects a summary of our market-wide and proposed subject hotel occupancy and average rate projections.

FIGURE 1-4 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

Area-wide 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 78.3 % — $129.06 — — $118.00 91.4 % 2018 73.4 4.0 % 134.22 — 4.0 % 122.72 91.4 2019 74.6 4.0 139.59 — 4.0 127.63 91.4 2020 71.5 3.5 144.48 66.0 % 3.5 132.10 91.4 2021 71.6 3.5 149.53 68.0 3.5 136.72 91.4 2022 71.9 3.0 154.02 68.0 3.0 140.82 91.4 2023 71.9 3.0 158.64 68.0 3.0 145.05 91.4

The following table summarizes the proposed subject hotel’s forecast, reflecting fiscal years and opening-year rate discounts as applicable.

FIGURE 1-5 FORECAST OF AVERAGE RATE

Average Rate Average Rate Year Occupancy Before Discount Discount After Discount

2020/21 66 % 132.84 0.0 % 132.84 2021/22 68 137.38 0.0 137.38 2022/23 68 141.50 0.0 141.50 2023/24 68 145.75 0.0 145.75

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.

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FIGURE 1-6 DETAILED FORECAST OF INCOME AND EXPENSE (000S)

2020/21 Begins March 2021/22 2022/23 Stabilized 2024/25 Number of Rooms: 91 91 91 91 91 Occupancy: 66% 68% 68% 68% 68% Average Rate: $132.84 $137.38 $141.50 $145.75 $150.12 RevPAR: $87.68 $93.42 $96.22 $99.11 $102.08 Days Open: 365 365 365 365 365 Occupied Rooms: 21,922 %Gross PAR POR 22,586 %Gross PAR POR 22,586 %Gross PAR POR 22,586 %Gross PAR POR 22,586 %Gross PAR POR OPERATING REVENUE Rooms $2,912 98.1 % $32,000 $132.84 $3,103 98.1 % $34,099 $137.38 $3,196 98.1 % $35,121 $141.50 $3,292 98.1 % $36,176 $145.75 $3,391 98.1 % $37,264 $150.14 Other Operated Departments 39 1.3 428 1.78 40 1.3 445 1.79 42 1.3 458 1.85 43 1.3 472 1.90 44 1.3 486 1.96 Miscellaneous Income 18 0.6 201 0.83 19 0.6 209 0.84 20 0.6 215 0.87 20 0.6 221 0.89 21 0.6 228 0.92 Total Operating Revenues 2,969 100.0 32,629 135.45 3,162 100.0 34,752 140.02 3,257 100.0 35,794 144.21 3,355 100.0 36,869 148.55 3,456 100.0 37,978 153.01 DEPARTMENTAL EXPENSES * Rooms 685 23.5 7,525 31.24 714 23.0 7,843 31.60 735 23.0 8,078 32.55 757 23.0 8,320 33.52 780 23.0 8,570 34.53 Other Operated Departments 29 75.5 323 1.34 30 75.0 334 1.34 31 75.0 344 1.38 32 75.0 354 1.43 33 75.0 365 1.47 Total Expenses 714 24.1 7,848 32.58 744 23.5 8,176 32.94 766 23.5 8,421 33.93 789 23.5 8,674 34.95 813 23.5 8,934 36.00 DEPARTMENTAL INCOME 2,255 75.9 24,781 102.87 2,418 76.5 26,576 107.08 2,491 76.5 27,372 110.28 2,566 76.5 28,195 113.60 2,643 76.5 29,043 117.02 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 265 8.9 2,912 12.09 275 8.7 3,024 12.19 283 8.7 3,115 12.55 292 8.7 3,209 12.93 301 8.7 3,305 13.32 Info & Telecom Systems 20 0.7 216 0.90 20 0.6 224 0.90 21 0.6 231 0.93 22 0.6 238 0.96 22 0.6 245 0.99 Marketing 146 4.9 1,602 6.65 144 4.6 1,588 6.40 142 4.4 1,558 6.28 146 4.4 1,604 6.46 150 4.4 1,652 6.66 Franchise Fee 204 6.9 2,240 9.30 217 6.9 2,387 9.62 224 6.9 2,458 9.91 230 6.9 2,532 10.20 237 6.9 2,608 10.51 Prop. Operations & Maint. 119 4.0 1,310 5.44 131 4.1 1,437 5.79 142 4.4 1,558 6.28 146 4.4 1,604 6.46 150 4.4 1,652 6.66 Utilities 113 3.8 1,240 5.15 117 3.7 1,288 5.19 121 3.7 1,327 5.35 124 3.7 1,367 5.51 128 3.7 1,408 5.67 Total Expenses 866 29.2 9,520 39.52 905 28.6 9,948 40.08 932 28.7 10,246 41.28 960 28.7 10,554 42.52 989 28.7 10,871 43.80 GROSS HOUSE PROFIT 1,389 46.7 15,261 63.35 1,513 47.9 16,628 67.00 1,558 47.8 17,126 69.00 1,605 47.8 17,641 71.08 1,654 47.8 18,173 73.22 Management Fee 89 3.0 979 4.06 95 3.0 1,043 4.20 98 3.0 1,074 4.33 101 3.0 1,106 4.46 104 3.0 1,139 4.59 INCOME BEFORE NON-OPR. INC. & EXP. 1,300 43.7 14,282 59.29 1,418 44.9 15,586 62.80 1,461 44.8 16,052 64.68 1,505 44.8 16,535 66.62 1,550 44.8 17,033 68.63 NON-OPERATING INCOME & EXPENSE Property Taxes 148 5.0 1,627 6.75 151 4.8 1,660 6.69 154 4.7 1,693 6.82 157 4.7 1,727 6.96 160 4.6 1,761 7.10 Insurance 30 1.0 326 1.35 31 1.0 336 1.35 31 1.0 346 1.39 32 1.0 356 1.44 33 1.0 367 1.48 Reserve for Replacement 59 2.0 653 2.71 95 3.0 1,043 4.20 130 4.0 1,432 5.77 134 4.0 1,475 5.94 138 4.0 1,519 6.12 Total Expenses 237 8.0 2,606 10.82 276 8.8 3,038 12.24 316 9.7 3,471 13.98 324 9.7 3,558 14.33 332 9.6 3,647 14.70 EBITDA LESS RESERVE $1,063 35.7 % $11,676 $48.47 $1,142 36.1 % $12,548 $50.55 $1,145 35.1 % $12,582 $50.69 $1,181 35.1 % $12,977 $52.29 $1,218 35.2 % $13,386 $53.93 *Departmental expenses are expressed as a percentage of departmental revenues.

April-2018 Executive Summary Proposed La Quinta Inn & Suites La Habra – La Habra, California 7

FIGURE 1-7 TEN-YEAR FORECAST OF INCOME AND EXPENSE (000S)

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30

Number of Rooms: 91 91 91 91 91 91 91 91 91 91 Occupied Rooms: 21,922 22,586 22,586 22,586 22,586 22,586 22,586 22,586 22,586 22,586 Occupancy: 66% 68% 68% 68% 68% 68% 68% 68% 68% 68% Average Rate: $132.84 % of $137.38 % of $141.50 % of $145.75 % of $150.12 % of $154.62 % of $159.26 % of $164.04 % of $168.96 % of $174.03 % of RevPAR: $87.68 Gross $93.42 Gross $96.22 Gross $99.11 Gross $102.08 Gross $105.14 Gross $108.30 Gross $111.55 Gross $114.89 Gross $118.34 Gross OPERATING REVENUE Rooms $2,912 98.1 % $3,103 98.1 % $3,196 98.1 % $3,292 98.1 % $3,391 98.1 % $3,492 98.1 % $3,597 98.1 % $3,705 98.1 % $3,816 98.1 % $3,931 98.1 % Other Operated Departments 39 1.3 40 1.3 42 1.3 43 1.3 44 1.3 46 1.3 47 1.3 48 1.3 50 1.3 51 1.3 Miscellaneous Income 18 0.6 19 0.6 20 0.6 20 0.6 21 0.6 21 0.6 22 0.6 23 0.6 23 0.6 24 0.6 Total Operating Revenues 2,969 100.0 3,162 100.0 3,257 100.0 3,355 100.0 3,456 100.0 3,559 100.0 3,666 100.0 3,776 100.0 3,889 100.0 4,006 100.0 DEPARTMENTAL EXPENSES * Rooms 685 23.5 714 23.0 735 23.0 757 23.0 780 23.0 803 23.0 827 23.0 852 23.0 878 23.0 904 23.0 Other Operated Departments 29 75.5 30 75.0 31 75.0 32 75.0 33 75.0 34 75.0 35 75.0 36 75.0 37 75.0 38 75.0 Total Expenses 714 24.1 744 23.5 766 23.5 789 23.5 813 23.5 837 23.5 863 23.5 888 23.5 915 23.5 943 23.5 DEPARTMENTAL INCOME 2,255 75.9 2,418 76.5 2,491 76.5 2,566 76.5 2,643 76.5 2,721 76.5 2,803 76.5 2,888 76.5 2,974 76.5 3,064 76.5 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 265 8.9 275 8.7 283 8.7 292 8.7 301 8.7 310 8.7 319 8.7 329 8.7 338 8.7 349 8.7 Info & Telecom Systems 20 0.7 20 0.6 21 0.6 22 0.6 22 0.6 23 0.6 24 0.6 24 0.6 25 0.6 26 0.6 Marketing 146 4.9 144 4.6 142 4.4 146 4.4 150 4.4 155 4.4 160 4.4 164 4.4 169 4.4 174 4.4 Franchise Fee 204 6.9 217 6.9 224 6.9 230 6.9 237 6.9 244 6.9 252 6.9 259 6.9 267 6.9 275 6.9 Prop. Operations & Maint. 119 4.0 131 4.1 142 4.4 146 4.4 150 4.4 155 4.4 160 4.4 164 4.4 169 4.4 174 4.4 Utilities 113 3.8 117 3.7 121 3.7 124 3.7 128 3.7 132 3.7 136 3.7 140 3.7 144 3.7 148 3.7 Total Expenses 866 29.2 905 28.6 932 28.7 960 28.7 989 28.7 1,019 28.7 1,049 28.7 1,081 28.7 1,113 28.7 1,147 28.7 GROSS HOUSE PROFIT 1,389 46.7 1,513 47.9 1,558 47.8 1,605 47.8 1,654 47.8 1,703 47.8 1,754 47.8 1,807 47.8 1,861 47.8 1,917 47.8 Management Fee 89 3.0 95 3.0 98 3.0 101 3.0 104 3.0 107 3.0 110 3.0 113 3.0 117 3.0 120 3.0 INCOME BEFORE NON-OPR. INC. & EXP. 1,300 43.7 1,418 44.9 1,461 44.8 1,505 44.8 1,550 44.8 1,596 44.8 1,644 44.8 1,693 44.8 1,744 44.8 1,797 44.8 NON-OPERATING INCOME & EXPENSE Property Taxes 148 5.0 151 4.8 154 4.7 157 4.7 160 4.6 163 4.6 167 4.5 170 4.5 173 4.5 177 4.4 Insurance 30 1.0 31 1.0 31 1.0 32 1.0 33 1.0 34 1.0 35 1.0 37 1.0 38 1.0 39 1.0 Reserve for Replacement 59 2.0 95 3.0 130 4.0 134 4.0 138 4.0 142 4.0 147 4.0 151 4.0 156 4.0 160 4.0 Total Expenses 237 8.0 276 8.8 316 9.7 324 9.7 332 9.6 340 9.6 349 9.5 358 9.5 367 9.5 376 9.4 EBITDA LESS RESERVE $1,063 35.7 % $1,142 36.1 % $1,145 35.1 % $1,181 35.1 % $1,218 35.2 % $1,256 35.2 % $1,295 35.3 % $1,336 35.3 % $1,377 35.3 % $1,421 35.4 % 1 1 1 1 1 1 1 1 1 1 *Departmental expenses are expressed as a percentage of departmental revenues.

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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 TS Worldwide, LLC. Information was supplied by the client and/or the property’s development team. 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).

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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.

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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 in southeastern La Habra, in the northeast quadrant of the intersection formed by East Imperial Highway and South Leslie Street. This site is in the city of La Habra, California.

Physical Characteristics The subject site measures approximately 2.11 acres, or 92,114 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 Industrial Facility South Vacant/Proposed Restaurant East Vacant/Proposed Medical Office West Kaiser Medical Facility

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 11

VIEW OF SUBJECT SITE

Topography and The topography of the site is generally flat, and the shape should permit efficient Site Utility use of the site for building and site improvements, including ingress and egress. 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. It is expected that the site will be developed fully with building and site improvements, thus contributing to the overall profitability of the hotel.

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 12

AERIAL PHOTOGRAPH

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

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

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

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 14

MAP OF REGIONAL ACCESS ROUTES

The city of La Habra is in a setback location within North Orange County and is somewhat distanced from any major highways. Primary regional access through the area is provided by east/west State Highway 90, which provides access to the city of Brea to the east and Downey to the west. State Highway 72 is an alternate east/west route through the area. North/south Interstate 5 is another major highway, which provides access to such cities as Los Angeles to the north and Oceanside and San Diego to the south. State Highway 57, locally known as Orange Freeway, is another north/south route through the area. The city of La Habra is within a 15-minute drive from both freeways. The subject market is served by a variety of additional local highways, which are illustrated on the map.

Vehicular access to the subject site is provided by East Imperial Highway, which is a well-traveled commercial/industrial corridor in La Habra. The subject site is located near a busy intersection and is three miles east of State Highway 57, which is the nearest major highway. The proposed subject hotel is anticipated to have adequate signage at the street, as well as on its façade. The four-story building should enhance visibility from within the neighborhood. Overall, although the

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 15

subject site has fair accessibility, and the proposed hotel is expected to enjoy good visibility from within its local neighborhood.

Airport Access The proposed subject hotel will be served by the John Wayne International Airport, which is located approximately twelve miles to the south of the subject site. The proposed subject hotel will also be served by the Long Beach Airport, located roughly 12 miles to the southwest of the subject site, and the Los Angeles International Airport, located about 24 miles to the west.

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 neighborhood that surrounds the subject site is generally defined by East Lambert Road to the north, South Harbor Boulevard to the east, Imperial Highway to the south, and Euclid Street to the west. The neighborhood is characterized by light industrial facilities, small offices, restaurants, retail shops, and single-family residences. Some specific businesses in the area include CVS Caremark Distribution Center, La Habra Bakery, and J C Ford. There are no hotels in this vicinity. Restaurants located near the subject site include Subway, Imperial Burgers, and Pho Olivia's; the proximity of these restaurants is considered supportive of the operation of a limited-service lodging property.

In general, this neighborhood is in the stable stage of its life cycle. A Kaiser Permanente medical office recently opened directly west of the subject site; the $24- million project will serve 40,000 members in the region. Additionally, a new ALDI recently opened two lots east of the subject site. Furthermore, a new bike trail will be placed along the eastern side of the subject commercial development; the bike trail is anticipated to connect to the 66-mile Orange County Loop system located north of the UPRR. The railroad travels through the subject neighborhood and is located just east of the subject site.

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 16

MAP OF NEIGHBORHOOD

The proposed subject hotel's opening should be a positive influence on the area; the hotel will be in character with and will complement surrounding land uses. Overall, the supportive nature of the development in the immediate area is considered appropriate for and conducive to the operation of a hotel.

Proximity to Local The subject site is in a central location within a 25-minute drive from the area's Demand Generators primary generators of lodging demand. A sample of these demand generators is and Attractions reflected on the following map, including respective distances from and drive times to the subject site. Overall, the subject site is well situated with respect to demand generators.

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 17

ACCESS TO DEMAND GENERATORS AND ATTRACTIONS

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 18

Utilities The subject site will reportedly be served by all necessary utilities.

Seismicity, Soil and The site is located within an identified Seismic Zone 4, defined as an area with high Subsoil Conditions probability of damaging ground motion due to a location near an active earthquake fault. This condition is consistent with the surrounding real estate and does not affect the subject site's utility or marketability. Geological and soil reports were not provided to us or made available for our 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 According to the Environmental Screening Report prepared by JCP-LGS Commercial and Hazards Property Disclosure Reports on May 27, 2016, the subject site is within one-half mile of two EnviroStor Cleanup Sites; a Spills, Leaks, Investigation & Cleanup site; and twelve Leaking Underground Storage Tanks. We were not, however, informed of any site-specific nuisances or hazards, and there were no 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 zone X.

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 19

COPY OF FLOOD MAP AND COVER

The flood zone definition for the zone X designation is as follows: areas outside the 500-year flood plain; areas of the 500-year flood; areas of the 100-year flood with average depths of less than one foot or with drainage areas less than one square mile and areas protected by levees from the 100-year flood.

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 20

Zoning According to the local planning office, the subject property is zoned as follows: PCI - PUD (Planned Commercial/Industrial - Planned Unit Development). Additional details pertaining to the proposed subject property’s zoning regulations are summarized in the following table.

ZONING

Municipality Governing Zoning Ci ty of La Ha bra Current Zoni ng Planned Unit Development Current Us e Vacant Is Current Use Permitted Not Applicable Is Change in Zoning Likely No Permitted Uses Industrial, Commercial, Mixed-Use Hotel Allowed Yes (With a Conditional Use Permit) Legally Non-Conforming Not Applicable

Easements and We are not aware of any easements attached to the property that would significantly Encroachments 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 along a well-traveled commercial/industrial corridor. In general, the site should be well suited for future hotel use, with acceptable access, visibility, and topography for an effective operation.

April-2018 Description of the Site and Neighborhood Proposed La Quinta Inn & Suites La Habra – La Habra, California 21

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 La Habra, the county of Orange, and the state of California. Orange County comprises 34 incorporated cities with 42 miles of coastline. Orange County, which adjoins the greater Los Angeles area to the north, has been a direct beneficiary of the aggressive economic growth of the Los Angeles Basin. The suburban city of La Habra encompasses seven square miles and is located in northern Orange County. Surrounding communities include La Mirada, Brea, Fullerton, Buena Park, and La Habra Height. La Habra is considered a bedroom community for residents working in the fields of defense, retail, manufacturing, education, and healthcare in northern Orange County. Furthermore, La Habra is located near California State University Fullerton, the Anaheim Convention Center, Disneyland, and Knott's Berry Farm, four of the largest demand generators in the area.

April-2018 Market Area Analysis Proposed La Quinta Inn & Suites La Habra – La Habra, California 22

LA HABRA

The proposed subject property’s market area can be defined by its Combined Statistical Area (CSA): Los Angeles-Long Beach, CA. The CSA represents adjacent metropolitan and micropolitan statistical areas that have a moderate degree of employment interchange. Micropolitan statistical areas represent urban areas in the United States based around a core city or town with a population of 10,000 to 49,999; the MSA requires the presence of a core city of at least 50,000 people and a total population of at least 100,000 (75,000 in New England). The following exhibit illustrates the market area.

April-2018 Market Area Analysis Proposed La Quinta Inn & Suites La Habra – La Habra, California 23

MAP OF MARKET AREA

Economic and A primary source of economic and demographic statistics used in this analysis is the Demographic Review 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.

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FIGURE 3-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY

Average Annual Compounded Change 2000 2010 2016 2020 2000-10 2010-16 2016-20

Resident Population (Thousands) Orange County 2,854.5 3,018.1 3,210.4 3,348.2 0.6 % 1.0 % 1.1 % Los Angeles-Long Beach-Anaheim, CA MSA 12,392.7 12,845.3 13,443.0 13,829.2 0.4 0.8 0.7 Los Angeles-Long Beach, CA CSA 16,426.2 17,914.9 18,899.1 19,645.1 0.9 0.9 1.0 State of California 33,988.0 37,336.0 39,542.3 41,124.7 0.9 1.0 1.0 United States 282,162.4 309,347.1 324,506.9 336,690.4 0.9 0.8 0.9 Per-Capita Personal Income* Orange County $45,960 $47,226 $52,266 $55,595 0.3 1.7 1.6 Los Angeles-Long Beach-Anaheim, CA MSA 38,428 43,112 48,120 51,272 1.2 1.8 1.6 Los Angeles-Long Beach, CA CSA 36,516 39,775 44,064 46,806 0.9 1.7 1.5 State of California 40,167 41,721 47,259 50,083 0.4 2.1 1.5 United States 36,812 39,622 43,613 46,375 0.7 1.6 1.5 W&P Wealth Index Orange County 126.2 121.5 122.2 122.2 (0.4) 0.1 0.0 Los Angeles-Long Beach-Anaheim, CA MSA 104.3 109.3 110.6 110.8 0.5 0.2 0.0 Los Angeles-Long Beach, CA CSA 99.5 101.5 102.0 101.9 0.2 0.1 (0.0) State of California 108.8 106.1 108.9 108.6 (0.3) 0.4 (0.1) United States 100.0 100.0 100.0 100.0 0.0 0.0 0.0 Food and Beverage Sales (Millions)* Orange County $4,693 $5,928 $7,246 $7,808 2.4 3.4 1.9 Los Angeles-Long Beach-Anaheim, CA MSA 17,732 22,182 27,274 29,001 2.3 3.5 1.5 Los Angeles-Long Beach, CA CSA 22,070 28,257 34,803 37,291 2.5 3.5 1.7 State of California 46,670 58,066 72,104 77,326 2.2 3.7 1.8 United States 368,829 447,728 562,999 602,635 2.0 3.9 1.7

Total Retail Sales (Millions)* Orange County $44,662 $46,221 $53,353 $57,368 0.3 2.4 1.8 Los Angeles-Long Beach-Anaheim, CA MSA 161,413 170,117 195,562 207,541 0.5 2.4 1.5 Los Angeles-Long Beach, CA CSA 210,178 229,402 265,743 284,607 0.9 2.5 1.7 State of California 446,480 480,529 563,861 604,151 0.7 2.7 1.7 United States 3,902,830 4,130,414 4,846,834 5,181,433 0.6 2.7 1.7

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

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The U.S. population has grown at an average annual compounded rate of 0.8% from 2010 through 2016. The county’s population has grown at a quicker pace than the nation’s population; the average annual growth rate of 1.0% between 2010 and 2016 reflects a gradually expanding area. Following this population trend, per- capita personal income increased slowly, at 1.7% on average annually for the county between 2010 and 2016. Local wealth indexes have remained stable in recent years, registering a relatively high 122.2 level for the county in 2016.

