Valuation Of: Holiday Inn Express London Dartford, University Way, Dartford, DA1 5PA

Valuation of: Holiday Inn Express London Dartford, University Way, Dartford, DA1 5PA

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Dartford, Valuation Date: 1 May 2019 University Way, Dartford, DA1 5PA

TABLE OF CONTENTS

Executive Summary ...... 1 Property Record ...... 3 1. Location ...... 3 2. Description & Accommodation ...... 4 3. Structural Condition and Repair ...... 6 4. Statutory Enquiries ...... 6 5. Tenure ...... 7 6. Operational Structure ...... 7 7. Local Hotel Market Analysis ...... 8 8. Business Analysis ...... 9 9. C&W Trading Projections ...... 12 10. Principal Valuation Considerations ...... 15 Appendix A: Maps and Plans ...... 18

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Dartford, Valuation Date: 1 May 2019 University Way, Dartford, DA1 5PA

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The hotel is strategically located just off Junction 1 of the M25 to the south side of the QE2 Bridge/Dartford Tunnel Crossing. The hotel backs on to a local authority housing estate although security is good with a high perimeter wall to the rear.

Description The hotel comprises 126 bedrooms, with the ancillary Great Room, 3 meeting rooms and 100 car parking spaces. The property was constructed in 1999.

Condition Average

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) Forecast

Occupancy 77.17% 80.43% 79.53%

ADR £63.78 £60.19 £61.26

RevPAR £49.22 £48.41 £48.72

Total Revenue £2,598,699 £2,566,437 £2,588,703

NOI (Post FF&E)* £862,125 £812,375 £660,437

Profit Margin 33.2% 31.7% 25.5%

* 2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 79.50% 79.50% 79.50%

ADR £61.00 £62.22 £63.46

RevPAR £48.50 £49.46 £50.45

Total Revenue £2,578,435 £2,630,004 £2,682,604

NOI (post FF&E and £631,542 £644,173 £657,057 ground rent)

Profit Margin 24.5% 24.5% 24.5%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £8,400,000

Capitalisation Rate 7.50% Discount Rate 9.50%

Gross Initial Yield 7.50%

Capital expenditure None deducted from gross valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • Well located close to the M25 and a large number of corporate occupiers; • Refurbished Generation Four rooms; • There is potential space for the hotel to be extended which could be viable particularly if the proposed scheme of “The London Resort” theme park materialises. Its tentative opening date is 2024 but there have been several delays and changes in partnership structure over the past five years so we must deem the planned development as speculative at this time;

Weaknesses / Risks • Somewhat isolated positioning away from town centre and convenience and personal services; • New competition entering the market; • Economic and / or political events might reduce corporate / leisure demand at certain points in the future;

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 7 May 2019. The inspection was undertaken by Chris Mieczkowski.

1. Location

1.1. Location

General Dartford is situated in the north west corner of Kent, approximately 16 miles (26 km) south east of central London. Some of Dartford's most prominent industries suffered extreme decline in the 20th century. Nearby Swanscombe Cement Works (now redeveloped into Bluewater shopping centre) was closed by Blue Circle in 1990. This industry had brought great prosperity to the companies involved in cement manufacture, but left a legacy locally of despoiled derelict land and pollution. In 1990, Dartford contained some 1,700 acres (6.9 km2) of spoiled land resulting from extractive industries. Since the closure of Dartford's major employers: Seagers' Engineering Works, J & E Hall International, Vickers, the reduction and subsequent closure of Burroughs Wellcome (now GlaxoSmithKline), and the redevelopment of nearby Bexleyheath as a shopping town in the 1970s (and the more recent development of the Bluewater Shopping Centre), Dartford has lost a significant number of its rising Generation X demographic to more economically viable jobs, towns and cities. Dartford is still home to major brands such as Sainsbury's, W.H. Smith, Boots and Marks & Spencer. With the opening of the major Bluewater regional shopping centre just outside of the town, the high street has seen a growth in cheaper brands such as Primark and Wilkinson taking over empty premises. The newer A206 by-pass skirts the town to the north. Its prime purpose is to carry traffic from the riverside industrial developments on to the Dartford Crossing from both west and east. Dartford is perhaps most well known for the latter, the main mode of crossing the River Thames to the east of London, where the southbound A282 (part of the London Orbital) crosses the river via the Queen Elizabeth II Bridge toll bridge, opened in 1991. The northbound carriageway crosses via the twin bore Dartford Tunnel. The first tunnel was opened in 1963, its twin in 1980. Despite the bridge and tunnel the M25 is often congested at this section. Other attractions in the area include Bluewater, an out of town shopping centre, located in Greenhithe, Kent. Opened on 16 March 1999, it is situated on a 240-acre (97 ha) plot in a former chalk quarry, the centre has a sales floor area of 154,000 m2 (1,600,000 ft2) over two levels, making it the fourth-largest shopping centre in the UK. A new Disney-like entertainment theme park could be coming to north Kent. The initial concept was introduced in October 2012 with plans to build a £3.5 billion Paramount branded Entertainment Resort. Developers and Paramount parted ways in June 2017 and in November of that same year the project became known as “The London Resort.” The revised opening date is 2024 as of the writing of this report but it remains a speculative venture as a development consent order has yet to be obtained. Should this major development come to fruition it would provide a significant boost to local tourism and increase the demand for room nights in the immediate area.If the project does launch, the park is expected to create 33,000 jobs in North Kent and attract up to 40,000 visitors a day.

Site Boundary

The plan above is shown for indication purposes only and may not accord strictly with the title plan which we have reviewed.

2. Description & Accommodation

Summary The hotel comprises 126 bedrooms, with the ancillary Great Room, 3 meeting rooms and 100 car parking spaces. The Property was constructed in 1999 and comprises ground and three upper floors of brick construction under a pitched tile roof. The fenestration comprises UPVC double glazing with good noise suppression from the nearby motorway.

Guestrooms The following table summarises the Property's guestroom facilities, based on information provided by Atlas Hotels.

Category Unit Count

Twin 32

Double 92

Accessible 2

Total 126

There are three room types, namely twin, accessible and double rooms (which can accommodate up to three guests). There are 32 twin bedrooms and 92 double bedrooms. In addition, there are 2 accessible bedrooms. The style of the bedrooms is Fourth generation and present well. All guest bedrooms are air conditioned.

Food & Beverage The Great Room is located on the first floor. The first floor is shared by the meeting rooms and the Great Room. The Great Room can cater for up to approximately 65 covers. Breakfast can be very busy during peak times and so management convey to guests at check in which times tend to be less busy.

Meeting Rooms There are three meeting rooms which can cater for up to 25 delegates theatre style. The meeting rooms are in good condition.

Car Parking There are approximately 102 car parking spaces which are provided to guests free of charge.

Back of House Accommodation There is appropriate storage and back of house accommodation including a kitchen, a back office and a staff canteen on the ground floor.

3. Structural Condition and Repair The property has been well maintained, benefitting from a full-time in house maintenance member of staff, and was found to be in good condition. In 2009, the public areas on the ground floor were refurbished. The most recent refurbishment was in 2016 which included bedroom carpets, curtains and wall coverings. The Great room has not been refurbished since 2009 but it still presents well. There are currently no immediate plans for further refurbishment. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £38,102 £36,492

We do not consider that a purchaser would allow for any additional capital expenditure over and above the FF&E reserve.

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £13,900,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings) You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Ground Conditions Potential liabilities have been identified under the relevant contaminated land legislation. We recommend further investigation prior to drawdown of the loan. For further comments please refer to the head report.

Flooding Risk The property is in Flood Zone 1. Land and property in flood zone 1 have a low probability of flooding.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject property is determined by Dartford Borough Council. We are not aware of any outstanding or unimplemented planning applications.

Conservation Area and Listed Building Status The property is not listed and nor is it located within a conservation area.

Business Rates

Demise Description Rateable Values Holiday Inn Express, Dartford Hotel & Premises £279,000

In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 50.4 pence. There is a surcharge for the City of London of 0.6 pence in the pound.

5. Tenure

Title The property is subject to a 135-year lease (Title K787179) at a peppercorn rent. The lease commenced 27 February 1998 and therefore has an unexpired term of approximately 114 years. The tenant has full repairing and insuring obligations. The proposal is to sell the long leasehold interest and simultaneously be granted a ground lease back. The terms of the ground lease are set out in the head report.

Overview

Type of tenure Proposed long leasehold

Title no(s) Unknown

Lease Term 125 years

Rent £121,856 pa to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%.

Any material encumbrances or unduly None other than disclosed in the draft certificate. onerous / unusual easements, restrictions, outgoings or conditions?

Any title characteristics likely to have an None. adverse impact on value, either now or over the proposed loan term?

Full details of the proposed leasehold interest are detailed in the head report.

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday inn Express brand.

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are eight hotels in Dartford, accounting for 681 bedrooms, all of which are located within a 1.5-miles radius of the subject Property. The supply in Dartford mostly consist of budget hotels (64%), as well as four and two-stars. Only two hotels accounting for 63 rooms operate independently, while the remaining is Holiday Inn, Hilton, Premier Inn and Travelodge. This compares to a national trend characterised by less than 30% of total rooms in the four-star category and approximately 25% of total rooms in the budget sector.

7.2. Competitor Trading Analysis Smith Travel Research (STR) is an independent research firm that is recognised by the hotel industry as the standard source of reliable data, providing operating statistics on the local market as a whole. We have been provided STR data for the hotel and the following competitive set of hotels: • DoubleTree by Hilton Hotel Dartford Bridge • Holiday Inn Express London Dartford • Campanile Dartford South East of London • Travelodge Dartford Hotel • Premier Inn Thurrock West • Premier Inn Dartford The competition to the subject hotel is relatively strong with the hotels above all in relatively close proximity. Each of these hotels to some extent will be attempting to capture the market from transient business coming into/out of the peripheral areas of London. The table below sets out the hotels key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019*.

Competitor Set Performance Occupancy (%) ADR (£) RevPAR (£) Subject Market MPI Subject Market ARI Subject Market RGI 2017 77.17 74.85 103.09 63.78 61.84 103.14 49.22 46.29 106.32 2018 80.43 73.75 109.05 60.19 59.97 100.36 48.41 44.23 109.44 YTD 2019* 74.02 68.26 108.43 55.76 56.03 99.52 41.27 38.25 107.91

The hotel outperforms the competitive set in both occupancy and ADR and achieved an RGI of 109.44 in 2018. For the first three months of 2019, the hotel has slightly decreased its MPI and ARI relative to last year.

7.3. Proposed Supply There are four properties in the pipeline in Dartford, three of which are confirmed. The only development under construction is the Premier Inn Dartford, 45 rooms, due to open in 2021.

8. Business Analysis

Overview The hotel was built in 1999 and has more recently experienced a decline in its overall performance. This is evidenced by a 2.8% decline in total revenue from 2014 to 2015, and an additional 4.7% decrease experienced from 2015 to 2016. The decline in revenues was primarily attributed to the hotel’s reliance on short term project based work in the area or movie filming. There is also an consistent Chinese tour guest segment which is often low rated and places downward pressure on average rates. The hotel managed to increase total revenues in 2017 by 3% from the prior year before experiencing a decrease of 1.2% the following year in 2018. The General Manager indicated that Q1 2018 was difficult for the hotel given inclement weather that reduced its transient guest segment. The overall business mix was reported to be 80/20 in favour of corporate demand. The hotel is well located to appeal to corporates located in the Thames valley, South east London and the nearby Crossways Business Park. The most recent notable corporate client disclosed was Sonic Rail Services (SRS), who typically produce 200 to 250 room nights per annum at a negotiated rate of £60. The hotel also receives room nights from film crews through a third-party operator specialising in the niche segment. The average rate for film crews is approximately £75, with corresponding commissions of 8%. This segment of business usually occupies 10 to 15 nights per stay. Tour groups, predominantly with Asian origin, are staying at the hotel in moderate volumes for approximately £50 to £60 per night. Local corporates or companies involved in major projects in the Greater London area were also reported to have several smaller scale contracts at the hotel. The hotel benefits from its reasonably close proximity to Brands Hatch Motor Racing Circuit which provides strong weekend business, particularly during the Spring, Summer and Autumn. As to be expected given the hotels location off the M25 there is a strong transient segment to the business. The Advance Purchase rate is quite sensitive as the competition ensures that marginal price adjustments can have quite a big impact on occupancy. The hotel is trying to push for more two night stays as opposed to just a single night stopover. It was estimated that approximately 30% of bookings originate through Online Travel Agents (OTAs). Booking.com is the biggest provider, especially during major events being held in the Greater London area. Commissions were reported to be approximately 15% for traditional OTAs and 8% to 10% for travel management companies such as Capita. A majority of the bookings still come through the IHG central reservation system and directly to the hotel.