Food and beverage sales totaled $7,246 million in the county in 2016, versus $5,928 million in 2010. This reflects a 3.4% average annual change, which is stronger than the 2.4% pace recorded in the prior decade, the latter years of which were adversely affected by the recession. Over the long term, the pace of growth is forecast to moderate to a more sustainable level of 1.9%, which is forecast through 2020. The retail sales sector demonstrated an annual increase of 0.3% registered in the decade 2000 to 2010, followed by an increase of 2.4% in the period 2010 to 2016. An increase of 1.8% average annual change is expected in county retail sales through 2020.

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 2000, 2010, and 2016, as well as a forecast for 2020.

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

Average Annual Compounded Change Percent Percent Percent Percent 2000- 2010- 2016- Industry 2000 of Total 2010 of Total 2016 of Total 2020 of Total 2010 2016 2020

Farm 7.5 0.4 % 2.4 0.1 % 1.7 0.1 % 1.7 0.1 % (10.6) % (5.7) % (0.4) % Forestry, Fishing, Related Activities And Other 2.0 0.1 1.5 0.1 1.7 0.1 1.8 0.1 (2.8) 2.1 2.0 Mining 2.1 0.1 5.0 0.3 6.5 0.3 6.8 0.3 9.2 4.5 1.1 Utilities 3.6 0.2 4.2 0.2 3.6 0.2 3.7 0.2 1.4 (2.6) 0.8 Cons tructi on 98.7 5.4 92.2 4.9 115.3 5.4 125.9 5.5 (0.7) 3.8 2.2 Manufacturing 227.4 12.4 160.5 8.5 173.9 8.1 177.5 7.7 (3.4) 1.3 0.5 Total Trade 284.6 15.5 270.2 14.4 300.0 13.9 321.6 13.9 (0.5) 1.8 1.8 Wholesale Trade 96.3 5.3 94.8 5.0 104.7 4.9 108.8 4.7 (0.1) 1.7 1.0 Retail Trade 188.4 10.3 175.4 9.3 195.2 9.1 212.8 9.2 (0.7) 1.8 2.2 Transportation And Warehousing 32.9 1.8 31.5 1.7 33.9 1.6 34.0 1.5 (0.4) 1.2 0.1 Information 45.2 2.5 31.2 1.7 31.2 1.5 32.1 1.4 (3.6) (0.0) 0.7 Finance And Insurance 110.1 6.0 127.2 6.8 150.5 7.0 167.7 7.3 1.5 2.8 2.7 Real Estate And Rental And Lease 95.5 5.2 143.4 7.6 157.4 7.3 168.4 7.3 4.1 1.6 1.7 Total Services 764.8 41.7 854.9 45.5 1,016.9 47.3 1,096.2 47.5 1.1 2.9 1.9 Professional And Technical Services 152.9 8.3 179.3 9.5 205.4 9.5 220.1 9.5 1.6 2.3 1.7 Management Of Companies And Enterprises 46.5 2.5 24.0 1.3 31.4 1.5 32.2 1.4 (6.4) 4.6 0.7 Administrative And Waste Services 149.5 8.2 155.0 8.2 180.0 8.4 191.8 8.3 0.4 2.5 1.6 Educational Services 21.5 1.2 36.9 2.0 42.9 2.0 48.1 2.1 5.5 2.5 2.9 Health Care And Social Assistance 121.0 6.6 160.9 8.6 201.9 9.4 224.3 9.7 2.9 3.8 2.7 Arts, Entertainment, And Recreation 54.0 2.9 54.2 2.9 65.5 3.0 69.5 3.0 0.0 3.2 1.5 Accommodation And Food Services 121.2 6.6 143.2 7.6 164.3 7.6 171.7 7.4 1.7 2.3 1.1 Other Services, Except Public Administration 98.1 5.4 101.4 5.4 125.6 5.8 138.6 6.0 0.3 3.6 2.5 Total Government 158.5 8.6 155.8 8.3 158.1 7.4 168.6 7.3 (0.2) 0.2 1.6 Federal Civilian Government 12.9 0.7 12.6 0.7 11.2 0.5 11.5 0.5 (0.2) (2.0) 0.6 Federal Military 6.1 0.3 5.6 0.3 5.4 0.2 5.4 0.2 (0.8) (0.8) 0.1 State And Local Government 139.5 7.6 137.6 7.3 141.5 6.6 151.8 6.6 (0.1) 0.5 1.8

TOTAL 1,832.8 100.0 % 1,880.1 100.0 % 2,150.6 100.0 % 2,306.0 100.0 % 0.3 % 2.3 % 1.8 %

MSA 7,236.8 — 7,310.5 — 8,416.8 — 8,911.2 — 0.1 % 2.4 % 1.4 % U.S. 165,370.9 — 173,034.7 — 191,870.8 — 203,418.4 — 0.9 1.7 1.5

Source: Woods & Poole Economics, Inc.

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Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county grew at an average annual rate of 0.3%. This trend was above the growth rate recorded by the MSA and also lagged the national average. More recently, the pace of total employment growth in the county accelerated to 2.3% on an annual average from 2010 to 2016, reflecting the initial years of the recovery.

Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2010 to 2016, increasing by 161,962 people, or 18.9%, and rising from 45.5% to 47.3% of total employment. Of the various service sub-sectors, Professional And Technical Services and Health Care And Social Assistance were the largest employers. Strong growth was also recorded in the Total Trade sector, as well as the Finance And Insurance sector, which expanded by 11.0% and 8.4%, respectively, in the period 2010 to 2016. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 1.8% on average annually through 2020. The trend is above the forecast rate of change for the U.S. as a whole during the same period.

The following table illustrates historical and projected employment, households, population and average household income data as provided by REIS for the overall Orange County market.

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FIGURE 3-3 HISTORICAL & PROJECTED EMPLOYMENT, HOUSEHOLDS, POPULATION, AND HOUSEHOLD INCOME STATISTICS

Total Office Industrial Household Year Employment % Chg Employment % Chg Employment % Chg Households % Chg Population % Chg Avg. Income % Chg

2004 1,477,530 — 480,050 — 278,223 — 975,580 — 2,942,610 — $137,076 — 2005 1,507,570 2.0 % 492,491 2.6 % 276,069 (0.8) % 977,630 0.2 % 2,936,510 (0.2) % 147,202 7.4 % 2006 1,534,170 1.8 499,394 1.4 277,758 0.6 980,290 0.3 2,928,960 (0.3) 154,324 4.8 2007 1,520,500 (0.9) 484,797 (2.9) 276,345 (0.5) 987,810 0.8 2,942,470 0.5 151,990 (1.5) 2008 1,461,170 (3.9) 461,138 (4.9) 264,908 (4.1) 993,180 0.5 2,972,680 1.0 146,075 (3.9) 2009 1,363,900 (6.7) 434,206 (5.8) 236,441 (10.7) 996,150 0.3 3,001,720 1.0 142,842 (2.2) 2010 1,379,730 1.2 441,295 1.6 240,224 1.6 999,540 0.3 3,035,720 1.1 152,656 6.9 2011 1,394,430 1.1 443,591 0.5 242,639 1.0 1,014,150 1.5 3,070,070 1.1 157,098 2.9 2012 1,442,070 3.4 462,887 4.3 247,706 2.1 1,025,890 1.2 3,099,370 1.0 171,806 9.4 2013 1,472,570 2.1 469,937 1.5 249,296 0.6 1,034,830 0.9 3,123,840 0.8 162,676 (5.3) 2014 1,514,030 2.8 486,030 3.4 249,497 0.1 1,040,140 0.5 3,145,620 0.7 171,734 5.6 2015 1,563,170 3.2 500,415 3.0 250,530 0.4 1,043,180 0.3 3,165,990 0.6 176,275 2.6 2016 1,587,670 1.6 510,629 2.0 251,011 0.2 1,050,440 0.7 3,176,130 0.3 181,653 3.1

Forecasts 2017 1,597,050 0.6 % 514,828 0.8 % 249,533 (0.6) % 1,058,260 0.7 % 3,180,310 0.1 % $185,757 2.3 % 2018 1,621,200 1.5 524,373 1.9 249,762 0.1 1,067,220 0.8 3,183,960 0.1 192,021 3.4 2019 1,634,690 0.8 529,459 1.0 248,683 (0.4) 1,076,690 0.9 3,189,430 0.2 199,154 3.7 2020 1,638,960 0.3 531,582 0.4 246,507 (0.9) 1,086,400 0.9 3,195,700 0.2 205,578 3.2 2021 1,655,070 1.0 539,722 1.5 245,387 (0.5) 1,096,490 0.9 3,205,120 0.3 212,482 3.4

Average Annual Compound Change 2004 - 2016 0.6 % 0.5 % (0.9) % 0.6 % 0.6 % 2.4 % 2004 - 2007 1.0 0.3 (0.2) 0.4 (0.0) 3.5 2007 - 2010 (3.2) (3.1) (4.6) 0.4 1.0 0.1 2010 - 2016 2.4 2.5 0.7 0.8 0.8 4.4 Forecast 2017 - 2021 0.9 % 1.2 % (0.4) % 0.9 % 0.2 % 3.4 %

Source: REIS Report, 3rd Quarter, 2017

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For the Orange County market, of the roughly 1,600,000 persons employed, 32% are categorized as office employees, while 16% are categorized as industrial employees. Total employment decreased by an average annual compound rate of - 3.2% during the recession of 2008 to 2011, followed by an increase of 2.4% from 2011 to 2016. By comparison, office employment reflected compound change rates of -3.1% and 2.5%, during the same respective periods. Total employment is expected to expand by 0.6% in 2017, while office employment is forecast to expand by 0.8% in 2017. From 2016 through 2021, REIS anticipates that total employment will expand at an average annual compound rate of 0.9%, while office employment will expand by 1.2% on average annually during the same period.

The number of households is forecast to expand by 0.9% on average annually between 2016 and 2021. Population is forecast to expand during this same period, at an average annual compounded rate of 0.2%. Household average income is forecast to grow by 3.4% on average annually from 2016 through 2021.

Radial Demographic The following table reflects radial demographic trends for our market area Snapshot measured by three points of distance from the subject site.

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FIGURE 3-4 DEMOGRAPHICS BY RADIUS

0.00 - 1.00 miles 0.00 - 3.00 miles 0.00 - 5.00 miles Population 2023 Projection 17,089 162,781 457,583 2018 Estimate 16,547 156,573 442,632 2010 Census 15,950 148,596 423,753 2000 Census 15,940 139,383 408,997 Percent Change: 2018 to 2023 3.3% 4.0% 3.4% Percent Change: 2010 to 2018 3.7% 5.4% 4.5% Percent Change: 2000 to 2010 0.1% 6.6% 3.6% Households 2023 Projection 5,139 54,625 146,679 2018 Estimate 4,968 52,608 141,825 2010 Census 4,772 50,202 136,039 2000 Census 4,836 48,163 133,893 Percent Change: 2018 to 2023 3.4% 3.8% 3.4% Percent Change: 2010 to 2018 4.1% 4.8% 4.3% Percent Change: 2000 to 2010 -1.3% 4.2% 1.6% Income 2017 Est. Average Household Income $99,546 $114,187 $104,245 2017 Est. Median Household Income 71,139 85,535 78,212

2018 Est. Civ. Employed Pop 16+ by Occupation Architecture/Engineering 123 1,951 5,225 Arts/Design/Entertainment/Sports/Media 103 1,719 5,190 Building/Grounds Cleaning/Maintenance 503 2,357 7,162 Business/Financial Operations 327 4,329 11,050 Community/Social Services 150 1,223 3,393 Computer/Mathematical 86 2,177 6,039 Construction/Extraction 346 2,764 8,120 Education/Training/Library 503 5,349 13,865 Farming/Fishing/Forestry 36 214 772 Food Preparation/Serving Related 490 3,931 12,335 Healthcare Practitioner/Technician 237 3,635 10,200 Healthcare Support 223 1,430 3,680 Installation/Maintenance/Repair 248 2,011 5,756 Legal 54 849 1,951 Life/Physical/Social Science 27 407 1,076 Management 634 9,496 23,285 Office/Administrative Support 1,215 11,155 31,536 Production 474 3,349 12,450 Protective Services 102 1,261 3,501 Sales/Related 823 9,081 25,950 Personal Care/Service 327 2,842 8,425 Transportation/Material Moving 451 3,355 10,686 Source: Environics Analytics

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This source reports a population of 442,632 within a five-mile radius of the subject site, and 141,825 households within this same radius. Average household income within a five-mile radius of the subject site is currently reported at $104,245, while the median is $78,212.

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

FIGURE 3-5 UNEMPLOYMENT STATISTICS

Year County MSA State U.S. 2007 3.9 % 4.8 % 5.4 % 4.6 % 2008 5.3 7.0 7.3 5.8 2009 8.7 10.9 11.2 9.3 2010 9.7 11.8 12.2 9.6 2011 9.1 11.4 11.7 8.9 2012 7.9 10.2 10.4 8.1 2013 6.6 9.0 8.9 7.4 2014 5.5 7.6 7.5 6.2 2015 4.4 6.1 6.2 5.3 2016 4.0 4.9 5.4 4.9

Recent Month - Oct 2016 4.0 % 4.9 % 5.2 % 4.8 % 2017 3.3 4.1 4.3 4.1

* Letters shown next to data points (if any) reflect revised population controls and/or model re-estimation implemented by the BLS. Source: U.S. Bureau of Labor Statistics

Current U.S. unemployment levels are now firmly below the annual averages of the last economic cycle peak of 2006 and 2007, when annual averages were 4.6%. National unemployment registered 4.1% in the final three months of 2017, roughly six points below the October 2009 peak of 10.0%. Total nonfarm payroll employment increased by 252,000 and 148,000 jobs in November and December of 2017, respectively. The highest gains were made in the professional and healthcare, manufacturing, and construction sectors. Unemployment has remained under the 5.0% mark since May 2016, reflecting a trend of relative stability and the overall strength of the U.S. economy.

Locally, the unemployment rate was 4.0% in 2016; for this same area in 2017, the most recent month’s unemployment rate was registered at 3.3%, versus 4.0% for

April-2018 Market Area Analysis Proposed La Quinta Inn & Suites La Habra – La Habra, California 32

the same month in 2016. Unemployment rose in 2008 as the region entered an economic slowdown, and this trend continued through 2010 as the height of the national recession took hold. However, unemployment declined in 2011 as the economy rebounded, a trend that continued through 2016. Reportedly, the county has been focusing on education, workforce, and economic programs that support job creation in key industries such as advanced manufacturing, healthcare, tourism, and information technology. According to a report published by Orange County Business Council, the education sector, health services, professional services, and construction services contributed to majority of the job growth.

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

FIGURE 3-6 MAJOR EMPLOYERS

Number of Rank Firm Employees

1 CVS Pha rma cy 970 2 Wal-Mart/Sam's Stores Inc 758 3 Ci ty of La Ha bra 373 4 Costco 335 5 Target Stores 182 6 Home Depot 177 7 Home Depot 168 8 Kohl's Department Stores 145 9 Payne's Janitorial Services 141 10 VIP Rubber Company 140

Source: City of La Habra, 2016

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

• A vibrant tourism industry, which employs over 160,000 people, is a top economic driver for Orange County. According to the Orange County Visitor Association, Orange County hosts over 48 million visitors in 2016, creating an economic impact of over $12 billion. Tourism-related shopping represents approximately 20% of all Orange County visitor spending. The Walt Disney Company is the largest private-sector employer in Orange County. Its local operations include Disneyland, Disney California Adventure Park, and two Disneyland hotels. In 2016, the Disneyland theme park welcomed 17.94 million visitors. The addition of the “Star Wars Land” attraction at Disneyland is

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anticipated to buoy demand for years to come; construction began in April 2016, and the 14-acre attraction is slated for completion in early 2019. Furthermore, Knott's Berry Farm, a 160-acre amusement park, is one of the largest employers in the area with approximately 10,000 seasonal and full-time employees. In 2016, Knott's Berry Farm recorded an attendance of over four million visitors. In addition, the nearby Brea Mall offers more than 175 specialty shops on five acres, and it underwent a multimillion-dollar renovation in 2014. • Manufacturing is a major economic force in Orange County, employing over 150,000 people. Several manufacturing and distribution centers are located in the northern Orange County area. Noteworthy companies in the area include ProLogis, Amway, PepsiCo, J. C. Penney Company, Alcoa Fastening System, US Foods, Hyundai Logistics, and The Home Depot operation facilities. In May 2015, Amway opened a $42-million, 60,000-square-foot manufacturing facility in Buena Park for the company's Nutrilite brand of vitamins. Additionally, in 2015, Western Realco purchased the former Beckman Coulter headquarters and announced plans to redevelop the 44-acre site into multi-building industrial facilities. The project was approved by the city in early 2017; it is one of the largest Specht developments in northern Orange County. • Healthcare and education play a vital role in the economy of northern Orange County. California State University, Fullerton (CSUF) is one of the largest employers in northern Orange County and a primary hotel demand generator in the Fullerton and Brea areas. CSUF generates approximately $1 billion in economic activity annually. Other institutions of higher learning located in northern Orange County include Bethesda Christian University and Fullerton College. The healthcare sector is also important to the area’s economy. The St. Joseph Health System (SJHS) is an integrated healthcare delivery system sponsored by the St. Joseph Health Ministry and includes 15 acute-care hospitals located in California and Texas, with four hospitals located in Orange County. In addition to SJHS, Orange County features various other major medical facilities including Kaiser Permanente's Orange County Anaheim Medical Center, the Anaheim Health Regional Medical Center, St. Jude Medical Center, and the Placentia-Linda Hospital. Kaiser Permanente, St. Joseph Health, Memorial Care Health System, and Tenet Healthcare Corporation are among the top employers in this sector. In addition to the aforementioned components, companies representing the information technology and professional service industries play major roles in the region's economy. The area’s overall employment base is highly diverse. The diversity of the employment base and the blending of commercial and industrial businesses are favorable characteristics because the local economy is not dependent on the prosperity of any single sector; therefore, the area is somewhat protected from significant interruptions in market activity caused by fluctuating

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business cycles. Within La Habra, the city is experiencing a period of revitalization supported by retail commercial and multi-family residential developments. One of the latest commercial development projects in La Habra is the Northgate Market project, which features Northgate Market as the anchor tenant with other new retail shops and restaurants, such as Tierra Mia, On the Hook, Starbucks, and Auto Zone. Additionally, a luxury multi-family development, Fairfield Apartments, was recently completed and added 430 units to the market. According to city officials, population growth is supported by the healthy employment levels in the area and the superior school districts and retail selection. These factors are expected to support growth over the long term.

Office Space Statistics Trends in occupied office space are typically among the most reliable indicators of lodging demand, as firms that occupy office space often exhibit a strong propensity to attract commercial visitors. Thus, trends that cause changes in vacancy rates or 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 pertinent market area.

FIGURE 3-7 OFFICE SPACE STATISTICS – MARKET OVERVIEW

Inventory Occupied Office Vacancy Average Asking Submarket Buildings Square Feet Space Rate Lease Rate

1 South 314 15,710,000 13,353,500 15.0 % $33.20 2 Airport 417 38,305,000 32,176,200 16.0 35.68 3 Centra l 230 16,304,000 14,037,700 13.9 27.10 4 West 118 7,056,000 5,920,000 16.1 26.95 5 North 118 6,807,000 5,193,700 23.7 27.70 Totals and Averages 1,197 84,182,000 70,681,100 16.0 % $32.18 Source: REIS Report, 3rd Quarter, 2017

The greater Orange County market comprises a total of 84.2 million square feet of office space. For the 3rd Quarter of 2017, the market reported a vacancy rate of 16.0% and an average asking rent of $32.18. The subject property is located in the North submarket, which houses 6,807,000 square feet of office space. The submarket's vacancy rate of 23.7% is above the overall market average. The average asking lease rate of $27.70 is below the average for the broader market.

The following table illustrates a trend of office space statistics for the overall Orange County market and the North submarket.

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FIGURE 3-8 HISTORICAL AND PROJECTED OFFICE SPACE STATISTICS – GREATER MARKET VS. SUBMARKET

Orange County Market North Submarket Available Occupied Vacancy Asking Available Occupied Vacancy Asking Year Office Space % Chg Office Space % Chg Rate Lease Rate % Chg Office Space % Chg Office Space % Chg Rate Lease Rate % Chg

2004 79,599,000 — 69,405,000 — 12.8 % $24.19 — 6,123,000 — 5,266,000 — 14.0 % $20.84 — 2005 79,124,000 (0.6) % 72,440,000 4.4 % 8.4 25.92 7.2 % 6,217,000 1.5 % 5,875,000 11.6 % 5.5 22.12 6.1 % 2006 79,696,000 0.7 73,518,000 1.5 7.8 28.96 11.7 6,217,000 0.0 5,956,000 1.4 4.2 24.74 11.8 2007 82,316,000 3.3 73,537,000 0.0 10.7 30.92 6.8 6,154,000 (1.0) 5,717,000 (4.0) 7.1 27.36 10.6 2008 82,621,000 0.4 70,427,000 (4.2) 14.8 30.52 (1.3) 6,294,000 2.3 5,683,000 (0.6) 9.7 27.31 (0.2) 2009 82,291,000 (0.4) 66,590,000 (5.4) 19.1 27.81 (8.9) 6,348,000 0.9 5,174,000 (9.0) 18.5 24.81 (9.2) 2010 82,145,000 (0.2) 65,038,000 (2.3) 20.8 26.46 (4.9) 6,348,000 0.0 5,059,000 (2.2) 20.3 24.04 (3.1) 2011 82,158,000 0.0 65,863,000 1.3 19.8 26.73 1.0 6,348,000 0.0 4,945,000 (2.3) 22.1 23.71 (1.4) 2012 82,073,000 (0.1) 67,186,000 2.0 18.1 27.10 1.4 6,348,000 0.0 4,901,000 (0.9) 22.8 24.05 1.4 2013 82,501,000 0.5 68,541,000 2.0 16.9 27.80 2.6 6,348,000 0.0 4,805,000 (2.0) 24.3 24.26 0.9 2014 83,248,000 0.9 69,245,000 1.0 16.8 28.94 4.1 6,807,000 7.2 5,119,000 6.5 24.8 24.98 3.0 2015 83,256,000 0.0 69,541,000 0.4 16.5 30.54 5.5 6,807,000 0.0 5,003,000 (2.3) 26.5 25.95 3.9 2016 83,545,000 0.3 70,168,000 0.9 16.0 31.70 3.8 6,807,000 0.0 5,071,000 1.4 25.5 26.90 3.7

Forecasts 2017 84,920,000 1.6 % 71,103,000 1.3 % 16.3 % $32.40 2.2 % 6,807,000 0.0 % 5,179,000 2.1 % 23.9 % $27.87 3.6 % 2018 85,238,000 0.4 71,662,000 0.8 15.9 33.39 3.1 6,807,000 0.0 5,233,000 1.0 23.1 28.84 3.5 2019 86,020,000 0.9 72,401,000 1.0 15.8 34.54 3.4 6,817,000 0.1 5,267,000 0.6 22.7 30.02 4.1 2020 86,661,000 0.7 73,809,000 1.9 14.8 35.81 3.7 6,827,000 0.1 5,351,000 1.6 21.6 31.31 4.3 2021 87,032,000 0.4 75,335,000 2.1 13.4 37.22 3.9 6,838,000 0.2 5,459,000 2.0 20.2 32.75 4.6

Average Annual Compound Change 2004 - 2016 0.4 % 0.1 % 2.3 % 0.9 % (0.3) % 2.1 % 2004 - 2007 1.1 1.9 8.5 0.2 2.8 9.5 2007 - 2010 (0.1) (4.0) (5.1) 1.0 (4.0) (4.2) 2010 - 2016 0.3 1.3 3.1 1.2 0.0 1.9 Forecast 2017 - 2021 0.6 % 1.2 % 3.5 % 0.1 % 1.3 % 4.1 %

Source: REIS Report, 3rd Quarter, 2017

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The inventory of office space in the Orange County market increased at an average annual compound rate of 0.4% from 2004 through 2016, while occupied office space remained relatively stable at an average annual rate of 0.1% over the same period. During the period of 2004 through 2008, occupied office space expanded at an average annual compound rate of 1.9%. From 2008 through 2011, occupied office space contracted at an average annual compound rate of -4.0%, reflecting the impact of the recession. The onset of the recovery is evident in the 1.3% average annual change in occupied office space from 2011 to 2016. From 2016 through 2021, the inventory of occupied office space is forecast to increase at an average annual compound rate of 1.2%, with available office space expected to increase 0.6%, thus resulting in an anticipated vacancy rate of 13.4% as of 2021. According to REIS, the North office submarket offers the smallest amount of office space in Orange County. The submarket includes the areas of La Habra, Fullerton, Brea, and Yorba Linda, as well as parts of Anaheim and Buena Park, and this submarket posted the highest vacancy rate for the third quarter of 2017. However, the asking lease rate continued to increase in this market due to the limited supply. The outlook for the submarket is positive as a lack of new supply in 2017 is expected to support lower vacancy rates and improving rents.

Convention Activity A convention center serves as a gauge of visitation trends to a particular market. Convention centers also generate significant levels of demand for area hotels and serve as a focal point for community activity. Typically, hotels within the closest proximity to a convention center—up to three miles away—will benefit the most. Hotels serving as headquarters for an event benefit the most by way of premium rates and hosting related banquet events. During the largest of conventions, peripheral hotels may benefit from compression within the city as a whole.

The primary convention facility in Orange County is the Anaheim Convention Center. The facility houses approximately 815,000 square feet of exhibit space, 130,000 square feet of meeting and ballroom space, and a 200,000-square-foot lobby and registration area, as well as a 7,500-seat arena. In 2013, the Anaheim Convention Center expanded its outdoor special event space, known as the Grand Plaza, by 100,000 square feet; the Grand Plaza accommodates large outdoor gatherings, such as alfresco dining, concerts, receptions, exhibitions, and meetings. In 2015, construction began on an expansion to add 200,000 square feet of exhibit and meeting space, as well as a 1,350-space underground parking structure. The project, which created around 1,850 construction jobs, was completed in September 2017.

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CONVENTION CENTER

The following table illustrates recent use statistics for this facility.

FIGURE 3-9 CONVENTION CENTER STATISTICS

Number of Percent Number of Percent Year Conventions Change Delegates Change

2010 576 — 1,110,920 — 2011 487 (15.5) % 1,052,887 (5.2) % 2012 513 5.3 1,004,772 (4.6) 2013 238 (53.6) 1,028,610 2.4 2014 221 (7.1) 1,020,000 (0.8) 2015 181 (18.1) 1,016,000 (0.4)

Source: Anaheim Convention Center

Following a slight improvement in 2012, the number of conventions declined through 2015, while delegate levels remained above the one-million mark those

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years. The Grand Plaza expansion reportedly suppressed bookings during recent years, as meeting planners opted to hold events there after its completion. The center's substantial number of breakout rooms, extensive exhibitor space, and outdoor spaces enable the facility to hold large events. The NAMM (National Association of Music Merchants) is the facility's signature event; the January 2016 NAMM convention drew more than 96,000 visitors and 1,700 exhibitors to the convention center, providing an estimated $91.5-million economic impact. We note that 2016 year-end statistics were unavailable at the time of our report; however, representatives at the Anaheim Convention Center report a strong booking pace associated with the 200,000-square-foot expansion and the addition of new hotel supply in the market. The expansion and more upscale hotel rooms will reportedly allow the convention center to target higher-rated medical and high-tech groups.

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.

John Wayne Airport (SNA) is located in Orange County, California, between the cities of Santa Ana, Newport Beach, Costa Mesa, and Irvine. The airport serves both general and commercial aviation needs for the area. SNA is serviced by a variety of major commercial and commuter airlines. The airport features one main terminal that is divided into two concourses. A separate terminal provides services and facilities for the general aviation needs of the airport. The Airport Improvement Program, one of Orange County’s largest-ever public works projects, began in 2008 and was completed in early 2011; projects included adding a third terminal, approximately 2,000 parking spaces, and additional concessions and amenities for passengers. In addition, a new $8.8-million, in-line baggage-handling system opened at Terminal C in late 2011, enhancing airport security while streamlining the ticketing and boarding process for passengers. A new cell-phone waiting lot with 18 designated spaces was completed in September 2015.

The following table illustrates recent operating statistics for the John Wayne Airport, which is the primary airport facility serving the proposed subject hotel’s submarket.

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FIGURE 3-10 AIRPORT STATISTICS - JOHN WAYNE AIRPORT

Passenger Percent Percent Year Traffic Change* Change**

2007 9,979,699 — — 2008 8,989,603 (9.9) % (9.9) % 2009 8,705,199 (3.2) (6.6) 2010 8,663,452 (0.5) (4.6) 2011 8,609,008 (0.6) (3.6) 2012 8,857,944 2.9 (2.4) 2013 9,232,789 4.2 (1.3) 2014 9,386,033 1.7 (0.9) 2015 10,038,466 7.0 0.1 2016 10,496,511 4.6 0.6 Year-to-date, Nov 2016 9,625,555 — — 2017 9,524,127 (1.1) % —

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

Source: John Wayne Airport

FIGURE 3-11 LOCAL PASSENGER TRAFFIC VS. NATIONAL TREND

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

hnei asegrAt vity Acti ssenger Pa in Change -10% -12% 2008 2009 2010 2011 2012 2013 2014 2015 2016

Local Passenger Volume National Passenger Volume

Source: HVS, Local Airport Authority

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This facility recorded 10,496,511 passengers in 2016. The change in passenger traffic between 2015 and 2016 was 4.6%. The average annual change during the period shown was 0.6%.

Long Beach Airport (LGB), also known as Daugherty Field, is located in Long Beach, California, and serves Los Angeles and Orange Counties. The airport is served by several major commercial airlines, offering easy access to the area’s business centers and massive consumer markets. LGB will continue to remain a relatively small airport, due both to noise ordinances imposed in favor of the surrounding residential areas and its proximity to the Los Angeles International Airport, which is just 18 miles to the northwest. In December 2010, construction started on a new $45-million passenger concourse as part of a $140-million modernization plan that includes a new parking structure, rehabilitation of the main terminal building, and improvements to the air-carrier ramp. The new concourse opened in 2013. The realignment and reconfiguration of the terminal roadways started in 2014, while the runway rehabilitation project was completed in May 2017.

The following table illustrates recent operating statistics for the Long Beach Airport, which is the secondary airport facility serving the proposed subject property’s submarket.

FIGURE 3-12 AIRPORT STATISTICS – LONG BEACH AIRPORT

Passenger Percent Percent Year Traffic Change* Change**

2007 2,906,556 — — 2008 2,913,926 0.3 % 0.3 % 2009 2,909,307 (0.2) 0.0 2010 2,978,426 2.4 0.8 2011 3,115,433 4.6 1.8 2012 3,205,907 2.9 2.0 2013 2,942,873 (8.2) 0.2 2014 2,823,996 (4.0) (0.4) 2015 2,523,686 (10.6) (1.8) 2016 2,852,294 13.0 (0.2) Year-to-date, Sep 2016 2,045,547 — — 2017 2,792,991 36.5 % —

*Annual average compounded percentage change from the previous year **Annual average compounded percentage change from first year of data Source: Long Beach Airport

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Air traffic registered 2,852,294 passengers in 2016. The change in passenger traffic between 2015 and 2016 was 13.0%. The recent increase in passenger traffic is primarily attributed to the addition of nine daily commercial flights in early 2016 and the return of service from Southwest Airlines. In October 2014, a noise- production report was completed and found that the Long Beach Airport was well below the allowed noise-production threshold due to the upgrading to quieter jets in recent years by the airport's major carriers. As such, the airport was permitted to add nine daily routes.

Los Angeles International Airport (LAX) is the primary airport serving Los Angeles, California. With service to destinations in North America, Latin America, Europe, Asia, and Oceania, LAX is one of the busiest airports in the world. LAX handles more "origin and destination" passengers than any other airport in the world and is a major hub for United Airlines. Los Angeles World Airports (LAWA) is amid a multibillion-dollar capital improvements program at LAX, which includes 20 individual projects; it is considered the largest public works program in the history of Los Angeles. Commencing in 2006 and anticipated to be completed in 2019, the program is expected to create about 40,000 construction jobs. The centerpiece of the program, which opened in 2013, is the New Tom Bradley International Terminal (New TBIT). The terminal includes new aircraft gates and concourse areas, as well as a Great Hall for premier dining and retail. Additionally, there are several major airfield and facility projects underway, including a new Central Utility Plant, new taxiways and taxi lanes, and renovations to other terminals. The new, $229-million Terminal 5 opened in June 2015. American Airlines added 25 new daily flights in June 2016, while Delta added new flights to Washington, D.C. and Nashville in October. In July 2016, Delta Air Lines announced that it is moving forward with a $1.9-billion plan to modernize, upgrade, and connect Terminals 2, 3, and the north side of the Tom Bradley International Terminal over the next seven years.

The following table illustrates recent operating statistics for the Los Angeles International Airport, which is the third airport facility serving the proposed subject property’s submarket.

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FIGURE 3-13 AIRPORT STATISTICS – LOS ANGELES INTERNATIONAL AIRPORT

Passenger Percent Percent Year Traffic Change* Change**

2007 62,438,583 — — 2008 59,820,750 (4.2) % (4.2) % 2009 56,520,843 (5.5) (4.9) 2010 59,070,127 4.5 (1.8) 2011 61,862,052 4.7 (0.2) 2012 63,688,121 3.0 0.4 2013 66,665,726 4.7 1.1 2014 70,663,519 6.0 1.8 2015 74,956,305 6.1 2.3 2016 80,921,527 8.0 2.9

Year-to-date, Nov 2016 74,047,266 — — 2017 77,460,035 4.6 % —

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

Source: Los Angeles International Airport

Air traffic registered 80,921,527 passengers in 2016. The change in passenger traffic between 2015 and 2016 was 8.0%. The recent increase in passenger traffic is primarily attributed to the addition of new international air carriers, as well as airlines using larger aircraft with more available seats. American Airlines added new flights to/from Auckland, New Zealand, in June 2015; moreover, American and Delta added more domestic and international flights in the second half of 2016.

Tourist Attractions The northern Orange County region features a variety of tourist and leisure attractions. The peak season for tourism in this area is from May to September. Orange County remains the third-largest center in the state for tourism-related employment, behind the counties of Los Angeles and San Diego. Amusement parks, such as Disneyland and Knott's Berry Farm, as well as the area's 42 miles of beaches, continue to be among the most popular tourist destinations in California. Primary attractions in the area include the following:

• Disneyland Resort is a major recreational resort that is home to two theme parks, three hotels, and a shopping and entertainment area. Disneyland Park has attracted millions of visitors since it first opened its doors over 55 years ago and

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features over 60 major attractions. During peak travel seasons, City of La Habra will benefit from the overflow demand from Disneyland; however, given the distance of the subject market from the resort, the overflow demand tends to be more price-sensitive visitors looking for affordable alternatives. • Knott's Berry Farm, located in Buena Park, is an amusement park spanning 160 acres. The park features nearly 40 rides, with seven roller coasters and three water rides. In recent years, Knott's Berry Farm has invested in new rides, including animatronics updates and extensive overhauls to Timber Mountain Log Ride in 2013 and Calico Mine Ride in 2014. Knott's Berry Farm's newest attraction, Voyage to the Iron Reef, is a 4D interactive ride that opened in May 2015. • Angel Stadium of Anaheim (previously Anaheim Stadium and Edison International Field of Anaheim) is home to the Los Angeles Angels of Anaheim, the area's Major League Baseball team, while Honda Center is home to the National Hockey League's Anaheim Ducks. The surrounding neighborhood, known as the Platinum Triangle, is undergoing redevelopment. City plans allow for nearly 20,000 residential units and 19 million square feet of commercial and office space on an 820-acre swath surrounding Angel Stadium, the Honda Center, and the City National Grove of Anaheim. In addition, a streetcar line has been proposed that would connect the neighborhood with Disneyland and Anaheim Garden Walk. • The Richard Nixon Presidential Library and Museum, located in Yorba Linda, is the presidential library of Richard Milhous Nixon. The nine-acre campus is situated on and surrounding the grounds of the house where Nixon was born and spent his childhood. The library, as well as numerous golf courses and event venues in the area, are popular for weddings, social events, and corporate functions.

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DISNEYLAND RESORT

Conclusion This section discussed a wide variety of economic indicators for the pertinent market area. Northern Orange County is experiencing a period of economic strength and expansion, primarily led by the tourism and manufacturing industries and healthcare and education sectors. Our market interviews and research revealed that while tourism continues to be the major economic force in the area, developments with the manufacturing industry and healthcare sector support further job growth. In addition, the strong education sector should ensure a steady supply of educated labor force. The outlook for the market area is positive.

Our analysis of the outlook for this specific market also considers the broader context of the national economy. The U.S. economy expanded during the last three years, with a relatively low point in growth occurring during the fourth quarter of 2015 and the first quarter of 2016, as well as the first quarter of 2017. Most recently, the U.S. economy expanded by 3.1% and 3.0% in the second and third quarters of 2017, respectively. The recent acceleration reflected strong personal consumption expenditures (PCE), private inventory investment, nonresidential fixed investment, exports, and federal government spending.

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FIGURE 3-14 UNITED STATES GDP GROWTH RATE

6.0 5.0 5.0 4.0 4.0 4.0 3.1 3.2 3.1 2.7 2.8 3.0 3.0 2.0 2.2 1.9 1.6 1.8 2.0 1.1 1.2 1.0 0.5 0.6 0.0 -1.0 -2.0 -1.2 2013 2014 2015 2016 2017 Source: tradingeconomics.com, Bureau of Economic Analysis

U.S. economic growth continues to support expansion of lodging demand. In 2017, demand growth through November registered 2.7%, stronger than the 1.6% level recorded in 2016. The economic growth, low unemployment, higher levels of personal income, and stability in the U.S. economy as of early 2018 is helping to maintain strong interest in hotel investments by a diverse array of market participants.

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4. Supply and Demand Analysis

In the lodging industry, price varies directly, but not proportionately, with demand and inversely, but not proportionately, with supply. Supply is measured by the number of guestrooms available, and demand is measured by the number of rooms occupied; the net effect of supply and demand toward 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 to set forth a basis for the projection of future supply and demand growth.

Definition of Subject The subject site is located in the greater Orange County lodging market. This greater Hotel Market lodging market spans nearly 100 open and operating lodging facilities totaling roughly 8,000 guestrooms. Within this greater market, the direct submarket that will encompass the proposed subject hotel is known as northern Orange County market. The proposed subject hotel is expected to compete with four hotels on a primary level based on location, product offering, and brand affiliation. We have considered an additional seven hotels as future secondary competitors given differences in asset class and room count.

National Trends The subject property’s local lodging market is most directly affected by the supply Overview 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 hotel’s competitive set.

STR is an independent research firm that compiles and publishes data on the lodging industry, and this information is routinely used by typical hotel buyers. The following STR diagram presents annual hotel occupancy and average rate data since 1987. The next two tables contain information that is more recent; the data are categorized by geographical region, price point, type of location, and chain scale, and 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.

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FIGURE 4-1 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS

70.0% $120

$100 65.0%

$80 60.0%

$60 55.0% $40

50.0% $20

$0 45.0% 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 2014 2015 2016

RevPAR Average Rate Occupancy

Source: STR

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FIGURE 4-2 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS – YEAR-TO-DATE DATA

Occupancy - YTD November Average Rate - YTD November RevPAR - YTD November Percent Change % % % Rms. 2016 2017 Change 2016 2017 Change 2016 2017 Change Avail. Rms. Sold United States 66.5 % 67.1 % 0.8 % $124.49 $127.07 2.1 % $82.85 $85.22 2.9 % 1.8 % 2.6 % Region New England 65.6 % 66.2 % 0.9 % $152.85 $155.59 1.8 % $100.30 $103.02 2.7 % 1.5 % 2.5 % Mi ddl e Atl a nti c 68.1 68.7 0.7 162.14 161.49 (0.4) 110.49 110.87 0.3 2.9 3.6 South Atlantic 68.1 69.0 1.3 120.34 123.58 2.7 81.91 85.21 4.0 1.5 2.8 East North Central 62.5 62.8 0.4 109.22 110.48 1.2 68.29 69.38 1.6 1.9 2.3 East South Central 62.6 62.7 0.2 95.46 98.76 3.5 59.72 61.90 3.6 1.9 2.0 West North Central 60.4 59.4 (1.8) 96.65 98.01 1.4 58.40 58.18 (0.4) 1.4 (0.4) West South Central 62.4 63.4 1.5 99.43 100.83 1.4 62.07 63.91 3.0 3.0 4.6 Mounta i n 66.6 67.7 1.7 114.44 119.01 4.0 76.17 80.55 5.8 1.1 2.8 Pacific 74.8 75.0 0.3 159.33 163.38 2.5 119.25 122.59 2.8 1.6 1.8 Cl a s s Luxury 71.8 % 72.0 % 0.3 % $280.61 $284.35 1.3 % $201.40 $204.60 1.6 % 2.2 % 2.4 % Upper-Upscale 73.8 74.0 0.2 178.90 181.83 1.6 132.04 134.49 1.9 1.7 1.9 Upscale 73.2 73.6 0.5 139.62 141.78 1.5 102.17 104.31 2.1 4.3 4.8 Upper-Midscale 68.5 68.9 0.6 114.74 116.53 1.6 78.57 80.29 2.2 4.0 4.7 Mi ds ca le 60.9 61.6 1.2 92.65 94.81 2.3 56.44 58.45 3.6 0.3 1.4 Economy 59.3 59.8 0.8 70.15 72.29 3.1 41.63 43.24 3.9 (0.4) 0.4 Location Urban 74.3 % 74.7 % 0.5 % $177.94 $179.60 0.9 % $132.13 $134.09 1.5 % 3.1 % 3.6 % Suburban 68.0 68.2 0.3 106.48 108.82 2.2 72.37 74.22 2.6 1.9 2.3 Airport 74.4 74.8 0.5 114.48 116.97 2.2 85.18 87.50 2.7 1.4 2.0 Interstate 57.6 58.4 1.3 83.53 85.39 2.2 48.15 49.85 3.5 1.5 2.8 Resort 69.3 70.5 1.7 168.08 172.54 2.7 116.41 121.59 4.4 0.9 2.7 Small Metro/Town 58.0 58.5 0.9 100.44 102.81 2.4 58.28 60.19 3.3 1.5 2.4 Cha in Sca le Luxury 74.7 % 74.7 % 0.1 % $314.64 $320.99 2.0 % $234.88 $239.93 2.2 % 1.6 % 1.7 % Upper-Upscale 75.5 75.5 (0.1) 180.50 183.00 1.4 136.32 138.13 1.3 2.1 2.0 Upscale 75.0 74.9 (0.1) 138.99 140.87 1.4 104.31 105.58 1.2 6.0 5.9 Upper-Midscale 68.8 69.2 0.6 112.15 113.81 1.5 77.21 78.80 2.1 3.2 3.8 Mi ds ca le 60.5 61.1 1.1 85.73 87.45 2.0 51.84 53.47 3.2 1.3 2.4 Economy 58.7 59.0 0.5 61.20 62.77 2.6 35.92 37.04 3.1 0.1 0.7 Independents 63.1 64.0 1.4 123.06 126.63 2.9 77.64 81.00 4.3 0.0 1.4