Breakfast at the hotel is busy especially at weekends when most guests come within the later hours of service. There is an all-day menu comprised of simple pub fare cuisine available to guests but most lunch service is concentrated around prearranged conferences. We understand that during events at Brands Hatch the Great Room can generate over 60 dinner covers. The remaining evenings of the week are a little quieter. The resident conversion for dinner was estimated to be around 35% to 40% with an average spend per head of £8 to £10. The three meeting rooms at the hotel are used but do not generate a significant amount of income. The meeting rooms can generate approximately £300 per day with half day hire rates ranging around £150 to £200. Corporate orientated meetings or orientations are the most typical use, but doctors and solicitors were also reported to utilise the rooms from time to time. Day delegate rates are not common but generally range between £25 and £35 per person. The hotel has onsite parking but does not generate any significant car parking income as this amenity is provided free of charge to guests.

Trading Performance The income and expense statements, illustrated in the table on the following page, were provided by Atlas Hotels. The statements show the subject's operating history for the years ended December 2016-2018, forecast for 2019 including 2 months actuals and trading projections for 2020, which includes the proposed ground rent.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express London Dartford, University Way, Dartford, DA1 5PA

Data Type Actual Actual Actual Forecast Forecast Period Ending December December December March December Year 2016 2017 2018 2019 (2+10) 2020

No of Bedrooms: 126 126 126 126 126 Occupancy rate 78.88% 77.17% 80.43% 79.53% 79.53% Average Room Rate 59.52 63.78 60.19 61.26 63.10 Revenue Per Available Room (RevPAR) 46.95 49.22 48.41 48.72 50.18 Number of Days Open 365 365 365 365 365 Available Rooms 45,990 45,990 45,990 45,990 45,990 Occupied Rooms 36,278 35,489 36,989 36,577 36,577

TOTAL SALES 2,522,670 % POR PAR 2,598,699 % POR PAR 2,566,437 % POR PAR 2,588,703 % POR PAR 2,673,669 % POR PAR

BEDROOMS Room Sales 2,165,185 85.8% 59.68 17,184 2,263,647 87.1% 63.78 17,965 2,226,257 86.7% 60.19 17,669 2,240,709 86.6% 61.26 17,783 2,314,253 86.6% 63.27 18,367 Room Expenses 926,266 42.8% 25.53 7,351 934,095 41.3% 26.32 7,413 981,900 44.1% 26.55 7,793 1,007,275 45.0% 27.54 7,994 1,030,235 44.5% 28.17 8,176 Departmental Profit 1,238,919 57.2% 34.15 9,833 1,329,552 58.7% 37.46 10,552 1,244,357 55.9% 33.64 9,876 1,233,434 55.0% 33.72 9,789 1,284,018 55.5% 35.10 10,191

FOOD & BEVERAGE Food & Beverage Sales 309,321 12.3% 8.53 2,455 290,239 11.2% 8.18 2,303 300,948 11.7% 8.14 2,388 304,625 11.8% 8.33 2,418 314,623 11.8% 8.60 2,497 Other Income / Room Hire 33,058 1.3% 0.91 262 31,756 1.2% 0.89 252 26,668 1.0% 0.72 212 27,225 1.1% 0.74 216 28,118 1.1% 0.77 223 Food & Beverage Cost 88,045 25.7% 2.43 699 89,483 27.8% 2.52 710 91,165 27.8% 2.46 724 91,482 27.6% 2.50 726 93,567 27.3% 2.56 743 Departmental Profit 254,334 74.3% 7.01 2,019 232,512 72.2% 6.55 1,845 236,451 72.2% 6.39 1,877 240,368 72.4% 6.57 1,908 249,175 72.7% 6.81 1,978

CAR PARK Car Park Revenue 6,164 0.2% 0.17 49 9,007 0.3% 0.25 71 8,590 0.3% 0.23 68 10,754 0.4% 0.29 85 11,107 0.4% 0.30 88 Car Park Expenses - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 Departmental Profit 6,164 100.0% 0.17 49 9,007 100.0% 0.25 71 8,590 100.0% 0.23 68 10,754 100.0% 0.29 85 11,107 100.0% 0.30 88

TELEPHONE Telephone Revenue 3,427 0.1% 0.09 27 2,330 0.1% 0.07 18 2,995 0.1% 0.08 24 2,929 0.1% 0.08 23 3,026 0.1% 0.08 24 Telephone Expenses 15,460 451.2% 0.43 123 14,428 619.2% 0.41 115 13,845 462.2% 0.37 110 13,217 451.2% 0.36 105 13,518 446.8% 0.37 107 Departmental Profit (12,033) (351.2%) -0.33 96 (12,098) (519.2%) -0.34 96 (10,850) (362.2%) -0.29 86 (10,287) (351.2%) -0.28 82 (10,492) (346.8%) -0.29 83

MISCELLANEOUS Miscellaneous Revenue 5,515 0.2% 0.15 44 1,720 0.1% 0.05 14 977 0.0% 0.03 8 2,461 0.1% 0.07 20 2,542 0.1% 0.07 20 Miscellaneous Expenses 2,804 50.8% 0.08 22 398 23.1% 0.01 3 16 1.6% 0.00 0 (12,018) (488.4%) -0.33 95 (12,292) (483.6%) -0.34 98 Departmental Profit 2,711 49.2% 0.07 22 1,322 76.9% 0.04 10 962 98.4% 0.03 8 14,479 588.4% 0.40 115 14,834 583.6% 0.41 118

GROSS OPERATING INCOME 1,490,095 59.1% 41.07 11,826 1,560,296 60.0% 43.97 12,383 1,479,510 57.6% 40.00 11,742 1,488,747 57.5% 40.70 11,815 1,548,641 57.9% 42.34 12,291

LESS EXPENDITURE Administrative & General 55,474 2.2% 1.53 440 71,446 2.7% 2.01 567 71,053 2.8% 1.92 564 68,664 2.7% 1.88 545 70,037 2.6% 1.91 556 Sales & Marketing 66,672 2.6% 1.84 529 67,965 2.6% 1.92 539 45,309 1.8% 1.22 360 62,479 2.4% 1.71 496 69,428 2.6% 1.90 551 Repairs & Maintenance 100,992 4.0% 2.78 802 92,005 3.5% 2.59 730 101,303 3.9% 2.74 804 97,183 3.8% 2.66 771 99,398 3.7% 2.72 789 Energy Costs 93,919 3.7% 2.59 745 89,527 3.4% 2.52 711 104,025 4.1% 2.81 826 96,183 3.7% 2.63 763 98,375 3.7% 2.69 781 TOTAL UNDISTRIBUTED COSTS 317,057 12.6% 8.74 2,516 320,942 12.4% 9.04 2,547 321,690 12.5% 8.70 2,553 324,508 12.5% 8.87 2,575 337,238 12.6% 9.22 2,676

GROSS OPERATING PROFIT 1,173,038 46.5% 32.34 9,310 1,239,354 47.7% 34.92 9,836 1,157,820 45.1% 31.30 9,189 1,164,239 45.0% 31.83 9,240 1,211,403 45.3% 33.12 9,614

LESS FIXED COSTS Property Tax 143,840 5.7% 3.96 1,142 129,678 5.0% 3.65 1,029 136,571 5.3% 3.69 1,084 140,893 5.4% 3.85 1,118 140,893 5.3% 3.85 1,118 Franchise Royalty Fees 108,259 4.3% 2.98 859 113,182 4.4% 3.19 898 111,313 4.3% 3.01 883 112,034 4.3% 3.06 889 115,713 4.3% 3.16 918 Franchise Marketing Fees - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 Head Office 50,453 2.0% 1.39 400 51,974 2.0% 1.46 412 51,329 2.0% 1.39 407 51,774 2.0% 1.42 411 53,473 2.0% 1.46 424 Employee Bonus Provision 2,134 0.1% 0.06 17 4,434 0.2% 0.12 35 403 0.0% 0.01 3 7,951 0.3% 0.22 63 8,269 0.3% 0.23 66 TOTAL FIXED COSTS 304,686 12.1% 8.40 2,418 299,269 11.5% 8.43 2,375 299,615 11.7% 8.10 2,378 312,652 12.1% 8.55 2,481 318,348 11.9% 8.70 2,527

EBITDA (Pre FF&E Reserve) 868,352 34.4% 23.94 6,892 940,086 36.2% 26.49 7,461 858,205 33.4% 23.20 6,811 851,587 32.9% 23.28 6,759 893,055 33.4% 24.42 7,088

FF&E RESERVE 75,680 3.0% 2.09 601 77,961 3.0% 2.20 619 45,830 1.8% 1.24 364 69,294 2.7% 1.89 550 80,210 3.0% 2.19 637

NET OPERATING INCOME (Post FF&E Reserve) 792,672 31.4% 21.85 6,291 862,125 33.2% 24.29 6,842 812,375 31.7% 21.96 6,447 782,293 30.2% 21.39 6,209 812,845 30.4% 22.22 6,451

Proposed Ground Rent - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 121,856 4.7% 3.33 967 125,512 4.7% 3.43 996

NET OPERATING INCOME (Post Ground Rent) 792,672 31.4% 21.85 6,291 862,125 33.2% 24.29 6,842 812,375 31.7% 21.96 6,447 660,437 25.5% 18.06 5,242 687,333 25.7% 18.79 5,455

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Dartford, Valuation Date: 1 May 2019 University Way, Dartford, DA1 5PA

9. C&W Trading Projections The following chart depicts our summary profit and loss projections showing the hotels income and expenses for the five years commencing May 2019. The statements are expressed in inflated terms for each year.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express London Dartford, University Way, Dartford, DA1 5PA

1 2 3 4 5 Data Type Projected Projected Projected Projected Projected Period Ending April April April April April Year 2020 2021 2022 2023 2024 No of Bedrooms: 126 126 126 126 126 Occupancy Rate 79.50% 79.50% 79.50% 79.50% 79.50% Average Room Rate 61.00 62.22 63.46 64.73 66.03 Revenue Per Available Room (RevPAR) 48.50 49.46 50.45 51.46 52.49 Days Open 365 365 365 365 365 Available Rooms 45,990 45,990 45,990 45,990 45,990 Occupied Rooms 36,562 36,562 36,562 36,562 36,562 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 2,578,435 % POR PAR 2,630,004 % POR PAR 2,682,604 % POR PAR 2,736,256 % POR PAR 2,790,981 % POR PAR

BEDROOMS Room Sales 2,230,285 86.5% 61.00 17,701 2,274,891 86.5% 62.22 18,055 2,320,389 86.5% 63.46 18,416 2,366,796 86.5% 64.73 18,784 2,414,132 86.5% 66.03 19,160 Room Expenses 1,000,000 44.8% 27.35 7,937 1,020,000 44.8% 27.90 8,095 1,040,400 44.8% 28.46 8,257 1,061,208 44.8% 29.02 8,422 1,082,432 44.8% 29.61 8,591 Departmental Profit 1,230,285 55.2% 33.65 9,764 1,254,891 55.2% 34.32 9,959 1,279,989 55.2% 35.01 10,159 1,305,588 55.2% 35.71 10,362 1,331,700 55.2% 36.42 10,569

FOOD & BEVERAGE Food & Beverage Sales 305,000 11.8% 8.34 2,421 311,100 11.8% 8.51 2,469 317,322 11.8% 8.68 2,518 323,668 11.8% 8.85 2,569 330,142 11.8% 9.03 2,620 Other Income / Room Hire 27,000 1.0% 0.74 214 27,540 1.0% 0.75 219 28,091 1.0% 0.77 223 28,653 1.0% 0.78 227 29,226 1.0% 0.80 232 Food & Beverage Cost 92,000 27.7% 2.52 730 93,840 27.7% 2.57 745 95,717 27.7% 2.62 760 97,631 27.7% 2.67 775 99,584 27.7% 2.72 790 Departmental Profit 240,000 72.3% 6.56 1,905 244,800 72.3% 6.56 1,905 249,696 72.3% 6.83 1,982 254,690 72.3% 6.97 2,021 259,784 72.3% 7.11 2,062

CAR PARK Car Park Revenue 10,750 0.4% 0.29 85 10,965 0.4% 0.30 87 11,184 0.4% 0.31 89 11,408 0.4% 0.31 91 11,636 0.4% 0.32 92 Car Park Expenses - 0.0% - - - 0.0% -- - 0.0% - - - 0.0% - - - 0.0% - - Departmental Profit 10,750 100.0% 0.29 85 10,965 100.0% 0.30 - 11,184 100.0% 0.31 - 11,408 100.0% 0.31 - 11,636 100.0% 0.32 - TELEPHONE Telephone Revenue 2,900 0.1% 0.08 23 2,958 0.1% 0.08 23 3,017 0.1% 0.08 23 3,078 0.1% 0.08 24 3,139 0.1% 0.09 25 Telephone Expenses 13,200 455.2% 0.36 105 13,464 455.2% 0.37 107 13,733 455.2% 0.38 109 14,008 455.2% 0.38 111 14,288 455.2% 0.39 113 Departmental Profit (10,300) (355.2%) (0.28) (82) (10,506) (355.2%) (0.29) (83) (10,716) (355.2%) (0.29) (85) (10,930) (355.2%) (0.30) (87) (11,149) (355.2%) (0.30) (88)