Source: STR - November 2017 Lodging Review

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FIGURE 4-3 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS – CALENDAR YEAR DATA

Occupancy Average Rate RevPAR Percent Change % % % Rms. 2015 2016 Change 2015 2016 Change 2015 2016 Change Avail. Rms. Sold United States 65.4 % 65.5 % 0.1 % $120.30 $123.97 3.1 % $78.68 $81.19 3.2 % 1.6 % 1.7 % Region New England 64.5 % 64.3 % (0.4) % $146.41 $150.70 2.9 % $94.49 $96.89 2.5 % 1.3 % 1.0 % Middle Atlantic 67.3 67.3 0.0 162.29 163.41 0.7 109.22 109.99 0.7 2.8 2.8 South Atlantic 66.5 67.2 1.1 116.65 119.77 2.7 77.53 80.44 3.8 1.3 1.3 East North Central 61.3 61.2 (0.2) 105.20 108.09 2.7 64.45 66.10 2.6 1.6 1.4 East South Central 61.0 61.4 0.7 90.91 94.87 4.4 55.43 58.26 5.1 1.7 2.5 West North Central 59.6 59.1 (0.8) 93.28 95.91 2.8 55.58 56.68 2.0 1.5 0.7 West South Central 62.9 61.5 (2.3) 98.43 98.66 0.2 61.93 60.63 (2.1) 2.7 0.3 Mountain 65.0 65.5 0.7 108.77 114.24 5.0 70.68 74.79 5.8 0.8 1.5 Pa ci fic 73.2 73.9 0.9 151.10 158.44 4.9 110.57 117.04 5.8 0.9 1.9 Cla ss Luxury 70.8 % 71.0 % 0.3 % $278.39 $283.05 1.7 % $196.98 $200.95 2.0 % 2.8 % 3.1 % Upper-Upscale 72.7 72.6 (0.1) 173.53 177.77 2.4 126.08 129.07 2.4 1.2 1.2 Upscale 72.0 72.0 0.1 135.70 139.47 2.8 97.72 100.49 2.8 3.9 3.9 Upper-Midscale 67.1 67.1 0.0 110.95 113.84 2.6 74.48 76.38 2.6 3.3 3.2 Mids cale 59.9 59.9 0.1 90.13 92.61 2.7 53.96 55.50 2.9 0.4 0.6 Economy 58.6 58.6 0.0 67.60 70.17 3.8 39.63 41.13 3.8 (0.4) (0.4) Location Urban 73.0 % 73.1 % 0.1 % $173.99 $177.37 1.9 % $127.04 $129.69 2.1 % 2.9 % 3.0 % Suburban 66.7 66.8 0.2 101.91 105.70 3.7 67.97 70.63 3.9 1.4 1.6 Airport 73.6 73.4 (0.2) 109.78 113.56 3.4 80.78 83.40 3.3 1.0 0.8 Interstate 57.2 56.6 (1.1) 81.35 83.04 2.1 46.53 46.97 0.9 1.5 0.4 Resort 67.9 68.6 0.9 164.10 168.76 2.8 111.51 115.76 3.8 0.9 1.8 Small Metro/Town 56.9 56.9 0.1 96.63 99.45 2.9 54.95 56.64 3.1 1.4 1.5 Cha in Scal e Luxury 75.2 % 74.9 % (0.3) % $317.58 $322.84 1.7 % $238.70 $241.82 1.3 % 2.8 % 2.4 % Upper-Upscale 74.3 74.2 (0.2) 174.98 178.82 2.2 130.08 132.63 2.0 1.6 1.4 Upscale 74.3 73.8 (0.6) 134.82 138.50 2.7 100.13 102.27 2.1 5.6 5.0 Upper-Midscale 67.5 67.4 (0.2) 108.75 111.43 2.5 73.46 75.14 2.3 2.1 1.9 Mids cale 59.4 59.4 (0.1) 83.32 85.43 2.5 49.52 50.74 2.5 1.2 1.1 Economy 58.1 57.9 (0.4) 58.82 60.84 3.4 34.16 35.20 3.1 0.3 (0.1) Independents 61.8 62.3 0.8 118.73 123.22 3.8 73.36 76.75 4.6 0.2 1.0 Source: STR - December 2016 Lodging Review

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Following the significant RevPAR decline experienced during the last recession, demand growth resumed in 2010, led by select markets that had recorded growth trends in the fourth quarter of 2009. A return of business travel and some group activity contributed to these positive trends. The resurgence in demand was partly fueled by the significant price discounts that were widely available in the first half of 2010. These discounting policies were largely phased out in the latter half of the year, balancing much of the early rate loss. Demand growth remained strong, but decelerated from 2011 through 2013, increasing at rates of 4.7%, 2.8%, and 2.0%, respectively. Demand growth then surged to 4.0% in 2014, driven by a strong economy, a robust oil and gas sector, and limited new supply, among other factors. By 2014, occupancy had surpassed the 64% mark. Average rate rebounded similarly during this time, bracketing 4.0% annual gains from 2011 through 2014.

In 2015, demand growth continued to outpace supply growth, a relationship that has been in place since 2010. With a 2.9% increase in room nights, the nation's occupancy level reached a record high of 65.4% in 2015. Supply growth intensified modestly in 2015 (at 1.1%), following annual supply growth levels of 0.7% and 0.9% in 2013 and 2014, respectively. Average rate posted another strong year of growth, at 4.4% in 2015, in pace with the annual growth of the last four years. Robust job growth, heightened group and leisure travel, and waning price-sensitivity all contributed to the gains. In 2016, occupancy increased minimally (by 0.1%) to 65.5%, as demand growth modestly exceeded supply growth. Average rate increased 3.1% for the year, and the net change in RevPAR was 3.2%, reflecting a healthy lodging market overall. Year-to-date November 2017 data show this trend continuing, with a 0.6-point occupancy increase to 67.1%, while average rate increased by just over $2.50 to roughly $127.00, resulting in a 2.9% upward change in RevPAR.

Anaheim-Santa Ana, According to STR Global, as of December 31, 2016, the greater Anaheim-Santa Ana, CA Lodging Market CA area had 440 hotels with a total of 56,897 guestrooms. These totals represent a 3.1% change over the 2015 year-end inventory of 55,184 guestrooms. The following table presents the historical occupancy, average rate, and RevPAR data for the Anaheim-Santa Ana metropolitan area for the years 2000 through 2016, as well as for the comparative year-to-date period ending in November 2016 and 2017.

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FIGURE 4-4 ANAHEIM-SANTA ANA LODGING MARKET DATA – 2000 TO YTD NOVEMBER 2017

Percent Percent Percent Year Occupancy Change Average Rate Change RevPAR Change 2000 70.4 % — $85.85 — $60.44 — 2001 66.0 (6.2) % 91.02 6.0 % 60.07 (0.6) % 2002 63.8 (3.3) 87.31 (4.1) 55.70 (7.3) 2003 66.9 4.9 91.55 4.9 61.25 10.0 2004 69.5 3.9 94.86 3.6 65.93 7.6 2005 74.3 6.9 102.28 7.8 75.99 15.3 2006 72.7 (2.2) 112.05 9.6 81.46 7.2 2007 72.4 (0.4) 121.39 8.3 87.89 7.9 2008 68.8 (5.0) 122.61 1.0 84.36 (4.0) 2009 64.1 (6.8) 109.37 (10.8) 70.11 (16.9) 2010 68.1 6.2 108.46 (0.8) 73.86 5.4 2011 70.9 4.1 113.39 4.5 80.39 8.8 2012 73.0 3.0 120.28 6.1 87.80 9.2 2013 74.9 2.6 127.40 5.9 95.42 8.7 2014 76.7 2.4 135.57 6.4 103.98 9.0 2015 78.6 2.5 144.05 6.3 113.22 8.9 2016 78.3 (0.4) 150.86 4.7 118.12 4.3

Year to date through November 2016 78.9 % $151.30 $119.38 2017 78.4 (0.6) % 157.17 3.9 % 123.22 3.2 %

Average Annual Compound Growth 2000 to 2016 0.7 % 3.6 % 4.3 %

Source: STR Global, STR Monthly Hotel Review

Attracting over 20 million leisure visitors per year, the Anaheim/Santa Ana hotel market (defined as Orange County, California) is home to an array of leisure attractions, but Orange County also supports a diverse base of industries including technology, finance, manufacturing, education, and healthcare. Within Orange County, there are a variety of hotel submarkets ranging from the cities of Orange, Garden Grove, and Anaheim (which surround the Disney theme parks) and Buena Park (home of Knott's Berry Farm) to Irvine (University of California Irvine campus and base for numerous corporate headquarters) and the affluent coastal communities of Huntington Beach and Dana Point. Each submarket has its own unique set of demand drivers, and, as a whole, the Orange County market has recorded robust demand growth over the last several years. From 2011 through 2015, occupancy increased year-over-year, peaking near 79% in 2015. Average rate

April-2018 Supply and Demand Analysis Proposed La Quinta Inn & Suites La Habra – La Habra, California 52

for the market illustrated a similar trend, with robust annual growth levels registered each year between 2010 and 2015. These trends have been supported by accelerated group business, the expansion at the Anaheim Convention Center, and Disneyland’s 60th anniversary, which commenced in May 2015 and continued through September 2016. Positive trends in key performance indicators and the anticipated demand growth have prompted a surge in new hotel development, particularly in Anaheim, Garden Grove, Irvine, and Huntington Beach. Most of the new supply is concentrated in Anaheim and Garden Grove, including the 603-room Great Wolf Lodge Southern California that opened in February 2016. In 2016, occupancy declined moderately given the influx of new supply; however, the market continued to experience growth in average rate and RevPAR.

Historical Supply As previously noted, STR is an independent research firm that compiles and and Demand Data publishes data on the lodging industry, routinely used by typical hotel buyers. HVS has ordered and analyzed an STR Trend Report of historical supply and demand data for a group of hotels considered applicable to this analysis for the proposed subject hotel. 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.

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FIGURE 4-5 HISTORICAL SUPPLY AND DEMAND TRENDS

Average Daily Available Room Occupied Room Average Year Room Count Nights Change Nights Change Occupancy Rate Change RevPAR Change 2007 1,671 609,915 — 428,880 — 70.3 % $100.79 — $70.87 — 2008 1,671 609,915 0.0 % 392,327 (8.5) % 64.3 101.40 0.6 % 65.23 (8.0) % 2009 1,671 609,915 0.0 360,603 (8.1) 59.1 90.56 (10.7) 53.54 (17.9) 2010 1,671 610,068 0.0 411,285 14.1 67.4 87.75 (3.1) 59.16 10.5 2011 1,671 609,974 (0.0) 428,203 4.1 70.2 86.30 (1.7) 60.59 2.4 2012 1,671 609,915 (0.0) 456,683 6.7 74.9 88.51 2.5 66.27 9.4 2013 1,672 610,221 0.1 473,426 3.7 77.6 92.86 4.9 72.04 8.7 2014 1,674 610,859 0.1 490,842 3.7 80.4 100.67 8.4 80.89 12.3 2015 1,674 611,010 0.0 490,226 (0.1) 80.2 110.10 9.4 88.34 9.2 2016 1,671 609,790 (0.2) 486,310 (0.8) 79.8 116.65 5.9 93.03 5.3 Year-to-Date Through November 2016 1,671 558,206 — 450,633 — 80.7 % $117.31 — $94.70 — 2017 1,719 574,076 2.8 % 447,292 (0.7) % 77.9 119.63 2.0 % 93.21 (1.6) % Average Annual Compounded Change: 2007 - 2010 0.0 (1.4) (4.5) (5.8) 2010 - 2016 (0.0) 2.8 4.9 7.8 Competitive Number Year Year Hotels Included in Sample Class Status of Rooms Affiliated Opened Holiday Inn Buena Park Near Knott's Upper Midscale Class Secondary 249 Dec 1973 Dec 1973 Holiday Inn La Mirada Upper Midscale Class Secondary 292 Apr 2010 Ma r 1984 Days Inn Fullerton Economy Class Secondary 123 Apr 2011 Ma r 1986 Fairfield Inn & Suites Anaheim North Buena Park DisneyUpper Midscale Class Primary 137 Aug 2011 Nov 1986 Courtyard Anaheim Buena Park Upscale Class Secondary 145 Dec 1986 Dec 1986 Cha s e Sui tes Brea Upper Midscale Class Secondary 88 Jun 2008 Aug 1987 La Quinta Inns & Suites Buena Park Midscale Class Primary 160 Jan 1994 Nov 1987 Holiday Inn & Suites Anaheim Fullerton Upper Midscale Class Primary 96 Dec 2008 Aug 1989 Marriott Fullerton @ California State University Upper Upscale Class Secondary 224 Oct 1989 Oct 1989 Courtyard Los Angeles Hacienda Heights Upscale Class Secondary 150 Mar 1990 Ma r 1990 Holiday Inn Express Fullerton Anaheim Upper Midscale Class Primary 100 Jun 2017 Jun 2017

Total 1,764

Source: STR

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It is important to note some limitations of the STR data. Hotels are occasionally added to or removed from the sample; furthermore, 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, and 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.

The STR data for the competitive set reflect a market-wide occupancy level of 2016 in 79.8%, which compares to 80.2% for 2015. The overall average occupancy level for the calendar years presented equates to 77.2%. The STR data for the competitive set reflect a market-wide average rate level of $116.65 in 2016, which compares to $110.10 For 2015. The average across all calendar years presented for average rate equates to $99.60. These occupancy and average rate trends resulted in a RevPAR level of $93.03 in 2016.

We note that the Embassy Suites Brea is not included in the trend report due to the ordering restrictions placed by STR. RevPAR first peaked at approximately $71 for this selected set of hotels in the northern Orange County market in 2007, before declining to a low point of roughly $53.54 by year-end 2009 because of the recession. A recovery began in 2010 that extended through 2013, at which time the 2007 RevPAR peak was exceeded. RevPAR continued to rise from 2014 through 2017, with growth driven largely by the export and manufacturing industries. Furthermore, the gradually recovered housing market enables the rebound of the mortgage lending industry, which is a key factor of economic growth for the Los Angeles Basin. Additionally, the emerging information technology industry helps Orange County slowly transition into a knowledge-based, high-tech economy, which provides more high-wage jobs and stronger economic growth potential. The increasing personal disposable income and the lower gas prices have also contributed to the stronger domestic travel.

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

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FIGURE 4-6 MONTHLY OCCUPANCY TRENDS

Month 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 January 61.6 % 61.4 % 52.1 % 57.7 % 61.0 % 65.0 % 68.1 % 70.9 % 69.2 % 72.4 % 69.4 % February 72.1 63.3 56.8 63.2 66.8 66.5 76.7 76.7 79.2 83.8 76.9 March 81.7 75.1 59.9 73.8 77.9 77.1 78.1 82.3 84.1 85.7 85.9 April 73.4 69.6 56.1 63.7 70.1 68.5 73.3 81.3 79.0 81.9 83.3 May 68.2 63.8 54.5 65.9 67.6 71.0 75.5 81.3 77.9 79.2 79.7 June 75.2 72.7 67.0 73.5 75.5 84.1 86.0 86.2 85.6 84.3 79.0 July 75.5 74.9 68.4 81.7 82.8 87.1 91.4 91.1 91.4 88.4 83.7 August 73.9 71.0 64.9 73.4 72.1 81.4 85.4 88.0 84.3 82.0 76.8 September 61.7 54.5 55.8 61.2 66.1 71.8 71.2 72.6 76.8 76.2 73.3 October 70.6 60.1 63.3 70.5 71.4 81.3 79.8 82.0 86.1 83.0 79.9 November 67.1 51.5 50.8 58.8 63.3 71.0 71.4 73.8 74.8 71.0 69.2 December 63.0 53.7 59.4 64.6 67.4 72.9 73.6 77.3 74.0 69.2 —

Annual Occupancy 70.3 % 64.3 % 59.1 % 67.4 % 70.2 % 74.9 % 77.6 % 80.4 % 80.2 % 79.8 % — Year-to-Date 71.0 % 65.3 % 59.1 % 67.7 % 70.5 % 75.1 % 77.9 % 80.6 % 80.8 % 80.7 % 77.9 % Source: STR

FIGURE 4-7 MONTHLY AVERAGE RATE TRENDS

Month 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

January $101.61 $105.67 $99.14 $87.78 $88.76 $87.64 $91.26 $96.30 $107.41 $109.53 $116.31 February 101.45 104.10 101.80 86.90 92.66 89.66 91.50 97.44 107.13 114.04 116.10 March 101.77 104.47 96.75 88.27 94.20 93.07 94.97 103.04 111.56 122.63 124.79 April 102.43 103.29 94.05 87.44 88.81 89.09 92.61 99.51 109.07 115.55 117.73 May 103.93 101.13 93.10 87.44 86.78 88.13 89.91 99.25 106.56 112.12 117.38 June 102.23 101.66 89.25 90.01 86.05 88.97 93.60 102.70 110.84 119.54 122.65 July 103.32 99.26 86.34 87.36 81.74 90.58 97.73 107.01 122.35 129.01 131.35 August 101.81 100.74 86.61 88.67 84.80 89.78 95.93 104.22 115.57 121.38 122.09 September 98.44 102.35 87.66 87.43 82.22 85.81 90.00 96.63 107.89 112.00 111.72 October 99.61 99.51 87.39 89.82 84.19 89.94 92.79 101.75 110.60 117.02 117.01 November 96.13 99.68 86.89 88.09 85.27 85.09 91.38 97.98 104.78 113.88 115.35 December 95.22 93.67 81.21 83.23 80.80 83.10 90.31 98.97 103.29 108.36 —

Annual Average Rate $100.79 $101.40 $90.56 $87.75 $86.30 $88.51 $92.86 $100.67 $110.10 $116.65 — Year-to-Date $101.25 $101.99 $91.43 $88.15 $86.79 $88.99 $93.08 $100.82 $110.68 $117.31 $119.63 Source: STR

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FIGURE 4-8 SEASONALITY

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

High Season - June, July, August Occupancy 74.8 % 72.9 % 66.8 % 76.2 % 76.8 % 84.2 % 87.6 % 88.5 % 87.1 % 84.9 % 79.8 Average Rate $102.46 $100.53 $87.38 $88.62 $84.09 $89.80 $95.82 $104.71 $116.45 $123.46 $125.54 RevPAR 76.67 73.26 58.33 67.56 64.59 75.62 83.96 92.63 101.48 104.84 100.22

Shoulder Season - February, March, April, May, September, October Occupancy 71.3 % 64.4 % 57.8 % 66.5 % 70.1 % 72.8 % 75.8 % 79.4 % 80.6 % 81.6 % 79.8 % Average Rate $101.34 $102.55 $93.28 $87.95 $88.23 $89.36 $92.02 $99.74 $108.90 $115.72 $117.63 RevPAR 72.26 66.08 53.88 58.48 61.82 65.07 69.74 79.24 87.74 94.46 93.90

Low Season - January, November, December Occupancy 63.9 % 55.5 % 54.2 % 60.4 % 63.9 % 69.6 % 71.1 % 74.0 % 72.6 % 70.9 % 69.3 % Average Rate $97.61 $99.95 $88.76 $86.24 $84.81 $85.19 $90.97 $97.79 $105.11 $110.56 $115.82 RevPAR 62.33 55.52 48.09 52.10 54.16 59.29 64.64 72.39 76.36 78.35 80.29 Source: Smith Travel Research

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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. The competitive market is characterized by a moderate degree of seasonality, which is evident in the monthly occupancy statistics. The strongest occupancy levels are recorded in the summer months, when demand from leisure travelers supplements the commercial segment that is the principal source of demand in this submarket. Average rate levels reflect a similar pattern.

Patterns of Demand A review of the trends in occupancy and average rate by day of the week provides some insight into the impact that the current economic conditions have had on the competitive lodging market. The data, as provided by STR, are illustrated in the following table(s).