MISCELLANEOUS Miscellaneous Revenue 2,500 0.1% 0.07 20 2,550 0.1% 0.07 20 2,601 0.1% 0.07 21 2,653 0.1% 0.07 21 2,706 0.1% 0.07 21 Miscellaneous Expenses (12,000) (480.0%) (0.33) (95) (12,240) (480.0%) (0.33) (97) (12,485) (480.0%) (0.34) (99) (12,734) (480.0%) (0.35) (101) (12,989) (480.0%) (0.36) (103) Departmental Profit 14,500 580.0% 0.40 115 14,790 580.0% 0.40 117 15,086 580.0% 0.41 120 15,388 580.0% 0.42 122 15,695 580.0% 0.43 125

GROSS OPERATING INCOME 1,485,235 57.6% 40.62 11,788 1,514,940 57.6% 41.43 12,023 1,545,239 57.6% 42.26 12,264 1,576,143 57.6% 43.11 12,509 1,607,666 57.6% 43.97 12,759

LESS EXPENDITURE Administrative & General 70,000 2.7% 1.91 556 71,400 2.7% 1.95 567 72,828 2.7% 1.99 578 74,285 2.7% 2.03 590 75,770 2.7% 2.07 601 Sales & Marketing 12,892 0.5% 0.35 102 13,150 0.5% 0.36 104 13,413 0.5% 0.37 106 13,681 0.5% 0.37 109 13,955 0.5% 0.38 111 Repairs & Maintenance 97,000 3.8% 2.65 770 98,940 3.8% 2.71 785 100,919 3.8% 2.76 801 102,937 3.8% 2.82 817 104,996 3.8% 2.87 833 Energy Costs 96,000 3.7% 2.63 762 97,920 3.7% 2.68 777 99,878 3.7% 2.73 793 101,876 3.7% 2.79 809 103,913 3.7% 2.84 825 TOTAL UNDISTRIBUTED COSTS 275,892 10.7% 7.55 2,190 281,410 10.7% 7.70 2,233 287,038 10.7% 7.85 2,278 292,779 10.7% 8.01 2,324 298,635 10.7% 8.17 2,370

GROSS OPERATING PROFIT 1,209,343 46.9% 33.08 9,598 1,233,530 46.9% 33.74 9,790 1,258,200 46.9% 34.41 9,986 1,283,364 46.9% 35.10 10,185 1,309,032 46.9% 35.80 10,389

LESS FIXED COSTS Property Tax 140,600 5.5% 3.85 1,116 143,412 5.5% 3.92 1,138 146,280 5.5% 4.00 1,161 149,206 5.5% 4.08 1,184 152,190 5.5% 4.16 1,208 Management Base Fee 51,569 2.0% 1.41 409 52,600 2.0% 1.44 417 53,652 2.0% 1.47 426 54,725 2.0% 1.50 434 55,820 2.0% 1.53 443 Rental Income Receivable - 0.0% - - - 0.0% -- - 0.0% - - - 0.0% - - - 0.0% - -

Franchise Royalty Fees 111,514 5.0% 3.05 885 113,745 5.0% 3.11 903 116,019 5.0% 3.17 921 118,340 5.0% 3.24 939 120,707 5.0% 3.30 958 Franchise Marketing Fees 66,909 3.0% 1.83 531 68,247 3.0% 1.87 542 69,612 3.0% 1.90 552 71,004 3.0% 1.94 564 72,424 3.0% 1.98 575 Rent Payable - 0.0% - - - 0.0% -- - 0.0% - - - 0.0% - - - 0.0% - -

Employee Bonus Provision 8,000 0.3% 0.22 63 8,160 0.3% 0.22 65 8,323 0.3% 0.23 66 8,490 0.3% 0.23 67 8,659 0.3% 0.24 69 TOTAL FIXED COSTS 378,592 14.7% 10.35 3,005 386,163 14.7% 10.56 3,065 393,887 14.7% 10.77 3,126 401,764 14.7% 10.99 3,189 409,800 14.7% 11.21 3,252

EBITDA (Pre FF&E Reserve) 830,751 32.2% 22.72 6,593 847,366 32.2% 23.18 6,725 864,314 32.2% 23.64 6,860 881,600 32.2% 24.11 6,997 899,232 32.2% 24.59 7,137

FF&E RESERVE 77,353 3.0% 2.12 614 78,900 3.0% 2.16 626 80,478 3.0% 2.20 639 82,088 3.0% 2.25 651 83,729 3.0% 2.29 665

NET OPERATING INCOME (Post FF&E Reserve) 753,398 29.2% 20.61 5,979 768,466 29.2% 21.02 6,099 783,836 29.2% 21.44 6,221 799,512 29.2% 21.87 6,345 815,503 29.2% 22.30 6,472

Proposed Ground Rent 121,856 10.1% 3.33 967 124,293 10.1% 3.40 986 126,779 10.1% 3.47 1,006 129,315 10.1% 3.54 1,026 131,901 10.1% 3.61 1,047

NET OPERATING INCOME (Post Ground Rent) 631,542 24.5% 17.27 5,012 644,173 24.5% 17.62 5,112 657,057 24.5% 17.97 5,215 670,198 24.5% 18.33 5,319 683,602 24.5% 18.70 5,425

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Dartford, Valuation Date: 1 May 2019 University Way, Dartford, DA1 5PA

C&W Projections The hotel is a stabilised business with occupancy levels consistently ranging between 77-80% with the full year forecast for 2019 showing a similar level. We have adopted an occupancy of 79.5% in each year of our projections. The hotel achieved an ADR of £60.19 in 2018, down over £3.50 from the previous year, although management are forecasting a 1.8% increase in the current year to £61.26. For the purpose of our assessment we have adopted a year one ADR of £61 to reflect our starting date of May 2019. We have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. There is limited other revenue generated from the hotel with rooms revenue accounting for around 87% of the total. Accordingly, we have adopted a similar business mix within our projections and similar levels of food and beverage and other revenue to that currently being achieved. The format of the accounts is not strictly in accordance with the Uniform System of Accounts for the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being allocated to individual departments given the nature of the operation. As a result, it is more difficult to undertake full benchmarking of the departmental expenses. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management we have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis. We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £753,398, which compares to the forecast for the current year of £782,293. The hotel is forecast to achieve a net operating profit margin of 30.2% for the current year compared to 31.7% last year. Our projected net operating profit margin is 29.2%. After the deduction of the proposed ground rent of £121,856 per annum our adjusted net operating profit is £631,542, which is equivalent to a profit margin of 24.5%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Dartford, Valuation Date: 1 May 2019 University Way, Dartford, DA1 5PA

10. Principal Valuation Considerations

Location / Situation and Competition The property is well located close to the M25 and a large number of corporate occupiers which have over the years have been positioned near the Dartford River Crossing. From an investment perspective Dartford would be viewed as a secondary hotel market.

Building Design / Condition / Suitability The hotel is in good condition having been well maintained over the years.

Tenure The hotel is held on a long leasehold basis at a peppercorn rent. In addition to the current leasehold interest, the hotel will be held on long lease for a term of 125 years with a buy back option at year 60 for £1. There is limited comparable evidence of the sale of long leasehold as the structure is relatively new within the hotel market. We would however expect there to be a narrower pool of purchasers for the leasehold interest compared to the freehold interest, which will result in the interest achieving a softer yield. We consider the yield gap between a freehold interest and a ground lease interest will be influenced by a number of factors including location, quality of the asset and rent cover. The yield gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as the hotel will lose some of its appeal and economies of being operated as part of a larger platform. The proposed rent payable will be £121,856 per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 net operating income (NOI). We consider the proposed rent to fall within an acceptable range of NOI based on other transactions that have occurred in the market providing sufficient rent cover in the short term.

Business & Income Security The hotel is a stable business and relatively well established in its local market being one of the stronger performing hotels. The hotel has produced relatively consistent levels of revenue and net operating profit with the profit margin being achieved good. Whilst the profitability of the hotel has been good there is potential for the current margins to be eroded by the ground rent in the event that earnings do not keep pace with RPI.

Asset Management Opportunities There is limited scope for additional growth through specific asset management. The hotel is stabilised.

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 6 to 9 months Market Value?

Purchaser demand is likely to be Good

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Dartford, Valuation Date: 1 May 2019 University Way, Dartford, DA1 5PA

The market for hotels held on long ground leases such as that proposed has been largely untested to date. Whilst this will result in a greater level of uncertainty in terms of purchaser appetite and saleability, we are of the opinion that there would be fewer purchasers in the market than for the equivalent freehold interest.

10.1. Market Value

Address Transaction Details

Bridgewood Manor Hotel, Chatham • July 2018 • £11.5 million • £115,000 per bedroom

Sandgate Bridgewood Manor Ltd, an SPV created on behalf of Sandgate Group's client, has purchased Bridgewood Manor Hotel, which was part of the Q-Hotels portfolio sale. The buyer purchased the 100-bedroom hotel from Aprirose Ltd for £11.5m. The purchaser intended to remove Q-hotel brand and operate it as an independent hotel. A phased refurbishment is planned in correlation with this strategy. In 2017, the occupancy rate was 69.7%, and the RevPAR was £45.34. The annual turnover was £4.04m.

Chatham is an area comprising stronger demand generators relative to the subject and the full service nature of the comparable further demonstrates the lack of reliance to be placed upon this sale in our analysis herein. There has been limited sales of hotels held on ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. The yields for similar quality hotels held on a freehold basis have ranged between 6.75% and 8.75%. Having regard to the comments above and the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 6.75%. We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold interest having regard to the location of the hotel and the level of rent payable as detailed in the head report. Based on these factors, we have adopted a capitalisation rate of 7.50%. We have adopted a discount rate of 9.50%. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate. In summary, in arriving at our opinion of value we have adopted the following:

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Dartford, Valuation Date: 1 May 2019 University Way, Dartford, DA1 5PA

Market Value

Gross Initial Yield 7.50%

Capitalisation Rate 7.50%

Discount Rate 9.50%

Market Value £8,400,000

Capital value Per Bedroom £66,667 per bedroom

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £320,000 per annum.

10.3. Market Value with Vacant Possession For the purpose of our valuation with vacant possession we have adopted our trading assessment as set out above. In arriving at our opinion of value on this basis, we have adopted our Market Value.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Dartford, Valuation Date: 1 May 2019 University Way, Dartford, DA1 5PA

APPENDIX A: MAPS AND PLANS

Holiday Inn Express London Dartford, University Way, Dartford, DA1 5PA

This plan is published for convenience of identification. Any site boundaries shown are indicative only and should be checked against Title Deeds.

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This plan is published for convenience of identification. Any site boundaries shown are indicative only and should be checked against Title Deeds.

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About Cushman & Wakefield

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Valuation of: Holiday Inn Express London Greenwich, A102M, Bugsby Way, Greenwich, London, SE10 OGD

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

TABLE OF CONTENTS

Executive Summary ...... 1 Property Record ...... 3 1. Location ...... 3 2. Description & Accommodation ...... 4 3. Structural Condition and Repair ...... 6 4. Statutory Enquiries ...... 7 5. Tenure ...... 8 6. Operational Structure ...... 9 7. Local Hotel Market Analysis ...... 9 8. Business Analysis ...... 10 9. C&W Trading Projections ...... 13 10. Principal Valuation Considerations ...... 16 Appendix A: Maps and Plans ...... 19

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The hotel is located on the Greenwich Peninsula. The O2 Arena is a short distance to the north. The nearest underground station is North Greenwich on the Jubilee line. The hotel is situated on the North side of the A102 Blackwall Tunnel Southern Approach.

Description The hotel comprises 162 guest bedrooms with ancillary Great Room and two conference rooms which can be combined to create one big room. The property was constructed in approximately 1999.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) Forecast

Occupancy 77.60% 78.96% 80.21%

ADR £107.50 £103.10 £102.40

RevPAR £83.42 £81.41 £82.14

Total Revenue £5,485,742 £5,383,592 £5,461,980

NOI (Post FF&E) * £2,826,493 £2,620,992 £2,245,292

Profit Margin 51.5% 48.7% 41.1%

* Please note 2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 80.0% 80.0% 80.0%

ADR £102.50 £104.55 £106.54

RevPAR £82.00 £83.64 £85.31

Total Revenue £5,456,960 £5,566,099 £5,677,421

NOI (Post FF&E and £2,164,788 £2,204,254 £2,244,509 ground rent)

Profit Margin 39.7% 39.6% 39.5%

Market Value and Yields

Valuation Date 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

Market Value £34,300,000

Capitalisation Rate 6.25% Discount Rate 8.25%

Gross Initial Yield 6.32%

Capital expenditure None deducted from gross valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • Close proximity to O2 and Excel; • Refurbished Generation 4 rooms; • Area is still developing.

Weaknesses / Risks • New competition; • Terrorism; • The general economy.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 3 May 2019. The inspection was undertaken by Nick Maltby.

1. Location

1.1. Location

General The hotel is well located, south east of the City of London on the Greenwich Peninsula. The property lies on the north side of the A102, the approach to the Blackwall Tunnel. The is approximately 10 minutes’ walk from North Greenwich underground station on the Jubilee Line, to the north west. London City Airport is approximately 5.5 miles to the north east, a journey time of 15 minutes by car. The hotel is well positioned to take full advantage of the O2 (approximately 12 minutes’ walk to the north west) and the Excel Centre (approximately 13 minutes by car to the north east). Greenwich is in the Royal Borough of Greenwich, a borough to the south east of London city centre. It has a population of 282,850 residents (ONS, 2017). The O2 Arena has the second highest seating capacity in the UK, second only to the Manchester Arena. However, it is the world’s busiest Arena in terms of ticket sales for concerts/shows, with millions of people visiting each year, well ahead of Madison Square Garden in New York, US. The Excel Centre is in Customs House in the London Borough of Newham. It is a dedicated training and meetings space with two, column free, rectangular, sub dividable Halls of approximately 480,000 square feet. The Centre hosts some of the biggest events throughout the year. The hotel is evidently on the outskirts of London city centre, while tourists may prefer to stay in central London, some may choose to stay on the outskirts for a potentially lower rate.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

Site Boundary

The plan above is shown for indication purposes only and may not accord strictly with the title plan which we have reviewed.

2. Description & Accommodation

Summary The hotel comprises 162 guest bedrooms with ancillary Great Room and two conferences rooms. There is also a restaurant on the ground floor which does not operate under the same ownership as the hotel. The property was constructed in approximately 1999 and comprises ground and seven upper floors of poured concrete and brick construction underneath a flat, felt roof. The fenestration comprises double glazed aluminium framed windows.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

Guestrooms The following table summarises the Property's guestroom facilities, based on information provided by Atlas Hotels.

Category Unit Count

Twin 40

Double 112

Accessible 10

Total 162

There are three room types, namely twin, accessible and double rooms (which can accommodate up to three guests). There are 40 twin bedrooms and 112 double bedrooms. In addition, there are 10 accessible bedrooms. The style of the bedrooms is Fourth generation and present well. All guest bedrooms are air conditioned.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

Food & Beverage The Great Room is located on the first floor. The first floor is shared by the meeting rooms and the Great Room. The Great Room can cater for up to approximately 180 covers. Breakfast can be very busy during events and so management give guests warning through a traffic light system indicating the volume of people in the great room at any one time. If breakfast is extremely busy management may take the decision to open one of the adjacent meeting rooms to provide more seating.

Meeting Rooms There are two meeting rooms which can cater for up to 30 delegates theatre style. These rooms can be joined to create one room with a maximum delegate capacity of 80. The meeting rooms are in good condition.

Car Parking There are approximately 102 car parking spaces which are charged to guests at £13 per 24 hours.

Back of House Accommodation There is appropriate storage and back of house accommodation including a kitchen, a back office and a staff canteen.

3. Structural Condition and Repair The property has been well maintained, benefitting from a full-time in-house maintenance member of staff, and was found to be in good condition. In 2008, the hotel was fully refurbished. The most recent refurbishment was in 2016 which included bedroom carpets, curtains and wall coverings. The Great room has not been refurbished since 2008 but it still presents well. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £30,421 £94,304

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £17,900,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings) You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Flooding Risk The Property is in Flood Zone 3. Land and property in this flood zone would have a high probability of flooding without the local flood defenses. These protect the area against a river flood with a 1% chance of happening each year, or a flood from the sea with a 0.5% chance of happening each year.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject property is determined by Greenwich Borough Council. There in one outstanding planning application which is awaiting decision. The details are as follows: Construction of a seven-storey extension to the southern elevation of the building to provide 35 additional guest bedrooms and internal alterations to provide additional dining room space. The planning reference number is 15/2850/F and was received by the council on the 14th September 2015. The planning took some time to be decided potentially due to the Policies and Constraints where there is comment referring to pollution: ‘Planning permission will normally not be granted where a proposed development or change of use would generally have a significant adverse effect on the amenities of adjacent occupiers or users, and especially where proposals would be likely to result in the unacceptable emission of odours, fumes, dust, water and soil pollutants or grit.’ ‘Planning permission will not normally be granted for new developments or extensions of existing industrial, commercial, leisure or other uses that produce significant and unacceptable levels of noise and/or vibration at site boundaries or within adjacent sensitive areas, especially residential.’ Planning was finally decided on the 12th November 2018.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

Conservation Area and Listed Building Status The property is not listed and nor is it located within a conservation area.

Business Rates

Demise Description Rateable Values Holiday inn Express, Exeter Hotel & Premises 2019 - £747,500 In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 for England has been set at 50.4 pence. There is a surcharge for the City of London of 0.6 pence in the pound.

5. Tenure

Title We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017 and based on this we summarise our understanding of the title below. The hotel is subject to a long lease that commenced on the 12th August 1999 (Title TGL173819). The lease is for a term of 998 years, expiring on the 5th May 2997. There are 981 years unexpired. The agreed rent is a Peppercorn. The proposal is to sell the leasehold interest and simultaneously be granted a ground lease back. The terms of the ground lease are set out in the head report.

Overview

Type of tenure Proposed long leasehold

Title no(s) Unknown

Lease Term 125 years

Rent £364,351 pa to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%.

Any material encumbrances or unduly None other than disclosed in the draft certificate. onerous / unusual easements, restrictions, outgoings or conditions?

Any title characteristics likely to have an None. adverse impact on value, either now or over the proposed loan term?

Sub - Leases The lease on the restaurant on the ground floor has a term of 25 years from 1999, expiring in 2024. For the purposes of this valuation we have assumed that the current tenant renews their tenancy at this time. The passing rent is £180,000 per annum. The lease indicates that there are five yearly, upwards only rent reviews to market rent. A rent review is therefore due this year. Due to the conditions of the market and the unique characteristics of the subject restaurant, we have assume a nil uplift at review in 2019. The lease is due to expire in 2024. We have assumed that either the current tenant renews for a second term, or that the premises is re-let at market rent. There is also a Telecoms lease to Vodafone. The details of this lease are unknown to us; however, we are aware that the rent is payable monthly and that the passing rent is £26,547 per

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

annum. For the purposes of this valuation, we have assumed that this lease has a greater unexpired term of ten years and that it is reviewed every five years. We have also assumed that this rent is currently not visible in the hotel historic accounts, and have for ease, combined the two rents from the sub tenancies. We have shown this sum in the ‘Rent Receivable’ line item under Fixed Costs.

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday inn Express brand.

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are 20 hotels and 2,036 in Greenwich, London. Eight of these hotels are located less than a mile away from the subject. The market is dominated by the budget sector with 973 rooms, followed by five and four-star. This compares to a national trend characterised by less than 30% of total rooms in the four-star category and approximately 25% of total rooms in the budget sector. Of this supply, 95% is branded, with mostly Premier Inn and Travelodge hotels in the budget sector.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

• Novotel London Greenwich • Premier Inn London Docklands Excel • Premier Inn London Greenwich The competition to the subject hotel is relatively strong with the hotels above all in relatively close proximity. Each of these hotels to some extent will be attempting to capture the market from the O2 and London Excel. However, the subject hotel is the closest to the O2 and therefore is almost guaranteed business from each event. Management informed that the most direct competitor is the Holiday Inn Express London Royal Docks. The table below sets out the hotels’ key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019*.

Since 2017 the subject hotel has consistently traded at a lower occupancy than the competitive set. The MPI score indicates that the gap between the competitive set and the subject hotel is constant and even shows an increase for Q1 2019. By contrast, the hotel trades at a much higher ADR than the competitive set, with a difference of around £25, translating to an ARI of 130 and above. The RevPAR trend shows that the subject is exceeding the market performance, with an RGI of 130 in 2017 and 2018 and going up to 137 for the first quarter of this year.

7.3. Proposed Supply There are currently 11 projects in the pipeline in Greenwich, most of it confirmed and one in construction; the Holiday Inn Greenwich, 80 rooms, due to open in 2025 by the subject Property.

8. Business Analysis

Overview The hotel was built in 1999 and has experienced a fluctuating performance over the last three years. The hotels performance is significantly reliant on events at the O2 exhibition centre, when there are events on the hotel does well and if there is a break in events, then the hotel experiences a decline in trade. The O2 centre is principally a leisure centre. As the hotel is closest to the O2 its business mix mirrors the type of event at the O2, suffice as to say that the business mix is majority leisure. There are corporate guests however who attend events at Excel or have offices nearby in Canary Wharf that stay at the hotel. The hotel does not have many corporate contracts; however, the main contracts are BT and TXM Plant, both producing between 300 and 500 room nights to the hotel on an annual basis. Both companies are paying agreed rates of between £100 and £125. TXM have an agreed dinner supplement. Other corporate contracts provide less than 100 room nights per year. Last year the hotel relied heavily on leisure groups through AC Tours. The Appointment Group, the global independent

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

event and global travel company, has a contract relationship with O2 for setting up events. The Group use the hotel when there is an event at the O2. Most bookings (approx. 65%) originate through Online Travel Agents (OTAs). Booking.com is the biggest provider, especially during events. The remainder of the bookings come through the brand and directly to the hotel. Most direct bookings are made by returning guests. The hotel secured repeat business from ATP Tennis in 2017 who have an event at the O2 in November. This repeat business has been secured until this year, but we are unaware if this business has been renewed. As mentioned breakfast at the hotel is busy especially at weekends when most guests come within the last hour of service. The hotel now warns guests on check in that breakfast is busy and have a permanent ‘traffic light’ sign informing guests when the quietest and busiest periods are. This has gone some way to mitigate complaints. There is no lunch service except for prearranged conference lunches. Dinner is a light menu of simple items such as curry and burgers. The hotel averages between 25-30 covers each night with an average spend of £15 per person. The conference business at the hotel is variable in the two conference rooms. The most regular user is a church group who use one of the rooms each Sunday, and have done so for seven years. Other conference and meeting business comes from St. John’s Ambulance who conduct first aid courses. There is no day delegate rate, but each room is charged out at £250 per day of £350 with teas and coffees. The hotel also charges £14 for hotel guest parking. Recently the hotel has signed up to YourParking Space, allocating 15 spaces per day. The hotel receives approximately £2,500 to £3,000 per month in revenue from this additional service. The Ground Floor Chinese Restaurant (Saikei) also rents some parking from the hotel at a set rate of £4,000 per month. The hotel also has a Vodafone aerial on the roof which provides a monthly income, we have not been given details of this lease.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, A102M, Bugsby Way, Greenwich, Valuation Date: 1 May 2019 London, SE10 OGD

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

9. C&W Trading Projections

Trading Projections The following chart depicts our summary profit and loss projections showing the hotels income and expenses for the five years commencing May 2019. The statements are expressed in inflated terms for each year.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, A102M, Bugsby Way, Greenwich, Valuation Date: 1 May 2019 London, SE10 OGD

1 2 3 4 5 Data Type Projected Projected Projected Projected Projected Period Ending April April April April April Year 2020 2021 2022 2023 2024 No of Bedrooms: 162 162 162 162 162 Occupancy Rate 80.00% 80.00% 80.00% 80.00% 80.00% Average Room Rate 102.50 104.55 106.64 108.77 110.95 Revenue Per Available Room (RevPAR) 82.00 83.64 85.31 87.02 88.76 Days Open 365 365 365 365 365 Available Rooms 59,130 59,130 59,130 59,130 59,130 Occupied Rooms 47,304 47,304 47,304 47,304 47,304 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 5,456,960 % POR PAR 5,566,099 % POR PAR 5,677,421 % POR PAR 5,790,970 % POR PAR 5,906,789 % POR PAR

BEDROOMS Room Sales 4,848,660 88.9% 102.50 29,930 4,945,633 88.9% 104.55 30,529 5,044,546 88.9% 106.64 31,139 5,145,437 88.9% 108.77 31,762 5,248,346 88.9% 110.95 32,397 Room Expenses 1,527,328 31.5% 32.29 9,428 1,557,874 31.5% 32.93 9,617 1,589,032 31.5% 33.59 9,809 1,620,813 31.5% 34.26 10,005 1,653,229 31.5% 34.95 10,205 Departmental Profit 3,321,332 68.5% 70.21 20,502 3,387,759 68.5% 71.62 20,912 3,455,514 68.5% 73.05 21,330 3,524,624 68.5% 74.51 21,757 3,595,117 68.5% 76.00 22,192