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FIGURE 4-9 OCCUPANCY BY DAY OF WEEK (TRAILING 12 MONTHS)

Month Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Month Dec - 16 56.9 % 70.8 % 76.8 % 72.6 % 63.4 % 67.7 % 76.1 % 69.2 % Jan - 17 52.8 69.7 77.7 76.6 68.6 70.2 72.2 69.4 Feb - 17 58.9 72.5 85.3 86.8 78.3 76.4 80.2 76.9 Mar - 17 63.4 83.8 91.7 89.6 87.5 91.3 91.3 85.9 Apr - 17 59.3 82.4 91.6 91.1 85.4 88.6 89.4 83.3 May - 17 60.9 70.3 81.2 82.7 83.3 90.4 90.0 79.7 Jun - 17 60.3 82.8 87.1 86.3 75.3 78.0 84.7 79.0 Jul - 17 70.0 82.1 83.6 88.2 86.5 87.2 90.2 83.7 Aug - 17 57.0 76.2 81.9 81.2 74.0 80.0 85.3 76.8 Sep - 17 61.1 65.4 75.1 79.5 73.1 73.3 83.1 73.3 Oct - 17 59.2 75.6 79.7 83.6 84.3 90.2 93.0 79.9 Nov - 17 53.3 66.5 68.5 69.4 70.3 78.4 78.0 69.2 Average 59.5 % 74.8 % 81.5 % 82.1 % 77.2 % 80.7 % 84.5 % 77.2 %

Source: STR

FIGURE 4-10 AVERAGE RATE BY DAY OF WEEK (TRAILING 12 MONTHS)

Month Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Month Dec - 16 $101.12 $109.42 $112.15 $111.78 $107.29 $104.37 $110.65 $108.36 Jan - 17 109.65 116.76 121.83 122.61 116.33 112.24 111.67 116.31 Feb - 17 105.29 119.06 124.70 125.52 115.30 108.51 110.00 116.10 Mar - 17 111.81 120.33 125.62 127.31 129.40 126.82 125.86 124.79 Apr - 17 106.36 119.40 125.18 124.54 114.79 114.59 117.10 117.73 May - 17 107.16 116.38 119.86 117.25 116.46 120.18 120.64 117.38 Jun - 17 110.80 124.51 129.50 128.75 119.39 121.57 120.88 122.65 Jul - 17 115.33 128.67 135.28 136.30 130.90 135.95 136.23 131.35 Aug - 17 109.61 119.94 127.54 129.77 120.10 118.66 122.06 122.09 Sep - 17 102.11 112.87 121.14 117.87 109.71 107.21 110.54 111.72 Oct - 17 103.14 116.79 121.67 122.08 115.35 117.46 119.80 117.01 Nov - 17 103.20 118.19 122.71 119.09 113.13 112.42 116.05 115.35

Average $107.44 $118.95 $124.09 $123.93 $117.87 $117.20 $118.93 $118.80

Source: STR

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FIGURE 4-11 OCCUPANCY, AVERAGE RATE, AND REVPAR BY DAY OF WEEK (MULTIPLE YEARS)

Occupancy (%) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year Dec 14 - Nov 15 62.5 % 78.2 % 86.9 % 86.3 % 79.9 % 83.5 % 86.4 % 80.5 % Dec 15 - Nov 16 61.9 77.9 85.6 85.7 80.9 82.8 86.1 80.2 Dec 16 - Nov 17 59.5 74.8 81.5 82.1 77.2 80.7 84.5 77.2 Change (Occupancy Points) FY 15 - FY 16 (0.7) (0.3) (1.3) (0.6) 1.1 (0.7) (0.3) (0.4) FY 16 - FY 17 (2.3) (3.1) (4.1) (3.6) (3.8) (2.1) (1.6) (3.0)

ADR ($) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year Dec 14 - Nov 15 $102.03 $111.31 $114.84 $115.29 $109.20 $105.69 $107.53 $109.73 Dec 15 - Nov 16 107.04 117.01 121.35 121.63 116.20 112.87 114.55 116.21 Dec 16 - Nov 17 107.44 118.95 124.09 123.93 117.87 117.20 118.93 118.80 Change (Dollars) FY 15 - FY 16 $5.02 $5.70 $6.52 $6.34 $7.00 $7.18 $7.03 $6.48 FY 16 - FY 17 0.39 1.94 2.74 2.30 1.67 4.34 4.38 2.59 Change (Percent) FY 15 - FY 16 4.9 % 5.1 % 5.7 % 5.5 % 6.4 % 6.8 % 6.5 % 5.9 % FY 16 - FY 17 0.4 1.7 2.3 1.9 1.4 3.8 3.8 2.2

RevPAR ($) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year Dec 14 - Nov 15 $63.81 $87.07 $99.74 $99.46 $87.21 $88.26 $92.86 $88.34 Dec 15 - Nov 16 66.21 91.19 103.83 104.23 94.06 93.47 98.64 93.15 Dec 16 - Nov 17 63.93 89.00 101.15 101.78 90.97 94.61 100.50 91.70 Change (Dollars) FY 15 - FY 16 $2.40 $4.13 $4.09 $4.77 $6.85 $5.21 $5.77 $4.81 FY 16 - FY 17 (2.28) (2.19) (2.69) (2.46) (3.08) 1.14 1.86 (1.45) Change (Percent) FY 15 - FY 16 3.8 % 4.7 % 4.1 % 4.8 % 7.9 % 5.9 % 6.2 % 5.4 % FY 16 - FY 17 (3.4) (2.4) (2.6) (2.4) (3.3) 1.2 1.9 (1.6)

Source: STR

In most markets, business travel, including individual commercial travelers and corporate groups, is the predominant source of demand on Monday through Thursday nights. Leisure travelers and non-business-related groups generate a majority of demand on Friday and Saturday nights. The influence of the leisure segment, particularly demand generated by Knott's Berry Farm, is evident in the occupancy and average rate levels recorded on Friday and Saturday nights of June

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through August. This source also generates supplemental demand during the week in the summer months.

SUPPLY Based on an evaluation of the occupancy, rate structure, market orientation, chain affiliation, location, facilities, amenities, reputation, and quality of each area hotel, as well as the comments of management representatives, we have identified several properties that are expected to be primarily competitive with the proposed subject hotel. If applicable, additional lodging facilities may be judged only secondarily competitive; although the facilities, rate structures, or market orientations of these hotels prevent their inclusion among the primary competitive supply, they are expected to compete with the proposed subject hotel to some extent.

Primary Competitors The following table summarizes the important operating characteristics of the future primary competitors and the aggregate secondary competitors (if applicable). This information was compiled from personal interviews, inspections, online resources, and our in-house database of operating and hotel facility data.

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FIGURE 4-12 PRIMARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Weighted Weighted Annual Annual Number of Room Room Occupancy Yield

Property Rooms Commercial Leisure Group Count Occ. Average Rate RevPAR Count Occ. Average Rate RevPAR Penetration Penetration

Embassy Suites Brea 228 50 % 30 % 20 % 228 75 - 80 % $160 - $170 $125 - $130 228 80 - 85 % $170 - $180 $150 - $160 100 - 110 % 140 - 150 %

Holiday Inn Express Fullerton 100 45 45 10 0 — — — 59 60 - 65 130 - 140 85 - 90 80 - 85 85 - 90

Sub-Totals/Averages 721 49 % 31 % 20 % 621 78.1 % $136.10 $106.35 680 78.9 % $143.20 $112.94 100.8 % 111.8 %

Secondary Competitors 1,271 51 % 30 % 20 % 877 79.9 % $116.53 $93.09 871 77.8 % $117.88 $91.74 99.4 % 90.8 %

Totals/Averages 1,992 50 % 30 % 20 % 1,499 79.2 % $124.54 $98.59 1,551 78.3 % $129.06 $101.03 100.0 % 100.0 %

* Specific occupancy and average rate data were utilized in our analysis, but are presented in ranges in the above table for the purposes of confidentiality.

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FIGURE 4-13 PRIMARY COMPETITORS – FACILITY PROFILES

Approx. Miles Indoor Number of Year Last Major To Subject Meeting Meeting Space Property Rooms Opened Renovation(s) Property Food and Beverage Outlets Space (SF) per Room Facilities & Amenities Embassy Suites Brea 228 1990 2017 (U/C) 2.9 Breakfast Dining Area; Sweet Spot 10,212 44.8 Guest Laundry Area; Concierge; Room Service; Outdoor Swimming Pool; Fitness 900 East Birch Street Sports Bar & Grille Center; Lobby Workstation; Market Pantry; Vending Area(s); Outdoor Whirlpool

La Quinta Inn & Suites Buena Park 160 1987 2013 6.6 Breakfast Dining Area 1,200 7.5 Guest Laundry Area; Outdoor Swimming Pool; Fitness Center; Market Pantry 3 Centerpointe Drive

Fairfield Inn & Suites Anaheim Buena Park Disney North 137 1986 2011 5.2 Breakfast Dining Area 760 5.5 Guest Laundry Area; Outdoor Swimming Pool; Market Pantry; Fitness Center; 7828 Orangethorpe Avenue Indoor Whirlpool

Holiday Inn Hotel & Suites Anaheim Fullerton 96 1989 2014 4.4 57 Bar & Grill 4,600 47.9 Business Center; Guest Laundry Area; Room Service; Outdoor Swimming Pool; 2932 East Nutwood Avenue Fitness Center; Market Pantry; Vending Area(s); Indoor Whirlpool

Holiday Inn Express Fullerton 100 2017 4.4 400 4.0 Business Center; Guest Laundry Area;Outdoor Swimming Pool; Fitness Center; 212 West Houston Avenue Market Pantry; Vending Area(s); Outdoor Whirlpool

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

MAP OF COMPETITION

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

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PRIMARY COMPETITOR #1 - EMBASSY SUITES BREA

Embassy Suites Brea FIGURE 4-14 ESTIMATED HISTORICAL OPERATING STATISTICS 900 East Birch Street Brea, CA Wtd. Annual Occupancy Yield Year Room Count Occupancy Average Rate RevPAR Penetration Penetration Est. 2015 228 85 - 90 % $150 - $160 $130 - $140 100 - 110 % 140 - 150 % Est. 2016 228 75 - 80 160 - 170 125 - 130 95 - 100 120 - 130 Est. 2017 228 80 - 85 170 - 180 150 - 160 100 - 110 140 - 150

The property is undergoing a $8-million property-wide renovation as of July 2017. This hotel benefits from its location adjacent to the Brea Mall and proximate to the area's commercial demand generators. Overall, the property appeared to be in good condition. Its accessibility is superior to that of the subject site, and its visibility is superior to the expected visibility of the Proposed La Quinta Inn & Suites La Habra.

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PRIMARY COMPETITOR #2 - LA QUINTA INN & SUITES BUENA PARK

La Quinta Inn & Suites FIGURE 4-15 ESTIMATED HISTORICAL OPERATING STATISTICS Buena Park 3 Centerpointe Drive Wtd. Annual Occupancy Yield La Palma, CA Year Room Count Occupancy Average Rate RevPAR Penetration Penetration Est. 2015 160 80 - 85 % $95 - $100 $80 - $85 100 - 110 % 80 - 85 % Est. 2016 160 80 - 85 105 - 110 85 - 90 100 - 110 85 - 90 Est. 2017 160 75 - 80 105 - 110 85 - 90 100 - 110 80 - 85

This property is the only hotel in La Palma. This hotel benefits from its location in a business park and its extensive renovations in 2013. Overall, the property appeared to be in good condition. Its accessibility is superior to that of the subject site, and its visibility is superior to the expected visibility of the Proposed La Quinta Inn & Suites La Habra.

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PRIMARY COMPETITOR #3 - FAIRFIELD INN & SUITES ANAHEIM BUENA PARK DISNEY NORTH

Fairfield Inn & Suites FIGURE 4-16 ESTIMATED HISTORICAL OPERATING STATISTICS Anaheim Buena Park Disney North Wtd. Annual Occupancy Yield 7828 Orangethorpe Year Room Count Occupancy Average Rate RevPAR Penetration Penetration Avenue Est. 2015 137 75 - 80 % $115 - $120 $90 - $95 95 - 100 % 90 - 95 % Buena Park, CA Est. 2016 137 75 - 80 120 - 125 95 - 100 95 - 100 95 - 100 Est. 2017 137 75 - 80 125 - 130 95 - 100 95 - 100 90 - 95

The hotel was completely renovated in 2011 when it was converted from a Hampton Inn & Suites by Hilton. This hotel benefits from its Marriott brand affiliation and location near Downtown Buena Park. Overall, the property appeared to be in good condition. Its accessibility is superior to that of the subject site, and its visibility is superior to the expected visibility of the Proposed La Quinta Inn & Suites La Habra.

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PRIMARY COMPETITOR #4 - HOLIDAY INN HOTEL & SUITES ANAHEIM FULLERTON

Holiday Inn Hotel & FIGURE 4-17 ESTIMATED HISTORICAL OPERATING STATISTICS Suites Anaheim Fullerton Wtd. Annual Occupancy Yield 2932 Nutwood Avenue Year Room Count Occupancy Average Rate RevPAR Penetration Penetration Fullerton, CA Est. 2015 96 80 - 85 % $130 - $140 $110 - $115 100 - 110 % 110 - 120 % Est. 2016 96 75 - 80 140 - 150 110 - 115 95 - 100 110 - 120 Est. 2017 96 70 - 75 140 - 150 105 - 110 90 - 95 100 - 110

This hotel benefits from its relatively recent renovations and location near California State University, Fullerton. Overall, the property appeared to be in very good condition. Its accessibility is superior to that of the subject site, and its visibility is superior to the expected visibility of the Proposed La Quinta Inn & Suites La Habra.

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PRIMARY COMPETITOR #5 - HOLIDAY INN EXPRESS FULLERTON

Holiday Inn Express FIGURE 4-18 ESTIMATED HISTORICAL OPERATING STATISTICS Fullerton 212 West Houston Wtd. Annual Occupancy Yield Avenue Year Room Count Occupancy Average Rate RevPAR Penetration Penetration Fullerton, CA Est. 2017 59 60 - 65 130 - 140 85 - 90 80 - 85 85 - 90

This hotel is the latest IHG product opened in Fullerton. This property was built on the same parcel of the Howard Johnson Fullerton. Overall, the property appeared to be in excellent condition. Its accessibility is superior to the accessibility attributes of the subject site, while its visibility is superior to the expected visibility of the Proposed La Quinta Inn & Suites La Habra.

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Secondary We have also reviewed other area lodging facilities to determine whether any may Competitors compete with the proposed subject hotel on a secondary basis. The room count of each secondary competitor has been weighted based on its assumed degree of competitiveness in the future with the proposed subject hotel. By assigning degrees of competitiveness, we can assess how the proposed subject hotel and its future competitors may react to various changes in the market, including new supply, changes to demand generators, and renovations or franchise changes of existing supply. The following table sets forth the pertinent operating characteristics of the secondary competitors.

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FIGURE 4-19 SECONDARY COMPETITOR(S) – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Weighted Weighted Total Annual Annual Number of Competitive Room Room

Property Rooms Commercial Leisure Group Level Count Occ. Average Rate RevPAR Count Occ. Average Rate RevPAR

Holiday Inn La Mirada 292 55 % 25 % 20 % 75 % 219 80 - 85 % $105 - $110 $85 - $90 219 75 - 80 % $105 - $110 $80 - $85

Chase Suites Hotel Brea 88 35 55 10 55 54 80 - 85 115 - 120 90 - 95 48 75 - 80 115 - 120 90 - 95

Days Inn & Suites Fullerton 123 45 50 5 50 62 70 - 75 70 - 75 50 - 55 62 65 - 70 75 - 80 50 - 55

Totals/Averages 1,271 51 % 30 % 20 % 69 % 877 79.9 % $116.53 $93.09 871 77.8 % $117.88 $91.74

* Specific occupancy and average rate data was utilized in our analysis, but is presented in ranges in the above table for the purposes of confidentiality.

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We have identified seven hotels that are expected to compete with the proposed subject hotel on a secondary level. The Days Inn Fullerton is anticipated to be competitive based on its proximity to the subject site; however, it is an economy hotel and targets a different customer base. The Courtyard by Marriott Hacienda Height, the Courtyard by Marriott Buena Park, and the Marriott Fullerton at California State University are competitive based on their locations and the Marriott affiliation; however, these hotels offer select-and full-service products and command higher average rates. Furthermore, the Holiday Inn La Mirada and the Holiday Inn Buena Park Near Knotts are competitive based on their locations and the IHG affiliation; however, these hotels have larger room counts and cater more toward group demand. Moreover, the Chase Suites Hotel Brea is competitive based on its location and the product offering; however, this hotel is an independent hotel.

Supply Changes It is important to consider any new hotels that may have an impact on the proposed subject hotel’s operating performance. The following chart sets forth the hotels that have recently opened, are under construction, or are in the stages of early development in the La Habra area. The list is categorized by the principal submarkets within the city.

FIGURE 4-20 AREA DEVELOPMENT ACTIVITY

Estimated Expected Number of Qtr. & Year Proposed Hotel Hotel Name Rooms0 Hotel Product Tier Development Stage of Opening Address

Buena Park Hampton Inn Buena Park 102 Upper-Midscale Under Construction Q1' 18 7299 Artesia Boulevard Aloft Buena Park 149 Upscale Site Work Underway Q3'19 7851 Beach Boulevard Hilton at the Source Buena Park 174 Upper-Upscale Under Construction Q1' 18 Beach Boulevard and Orangethorpe Avenue Hotel Stanford 150 Upscale Seeking Entitlements TBD 7880 Beach Boulevard

Fullerton Holiday Inn Express Fullerton 100 Mids cal e Recently Opened Jun-17 212 West Houston Avenue

Brea Proposed Brea Place Hotel 146 Mids cal e Early Development TBD Stage College Boulevard and Birch Street

Of the hotels listed in the preceding chart, we have identified the following new supply that is expected to have some degree of competitive interaction with the proposed subject hotel, based on location, anticipated market orientation and price point, and/or operating profile.

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FIGURE 4-21 NEW SUPPLY

Total Weighte Number Competitive d Room Estimated Opening Proposed Property of Rooms Level Count Date Developer Development Stage

Proposed Subject Property 91 100 % 91 March 1, 2020 Ka m Patel Early Development Hampton Inn Buena Park 102 100 102 March 1, 2018 AB Hospitality Under Construction Hilton at the Source Buena Park 174 60 104 March 1, 2018 M&D Properti es Under Construction Aloft Buena Park 149 75 112 September 1, 2019 BA Hotel & Resort Site Work Underway

Totals/Averages 516 409

The Hampton by Hilton Buena Park will be similar to the proposed subject hotel in terms of product offering and service level, located within five miles of the subject site; therefore, this hotel is anticipated to be fully competitive. Given the different product types of the proposed Hilton at the Source and the proposed Aloft Buena Park, these proposed hotels have been weighted secondarily competitive in our analysis. Furthermore, we note that the Stanford Hotel is proposed for a location approximately five miles from the subject site in Buena Park; however, this hotel is anticipated to open at a much higher price point and target a different customer base. Therefore, the proposed Stanford Hotel Buena Park has only been considered qualitatively in our positioning of the proposed subject hotel's stabilized occupancy level.

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 hotel may be 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 hotel. We have also investigated potential increases in competitive supply in this La Habra submarket. The Proposed La Quinta Inn & Suites La Habra 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

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information in the table differs from the previously presented STR data and is consistent with the supply and demand analysis developed for this report.

FIGURE 4-22 HISTORICAL MARKET TRENDS

Accommodated Room Nights Market Market Year Room Nights % Change Available % Change Occupancy Market ADR % Change RevPAR % Change

Est. 2015 446,533 — 546,697 — 81.7 % $118.99 — $97.19 — Est. 2016 433,073 (3.0) % 547,077 0.1 % 79.2 124.54 4.7 % 98.59 1.4 % Est. 2017 443,142 2.3 566,090 3.5 78.3 129.06 3.6 101.03 2.5

Avg. Annual Compounded Chg., Est. 2015-Est. 2017: (0.4) % 1.8 % 4.1 % 2.0 %

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 2017 distribution of accommodated-room-night demand as follows.

FIGURE 4-23 ACCOMMODATED ROOM-NIGHT DEMAND

Marketwide Accommodated Percentage Market Segment Demand of Total

Commerci a l 222,151 50 % Leisure 133,263 30 Group 87,728 20

Total 443,142 100 %

The market’s demand mix comprises commercial demand, with this segment representing roughly 50% of the accommodated room nights in this La Habra submarket. The remaining portion comprises leisure at 30%, with the final portion group in nature, reflecting 20%.

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.

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Commercial Segment Commercial demand consists mainly of individual businesspeople passing through the subject market or visiting area businesses, in addition to high-volume corporate accounts generated by local firms. Brand loyalty (particularly frequent-traveler programs), as well as location and convenience with respect to businesses and amenities, influence lodging choices in this segment. Companies typically designate hotels as “preferred” accommodations in return for more favorable rates, which are discounted in proportion to the number of room nights produced by a commercial client. Commercial demand is strongest Monday through Thursday nights, declines significantly on Friday and Saturday, and increases somewhat on Sunday night. It is relatively constant throughout the year, with marginal declines in late December and during other holiday periods.

A major factor considered in the development of our growth rates for the commercial segment is the presence of a multitude of manufacturing and distribution firms within the vast industrial parks in the northern Orange County area. Besides the existing industrial parks, the Beckman Coulter development is one of the largest industrial developments in the market. We expect moderate growth within this demand segment over the long term as the local and national economies continue to stabilize and strengthen.

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 the area is primarily generated by nearby attractions in Anaheim, the beaches, or other attractions in Los Angeles and Orange County. Besides the leisure attractions in Buena Park, the subject market is a central location to other major leisure demand generators, such as Disneyland Resort in Anaheim and Universal Studios in Hollywood, both of which produce overflow demand. During peak travel seasons, the submarket benefits from the demand from Disneyland; however, given the distance of the subject market from the resort, the overflow demand tends to be more price-sensitive visitors looking for affordable alternatives.

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Weddings, reunions, and other social events, as well as concerts and events at the Honda Center and Angel Stadium of Anaheim, also generate some weekend leisure demand. The widespread popularity of the region as both a domestic and international vacation destination should allow the area to continue to grow in the future.

Group Segment In the limited-service sector, group demand is most commonly generated by groups that require ten or more room nights, but need little to no meeting space within the hotel. Examples of these groups include family reunions, sports teams, and bus tours. In some markets, limited-service hotels may also accommodate demand from groups or individuals attending events at the local convention center or at one of the larger convention hotels in the area.