FOOD & BEVERAGE Food & Beverage Sales 285,000 5.2% 6.02 1,759 290,700 5.2% 6.15 1,794 296,514 5.2% 6.27 1,830 302,444 5.2% 6.39 1,867 308,493 5.2% 6.52 1,904 Other Income / Room Hire 44,000 0.8% 0.93 272 44,880 0.8% 0.95 277 45,778 0.8% 0.97 283 46,693 0.8% 0.99 288 47,627 0.8% 1.01 294 Food & Beverage Cost 88,830 27.0% 1.88 548 90,607 27.0% 1.92 559 92,419 27.0% 1.95 570 94,267 27.0% 1.99 582 96,152 27.0% 2.03 594 Departmental Profit 240,170 73.0% 5.08 1,483 244,973 73.0% 5.08 1,483 249,873 73.0% 5.28 1,542 254,870 73.0% 5.39 1,573 259,968 73.0% 5.50 1,605

CAR PARK Car Park Revenue 270,000 4.9% 5.71 1,667 275,400 4.9% 5.82 1,700 280,908 4.9% 5.94 1,734 286,526 4.9% 6.06 1,769 292,257 4.9% 6.18 1,804 Car Park Expenses 200 0.1% 0.00 1 204 0.1% 0.00 1 208 0.1% 0.00 1 212 0.1% 0.00 1 216 0.1% 0.00 1 Departmental Profit 269,800 99.9% 5.70 1,665 275,196 99.9% 5.82 1 280,700 99.9% 5.93 1 286,314 100.0% 6.05 1 292,040 99.9% 6.17 1

TELEPHONE Telephone Revenue 4,100 0.1% 0.09 25 4,182 0.1% 0.09 26 4,266 0.1% 0.09 26 4,351 0.1% 0.09 27 4,438 0.1% 0.09 27 Telephone Expenses 17,100 417.1% 0.36 106 17,442 417.1% 0.37 108 17,791 417.1% 0.38 110 18,147 417.1% 0.38 112 18,510 417.1% 0.39 114 Departmental Profit (13,000) (317.1%) (0.27) (80) (13,260) (317.1%) (0.28) (82) (13,525) (317.1%) (0.29) (83) (13,796) (317.1%) (0.29) (85) (14,072) (317.1%) (0.30) (87)

MISCELLANEOUS Miscellaneous Revenue 5,200 0.1% 0.11 32 5,304 0.1% 0.11 33 5,410 0.1% 0.11 33 5,518 0.1% 0.12 34 5,629 0.1% 0.12 35 Miscellaneous Expenses (17,700) (340.4%) (0.37) (109) (18,054) (340.4%) (0.38) (111) (18,415) (340.4%) (0.39) (114) (18,783) (340.4%) (0.40) (116) (19,159) (340.4%) (0.41) (118) Departmental Profit 22,900 440.4% 0.48 141 23,358 440.4% 0.49 144 23,825 440.4% 0.50 147 24,302 440.4% 0.51 150 24,788 440.4% 0.52 153

GROSS OPERATING INCOME 3,841,202 70.4% 81.20 23,711 3,918,026 70.4% 82.83 24,185 3,996,387 70.4% 84.48 24,669 4,076,314 70.4% 86.17 25,162 4,157,841 70.4% 87.90 25,666

LESS EXPENDITURE Administrative & General 130,967 2.4% 2.77 808 133,586 2.4% 2.82 825 136,258 2.4% 2.88 841 138,983 2.4% 2.94 858 141,763 2.4% 3.00 875 Sales & Marketing 27,285 0.5% 0.58 168 27,830 0.5% 0.59 172 28,387 0.5% 0.60 175 28,955 0.5% 0.61 179 29,534 0.5% 0.62 182 Repairs & Maintenance 157,950 2.9% 3.34 975 161,109 2.9% 3.41 995 164,331 2.9% 3.47 1,014 167,618 2.9% 3.54 1,035 170,970 2.9% 3.61 1,055 Energy Costs 135,270 2.5% 2.86 835 137,975 2.5% 2.92 852 140,735 2.5% 2.98 869 143,550 2.5% 3.03 886 146,421 2.5% 3.10 904 TOTAL UNDISTRIBUTED COSTS 451,472 8.3% 9.54 2,787 460,501 8.3% 9.73 2,843 469,711 8.3% 9.93 2,899 479,106 8.3% 10.13 2,957 488,688 8.3% 10.33 3,017

GROSS OPERATING PROFIT 3,389,730 62.1% 71.66 20,924 3,457,525 62.1% 73.09 21,343 3,526,675 62.1% 74.55 21,770 3,597,209 62.1% 76.04 22,205 3,669,153 62.1% 77.57 22,649

LESS FIXED COSTS Property Tax 381,250 7.0% 8.06 2,353 388,875 7.0% 8.22 2,400 396,653 7.0% 8.39 2,448 404,586 7.0% 8.55 2,497 412,677 7.0% 8.72 2,547 Management Base Fee 109,139 2.0% 2.31 674 111,322 2.0% 2.35 687 113,548 2.0% 2.40 701 115,819 2.0% 2.45 715 118,136 2.0% 2.50 729 Rental Income Receivable (191,500) (3.5%) (4.05) (1,182) (191,500) (3.4%) (4.05) (1,182) (191,500) (3.4%) (4.05) (1,182) (191,500) (3.3%) (4.05) (1,182) (191,500) (3.2%) (4.05) (1,182) Franchise Royalty Fees 242,433 5.0% 5.13 1,497 247,282 5.0% 5.23 1,526 252,227 5.0% 5.33 1,557 257,272 5.0% 5.44 1,588 262,417 5.0% 5.55 1,620 Franchise Marketing Fees 145,460 3.0% 3.08 898 148,369 3.0% 3.14 916 151,336 3.0% 3.20 934 154,363 3.0% 3.26 953 157,450 3.0% 3.33 972 Employee Bonus Provision 10,100 0.2% 0.21 62 10,302 0.2% 0.22 64 10,508 0.2% 0.22 65 10,718 0.2% 0.23 66 10,933 0.2% 0.23 67 TOTAL FIXED COSTS 696,882 12.8% 14.73 4,302 714,650 12.8% 15.11 4,411 732,773 12.9% 15.49 4,523 751,258 13.0% 15.88 4,637 770,113 13.0% 16.28 4,754

EBITDA (Pre FF&E Reserve) 2,692,848 49.3% 56.93 16,623 2,742,875 49.3% 57.98 16,931 2,793,903 49.2% 59.06 17,246 2,845,951 49.1% 60.16 17,568 2,899,040 49.1% 61.29 17,895

FF&E RESERVE 163,709 3.0% 3.46 1,011 166,983 3.0% 3.53 1,031 170,323 3.0% 3.60 1,051 173,729 3.0% 3.67 1,072 177,204 3.0% 3.75 1,094

NET OPERATING INCOME (Post FF&E Reserve) 2,529,139 46.3% 53.47 15,612 2,575,892 46.3% 54.45 15,901 2,623,580 46.2% 55.46 16,195 2,672,222 46.1% 56.49 16,495 2,721,836 46.1% 57.54 16,801

Proposed Ground Rent 364,351 10.2% 7.70 2,249 371,638 10.2% 7.86 2,294 379,071 10.2% 8.01 2,340 386,652 10.2% 8.17 2,387 394,385 10.2% 8.34 2,434

NET OPERATING INCOME (Post Ground Rent) 2,164,788 39.7% 45.76 13,363 2,204,254 39.6% 46.60 13,607 2,244,509 39.5% 47.45 13,855 2,285,570 39.5% 48.32 14,108 2,327,451 39.4% 49.20 14,367

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

Commentary on C&W Projections The hotel is a stabilised business with occupancy levels increasing consistently since 2017 from 77.60% to 78.96% in 2018, with the full year forecast for 2019 showing an occupancy of 80.21%. We have adopted an occupancy of 80% in each year of our projections. The hotel achieved an ADR of £103.10 in 2018, showing a decline on the previous year by £4.40. this was due to strong events at the O2/Excel London in 2017 including London’s Deference Conference which boosted ADR. 2018 was a poor year for events at the O2 and at Excel. Management are forecasting a further decrease in 2019 to £102.40. For the purpose of our assessment we have adopted a year one ADR of £102.50. We have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. There is limited other revenue generated from the hotel with rooms revenue accounting for around 89% of the total. Accordingly, we have adopted a similar business mix within our projections and similar levels of food and beverage and other revenue to that currently being achieved. The format of the accounts is not strictly in accordance with the Uniform System of Accounts for the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being allocated to individual departments given the nature of the operation. As a result, it is more difficult to undertake full benchmarking of the departmental expenses. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management we have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis. We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £2,529,139, which compares to the forecast for the current year of £2,609,643. The hotel is forecast to achieve a net operating profit margin of 47.8% for the current year compared to 48.7% last year. Our projected net operating profit margin is 46.3%. After the deduction of the proposed ground rent of £364,351 per annum our adjusted net operating profit is £2,164,788 which is equivalent to a profit margin of 39.7%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

10. Principal Valuation Considerations

Location / Situation and Competition The property is well located. The hotel is easily accessible by public transport, by road and by air from London City Airport. The hotel consistently benefits from the O2, as the nearest hotel to the venue. There are a number of competitors in a 1.5-mile radius, however the London market is as such that the demand is greater than the supply. From an investment perspective, London Greenwich would be viewed as a primary hotel market.

Building Design / Condition / Suitability The hotel is in good condition having been well maintained over the years.

Tenure The hotel is held on a Long Leasehold basis for 999 years. This is regarded as a ‘quasi freehold’ due to the length of term. The leasehold is however regarded as marginally more onerous than if it were a Freehold due to the restriction that the lease brings to the leaseholder. The hotel will be held on long lease for a term of 125 years with a buy back option at year 60 for £1. There is limited comparable evidence of the sale of long leasehold as the structure is relatively new within the hotel market. We would however expect there to be a narrower pool of purchasers for the leasehold interest compared to the freehold interest, which will result in the interest achieving a softer yield. We consider the yield gap between a freehold interest and a ground lease interest will be influenced by a number of factors including location, quality of the asset and rent cover. The yield gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as the hotel will lose some of its appeal and economies of being operated as part of a larger platform. The proposed rent payable will be £364,351 per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI. We consider the proposed rent to fall within an acceptable range of NOI based on other transactions that have occurred in the market providing sufficient rent cover in the short term.

Business & Income Security The hotel is a stable business and well established in its local market being one of the strongest performing hotels. The hotel has produced relatively consistent levels of revenue and net operating profit with the profit margin being achieved good. Whilst the profitability of the hotel has been good there is potential for the current margins to be eroded by the proposed ground rent in the event that earnings do not keep pace with RPI.

Asset Management Opportunities There is limited scope for additional growth through specific asset management. The hotel is stabilised. However, there are plans for the development of additional rooms in the second quarter of 2019.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 6 to 9 months Market Value?

Purchaser demand is likely to be Good

The market for hotels held on long ground leases such as that proposed has been largely untested to date. Whilst this will result in a greater level of uncertainty in terms of purchaser appetite and saleability, we are of the opinion that there would be fewer purchaser in the market than for the equivalent freehold interest.

10.1. Market Value

Address Transaction Details

De Vere Devonport House • Sold August 2018 • £22,000,000 • £220,000 per bedroom The 100-bed De Vere Devonport House was sold by the De Vere Group for £22,000,000 in the summer of 2018 for a reported yield of 7.3%. This was a long leasehold until 2148 (130 years unexpired) with a rent-free period until 2032 and then 5 yearly rent reviews thereafter. There is a management contact with De Vere until January 2028. This is more of an upper scale hotel, but in a similar location. Devonport House provides more services than the subject and is a more desirable building, justifying a stronger yield than the subject from a leasehold perspective. Note however that the value per bedroom is very similar. The yields for similar quality hotels held on a freehold basis have ranged between 5.75% and 7.75%. Having regard to the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 5.75%. We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold interest having regard to the location of the hotel and the level of rent payable as detailed in the head report. Based on these factors, we have made an adjustment of 50 basis points to the freehold yield and adopted a capitalisation rate of 6.25%. We have adopted a discount rate of 8.25%. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

In summary, in arriving at our opinion of value we have adopted the following:

Market Value

Capitalisation Rate 6.25%

Discount Rate 8.25%

Market Value £34,300,000

Capital value Per Bedroom £211,728 per bedroom

Gross Initial Yield 6.32%

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £1,190,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Greenwich, Valuation Date: 1 May 2019 A102M, Bugsby Way, Greenwich, London, SE10 OGD

APPENDIX A: MAPS AND PLANS

Holiday Inn Express London Greenwich, A102M, Bugsby Way, Greenwich, London, SE10 OGD

75m

N A

W K C A L B All 2017.rights Copyright reserved.© Crown Licence number 100022432. Plotted Scale - 50m Ordnance Survey

0 21 25m

0 22

0 23 8 22 0m

About Cushman & Wakefield

Valuation of: Holiday Inn Express London Hammersmith, 124 King St, Hammersmith, London W6 0QU

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

TABLE OF CONTENTS

Executive Summary ...... 1 Property Record ...... 3 1. Location ...... 3 2. Description & Accommodation ...... 4 3. Structural Condition and Repair ...... 7 4. Statutory Enquiries ...... 8 5. Tenure ...... 8 6. Operational Structure ...... 9 7. Local Hotel Market Analysis ...... 9 8. Business Analysis ...... 11 9. C&W Trading Projections ...... 13 10. Principal Valuation Considerations ...... 17 Appendix A: Maps and Plans ...... 20

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The hotel is well located in the heart of Hammersmith, although its recessed entrance has a negative impact on visibility.

Description The hotel comprises 135 guest bedrooms, ancillary Great Room, four meeting rooms and on-site car park. The property was constructed in 2001.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year End December 31 2017 2018 2019 (2+10) Forecast

Occupancy 81.51% 82.43% 83.31%

ADR £104.89 £108.91 £106.12

RevPAR £85.49 £89.78 £88.41

Total Revenue £4,477,974 £4,680,694 £4,518,153

NOI (Post FF&E)* £2,110,222 £2,274,690 £1,650,913

Profit Margin 47.1% 48.6% 36.5%

*2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 83.0% 79.0% 81.0%

ADR £106.0 £102.0 £108.0

RevPAR £87.98 £80.58 £87.48

Total Revenue £4,987,307 £6,058,782 £6,575,789

NOI (Post FF&E £1,944,376 £2,236,505 £2,615,594 and ground rent)

Profit Margin 39.0% 36.9% 39.8%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £38,500,000

Capitalisation Rate 5.50% Discount Rate 7.50%

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

Gross Initial Yield 5.05%

Capital expenditure £6,000,000 deducted from gross Capital expenditure approved for bedrooms extension. valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • Located in central London and easily accessed by car and public transports; • On-site car park; • Planning application granted for a 56-room extension and additional dining space.

Weaknesses / Risks • Big hotel supply located nearby; • Minimal food & beverage revenue mostly limited to the use of the meeting space; • Limited visibility from the main road due to the Property’s retracted entrance.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 8 May 2019. The inspection was undertaken by Zhana Kostova.

1. Location

1.1. Location

General The hotel is located off King Street, in the heart of Hammersmith. It has limited visibility due to the main entrance being recessed down a driveway and the street signage being poor. The hotel is six minute walk from Hammersmith tube station, which is served by the Central, District, Hammersmith & City and Piccadilly lines. At the same distance is Hammersmith bus station, located within the Broadway Centre providing access around town and Heathrow Airport, located 35 minutes away by tube (Piccadilly Line). King Street is supplemented by many shops along Shepherd Bush Road to the north, Fulham Palace Road to the south and Hammersmith Road to the east. Leisure attractions within a 10-minute walk from the Property include the Lyric Hammersmith Theatre, the Grade II Listed Hammersmith Apollo concert hall and theatre and BBC Riverside Studios, which closed for redevelopment in 2014 and are scheduled to reopen in 2019. They will include cafes and restaurants, event space and new theatre and cinema facilities. The Natural History and Science museums, as well as London’s West End theatres are a short tube journey away. Wimbledon is 30 minute drive to the south and Stamford Bridge, the home stadium of Chelsea Football Club is less than three miles to the south west. Hammersmith is located within the district of Hammersmith & Fulham, in the centre-west of London. It is a long narrow Borough running north to south with a river border at its south and south-west side. It is bordered by six London Boroughs: Brent to the north, Kensington & Chelsea to the east, Wandsworth and Richmond-Upon-Thames to the south and Ealing and Hounslow to the west. Excluding the City of London, it is the third smallest of the London Boroughs in terms of area, covering 1,640 hectares. According to the latest figures (2017), the Borough of Hammersmith & Fulham has a population of 182,998, slightly less than in 2015. Hammersmith & Fulham has a busy local economy with some of the highest business start-up and closure rates in London. The wards of Hammersmith Broadway, Shepherd’s Bush Green and Town have the highest proportion of local businesses within the Borough. Hammersmith is one of west London’s key commercial and employment centres. Hammersmith’s office activity takes place mainly along Hammersmith Road and in the Ark, an office complex to the south of the flyover which traverses the area.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

Site Boundary

The plan above is shown for indication purposes only and may not accord strictly with the title plan which we have reviewed.

2. Description & Accommodation

Summary The hotel currently comprises 135 guest bedrooms, ancillary Great Room and four meeting rooms. There are approximately 22 car parking spaces in the free car park located on site. We have been informed that the there is a granted planning permission to demolish the existing concrete structure enclosing car park to the north side of the hotel building and to erect of a four- storey extension at the near of the existing building to provide 60 additional guest rooms. At present, we have been provided with a summary estimates for the bedrooms extension and hotel reconfiguration, which we have not been able to validate as we have not no sight of the appointed project team, formal cost estimates, specification and development program. The Bank solicitor should review all of the building contracts in place and ensure that these contain step in rights in favour of the Bank in the event of default. The Bank should also ensure

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

that any warranties and guarantees provided by the project team or assignable to the Bank and any purchaser. The Bank should monitor the refurbishment works and ensure that these are being undertaken in accordance with the specification, building regulations and Intercontinental Hotels requirements for the Holiday Inn Express brand. They should also ensure that the development program is met and there are no cost overruns. The Bank should note that there could potentially be an impact on value and loan suitability of changes are subsequently made to the specification, design, timetable and costs, after the valuation date. The Property was constructed in approximately 2001 and comprises four floors, including ground floor. The hotel is of concrete frame construction, with brick elevations, all beneath a flat roof. To the rear of the Property is a car park, providing 22 car parking spaces. It has been constructed so that further accommodation, hotel or residential, could be constructed over it.

Guestrooms The following table summarises the Property's guestroom facilities, based on information provided by Atlas Hotels.

Category Unit Count % Share

Double 78 58%

Twin 50 37%

Accessible 7 5%

Total 135 100%

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

There are 78 double rooms of which 25 with sofa bed and 53 with IHG signature chair, 40 twin rooms and seven accessible rooms. All bedrooms were last renovated to IHG Generation Four brand standards in early 2017. Bathrooms received a soft refurbishment including new flooring, new sink case, shower screens and new toilet amenities. All bedrooms include free wifi and air conditioning. We have not been provided with further details regarding the additional 60 bedrooms, such as average square metres, configuration and room types.

Food & Beverage The Great Room extends through most of the ground floor entrance area and provides covers for approximately 100 guests plus additional 20 within the reception area. It comprises reception, lounge and seating areas, with a small servery to the rear for breakfast. It was last renovated in 2012 according to IHG Generation Three brand standards. Following the successful completion of the undergoing extension, the hotel General Manager confirmed that the Great Room will be extended, and the ground floor layout will be different to the current set up. The planned ground floor renovation is due to be completed by the end of 2019, early 2020.

Meeting Rooms At present, the Property offers four meeting rooms accommodating up to 40 people in theatre style. All rooms are located on the first floor and have natural lighting. Nonetheless, during our site inspection, the General Manager informed us that the four meting rooms will be turned into bedrooms, according to the undergoing bedrooms extension.

Car Parking Currently, there are approximately 22 car parking spaces charged at £15 per day within the car park located at the rear of the Property. This has been constructed so that further accommodation could be constructed over it. During our hotel inspection, we witnessed the undergoing

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

construction works at the car park. The replacement of car park at ground floor level, as well as relocating the existing plant room will result to internal alterations within existing hotel to provide additional dining space.

Back of House Accommodation At this time, there is adequate storage, back of house and office space within the hotel. Nonetheless, we have not been provided with details, following the completed bedroom extension and ground floor reconfiguration, and as such we are unable to assess the functionality of the back of house layout once the extension has been materialised.

3. Structural Condition and Repair The Property has been well maintained and was found to be in good condition. The hotel bedrooms were upgraded in early 2017 to IHG Generation Four brand standards. The works also involved a soft refurbishment of the hotel bathrooms. A planning application has been granted on 15 September 2015 (Ref: 2015/04329/FUL) to build a 56 bedroom extension, modify the public areas and back of house to create additional public area space replacing the car park at ground floor level with 21 spaces. The development is currently undergoing and is scheduled to complete by early 2020. The hotel key count will increase by 60 bedrooms, four of which will derive from reconfiguring the existing meetings rooms, therefore not reflected in the granted planning permission. The Property layout will undergo a partial reconfiguration, including demolition of an existing concrete structure enclosing car park to the north side of the Property and the erection of a four storey extension at the rear of the existing hotel building to provide 56 additional guest rooms; replacement of car park at ground floor level with 21 spaces; erection of plant room and platform covering part of the replacement car park to the western boundary; internal alterations within the existing hotel building to provide additional dining space. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £225,269 £7,036,100

We do not consider that a purchaser would allow for any additional capital expenditure over and above the FF&E reserve but rather factor the upside potential in the selection of the cap rate. We have adopted this approach in our valuation.

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £14,900,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings) You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Flooding Risk The Property is located in Flood Zone 3.

Environmental Considerations Please refer to head report.

Planning The planning policy for the Property is determined by the Hammersmith and Fulham Council Authority. We are not aware of any outstanding or unimplemented planning applications.

Conservation Area and Listed Building Status The property is not listed but it is located in a conservation area.

Business Rates

Demise Description Rateable Values Holiday inn Express City Hotel & Premises £710,000 Centre, London Hammersmith Total In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 50.4 pence. There is a surcharge for the City of London of 0.6 pence in the pound.

5. Tenure

Title We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017 and based on this we summarise our understanding of the title below. The Property is held freehold (Title no NGL234851) although the proposal is to sell the freehold interest and simultaneously be granted a ground lease back. The terms of the ground lease are set out in the head report.

Overview

Type of tenure Proposed long leasehold

Title no(s) Unknown

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

Overview

Lease Term 125 years

Rent £341,204 p.a. to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%, plus further £97,374 p.a. for the proposed 60 bedroom extension, totalling £438,578 p.a.

Any material encumbrances or unduly None other than disclosed in the draft certificate. onerous / unusual easements, restrictions, outgoings or conditions?

Any title characteristics likely to have an None. adverse impact on value, either now or over the proposed loan term?

Full details of the proposed leasehold interest are detailed in the head report. There are informal arrangements with local companies to use the car park at the hotel but there are no reserved spaces or specific areas reserved for the companies. Each company pays for spaces on an as-required basis and no formal agreements are in place.

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday Inn Express brand.

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are 59 hotels in Hammersmith and Fulham, and just over 4,500 bedrooms. 14 of these hotels are located less than half a mile from the subject Property. There are a majority of four-star hotels in the market (1,750 rooms), followed by three-star and budget. This is in line with national trends characterised by less than 30% of total rooms in the four-star category and approximately 25% of total rooms in the budget sector. Just over 69% of the total supply is run independently, followed by national and regional brands at 12% and 19% respectively. Of this supply, over 60% is branded, with Premier Inn and Holiday Inn Express dominating the branded budget sector.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

7.2. Competitor Trading Analysis Smith Travel Research (STR) is an independent research firm that is recognised by the hotel industry as the standard source of reliable data, providing operating statistics on the local market as a whole. We have been provided STR data for the hotel and the following competitive set of hotels: • Novotel London West • ibis London Earls Court • Holiday Inn Express London Hammersmith • Premier Inn London Hammersmith • Holiday Inn Express London Earl's Court • Premier Inn London Kensington Earl's Court • Best Western Plus Seraphine Hammersmith Hotel • Dorsett Shepherds Bush Hotel The table below sets out the hotels key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019*.

The subject has been perfoming slighly below the market in 2017 and 2018, with an MPI at round 95. However, the Property outperforms the market in terms of ADR with above 120 ARI over the same period. This translates into a strong RevPAR performance relative to the market, achieving 118 RGI in 2018 and 110 for the first months to March 2019.

7.3. Proposed Supply There are 23 projects in the pipeline in this market, five of which are currently in construction and due to open or in the next two years, including the Hub London Fulham, 89 rooms, and the expansion of the subject.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

8. Business Analysis

Overview

The Property is a well-established, purpose-built hotel having been open for trade since 2001.

The hotel is situated on the heart of London in the upscale borough of Hammersmith and Fulham and is able to draw upon the leisure and corporate demand from the nearby commercial and leisure demand generators.