Group demand comprises primarily tour groups, school groups, and sports groups. These groups typically stay in the market during the peak months of June, July, and August when the weather is best suited for outdoor functions and activities. Furthermore, the same companies that create commercial demand also generate some group demand through training activities and social corporate events. SMERFE groups and social events, such as weddings and family reunions, also contribute to this demand segment. Group demand is anticipated to improve in the near future, in tandem with strengthening economic conditions and development projects throughout the area.

Base Demand Growth The purpose of segmenting the lodging market is to define each major type of Rates demand, identify customer characteristics, and estimate future growth trends. Starting with an analysis of the local area, three 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.

FIGURE 4-24 AVERAGE ANNUAL COMPOUNDED MARKET SEGMENT GROWTH RATES

Annual Growth Rate Market Segment 2018 2019 2020 2021 2022 2023 2024

Commerci a l 6.0 % 5.0 % 3.0 % 1.0 % 0.5 % 0.0 % 0.0 % Leisure 5.5 4.5 2.5 1.0 0.5 0.0 0.0 Group 4.5 3.5 1.5 0.5 0.0 0.0 0.0

Base Demand Growth 5.6 % 4.6 % 2.6 % 0.9 % 0.4 % 0.0 % 0.0 %

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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, further classified as either unaccommodated demand or induced demand.

Unaccommodated Unaccommodated demand refers to individuals who are unable to secure Demand accommodations in the market because all the local hotels are filled. These travelers must defer their trips, settle for less desirable accommodations, or stay in properties located outside the market area. Because this demand did not yield occupied room nights, it is not included in the estimate of historical accommodated- room-night demand. If additional lodging facilities are expected to enter the market, it is reasonable to assume that these guests will be able to secure hotel rooms in the future, and it is therefore necessary to quantify this demand.

Unaccommodated demand is further indicated if the market is at all seasonal, with distinct high and low seasons; such seasonality indicates that although year-end occupancy may not average in excess of 70%, the market may sell out certain nights during the year. To evaluate the incidence of unaccommodated demand in the market, we have reviewed the average occupancy by the night of the week for the past twelve months for the competitive set, as reflected in the STR data. This is set forth in the following table.

FIGURE 4-25 OCCUPANCY BY NIGHT OF THE WEEK

Source: STR

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Our interviews with market participants revealed that the market generally sells out on Monday through Saturday nights during the peak travel season, as well as sporadically within other periods throughout the year. Special events, in particular citywide conventions in Anaheim, regularly sell out competitive hotels. A portion of this demand, which is currently turned away, should return to the market concurrent with the supply increase. The following table presents our estimate of unaccommodated demand in the subject market.

FIGURE 4-26 UNACCOMMODATED DEMAND ESTIMATE

Accommodated Room Unaccommodated Unaccommodated Market Segment Night Demand Demand Percentage Room Night Demand

Commerci a l 222,151 2.9 % 6,529 Leisure 133,263 3.4 4,530 Group 87,728 4.4 3,854

Total 443,142 3.4 % 14,913

Accordingly, we have forecast unaccommodated demand equivalent to 3.4% of the base-year demand, resulting from our analysis of monthly and weekly peak demand and sell-out trends.

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. Situations that can result in induced demand include the opening of a new manufacturing plant, the expansion of a convention center, or the addition of a new hotel with a distinct chain affiliation or unique facilities. Although increases in demand are expected in the local market, we have accounted for this growth in the determination of market-segment growth rates rather than induced demand.

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 unaccommodated demand in the market.

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FIGURE 4-27 FORECAST OF MARKET OCCUPANCY

2019 2020 2021 2022 2023 Commercial Base Demand 247,254 254,672 257,218 258,504 258,504 Unaccommodated Demand 7,267 7,485 7,560 7,598 7,598 Total Demand 254,521 262,157 264,778 266,102 266,102 Growth Rate 5.0 % 3.0 % 1.0 % 0.5 % 0.0 %

Leisure Base Demand 146,919 150,592 152,098 152,858 152,858 Unaccommodated Demand 4,994 5,119 5,170 5,196 5,196 Total Demand 151,913 155,711 157,268 158,054 158,054 Growth Rate 4.5 % 2.5 % 1.0 % 0.5 % 0.0 %

Group Base Demand 94,885 96,308 96,790 96,790 96,790 Unaccommodated Demand 4,168 4,231 4,252 4,252 4,252 Total Demand 99,053 100,539 101,042 101,042 101,042 Growth Rate 3.5 % 1.5 % 0.5 % 0.0 % 0.0 %

Totals Base Demand 489,058 501,572 506,106 508,152 508,152 Unaccommodated Demand 16,430 16,835 16,982 17,046 17,046 Total Demand 505,487 518,407 523,088 525,198 525,198 less: Residual Demand 5,319 0 0 0 0 Total Accommodated Demand 500,168 518,407 523,088 525,198 525,198 Overall Demand Growth 5.8 % 3.6 % 0.9 % 0.4 % 0.0 % Market Mix Commercia l 50.4 % 50.6 % 50.6 % 50.7 % 50.7 % Leisure 30.1 30.0 30.1 30.1 30.1 Group 19.6 19.4 19.3 19.2 19.2 Existing Hotel Supply 1,592 1,592 1,592 1,592 1,592 Proposed Hotels Proposed Subject Property ¹ 76 91 91 91 Hampton Inn Buena Park ² 102 102 102 102 102 Hilton at the Source Buena Park³ 104 104 104 104 104 Aloft Buena Park 4 37 112 112 112 112

Available Room Nights per Year 670,159 725,160 730,529 730,529 730,529 Nights per Year 365 365 365 365 365 Total Supply 1,836 1,987 2,001 2,001 2,001 Rooms Supply Growth 4.0 % 8.2 % 0.7 % 0.0 % 0.0 % Marketwide Occupancy 74.6 % 71.5 % 71.6 % 71.9 % 71.9 %

¹ Opening in March 2020 of the 100% competitive, 91-room Proposed Subject Property ² Opening in March 2018 of the 100% competitive, 102-room Hampton Inn Buena Park ³ Opening in March 2018 of the 60% competitive, 174-room Hilton at the Source Buena Park 4 Opening in September 2019 of the 75% competitive, 149-room Aloft Buena Park

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The defined competitive market of hotels should experience some occupancy fluctuation in the next five years due to the influx of new supply. Based on historical occupancy levels in this market, and taking into consideration typical supply and demand cyclicality, market occupancy is forecast to stabilize in the low 70s.

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5. Description of the Proposed Improvements

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 La Quinta Inn & Suites La Habra will be a Limited-Service lodging facility containing 91 rentable units. The four-story property will open on March 1, 2020. The proposed subject hotel will located within a mixed-use development; however, the hotel component will be solely owned by the hotel developer, Kamlesh Patel and Janak Patel, and independent of the remaining portion of the development. Reportedly, the mixed-use development will include a medical office and two restaurants. However, the development plan is tentative and the site is currently vacant. It should be noted that the subject hotel, once developed, will be the first branded hotel in La Habra. According to the developer, the proposed hotel will be developed based on La Quinta's Del Sol prototype.

LA QUINTA INN & SUITES EXTERIOR – DEL SOL PROTOTYPE

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

FIGURE 5-1 PROPOSED FACILITIES SUMMARY

Guestroom Configuration Number of Units King 32 Queen/Queen 43 One-Bedroom Suite 16 Total 91

Food & Beverage Facilities Seating Capacity Great Room 40 Bar 23

Indoor Meeting & Banquet Facilities Square Footage Meeting Room 1,070

Amenities & Services Outdoor Swimming Pool Guest Laundry Area Fitness Room Vending Area(s) Business Center Market Pantry

Infrastructure Parking Spaces 144 Surface Elevators 2 Guest Life-Safety Systems Sprinklers, Smoke Detectors Cons tructi on Deta i l s Wood Framing, Poured Concrete

Site Improvements and Once guests enter the site, ample parking will be available on the surface lot around Hotel Structure the perimeter of the hotel. We note that the hotel's 144 parking space should support the needs of hotel guests and people who attend events at the hotel, as meetings are generally held during the day and most guests check into the hotel after 3:00 PM. As such, we do not anticipate that overlap from daytime meetings will impact guest parking. Site improvements will include freestanding signage (additional signage will be placed on the exterior of the building). We assume that all signage will adequately identify the property and meet brand standards. Landscaping should allow for a positive guest impression and competitive exterior appearance. Sidewalks will be present along the front entrance and around the

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perimeter of the hotel. Other site improvements will include an outdoor pool area. Overall, the planned site improvements for the property appear adequate.

According to the developer, the hotel structure will comprise one single building, which will be constructed of wood framing and poured concrete. The exterior of the hotel will be finished with stucco. Two stairways and two elevators will provide internal vertical transportation within the main structure. The hotel's flat roof will be made of concrete and a rubber-membrane roofing system. Double-paned windows will reduce noise transmission into the rooms. Heating and cooling will be provided by through-the-wall units and a centralized system for the public areas. Overall, the planned building components appear normal for a hotel of this type 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 would affect the future operating potential of the hotel or delay its assumed opening date.

Public Areas Guests are expected to enter the hotel through a set of automatic doors. The hotel will feature an open-concept lobby design, revealing unobstructed sight lines to the hotel's breakfast dining area upon entry; the size and layout of this space should be appropriate for a La Quinta Inn & Suites. The lobby walls are expected to be finished with wallcovering, and the floor is anticipated to be finished with carpet and stone tiles. The front desk should feature a stone countertop, installed with appropriate property management and telephone systems. 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. We assume that all property management and guestroom technology will be appropriately installed for the effective management of hotel operations.

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TYPICAL LA QUINTA INN & SUITES LOBBY

The hotel will feature a consolidated breakfast dining and lobby space, the Great Room, which should offer a cohesive environment appropriate to work or dine. Additionally, a small bar will be located in the Great Room. The planned size and layout of the Great Room should be appropriate for the hotel. The furnishings of the space are anticipated to be of a similar style and finish as lobby and guestroom furnishings.

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TYPICAL LA QUINTA INN & SUITES DINING AREA

FIRST FLOOR PLAN

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According to the developer, the hotel is expected to offer approximately 1,000 square feet of meeting space. This planned meeting space should be appropriate for a hotel of this type, and we assume it will meet brand standards. Public restrooms near the entrance to the meeting space should enhance the overall functionality of the area.

The hotel will offer an outdoor pool and a fitness room as recreational facilities. Restrooms is anticipated to be present off the pool area.

Other amenities will include a business center, a market pantry, a guest laundry, and vending areas on select guestroom floors. 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 and suite-style room configurations, with guestrooms present on all levels of the property's proposed single building. The guestrooms will offer typical amenities for this product type. In addition to the standard furnishings, guestrooms will feature an iron and ironing board, a safe, a coffeemaker, a microwave, a small refrigerator, and wireless, high-speed Internet access. Suites will a larger living area and additional amenities, such as a microwave and small refrigerator. Overall, the guestrooms should offer a competitive product for this La Habra market.

Guestroom bathrooms are expected to be of a standard size, with a shower-in-tub, commode, and single sink with vanity area, featuring a stone countertop. The floors are expected to be finished with tile, and the walls will likely be finished with knockdown texture. Bathroom amenities are anticipated to include a hairdryer and complimentary toiletries. Overall, the bathroom design should be appropriate for a product of this type.

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TYPICAL LA QUINTA INN & SUITES GUESTROOM

GUESTROOM FLOOR PLAN

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The interior guestroom corridors should be wide and functional, permitting the easy passage of housekeeping carts. Corridor carpet, wallcovering, signage, and lighting should be in keeping with the overall look and design of the rest of the property.

Back-of-the-House The hotel is expected to be served by the necessary back-of-the-house space, including an in-house laundry facility, administrative offices, and a prep kitchen to service the needs of the breakfast dining area. These spaces should be adequate for a hotel of this type and should allow for the efficient operation of the property under competent management.

ADA and We assume that the property will be built according to all pertinent codes and brand Environmental 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.

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 and to remain compliant with brand standards. The renovations are likely to take place every five to seven years. The 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 proposed subject hotel should offer a well-designed, functional layout of support areas and guestrooms. All typical and market-appropriate features and amenities should be included in the hotel's design. We assume that the building will be fully open and operational on the stipulated 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. According to the franchise agreement, La Quinta will train departmental managers prior to opening and assist with pre-opening marketing.

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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 and market value. Most of a lodging facility's other revenue sources (such as food, beverages, other operated departments, and rentals and other income) are driven by the number of guests, and many expense levels 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 typical, 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.

Historical Penetration In the following table, the penetration rates attained by the primary competitors Rates by Market and the aggregate secondary competitors are set forth for each segment for the base Segment year.

FIGURE 6-1 HISTORICAL PENETRATION RATES

Property Commercial Leisure Group Overall

Embassy Suites Brea 108 % 108 % 110 % 109 % La Quinta Inn & Suites Buena Park 122 85 77 102 Fairfield Inn & Suites Anaheim Buena Park Disney North 77 97 147 97 Holiday Inn Hotel & Suites Anaheim Fullerton 86 112 97 96 Holiday Inn Express Fullerton 75 124 42 83

The La Quinta Inn & Suites Buena Park achieved the highest penetration rate within the commercial segment. The highest penetration rate in the leisure segment was achieved by the Holiday Inn Express Fullerton, while the Fairfield Inn & Suites Anaheim Buena Park Disney North led the market with the highest group penetration rate.

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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.

The proposed subject hotel'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 6-2 FORECAST OF SUBJECT PROPERTY'S OCCUPANCY

Market Segment 2020 2021 2022 2023 2024

Commercial Demand 262,157 264,778 266,102 266,102 266,102 Ma rket Sha re 3.5 % 4.2 % 4.2 % 4.2 % 4.2 % Ca pture 9,115 11,214 11,270 11,270 11,270 Penetra ti on 91 % 93 % 93 % 93 % 93 %

Leisure Demand 155,711 157,268 158,054 158,054 158,054 Ma rket Sha re 3.7 % 4.5 % 4.5 % 4.5 % 4.5 % Ca pture 5,702 7,141 7,176 7,176 7,176 Penetra ti on 95 % 100 % 100 % 100 % 100 %

Group Demand 100,539 101,042 101,042 101,042 101,042 Ma rket Sha re 3.4 % 4.2 % 4.2 % 4.2 % 4.2 % Ca pture 3,432 4,253 4,253 4,253 4,253 Penetra ti on 89 % 93 % 93 % 93 % 93 %

Total Room Nights Captured 18,249 22,608 22,700 22,700 22,700 Available Room Nights 27,846 33,215 33,215 33,215 33,215 Subject Occupancy 66 % 68 % 68 % 68 % 68 % Market-wide Available Room Nights 725,160 730,529 730,529 730,529 730,529 Fair Share 4 % 5 % 5 % 5 % 5 % Market-wide Occupied Room Nights 518,407 523,088 525,198 525,198 525,198 Market Share 4 % 4 % 4 % 4 % 4 % Market-wide Occupancy 71 % 72 % 72 % 72 % 72 % Total Penetration 92 % 95 % 95 % 95 % 95 %

The proposed subject hotel is expected to stabilize slightly below the market due to its location farther from regional highways and demand generators. However, the hotel's new facility and the anticipated La Quinta Inn & Suites affiliation should support a stabilized occupancy level in the high 60s.Additional insights by segment are presented as follows:

• Within the commercial segment, the proposed subject hotel’s occupancy penetration is positioned at a below-market-average level by the stabilized period due to its location somewhat distanced from the area's commercial

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demand generators. Additionally, the proposed new hotels in nearby markets are anticipated to offer competitive products with strong brand affiliations. As such, the proposed subject hotel's penetration level is positioned within the range of existing competitors, but at a below-market- average level by the stabilized period.

• The proposed subject hotel's leisure penetration level is positioned appropriately within the range of existing competitors, supported by the hotel’s proximity to local retail stores and restaurants. Furthermore, the proposed hotel is expected to command relatively low rates, which should attract price-sensitive leisure travelers. The proposed La Quinta Inn & Suites is expected to realize a leisure penetration level above fair share by the stabilized year.

• The proposed subject hotel's occupancy penetration in the group segment is positioned below the market average level given the proposed hotel's limited-service product offering and limited meeting space. Although the proposed subject hotel is not anticipated to focus on group demand, the hotel is expected to be the only branded hotel in La Habra. Therefore, the proposed subject hotel is expected to become the foremost choice for social events, weddings, and family reunion in the surrounding areas.

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

FIGURE 6-3 MARKET SEGMENTATION FORECAST – SUBJECT PROPERTY

2020 2021 2022 2023 2024

Commerci al 50 % 50 % 50 % 50 % 50 % Leisure 31 32 32 32 32 Group 19 19 19 19 19

Total 100 % 100 % 100 % 100 % 100 %

Based on our analysis of the proposed subject hotel and market area, we have selected a stabilized occupancy level of 68%. The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life, given all changes in the life 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

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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.

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 primary competitors.

FIGURE 6-4 BASE YEAR AVERAGE RATE AND REVPAR OF THE COMPETITORS

Estimated 2017 Rooms Revenue Average Room Average Room Per Available RevPAR Property Rate Rate Penetration Room (RevPAR) Penetration

Embassy Suites Brea $170 - $180 130 - 140 % $150 - $160 140 - 150 %

La Quinta Inn & Suites Buena Park 105 - 110 80 - 85 85 - 90 80 - 85

Fairfield Inn & Suites Anaheim 125 - 130 95 - 100 95 - 100 90 - 95 Buena Park Disney North Holiday Inn Hotel & Suites 140 - 150 110 - 120 105 - 110 100 - 110 Anaheim Fullerton

Holiday Inn Express Fullerton 130 - 140 100 - 110 85 - 90 85 - 90

Average - Primary Competitors $143.20 111.0 % $112.94 111.8 %

Average - Secondary Competitors 117.88 91.3 91.74 90.8

Overall Average $129.06 $101.03

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The defined primarily competitive market realized an overall average rate of $143.20 in the 2017 base year, improving from the 2016 level of $136.10. The Embassy Suites Brea achieved the highest estimated average rate in the local competitive market, by a modest margin, because of its high-quality product type and daily offering of a complimentary breakfast and an evening reception. The selected rate position for the proposed subject hotel, in base-year dollars, takes into consideration factors such as its location farther from the regional highways and demand generators and its new construction. We have selected the rate position of $118.00, in base-year dollars, for the proposed project.

Market-wide rates began to trend upward since 2012. We expect average rates to continue to improve because of the strong demand levels and the additions of high- quality rooms in the market.

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 underlying inflation rates of 2.5%, 2.5%, and 3.0% thereafter for each respective year following the base year of 2017.

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FIGURE 6-5 COMPARISON OF HISTORICAL AND PROJECTED OCCUPANCY, AVERAGE RATE, AND REVPAR – PROPOSED SUBJECT PROPERTY AND MARKET

Projected 2015 2016 2017 2018 2019 2020 2021 2022 2023

Proposed La Quinta Inn & Suites La Habra Occupancy — — 65.5 % 68.1 % 68.3 % 68.3 % Cha nge i n Poi nts — — — 2.5 0.3 0.0 Occupancy Penetration — — 91.7 % 95.1 % 95.1 % 95.1 % Average Rate $118.00 $122.72 $127.63 $132.10 $136.72 $140.82 $145.05 Cha nge — 4.0 % 3.5 % 3.5 % 3.0 % 3.0 % Average Rate Penetration 91.4 % 91.4 % 91.4 % 91.4 % 91.4 % 91.4 % RevPAR — — $86.57 $93.06 $96.24 $99.13 Cha nge — — — 7.5 % 3.4 % 3.0 % RevPAR Penetration — — 83.8 % 86.9 % 86.9 % 86.9 %

Historical (Estimated) Projected 2015 2016 2017 2018 2019 2020 2021 2022 2023

La Habra Submarket Occupancy 81.7 % 79.2 % 78.3 % 73.4 % 74.6 % 71.5 % 71.6 % 71.9 % 71.9 % Cha nge i n Poi nts — (2.5) (0.9) (4.9) 1.3 (3.1) 0.1 0.3 0.0

Average Rate $118.99 $124.54 $129.06 $134.22 $139.59 $144.48 $149.53 $154.02 $158.64 Cha nge — 4.7 % 3.6 % 4.0 % 4.0 % 3.5 % 3.5 % 3.0 % 3.0 %

RevPAR $97.19 $98.59 $101.03 $98.48 $104.18 $103.28 $107.07 $110.73 $114.05 Cha nge — 1.4 % 2.5 % (2.5) % 5.8 % (0.9) % 3.7 % 3.4 % 3.0 % * The forecast for the proposed subject property does not include rate discounts that are expected to occur during the initial year(s) of operation.

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The final forecast reflects years beginning on March 1, 2020 and corresponds with our financial projections, as shown below.

FIGURE 6-6 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

Area-wide Market (Calendar Year) Subject Property (Calendar Year)

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

As illustrated above, a 4.0%% rate of change is expected for the proposed subject hotel's positioned 2017 room rate in 2018. This is followed by growth rates of 4.0%% and 3.5%% in 2019 and 2020, respectively. The northern Orange County market should experience rate growth through the near term. The proposed subject hotel's rate position should reflect growth similar to market trends because of the proposed hotel's new facility and lack of well-branded hotel rooms in La Habra. The proposed subject hotel’s penetration rate is forecast to reach 91.4% by the stabilized period.

A new property must establish its reputation and a client base in the market during its ramp-up period; as such, the proposed subject hotel’s average rates in the initial operating period have been discounted to reflect this likelihood. We forecast a 0.0% discount to the proposed subject hotel’s forecast room rates in the first operating year, which would be typical for a new operation of this type.

The following occupancies and average rates will be used to project the subject property's rooms revenue; this forecast reflects years beginning on March 1, 2020, which correspond with our financial projections.