Hotel management reports that approximately 50% of their room nights are made of the leisure segment with the remaining consisting of contracted corporate guests and small groups. Owed to its central London location, the hotel has a wider international appeal to markets originating from EU countries, as well as visitors from China.

Bookings on the weekend are driven by the hotel’s proximity to major leisure demand generators including the Royal Albert Hall, Twickenham Stadium, Wembley Stadium and the Apollo Theatre, which captures some of the small events not held at the O2 Arena. Therefore, transient rates could vary significantly throughout the week with estimated weekday ADR of £115 and weekend daily rates of £85-£90.

Reliance on Online Travel Agents (OTAs) is strong with reported up to 35% of the hotel’s room nights contributed by third party booking engines like Booking.com and Expedia.

The bedrooms were upgraded to IHG Generation Four brand standards between January and June 2017. The bathrooms received a light refurbishment including new flooring, shower screens and new amenities.

The Great Room, upgraded in 2012, is mostly used for breakfast, which has a capture rate of 90%. We are advised by hotel management that very few people eat at the hotel due to the variety of restaurants and bars located in close proximity. Nonetheless, following successful completion of changing the layout of the ground floor, hotel management anticipates to increase the appeal if the hotel’s F&B outlets and increase the internal rate of capture of in-house guests, especially for lunch and dinner.

The hotel employs 20 Full Time Equivalents (FTE) with a cluster General Manager. To summarise, despite recent strong new bedroom supply in central London the hotel has shown resilience across the 2015-2018 trading period, with RevPAR showing year-on-year primarily driven by continued growth in ADR. 2019 forecast suggests that the hotel will continue trade at similar levels to 2018, minimising the impact from the undergoing bedrooms extension, which seems feasible for a hotels of such scale and location.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, 124 King St, Hammersmith, London Valuation Date: 1 May 2019 W6 0QU

-4.7% 12.6% 5.0% -1.5% -7.8%

Data Type Actual Actual Actual Forecast Budget Period Ending December December December December December Year 2016 2017 2018 2019 (2+10) 2020

No of Bedrooms: 135 135 135 135 195 Occupancy rate 78.70% 81.51% 82.43% 83.31% 79.95% Average Room Rate 96.50 104.89 108.91 106.12 102.00 Revenue Per Available Room (RevPAR) 75.95 85.49 89.78 88.41 81.55 Number of Days Open 365 365 365 365 365 Available Rooms 49,275 49,275 49,275 49,275 71,175 Occupied Rooms 38,779 40,162 40,619 41,051 56,904

TOTAL SALES 3,988,745 % POR PAR 4,477,974 % POR PAR 4,680,694 % POR PAR 4,518,153 % POR PAR 6,028,950 % POR PAR

BEDROOMS Room Sales 3,753,203 94.1% 96.78 27,802 4,212,722 94.1% 104.89 31,205 4,423,673 94.5% 108.91 32,768 4,356,240 96.4% 106.12 32,268 5,684,001 94.3% 99.89 29,149 Room Expenses 1,104,086 29.4% 28.47 8,178 1,206,349 28.6% 30.04 8,936 1,271,840 28.8% 31.31 9,421 1,265,471 29.0% 30.83 9,374 1,752,195 30.8% 30.79 8,986 Departmental Profit 2,649,117 70.6% 68.31 19,623 3,006,373 71.4% 74.86 22,269 3,151,833 71.2% 77.60 23,347 3,090,769 71.0% 75.29 22,895 3,931,806 69.2% 69.09 20,163

FOOD & BEVERAGE Food & Beverage Sales 61,436 1.5% 1.58 455 61,359 1.4% 1.53 455 69,409 1.5% 1.71 514 54,697 1.2% 1.33 405 195,039 3.2% 3.43 1,000 Other Income / Room Hire 86,143 2.2% 2.22 638 106,380 2.4% 2.65 788 99,316 2.1% 2.45 736 - 0.0% 0.00 0 - 0.0% 0.00 0 Food & Beverage Cost 24,512 16.6% 0.63 182 29,879 17.8% 0.74 221 30,716 18.2% 0.76 228 21,411 39.1% 0.52 159 29,646 15.2% 0.52 152 Departmental Profit 123,067 83.4% 3.17 912 137,860 82.2% 3.43 1,021 138,008 81.8% 3.40 1,022 33,286 60.9% 0.81 247 165,394 84.8% 2.91 848

CAR PARK Car Park Revenue 79,477 2.0% 2.05 589 87,573 2.0% 2.18 649 76,788 1.6% 1.89 569 96,141 2.1% 2.34 712 134,424 2.2% 2.36 689 Car Park Expenses 14 0.0% 0.00 0 312 0.4% 0.01 2 2,101 2.7% 0.05 16 91 0.1% 0.00 1 126 0.1% 0.00 1 Departmental Profit 79,463 100.0% 2.05 589 87,261 99.6% 2.17 646 74,687 97.3% 1.84 553 96,051 99.9% 2.34 711 134,299 99.9% 2.36 689 -14.4% 39.8% TELEPHONE Telephone Revenue 2,976 0.1% 0.08 22 2,915 0.1% 0.07 22 2,287 0.0% 0.06 17 3,498 0.1% 0.09 26 4,890 0.1% 0.09 25 Telephone Expenses 15,524 521.6% 0.40 115 16,097 552.3% 0.40 119 12,133 530.5% 0.30 90 12,468 356.5% 0.30 92 17,264 353.0% 0.30 89 Departmental Profit (12,548) (421.6%) -0.32 93 (13,183) (452.3%) -0.33 98 (9,846) (430.5%) -0.24 73 (8,971) (256.5%) -0.22 66 (12,373) (253.0%) -0.22 63 -8.9% 37.9% MISCELLANEOUS Miscellaneous Revenue 5,510 0.1% 0.14 41 7,025 0.2% 0.17 52 9,221 0.2% 0.23 68 7,578 0.2% 0.18 56 10,595 0.2% 0.19 54 Miscellaneous Expenses 3,165 57.4% 0.08 23 4,539 64.6% 0.11 34 5,797 62.9% 0.14 43 (10,960) (144.6%) -0.27 81 (15,176) (143.2%) -0.27 78 Departmental Profit 2,345 42.6% 0.06 17 2,486 35.4% 0.06 18 3,424 37.1% 0.08 25 18,538 244.6% 0.45 137 25,771 243.2% 0.45 132

GROSS OPERATING INCOME 2,841,444 71.2% 73.27 21,048 3,220,798 71.9% 80.20 23,858 3,358,106 71.7% 82.67 24,875 3,229,673 71.5% 78.67 23,924 4,244,895 70.4% 74.60 21,769

LESS EXPENDITURE Administrative & General 99,367 2.5% 2.56 736 107,939 2.4% 2.69 800 113,909 2.4% 2.80 844 108,042 2.4% 2.63 800 110,203 1.8% 1.94 565 Sales & Marketing 77,450 1.9% 2.00 574 84,474 1.9% 2.10 626 67,533 1.4% 1.66 500 78,012 1.7% 1.90 578 113,680 1.9% 2.00 583 Repairs & Maintenance 82,113 2.1% 2.12 608 85,460 1.9% 2.13 633 76,311 1.6% 1.88 565 77,873 1.7% 1.90 577 107,824 1.8% 1.89 553 Energy Costs 93,995 2.4% 2.42 696 91,114 2.0% 2.27 675 102,184 2.2% 2.52 757 104,211 2.3% 2.54 772 144,293 2.4% 2.54 740 TOTAL UNDISTRIBUTED COSTS 352,925 8.8% 9.10 2,614 368,987 8.2% 9.19 2,733 359,938 7.7% 8.86 2,666 368,138 8.1% 8.97 2,727 476,000 7.9% 8.36 2,441

GROSS OPERATING PROFIT 2,488,519 62.4% 64.17 18,433 2,851,811 63.7% 71.01 21,125 2,998,168 64.1% 73.81 22,209 2,861,535 63.3% 69.71 21,197 3,768,895 62.5% 66.23 19,328

LESS FIXED COSTS Property Tax 300,097 7.5% 7.74 2,223 344,677 7.7% 8.58 2,553 368,845 7.9% 9.08 2,732 378,186 8.4% 9.21 2,801 378,186 6.3% 6.65 1,939

Franchise Royalty Fees 150,128 3.8% 3.87 1,112 168,509 3.8% 4.20 1,248 176,947 3.8% 4.36 1,311 174,250 3.9% 4.24 1,291 227,360 3.8% 4.00 1,166 Head Office 79,775 2.0% 2.06 591 89,559 2.0% 2.23 663 93,614 2.0% 2.30 693 90,363 2.0% 2.20 669 120,579 2.0% 2.12 618 Employee Bonus Provision 4,025 0.1% 0.10 30 4,505 0.1% 0.11 33 487 0.0% 0.01 4 8,303 0.2% 0.20 62 8,635 0.1% 0.15 44 TOTAL FIXED COSTS 534,025 13.4% 13.77 3,956 607,250 13.6% 15.12 4,498 639,892 13.7% 15.75 4,740 651,103 14.4% 15.86 4,823 734,760 12.2% 12.91 3,768

EBITDA (Pre FF&E Reserve) 1,954,494 49.0% 50.40 14,478 2,244,561 50.1% 55.89 16,626 2,358,276 50.4% 58.06 17,469 2,210,433 48.9% 53.85 16,374 3,034,134 50.3% 53.32 15,560

FF&E RESERVE 119,662 3.0% 3.09 886 134,339 3.0% 3.34 995 83,585 1.8% 2.06 619 120,942 2.7% 2.95 896 180,868 3.0% 3.18 928

NET OPERATING INCOME (Post FF&E Reserve) 1,834,832 46.0% 47.31 13,591 2,110,222 47.1% 52.54 15,631 2,274,690 48.6% 56.00 16,850 2,089,491 46.2% 50.90 15,478 2,853,266 47.3% 50.14 14,632

Proposed Ground Rent - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 438,578 9.7% 10.68 3,249 451,735 7.5% 7.94 2,317

NET OPERATING INCOME (Post Ground Rent) 1,834,832 46.0% 47.31 13,591 2,110,222 47.1% 52.54 15,631 2,274,690 48.6% 56.00 16,850 1,650,913 36.5% 40.22 12,229 2,401,531 39.8% 42.20 12,316

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

9. C&W Trading Projections

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, 124 King St, Hammersmith, London Valuation Date: 1 May 2019 W6 0QU

1 2 3 4 5 Data Type Projected Projected Projected Projected Projected Period Ending April April April April April Year 2020 2021 2022 2023 2024 No of Bedrooms: 150 195 195 195 195 Occupancy Rate 83.00% 79.00% 81.00% 81.00% 81.00% Average Room Rate 106.00 102.00 108.00 110.16 112.36 Revenue Per Available Room (RevPAR) 87.98 80.58 87.48 89.23 91.01 Days Open 365 365 365 365 365 Available Rooms 54,675 71,175 71,175 71,175 71,175 Occupied Rooms 45,380 56,228 57,652 57,652 57,652 TOTAL SALES 4,987,307 % POR PAR 6,058,782 % POR PAR 6,575,789 % POR PAR 6,707,305 % POR PAR 6,841,451 % POR PAR

BEDROOMS Room Sales 4,810,307 96.5% 106.00 32,113 5,735,282 94.7% 102.00 29,412 6,226,389 94.7% 108.00 31,930 6,350,917 94.7% 110.16 32,569 6,477,935 94.7% 112.36 33,220 Room Expenses 1,350,000 28.1% 29.75 9,012 1,675,000 29.2% 29.79 8,590 1,700,000 27.3% 29.49 8,718 1,734,000 27.3% 30.08 8,892 1,768,680 27.3% 30.68 9,070 Departmental Profit 3,460,307 71.9% 76.25 23,100 4,060,282 70.8% 72.21 20,822 4,526,389 72.7% 78.51 23,212 4,616,917 72.7% 80.08 23,676 4,709,255 72.7% 81.68 24,150

FOOD & BEVERAGE Food & Beverage Sales 70,000 1.4% 1.54 467 195,000 3.2% 3.47 1,000 198,900 3.0% 3.45 1,020 202,878 3.0% 3.52 1,040 206,936 3.0% 3.59 1,061 Food & Beverage Cost 21,000 30.0% 0.46 140 25,000 12.8% 0.44 128 30,000 15.1% 0.52 154 30,600 15.1% 0.53 157 31,212 15.1% 0.54 160 Departmental Profit 49,000 70.0% 1.08 327 170,000 87.2% 1.08 327 168,900 84.9% 2.93 866 172,278 84.9% 2.99 883 175,724 84.9% 3.05 901