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FIGURE 6-7 FORECASTS OF OCCUPANCY, AVERAGE RATE, AND REVPAR

Average Rate Average Rate Year Occupancy Before Discount Discount After Discount

2020/21 66 % 132.84 0.0 % 132.84 2021/22 68 137.38 0.0 137.38 2022/23 68 141.50 0.0 141.50 2023/24 68 145.75 0.0 145.75

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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 hotel. 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 period 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 hotel, we Statements have included a sample of individual comparable operating statements from our database of hotel statistics. 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

Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject Stabilized $ Year: 2015/16 2013/14 2012/13 2015 2014 2017 Edition: 10 11 10 Number of Rooms: 80 to 110 100 to 130 70 to 90 70 to 100 70 to 90 91 Days Open: 365 365 365 365 365 365 Occupancy: 72% 75% 68% 74% 64% 68% Average Rate: $109 $115 $105 $122 $131 $123 RevPAR: $79 $86 $72 $90 $84 $83 REVENUE Rooms 97.6 % 99.2 % 93.7 % 98.0 % 99.7 % 98.1 % Other Operated Departments 2.4 0.8 1.2 1.0 0.0 1.3 Mis cell a neous Income 0.0 0.0 5.1 1.0 0.3 0.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 DEPARTMENTAL EXPENSES* Rooms 22.1 28.4 26.3 20.9 20.1 23.0 Other Operated Departments 25.6 126.4 126.9 30.0 0.0 75.0 Total 22.2 29.2 26.2 20.7 20.0 23.5 DEPARTMENTAL INCOME 77.8 70.8 73.8 79.3 80.0 76.5 OPERATING EXPENSES Administrative & General 9.9 8.2 8.9 9.1 7.9 8.7 Info. and Telecom. Systems 0.0 0.0 0.0 0.0 0.0 0.6 Marketing 4.8 4.0 5.3 6.8 3.6 4.4 Franchise Fee 7.7 7.2 6.1 7.7 8.9 6.9 Property Operations & Maintenance 2.7 4.9 2.4 5.1 2.4 4.4 Utilities 5.0 3.0 4.6 4.1 3.2 3.7 Total 30.1 27.4 27.3 32.8 26.1 28.6 HOUSE PROFIT 47.7 43.4 46.5 46.5 53.9 47.8 Management Fee 0.0 3.5 3.7 0.0 0.0 3.0 INCOME BEFORE FIXED CHARGES 47.7 40.0 42.8 46.5 53.9 44.8 FIXED EXPENSES Property Taxes 3.5 9.4 3.0 2.7 4.5 4.7 Insurance 0.7 1.0 0.9 0.9 4.2 1.0 Total 4.2 10.4 3.9 3.6 8.7 9.7 NET INCOME 43.5 % 29.6 % 38.9 % 42.9 % 45.2 % 35.2 %

* 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

Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject Stabilized $ Year: 2015/16 2013/14 2012/13 2015 2014 2017 Edition: 10 11 10 Number of Rooms: 80 to 110 100 to 130 70 to 90 70 to 100 70 to 90 91 Days Open: 365 365 365 365 365 365 Occupancy: 72% 75% 68% 74% 64% 68% Average Rate: $109 $115 $105 $122 $131 $123 RevPAR: $79 $86 $72 $90 $84 $83 REVENUE Rooms $28,714 $31,509 $26,239 $32,892 $30,815 $30,442 Other Operated Departments 693 238 330 341 0 397 Miscellaneous Income 0 0 1,440 343 100 186 Total 29,407 31,747 28,009 33,576 30,915 31,025 DEPARTMENTAL EXPENSES Rooms 6,358 8,958 6,911 6,862 6,181 7,002 Other Operated Departments 177 301 419 102 0 298 Total 6,535 9,259 7,330 6,964 6,181 7,299 DEPARTMENTAL INCOME 22,872 22,488 20,679 26,612 24,734 23,726 OPERATING EXPENSES Administrative & General 2,919 2,613 2,485 3,059 2,446 2,700 Info. and Telecom. Systems 0 0 0 0 0 200 Marketing 1,402 1,274 1,478 2,282 1,115 1,350 Franchise Fee 2,263 2,273 1,722 2,596 2,761 2,131 Property Operations & Maintenance 803 1,571 678 1,704 757 1,350 Utilities 1,461 965 1,275 1,376 983 1,150 Total 8,847 8,696 7,638 11,015 8,063 8,881 HOUSE PROFIT 14,025 13,792 13,041 15,597 16,671 14,845 Management Fee 0 1,095 1,050 0 0 931 INCOME BEFORE FIXED CHARGES 14,025 12,697 11,991 15,596 16,670 13,914 FIXED EXPENSES Property Taxes 1,030 2,970 853 920 1,381 1,453 Insurance 204 309 262 289 1,306 300 Total 1,234 3,280 1,115 1,209 2,687 2,994 NET INCOME $12,791 $9,417 $10,876 $14,387 $13,983 $10,920

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

Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject Stabilized $ Year: 2015/16 2013/14 2012/13 2015 2014 2017

Number of Rooms: 80 to 110 100 to 130 70 to 90 70 to 100 70 to 90 91 Days Open: 365 365 365 365 365 365 Occupancy: 72% 75% 68% 74% 64% 68% Average Rate: $109 $115 $105 $122 $131 $123 RevPAR: $79 $86 $72 $90 $84 $83 REVENUE Rooms $109.42 $115.04 $104.97 $122.28 $131.48 $122.65 Other Operated Departments 2.64 0.87 1.32 1.27 0.00 1.60 Mis cella neous Income 0.00 0.00 5.76 1.27 0.43 0.75 Total 112.06 115.91 112.05 124.82 131.90 125.00 DEPARTMENTAL EXPENSES Rooms 24.23 32.71 27.65 25.51 26.37 28.21 Other Operated Departments 0.68 1.10 1.67 0.38 0.00 1.20 Total 24.90 33.81 29.32 25.89 26.37 29.41 DEPARTMENTAL INCOME 87.16 82.11 82.72 98.93 105.53 95.59 OPERATING EXPENSES Administrative & General 11.12 9.54 9.94 11.37 10.44 10.88 Info. and Telecom. Systems 0.00 0.00 0.00 0.00 0.00 0.81 Marketing 5.34 4.65 5.91 8.48 4.76 5.44 Franchise Fee 8.63 8.30 6.89 9.65 11.78 8.59 Property Operations & Maintenance 3.06 5.74 2.71 6.33 3.23 5.44 Utilities 5.57 3.52 5.10 5.11 4.20 4.63 Total 33.72 31.75 30.56 40.95 34.40 35.78 HOUSE PROFIT 53.45 50.36 52.17 57.98 71.13 59.81 Management Fee 0.00 4.00 4.20 0.00 0.00 3.75 INCOME BEFORE FIXED CHARGES 53.45 46.36 47.97 57.98 71.13 56.06 FIXED EXPENSES Property Taxes 3.93 10.85 3.41 3.42 5.89 5.85 Insurance 0.78 1.13 1.05 1.08 5.57 1.21 Total 4.70 11.97 4.46 4.50 11.47 12.06 NET INCOME $48.75 $34.39 $43.51 $53.48 $59.66 $44.00

The departmental income of the comparable properties ranged from 70.8% to 80.0% of total revenue. The comparable properties achieved a house profit ranging

April-2018 Projection of Income and Expense Proposed La Quinta Inn & Suites La Habra – La Habra, California 102

from 43.4% to 53.9% of total revenue. We will refer to the comparable operating data in our discussion of each line item, which follows later in this section of the report.

Fixed and Variable HVS uses a fixed and variable component model to project a lodging facility's Component Analysis revenue and expense levels. This model is based on the premise that hotel revenues and expenses have one component that is fixed and another that varies directly with occupancy and facility usage. A projection can be made by taking a known level of revenue or expense and calculating its fixed and variable components. The fixed component is then increased in tandem with the underlying rate of inflation, while the variable component is adjusted for a specific measure of volume such as total revenue.

The actual forecast is derived by adjusting each year’s revenue and expense by the amount fixed (the fixed expense multiplied by the inflated base-year amount) plus the variable amount (the variable expense multiplied by the inflated base-year amount) multiplied by the ratio of the projection year’s occupancy to the base-year occupancy (in the case of departmental revenue and expense) or the ratio of the projection year’s revenue to the base year’s revenue (in the case of undistributed operating expenses). Fixed expenses remain fixed, increasing only with inflation. Our discussion of the revenue and expense forecast in this report is based upon the output derived from the fixed and variable model. This forecast of revenue and expense is accomplished through a systematic approach, following the format of the Uniform System of Accounts for the Lodging Industry. Each category of revenue and expense is estimated separately and combined at the end in the final statement of income and expense.

Inflation Assumption In consideration of the most recent trends, the projections set forth previously, and our assessment of probable property appreciation levels, we have applied underlying inflation rates of 2.5%, 2.5%, and 3.0% thereafter for each respective year following the base year of 2017. This stabilized inflation rate takes into account normal, recurring inflation cycles. Inflation is likely to fluctuate above and below this level during the projection period. Any exceptions to the application of the assumed underlying inflation rate are discussed in our write-up of individual income and expense items.

Forecast of Revenue Based on an analysis that will be detailed throughout this section, we have and Expense 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 that begin on March 1, 2020, expressed in inflated dollars for each year.

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FIGURE 7-4 DETAILED FORECAST OF INCOME AND EXPENSE (000S)

April-2018 Projection of Income and Expense Proposed La Quinta Inn & Suites La Habra – La Habra, California 104

FIGURE 7-5 TEN-YEAR FORECAST OF INCOME AND EXPENSE (000S)

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30

April-2018 Projection of Income and Expense Proposed La Quinta Inn & Suites La Habra – La Habra, California 105

The following description sets forth the basis for the forecast of income and 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 the proposed subject hotel's operating budget and comparable income and expense statements. The forecast is based upon fiscal years beginning March 1, 2020, 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 hotel is expected to stabilize at an occupancy level of 68% with an average rate of $145.75 in 2023/24. Following the stabilized year, the subject property’s average rate is projected to increase along with the underlying rate of inflation.

Other Operated According to the Uniform System of Accounts, other operated departments include Departments Revenue any major or minor operated department other than rooms and food and beverage. The proposed subject hotel's other operated departments revenue sources are expected to include the hotel's telephone charges, beverage revenues, market pantry sales, guest laundry fees, and in-room movie and game charges. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel.

FIGURE 7-6 OTHER OPERATED DEPARTMENTS REVENUE

Comparable Operating Statements Proposed Subject Property Forecast #1 #2 #3 #4 #5 2020/21 Deflated Stabilized

Percentage of Revenue 2.4 % 0.8 % 1.2 % 1.0 % 0.0 % 1.3 % 1.3 % Per Available Room $693 $238 $330 $341 $0 $428 $397 Per Occupied Room $2.64 $0.87 $1.32 $1.27 $0.00 $1.78 $1.60

Miscellaneous Income The miscellaneous income sources comprise those other than guestrooms, food and beverage, and the other operated departments. The proposed subject hotel's miscellaneous income revenues are expected to be generated primarily by the commissions earned on the vending sales and other minor collections, such as cancelation fees. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel. Changes in this revenue item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy.

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FIGURE 7-7 MISCELLANEOUS INCOME

Comparable Operating Statements Proposed Subject Property Forecast #1 #2 #3 #4 #5 2020/21 Deflated Stabilized

Percentage of Revenue 0.0 % 0.0 % 5.1 % 1.0 % 0.3 % 0.6 % 0.6 % Per Available Room $0 $0 $1,440 $343 $100 $201 $186 Per Occupied Room $0.00 $0.00 $5.76 $1.27 $0.43 $0.83 $0.75

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 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 proposed subject hotel'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.

FIGURE 7-8 ROOMS EXPENSE

Comparable Operating Statements Proposed Subject Property Forecast #1 #2 #3 #4 #5 2020/21 Deflated Stabilized

Percentage of Revenue 22.1 % 28.4 % 26.3 % 20.9 % 20.1 % 23.5 % 23.0 % Per Available Room $6,358 $8,958 $6,911 $6,862 $6,181 $7,525 $7,002 Per Occupied Room $24.23 $32.71 $27.65 $25.51 $26.37 $31.24 $28.21

Other Operated Other operated departments expense includes all expenses reflected in the Departments Expense summary statements for the divisions associated in these categories. This was previously discussed in this chapter. The proposed subject hotel's other operated departments revenue sources are expected to include the hotel's telephone charges, market pantry sales, guest laundry fees, and in-room movie and game charges. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject hotel.

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FIGURE 7-9 OTHER OPERATED DEPARTMENTS EXPENSE

Comparable Operating Statements Proposed Subject Property Forecast #1 #2 #3 #4 #5 2020/21 Deflated Stabilized

Percentage of Revenue 25.6 % 126.4 % 126.9 % 30.0 % 0.0 % 75.5 % 75.0 % Per Available Room $177 $301 $419 $102 $0 $323 $298 Per Occupied Room $0.68 $1.10 $1.67 $0.38 $0.00 $1.34 $1.20

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. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject hotel, we have positioned the administrative and general expense level at a market- and property-supported level.

FIGURE 7-10 ADMINISTRATIVE AND GENERAL EXPENSE

Comparable Operating Statements Proposed Subject Property Forecast #1 #2 #3 #4 #5 2020/21 Deflated Stabilized

Percentage of Revenue 9.9 % 8.2 % 8.9 % 9.1 % 7.9 % 8.9 % 8.7 % Per Available Room $2,919 $2,613 $2,485 $3,059 $2,446 $2,912 $2,700 Per Occupied Room $11.12 $9.54 $9.94 $11.37 $10.44 $12.09 $10.88

Information and Information and telecommunications systems expense consists of all costs Telecommunications associated with a hotel’s technology infrastructure. This includes the costs of cell Systems Expense phones, administrative call and Internet services, and complimentary call and Internet services. Expenses in this category are typically organized by type of technology, or the area benefitting from the technology solution. We expect the proposed subject hotel's information and telecommunications systems to be well managed. Expense levels should stabilize at a typical level for a property of this type.

Marketing Expense Marketing expense consists of all costs associated with advertising, sales, and promotion; these activities are intended to attract and retain customers. Marketing

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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 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. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject hotel, we have positioned the marketing expense level at a market- and property-supported level.

FIGURE 7-11 MARKETING EXPENSE

Comparable Operating Statements Proposed Subject Property Forecast #1 #2 #3 #4 #5 2020/21 Deflated Stabilized

Percentage of Revenue 4.8 % 4.0 % 5.3 % 6.8 % 3.6 % 4.9 % 4.4 % Per Available Room $1,402 $1,274 $1,478 $2,282 $1,115 $1,602 $1,350 Per Occupied Room $5.34 $4.65 $5.91 $8.48 $4.76 $6.65 $5.44

Franchise Fee As previously discussed, the proposed subject property is expected to be franchised under the La Quinta Inn & Suites brand. Costs associated with this franchise are summarized in the introductory chapter in this report.

Property Operations The age of a lodging facility has a strong influence on the required level of and Maintenance 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.

April-2018 Projection of Income and Expense Proposed La Quinta Inn & Suites La Habra – La Habra, California 109

We expect the proposed subject hotel's maintenance operation to be well managed, and expense levels should stabilize at a typical level for a property of this type. This expense has been ramped up during the first few years of operation, as repairs and maintenance needs for the property should be minimal during the period immediately after the hotel's opening. Changes in this expense item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy.

FIGURE 7-12 PROPERTY OPERATIONS AND MAINTENANCE EXPENSE

Comparable Operating Statements Proposed Subject Property Forecast #1 #2 #3 #4 #5 2020/21 Deflated Stabilized

Percentage of Revenue 2.7 % 4.9 % 2.4 % 5.1 % 2.4 % 4.0 % 4.4 % Per Available Room $803 $1,571 $678 $1,704 $757 $1,310 $1,350 Per Occupied Room $3.06 $5.74 $2.71 $6.33 $3.23 $5.44 $5.44

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. It should be noted that the hotel will built “solar ready” meaning that the building will be built in such a fashion that would ease the solar retrofit process making future installation more predictable and less costly.

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. 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.

At the request of our client, we have been asked to address the installation of solar panels on the subject property. The monetary benefit of utilizing this alternative energy source in a hotel development project would need to be further analyzed, and such specific analysis is outside of the scope of this assignment. However, based on our experience and input from other owners and developers, electricity costs would likely decline but not enough to offset the initial investment until roughly 15- 20 years post installation.

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FIGURE 7-13 UTILITIES EXPENSE

Comparable Operating Statements Proposed Subject Property Forecast #1 #2 #3 #4 #5 2020/21 Deflated Stabilized

Percentage of Revenue 5.0 % 3.0 % 4.6 % 4.1 % 3.2 % 3.8 % 3.7 % Per Available Room $1,461 $965 $1,275 $1,376 $983 $1,240 $1,150 Per Occupied Room $5.57 $3.52 $5.10 $5.11 $4.20 $5.15 $4.63

Management Fee Management expense consists of the fees paid to the managing agent contracted to operate the property. Some companies provide management services and a brand- name affiliation (first-tier management company) such as Hilton or Marriott, while others provide management services alone (second-tier management company). Second-tier management companies do not generally offer branding opportunities. Some management contracts specify only a base fee (usually a percentage of total revenue), while others call for both a base fee and an incentive fee (usually a percentage of defined profit). Basic hotel management fees are often based on a percentage of total revenue, which means they have no fixed component. While base fees typically range from 2% to 4% of total revenue, incentive fees are deal specific and often are calculated as a percentage of income available after debt service and, in some cases, after a preferred return on equity. Total management fees for the proposed subject hotel have been forecast at 3.0% of total revenue.

Property Taxes Real estate in the state of California is assessed at 100% of market value upon the sale, expansion, or new construction of a property. Once established, the assessed value of a property can increase by no more than 2.0% per year, according to state law. A reassessment is triggered by the sale, expansion, or improvement of a property. Because this analysis is predicated upon a hypothetical sale, we have calculated the first year’s property tax burden based on the estimated fee-simple market value of the subject property determined by our analysis. Real and personal property are taxed at the same rate. Property taxes are “stepped up” upon the assumed sale of the hotel at the end of the tenth year by loading the terminal capitalization rate with the tax rate.

In most states, the comparison of a hotel’s assessed value with that of comparable hotels in the same taxing jurisdiction can provide insight into whether or not the property is fairly assessed. The assessed value of the land and improvements is divided by the hotel’s number of rooms to provide a unit of comparison with other hotels. This is a useful tool in most states, where properties are periodically reassessed to market value. However, in California, the comparison of assessed values is generally irrelevant due to Proposition 13, enacted in 1978, which removed the relationship between a property’s assessed value and its market value.

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Under Proposition 13, a property is reassessed upon sale to market value, which is generally presumed to be the sales price; thereafter, the assessed value is increased at a maximum of 2% per year. Trends in appreciation and depreciation caused by market fluctuations are not reflected in a property’s assessed value in California, unless there is a sales transaction. Thus, comparable hotels in California can have markedly different assessed values, depending upon when the last sales transaction occurred. For this reason, we have not researched the assessed values of comparable hotels to assess the reasonableness of the subject property’s assessed value. The following table details the subject property's assessment history.

Tax rates are based on the city and county budgets, which change annually. The most recent tax rate in this jurisdiction was reported at 1.09329%. The following table shows changes in the tax rate during the last several years.

FIGURE 7-14 COUNTY TAX RATES

Real Property Year Tax Rate

2016 1.08773 2017 1.09329

Source: Orange County Assessor

Based on state law and the current tax rate, the proposed subject property’s projected property tax expense levels are calculated as follows.

FIGURE 7-15 SUBJECT PROPERTY TAX CALCULATION

Estimated Market Value of Tax Rate First Year's $13,500,000 x 1.09% $147,594

Tax payments are due twice yearly in Orange County. We estimate that property taxes for the Proposed La Quinta Inn & Suites La Habra will equal approximately in the first forecast year of our projection period, increasing by 2.0% annually thereafter, the maximum allowed by state law

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.

April-2018 Projection of Income and Expense Proposed La Quinta Inn & Suites La Habra – La Habra, California 112

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.

FIGURE 7-16 INSURANCE EXPENSE

Comparable Operating Statements Proposed Subject Property Forecast #1 #2 #3 #4 #5 2020/21 Deflated Stabilized

Percentage of Revenue 0.7 % 1.0 % 0.9 % 0.9 % 4.2 % 1.0 % 1.0 % Per Available Room $204 $309 $262 $289 $1,306 $326 $300 Per Occupied Room $0.78 $1.13 $1.05 $1.08 $5.57 $1.35 $1.21

Reserve for Furniture, fixtures, and equipment are essential to the operation of a lodging facility, Replacement 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 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) oversees a major industry-sponsored study of the capital expenditure requirements for full- service/luxury, select-service, and extended-stay hotels. The most recent study was published in 2014.6 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

6 The International Society of Hotel Consultants, CapEx 2014, A Study of Capital Expenditure in the U.S. Hotel Industry.

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study showed that hotel lenders and investors are requiring reserves for replacement ranging from 4% to 5% of total revenue.

Based on the results of our analysis and on our review of the proposed subject asset and comparable lodging facilities, as well as on our industry expertise, we estimate that a reserve for replacement of 4% of total revenues is sufficient to provide for the timely and periodic replacement of the subject property's furniture, fixtures, and equipment. This amount has been ramped up during the initial projection period.

Forecast of Revenue Projected total revenue. House profit, and EBITDA less replacement reserves are set and Expense forth in the following table. Conclusion

FIGURE 7-17 FORECAST OF REVENUE AND EXPENSE CONCLUSION

Total Revenue House Profit House EBITDA Less Replacement Reserve % Profit As a % of Year Total Change Total % Change Ratio Total % Change Ttl Rev

Projected 2020/21 $2,969,000 — $1,389,000 — 46.7 % $1,063,000 — 35.7 % 2021/22 3,162,000 6.5 % 1,513,000 8.9 % 47.9 1,142,000 7.4 % 36.1 2022/23 3,257,000 3.0 1,558,000 3.0 47.8 1,145,000 0.3 35.1 2023/24 3,355,000 3.0 1,605,000 3.0 47.8 1,181,000 3.1 35.1 2024/25 3,456,000 3.0 1,654,000 3.1 47.8 1,218,000 3.1 35.2

Forecast of Transient Our client has requested that HVS comment on how the proposed 12% transit Occupancy Tax occupancy tax (TOT) impacts the feasibility of the subject property development. Revenue Based on our experience, the transit occupancy tax does not impact feasibility as it is a cost that is directly passed on to the consumer. Hotel guests are not likely to make their decision on where or where not to stay based on occupancy taxes.

The following chart forecasts TOT revenue based on the projected rooms revenue of the proposed subject property.

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FIGURE 7-18 FORECAST OF TRANSIENT OCCUPANCY TAX REVENUE

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30

Rooms Revenue (000s) $2,912 $3,103 $3,196 $3,292 $3,391 $3,492 $3,597 $3,705 $3,816 $3,931 TOT Collection (12%, 000s) 349 372 384 395 407 419 432 445 458 472

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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 hotel; 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 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 subsoil or structures, such as underground storage tanks, that would affect 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. We are not qualified to detect hazardous substances and 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 TS Worldwide, LLC are assumed 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 the appropriate liquor license if applicable), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser.

April-2018 Statement of Assumptions and Limiting Conditions Proposed La Quinta Inn & Suites La Habra – La Habra, California 116

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 because of this analysis without previous arrangements, and shall do so only when our standard per-diem fees and travel costs have been 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 onsite 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 because of 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 based upon 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, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors.

April-2018 Statement of Assumptions and Limiting Conditions Proposed La Quinta Inn & Suites La Habra – La Habra, California 117

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 TS Worldwide, LLC. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of TS Worldwide, LLC as employees, rather than as individuals.

April-2018 Statement of Assumptions and Limiting Conditions Proposed La Quinta Inn & Suites La Habra – La Habra, California 118

Kasia Russell, MAI

EMPLOYMENT

2006 to present HVS CONSULTING AND VALUATION SERVICES Portland, Oregon

2005 – 2006 SKAGIT VALLEY CASINO RESORT Bow, Washington

2003 – 2004 HOTEL BELLWETHER Bellingham, Washington

EDUCATION AND OTHER BA – Western Washington University

TRAINING Other Specialized Training Classes Completed: Uniform Standards of Professional Appraisal Practice – 15 hours Basic Appraisal Procedures – 30 hours Basic Appraisal Principles – 30 hours General Appraiser Income Approach (Parts I and II) – 60 hours General Appraiser Market Analysis and HBU – 30 hours General Appraiser Sales Comparison Approach – 30 hours General Appraiser Site Valuation and Cost Approach – 30 hours Business Practices and Ethics – 8 hours Statistics, Modeling and Finance – 15 hours General Appraiser Report Writing and Case Studies – 30 hours Advanced Income – 35 hours Report Writing and Valuation Analysis – 40 hours Small Hotel Valuation – 7 hours Fundamentals of Separating Real, Personal Property, and Intangible Business Assets – 15 hours Advanced Market Analysis and Highest & Best Use – 35 hours Advanced Concepts & Case Studies – 40 hours General Demonstration Appraisal Report Writing (Demo) OR Supervisor/Trainee Class – 4 hours Advanced Income – 35 hours

HVS, Portland, Oregon Qualifications of Kasia Russell, MAI 1

EDUCATION (CONTINUED) CA Laws and Regulations – 4 hours Nevada Law – 4 hours Mortgage Fraud – 7 hours Oddball Appraisals – 7 hours Business and Equipment Values in a Real Estate Appraisal – 2 hours Advanced Hotel Appraising – Full-Service Hotels – 7 hours Appraisal of Owner-Occupied Commercial Properties – 7 hours Appraisal of Land Subject to Ground Lease – 7 hours Annual USPAP Updates

STATE CERTIFICATIONS Alaska, Arizona, California, Idaho, Nevada, Oregon, Utah, Washington

PUBLISHED ARTICLES

HVS Journal “2016/17 United States Hotel Franchise Fee Guide,” co-authored with Bomie Kim, September 2017

HVS Journal “HVS Perspectives: Center Stage at ALIS,” co-authored by Tanya Pierson and Jessica White, February 2017

HVS Journal “2015/16 United States Hotel Franchise Fee Guide,” co-authored with Bomie Kim, July 2016

HVS Journal “Key Takeaways: Hunter Hotel Conference,” co-authored with Michael Brophy and Janet Snyder, April 2016

HVS Journal “Market Intelligence Report 2013 Seattle,” co-authored with Desiree Flanary, July 2013

HVS Journal “Portland Market Intelligence Report 2013,” co-authored with Desiree Flanary, July 2013

HVS Journal “HVS Hotel Market Intelligence Report: Portland, Oregon,” June 2010

HVS Journal “The Recession’s Effects on Seattle’s Hotel Industry,” August 2009

HVS Journal “HVS Market Intelligence Report: Downtown Phoenix, Arizona,” August 2008

HVS Journal “HVS Market Intelligence Report: Minneapolis, Minnesota,” November 2007

PROFESSIONAL Appraisal Institute – Designated Member (MAI) AFFILIATIONS

HVS, Portland, Oregon Qualifications of Kasia Russell, MAI 2

EXAMPLES OF PROPERTIES APPRAISED Hilton Suites, Phoenix Proposed Select-Service Hotel, OR EVALUATED Hyatt Regency, Phoenix Livermore Red Roof Inn, Phoenix Hilton Garden Inn, Lompoc PORTFOLIO ANALYSIS Sheraton Phoenix Downtown, Phoenix Proposed Hilton Garden Inn, Lompoc Travelodge, Phoenix Claremont Hotel Tiverton, Los Angeles JPMorgan Portfolio of 6, Various Holiday Inn Express, Pinetop Proposed Hampton Inn & Suites Korea Locations Days Inn, Sedona Town, Los Angeles JPMorgan Portfolio of 9, Various Holiday Inn Express, Show Low Proposed Hotel, Los Angeles Locations Candlewood Suites, Sierra Vista The Standard Hotel, Los Angeles Natixis Portfolio of 14, Various Holiday Inn Express, Sierra Vista Proposed Residence Inn by Marriott, Locations Proposed Hilton Garden Inn/Home2 Mammoth Lakes Quarterly Clarion Portfolio of 47, Suites by Hilton, Tempe Belamar Hotel, Manhattan Beach Various Locations Ramada, Tempe Proposed Autograph Hotel, Menlo Park Portfolio of 14 Shilo Inns, Various Red Roof Inn Phoenix Airport, Tempe Stanford Park Hotel, Menlo Park Locations in the Western U.S. Proposed Best Western, Topock Marriott, Monterey Holiday Inn Express, Tucson Proposed Hotel, Napa ALABAMA Sheraton Hotel & Suites, Tucson Fairfield Inn & Suites Riverside Corona Holiday Inn Express, Winslow Norco, Norco Homewood Suites, Huntsville Proposed Hampton by Hilton, Oakland Comfort Inn, Prattville CALIFORNIA Ontario Airport Hotel & Conference Courtyard by Marriott, Prattville Center, Ontario Proposed Homewood Suites, Prattville Proposed Fairfield Inn & Suites, Radisson Ontario Airport, Ontario Alameda Sheraton, Ontario ALASKA Hotel Menage, Anaheim Embassy Suites, Orange Proposed Azusa Hotel, Azusa Proposed Autograph Hotel, Palm Coast International Inn, Anchorage Chase Suites Hotel, Brea Desert Proposed Home2 Suites, Anchorage Proposed Hampton Inn, Buena Park Hampton Inn & Suites, Palm Desert Crowne Plaza, Burlingame Villa Royale Inn, Palm Springs ARIZONA Residence Inn by Marriott, Corona Proposed Upscale Hotel, Palo Alto Residence Inn, Cupertino Lancer Motel, Pico Rivera Carefree Resort (Conversion to Propose Hotels, Davis Hilton at the Club Expansion, DoubleTree), Carefree Courtyard by Marriott, Fairfield Pleasanton Red Roof Inn, Chandler Courtyard Airport, Fresno La Quinta Inn & Suites, Pomona Best Western, Cottonwood Radisson, Fresno Proposed Hotel, Rocklin Proposed Holiday Inn Hyatt Regency Orange County, Garden Lexington Inn & Suites Sacramento Cal Express/Staybridge Suites, Goodyear Grove Expo, Sacramento Proposed Homewood Suites by Hilton, Residence Inn Anaheim/Garden Grove, Proposed Hampton Inn, Sacramento Lake Havasu Garden Grove Proposed Hilton Garden Inn, Hilton Phoenix East, Mesa Proposed Hilton Garden Inn, Irvine Sacramento Candlewood Suites, Nogales Proposed Hampton Inn & Suites by Proposed Hotel, Sacramento Proposed Wingate Inn Page Arizona, Hilton, La Habra Fairfield Inn by Marriott, San Page La Jolla Inn (Conversion to Ascend Bernardino Arizona Grand Resort, Phoenix Collection), La Jolla DoubleTree by Hilton Hotel San Diego Country Inn & Suites, Phoenix Proposed Select-Service Hotel, Lake Downtown, San Diego Crowne Plaza, Phoenix Havasu Best Western Americania, San Hilton Garden Inn Airport North, Homewood Suites, La Quinta Francisco Phoenix Carriage Inn, San Francisco

HVS, Portland, Oregon Qualifications of Kasia Russell, MAI 3

Good Hotel, San Francisco Fairfield Inn, Windsor Locks Proposed Renaissance Blackstone, Hotel Metropolis, San Francisco Chicago Hotel Vertigo, San Francisco FLORIDA Renaissance, Chicago Mark Twain Hotel, San Francisco Danville Inn & Convention Center, Proposed Crowne Plaza, San Gabriel Wakulla Suites, Cocoa Beach Danville Proposed Sheraton Hotel, San Gabriel Multi-use Commercial Property, Marriott Suites, Deerfield Proposed Hotel, San Jose Deerfield Beach Proposed Hampton Inn & Suites, Proposed Select-Service Hotel, San Luis Hampton Inn, Ft. Lauderdale Edwardsville Obispo Hampton Inn, Jacksonville Comfort Inn, Elk Grove Village Marriott San Mateo San Francisco Residence Inn, Jacksonville Days Inn, Matteson Airport, San Mateo Residence Inn, West Palm Beach Holiday Inn, Moline Crowne Plaza, San Pedro Holiday Inn Express, Moline Travelodge, Santa Monica GEORGIA Candlewood Suites, O’Fallon Proposed Lexington Hotel, Scotts Inn Town Motel, Rockford Valley Candlewood Suites, Athens Days Inn, Sheffield Proposed Unscripted, South Lake Embassy Suites, Kennesaw Holiday Inn Express, Shiloh Tahoe Hotel Indigo, Vinings The Blue Star Inn, Urbana Holiday Inn Express Stockton Holiday Inn, Willowbrook Southeast, Stockton HAWAII Proposed Hampton Inn, Tehachapi INDIANA Hotel Truckee Tahoe, Truckee Courtyard by Marriott Kaua'i at Embassy Suites, Valencia Coconut Beach, Kapa'a Red Carpet Inn, Anderson Holiday Inn Express, Walnut Creek Proposed Suburban Extended-Stay, Proposed Fairfield Inn & Suites by IDAHO Castleton Marriott, Woodland Proposed Suburban Extended-Stay, Motel 6 Boise Airport, Boise Clarksville COLORADO Holiday Inn Express, Coeur d'Alene La Quinta Inn & Suites, Fort Wayne Shilo Inn Suites, Coeur d'Alene Quality Inn, Fort Wayne Proposed Limited-Service Hotel, Proposed SpringHill Suites, Coeur Sheraton Keystone Crossing, Breckenridge d’Alene Indianapolis Hyatt Summerfield Suites, Colorado SpringHill Suites by Marriott, Coeur Quality Inn & Suites, Lebanon Springs d’Alene Ramada Inn, Logansport Proposed Sheraton Downtown, Proposed Hotel, Idaho Falls Super 8, Logansport Colorado Springs Shilo Inn, Idaho Falls Super 8, Markle Cameron Motel, Denver Fairfield Inn & Suites, Moscow Days Inn, Merrillville Proposed Hyatt Place DIA, Denver Proposed Fairfield Inn & Suites, Holiday Inn, Merrillville Quality Inn (Brand Analysis), Denver Moscow Proposed Holiday Inn, Merrillville Rocky Mountain Park Inn, Estes Park Hampton Inn & Suites, Mountain Home Knights Inn, South Bend Gateway Canyons Resort, Gateway Hampton Inn, Twin Falls Proposed Suburban Extended-Stay, Regency Hotel (Brand Analysis), Holiday Inn Express, Twin Falls South Bend Greeley Motel 6, Twin Falls Hilton Garden Inn, West Lafayette Proposed Hotel, Telluride Quality Inn, Twin Falls IOWA CONNECTICUT ILLINOIS Days Inn, Davenport Fairfield Inn by Marriott, Milford Holiday Inn Merchandise Mart, Chicago Hampton Inn, Des Moines Fairfield Inn by Marriott, Wallingford Hilton Oak Lawn, Chicago Quality Inn, Newton

HVS, Portland, Oregon Qualifications of Kasia Russell, MAI 4

Econo Lodge, West Liberty Hampton Inn, Bloomington OHIO Proposed Indigo Hotel, Kansas City KANSAS Comfort Inn, Austintown MONTANA Sheraton, Independence Econo Lodge, Wichita The Elms Holiday Inn, Oxford Proposed Limited-Service Hotel, KENTUCKY Culbertson OREGON Proposed Best Western Plus, East Baymont Inn & Suites, Bowling Green Glacier Park DoubleTree, Beaverton Rodeway Inn, Florence Proposed AC by Marriott, Beaverton NEBRASKA Proposed Limited-Service Hotel, LOUISIANA Beaverton Days Inn, McCook Proposed Hotel, Bend Proposed Courtyard by Marriott, Proposed Hotel, South Sioux City Proposed Limited-Service Hotel, Houma Boardman NEVADA Holiday Inn Express, Corvallis MARYLAND Proposed OSU Campus Hotel, Corvallis Siena Hotel, Reno Proposed EVEN Hotels, Eugene Hampton Inn, Lexington Proposed Home2 Suites by Hilton, NEW JERSEY Hillsboro MICHIGAN Courtyard Portland Hillsboro, Hillsboro Sheraton, Eatontown Proposed Full-Service Orenco Station, Comfort Suites, Benton Harbor Rest Inn, Williamstown Hillsboro Best Western, Grand Haven Proposed Residence Inn by Marriott, Econo Lodge, Lansing NEW MEXICO Hillsboro The Regent Inn, Lansing Proposed Staybridge Suites, Hillsboro Econo Lodge, Petoskey Hampton Inn, Albuquerque Residence Inn by Marriott Portland Hawthorn Suites, Albuquerque West Hillsboro, Hillsboro MINNESOTA Hotel Parq Central, Albuquerque TownePlace Suites Portland Hillsboro, Wyndham, Albuquerque Hillsboro Hampton Inn, Eagan Proposed Home2 Suites, Farmington Best Western Olympic Inn, Klamath Hampton Inn, Eden Prairie Hotel Encanto de Las Cruces, Las Falls Proposed aloft, Edina Cruces Motel 6, Klamath Falls Super 8, Granite Falls Hotel St. Francis, Santa Fe Best Western Plus Rama Inn & Suites, Super 8, Marshall LaGrande DoubleTree Park Place, Minneapolis NEW YORK Hilton Garden Inn, Lake Oswego Hotel IVY, Minneapolis Hampton Inn, Medford Proposed Westin, Minneapolis Rodeway Inn, Ithaca Proposed Hilton Garden Inn, Medford Westin, Minneapolis Fairfield Inn, Spring Valley Best Western Agate Beach Inn, Hampton Inn, Minnetonka Proposed Hilton Garden Inn, Newport Williamsville Proposed Kiwanda Lodge & Spa, Pacific MISSISSIPPI City NORTH DAKOTA Country Inn & Suites PDX, Portland Car Wash, Magee Courtyard by Marriott Portland Grand Williston Hotel & Conference Downtown/Convention Center, MISSOURI Center, Williston Portland DoubleTree Lloyd Center, Portland

HVS, Portland, Oregon Qualifications of Kasia Russell, MAI 5

Hotel Lucia, Portland DoubleTree by Hilton, El Paso Proposed Parker's Landing Hotel, Proposed Canopy by Hilton Portland La Quinta, Granbury Camas Pearl District, Portland Courtyard by Marriott Medical Center, Hampton Inn & Suites, DuPont Proposed Cornelius & Woodlark, Houston Proposed Limited-Service Hotel, Portland La Quinta Inn & Suites, Katy DuPont Proposed Hilton Garden Inn, Portland Proposed Fairfield Inn & Suites by Proposed Hilton-Branded Hotel, UTAH Marriott, East Wenatchee Portland Proposed Hotel Silver Lake, Everett Proposed Hyatt Place, Portland Proposed La Quinta, La Verkin Proposed Hotel, Federal Way Proposed St. Johns Hotel, Portland Best Western Plus Midvale, Midvale Proposed Limited-Service Hotel, River’s Edge Hotel & Spa, Portland Proposed Microtel, Naples Kennewick Staybridge Suites PDX, Portland TownePlace Suites, Orem Value Inn, Kent Westin, Portland Proposed Upscale Hotel, Park City Embassy Suites, Lynnwood Hilton Garden Inn, Springfield Best Western, Richfield Proposed Hilton Garden Inn, DoubleTree, Tigard Super 8, Richfield Lynnwood Embassy Suites, Tigard Hilton Garden Inn, Saint George Residence Inn, Lynnwood Motel 6 Portland Tigard West, Tigard Rodeway Inn, Salina Proposed Home2 Suites, Marysville Proposed IHG Hotel, Tigard Peery Hotel, Salt Lake City Proposed Fairfield Inn & Suites, Moses Washington Square Hotel, Tigard Home2 Suites by Hilton Salt Lake City, Lake The Resort at the Mountain, Welches South Jordan Shilo Inn, Moses Lake Belmont Hotel, Port Townsend PENNSYLVANIA VIRGINIA Proposed Hastings Landing Hotel, Port Townsend Courtyard by Marriott, Altoona Hampton Inn Petersburg Southpark Proposed Lodge at Columbia Point, Fairfield Inn by Marriott, Butler Mall, Colonial Heights Richland SpringHill Suites by Marriott, Holiday Inn Petersburg North Fort Lee, Cedarbrook Lodge & Conference Washington Colonial Heights Center, SeaTac DoubleTree Airport, Richmond Proposed Wingate Hotel, SeaTac PUERTO RICO Courtyard by Marriott, Vienna DoubleTree Airport, Seattle DoubleTree Arctic Club Hotel, Seattle Waldorf Astoria El Conquistador WASHINGTON Hilton Airport, Seattle Resort, Fajardo Hilton Downtown, Seattle El Conquistador, Las Croabas Embassy Suites, Bellevue Hilton Seattle, Seattle El San Juan Hotel & Casino, San Juan Fairfield Inn, Bellevue Homewood Suites, Seattle Hilton Condado Plaza Hotel & Casino, Proposed AC Hotel, Bellevue Mayflower Park Hotel, Seattle San Juan Proposed Marriott, Bellevue Proposed Autograph, Seattle Proposed Upscale Hotel, Bellevue Proposed Curio Hotel, Seattle TENNESSEE Residence Inn, Bellevue Proposed Full-Service Hotel, Seattle Westin, Bellevue Proposed Residence Inn, Seattle Clarion Airport Graceland, Memphis Proposed Limited-Service Hotel, Blaine Residence Inn, Seattle Residence Inn, Nashville Proposed SpringHill Suites and Proposed Hotel, Shelton TownePlace Suites, Bothell Proposed Limited Service Hotel, TEXAS Residence Inn, Bothell Silverdale SpringHill Suites, Bothell Fairfield Inn, Spokane Holiday Inn Express, Cedar Hill Proposed Holiday Inn Express, Camas Quality Inn Spokane Valley (Conversion Proposed Hotel Developments, DFW Proposed Candlewood Suites, Camas to Fairfield Inn), Spokane Airport Proposed Holiday Inn Express, Camas Proposed Hotel, Tacoma

HVS, Portland, Oregon Qualifications of Kasia Russell, MAI 6

Courtyard by Marriott Seattle South Center, Tukwila Home2 Suites by Hilton Seattle Airport, Tukwila Proposed Full-Service Hotel, Tukwila Proposed Home2 Suites, Tukwila Residence Inn, Tukwila Candlewood Suites Vancouver-Camas, Vancouver Homewood Suites by Hilton, Vancouver Proposed Hampton Inn, Vancouver The Proposed Penrose Hotel, Walla Walla SpringHill Suites, Wenatchee Proposed Home2 Suites by Hilton, Yakima

WISCONSIN

Courtyard by Marriott, Brown Deer Residence Inn, Glendale Clearwaters Convention Center Hotel, Marshfield Holiday Inn Express, Milwaukee Proposed Hotel, Verona

WYOMING

The Lodge at Jackson Hole (Best Western), Jackson Rustic Inn, Jackson Best Western The Lodge at Jackson Hole, Jackson Hole The Rustic Inn, Jackson Hole Paintbrush Motel, Riverto

HVS, Portland, Oregon Qualifications of Kasia Russell, MAI 7