CAR PARK Car Park Revenue 95,000 1.9% 2.09 634 115,000 1.9% 2.05 590 135,000 2.1% 2.34 692 137,700 2.1% 2.39 706 140,454 2.1% 2.44 720 Car Park Expenses 300 0.3% 0.01 2 306 0.3% 0.01 2 312 0.2% 0.01 2 318 0.2% 0.01 2 325 0.2% 0.01 2 Departmental Profit 94,700 99.7% 2.09 632 114,694 99.7% 2.04 2 134,688 99.8% 2.34 2 137,382 100.0% 2.38 2 140,129 99.8% 2.43 2 TELEPHONE Telephone Revenue 4,000 0.1% 0.09 27 4,500 0.1% 0.08 23 5,000 0.1% 0.09 23 5,100 0.1% 0.09 26 5,202 0.1% 0.09 27 Telephone Expenses 14,000 350.0% 0.31 93 15,500 344.4% 0.28 79 17,000 340.0% 0.29 87 17,340 340.0% 0.30 89 17,687 340.0% 0.31 91 Departmental Profit (10,000) (250.0%) (0.22) (67) (11,000) (244.4%) (0.20) (56) (12,000) (240.0%) (0.21) (62) (12,240) (240.0%) (0.21) (63) (12,485) (240.0%) (0.22) (64)

MISCELLANEOUS Miscellaneous Revenue 8,000 0.2% 0.18 53 9,000 0.1% 0.16 46 10,500 0.2% 0.18 54 10,710 0.2% 0.19 55 10,924 0.2% 0.19 56 Miscellaneous Expenses (11,000) (137.5%) (0.24) (73) (15,000) (166.7%) (0.27) (77) (15,300) (145.7%) (0.27) (78) (15,606) (145.7%) (0.27) (80) (15,918) (145.7%) (0.28) (82) Departmental Profit 19,000 237.5% 0.42 127 24,000 266.7% 0.43 123 25,800 245.7% 0.45 132 26,316 245.7% 0.46 135 26,842 245.7% 0.47 138

GROSS OPERATING INCOME 3,613,007 72.4% 79.62 24,120 4,357,976 71.9% 77.51 22,349 4,843,777 73.7% 84.02 24,840 4,940,652 73.7% 85.70 25,337 5,039,465 73.7% 87.41 25,843

LESS EXPENDITURE Administrative & General 110,000 2.2% 2.42 734 112,200 1.9% 2.00 575 114,444 1.7% 1.99 587 116,733 1.7% 2.02 599 119,068 1.7% 2.07 611 Sales & Marketing 24,937 0.5% 0.55 166 30,294 0.5% 0.54 155 32,879 0.5% 0.57 169 33,537 0.5% 0.58 172 34,207 0.5% 0.59 175 Repairs & Maintenance 78,000 1.6% 1.72 521 100,000 1.7% 1.78 513 102,000 1.6% 1.77 523 104,040 1.6% 1.80 534 106,121 1.6% 1.84 544 Energy Costs 110,000 2.2% 2.42 734 130,000 2.1% 2.31 667 145,000 2.2% 2.52 744 147,900 2.2% 2.57 758 150,858 2.2% 2.62 774 TOTAL UNDISTRIBUTED COSTS 322,937 6.5% 7.12 2,156 372,494 6.1% 6.62 1,910 394,323 6.0% 6.84 2,022 402,209 6.0% 6.98 2,063 410,254 6.0% 7.12 2,104

GROSS OPERATING PROFIT 3,290,070 66.0% 72.50 21,964 3,985,482 65.8% 70.88 20,438 4,449,454 67.7% 77.18 22,818 4,538,443 67.7% 78.72 23,274 4,629,212 67.7% 80.30 23,740

LESS FIXED COSTS Property Tax 362,000 7.3% 7.98 2,417 533,347 8.8% 9.49 2,735 544,014 8.3% 9.44 2,790 554,894 8.3% 9.62 2,846 565,992 8.3% 9.82 2,903 Management Base Fee 99,746 2.0% 2.20 666 121,176 2.0% 2.16 621 131,516 2.0% 2.28 674 134,146 2.0% 2.33 688 136,829 2.0% 2.37 702 Franchise Royalty Fees 240,515 5.0% 5.30 1,606 286,764 5.0% 5.10 1,471 311,319 5.0% 5.40 1,597 317,546 5.0% 5.51 1,628 323,897 5.0% 5.62 1,661 Franchise Marketing Fees 144,309 3.0% 3.18 963 172,058 3.0% 3.06 882 186,792 3.0% 3.24 958 190,528 3.0% 3.30 977 194,338 3.0% 3.37 997 Employee Bonus Provision 8,300 0.2% 0.18 55 8,466 0.1% 0.15 43 8,635 0.1% 0.15 44 8,808 0.1% 0.15 45 8,984 0.1% 0.16 46 TOTAL FIXED COSTS 854,871 17.1% 18.84 5,707 1,121,811 18.5% 19.95 5,753 1,182,276 18.0% 20.51 6,063 1,205,921 18.0% 20.92 6,184 1,230,040 18.0% 21.34 6,308

EBITDA (Pre FF&E Reserve) 2,435,199 48.8% 53.66 16,257 2,863,671 47.3% 50.93 14,685 3,267,178 49.7% 56.67 16,755 3,332,522 49.7% 57.80 17,090 3,399,172 49.7% 58.96 17,432

FF&E RESERVE 149,619 3.0% 3.30 999 181,763 3.0% 3.23 932 197,274 3.0% 3.42 1,012 201,219 3.0% 3.49 1,032 205,244 3.0% 3.56 1,053

NET OPERATING INCOME (Post FF&E Reserve) 2,285,580 45.8% 50.37 15,258 2,681,907 44.3% 47.70 13,753 3,069,904 46.7% 53.25 15,743 3,131,303 46.7% 54.31 16,058 3,193,929 46.7% 55.40 16,379

Proposed Ground Rent 341,204 10.4% 7.52 2,278 445,402 11.2% 7.92 2,284 454,310 10.2% 7.88 2,330 463,396 10.2% 8.04 2,376 472,664 10.2% 8.20 2,424

NET OPERATING INCOME (Post Ground Rent) 1,944,376 39.0% 42.85 12,980 2,236,505 36.9% 39.78 11,469 2,615,594 39.8% 45.37 13,413 2,667,906 39.8% 46.28 13,682 2,721,264 39.8% 47.20 13,955

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

C&W Projections Our projections have been prepared on the basis that the hotel has experienced steady growth over the previous three years and is likely to continue to grow in the coming years, following the successful completion of the 60 bedroom extension. The proposed capital expenditure plans offer the potential to increase the hotel’s bedroom count to 195 rooms and refurbish the Property public areas, located on the ground floor. We have therefore undertaken an assessment assuming the construction works will finish within the proposed time-frame. We have assumed an occupancy of 83% in the first year of our projections, stabilising at 81% by the third year after completion of the works. An occupancy at this level sits comfortably within the market average for the Property’s competitive set and takes into account the improved quality of the Property’s room product, increased key count and attractive location. Our ADR has been taken at £106 in the first year of our projections and we have introduced a trade off between occupancy and ADR by year three of stabilised trading performance. We have therefore projected ADR of £108 in 2022. Following completion of the rooms extension our rooms revenue is projected to be circa £5 million rising to around £6.5 million by the third year (2022). There is limited other revenue generated from the hotel with rooms revenue accounting for around 95% of the total. Accordingly, we have adopted a similar business mix within our projections and similar levels of food and beverage and car park revenue to that currently being achieved. The format of the accounts is not strictly in accordance with the Uniform System of Accounts for the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being allocated to individual departments given the nature of the operation. As a result, it is more difficult to undertake full benchmarking of the departmental expenses. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management we have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. We have projected an increase in undistributed expenses upon completion of the 60 bedroom extension, reflecting a proportionate rise in overhead sales and marketing activities, utilities consumption and repairs and maintenance activities. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment of the hotel and the business rateable value of the Property once the bedroom extension has materialised. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £2,285,580, which compares to the forecast for the current year of £2,089,491. The hotel is forecast to achieve a net operating profit margin of 46.2% for the current year compared to 48.6% last year. Please note, 2019 forecast projections are indicative only, and likely to reflect a potential impact on the Property’s trading levels, as a consequence of the renovation works, due to begin in Q3 2019. Our projected net operating profit in year one is 45.8%. In year one, we have accounted for the initial ground rent plus six months of the additional ground rent income of the extension, totalling £341,204. After the deduction of the proposed ground rent our adjusted net operating profit is £1,944,376, which is equivalent to a profit margin of 39.0%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

10. Principal Valuation Considerations

Location / Situation and Competition The Property is located in the heart of Hammersmith, which offers a central location within London and good transport links. It lacks visibility due to the main entrance being recessed down a driveway and the street signage being poor. From an investment perspective Hammersmith would be viewed as a primary hotel market.

Building Design / Condition / Suitability Even though the Property is 18 years old, as a purpose built hotel, the building is in good condition and appears to have been well maintained over the years.

Tenure The hotel is held on a freehold basis. There is limited comparable evidence of the sale of long leasehold as the structure is relatively new within the hotel market. We would however expect there to be a narrower pool of purchasers for the leasehold interest compared to the freehold interest, which will result in the interest achieving a softer yield. We consider the yield gap between a freehold interest and a ground lease interest will be influenced by a number of factors including location, quality of the asset and rent cover. The yield gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as the hotel will lose some of its appeal and economies of being operated as part of a larger platform. The proposed rent payable will be 438,578£ per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI. We consider the proposed rent to be at the upper range of an acceptable market value of NOI based on other transactions that have occurred in the market providing sufficient rent cover in the short term.

Business & Income Security The hotel is a stable business and well established in its local market. The hotel has produced relatively consistent levels of revenue and net operating profit with the profit margin being achieved good. We would consider the security of income to be reasonable primarily due to the location of the Property. Whilst the profitability of the hotel has been good there is potential for the current margins to be eroded by the ground rent in the event that earnings do not keep pace with RPI.

Asset Management Opportunities There is limited scope for additional growth through specific asset management. The hotel is stabilised. However, we consider that any purchaser would see the potential to reposition the hotel positively given its location and immediate demand drivers by introducing stronger market awareness and the newer and improved product.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 6 to 9 months Market Value?

Purchaser demand is likely to be Good The market for hotels held on long ground leases such as that proposed has been largely untested to date. Whilst this will result in a greater level of uncertainty in terms of purchaser appetite and saleability, we are of the opinion that there would be fewer purchaser in the market than for the equivalent freehold interest.

10.1. Market Value

Value Conclusion In assessing the value of the hotel we have adopted a discounted cash flow (DCF) based on our trading projections and rationale as set out above.

Seraphine Hammersmith Hotel • On the market May 2019 • Guide £16,000,000 • £258,065 per bedroom Sold as part of a portfolio which includes the Holiday Inn Express London Ealing and the Seraphine Kensington Olympia. The Seraphine Hammersmith Hotel comprises of 62 bedrooms and is held on a part freehold, part leasehold basis. It will be free of current branding in December 2021.

Holiday Inn Express London Ealing • On the market May 2019 • Guide £17,000,000 • £212,500 per bedroom • NIY approx. 4% Sold as part of a portfolio which includes the Seraphine Hammersmith and the Seraphine Kensington Olympia. The Holiday Inn Express London Ealing comprises of 80 bedrooms and is held on a freehold basis. It includes a retail element worth £1.5m. The yield quoted is reflecting the hotel element only.

In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of Holiday Inn Express hotels that have occurred generally as set out in our head report together with other hotels in the surrounding area. There has been limited sales of hotels held on ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of Holiday Inn Express hotels that have occurred generally as set out in our head report together with other hotels in the surrounding area. The above Seraphine Hammersmith Hotel is located within short walking distance from the subject and can thus be compared on a price per bedroom basis. We expect the subject to have slightly stronger investor appetite as it is a bigger lot size and thus reflects a higher per bedroom value. There has been limited sales of hotels held on

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. The yields for similar quality hotels held on a freehold basis have ranged between 5.0% and 7.0%. Having regard to the comments above and the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 5.0%. We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold interest having regard to the location of the hotel and the level of rent payable as detailed in the head report. Based on these factors, we have adopted a capitalisation rate of 5.50%. We have adopted a discount rate of 7.50%. We have made a specific deduction of approximately £6,000,000 for the capital expenditure required to construct the 60 bedroom extension. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate. In summary, in arriving at our opinion of value we have adopted the following approach and inputs:

Market Value

Gross Initial Yield 5.05%

Capitalisation Rate 5.50%

Discount Rate 7.50%

Market Value £38,500,000

Capital value Per Bedroom £197,436

Our capital value per bedroom is based on the existing room count. Our valuation has made a specific deduction of the capital expenditure of £6,000,000 to build the bedroom extension. Therefore, before this specific deduction the value would be £44,500,000.

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £1,170,000,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Hammersmith, Valuation Date: 1 May 2019 124 King St, Hammersmith, London W6 0QU

APPENDIX A: MAPS AND PLANS

Holiday Inn Express London Hammersmith 124 King St, Hammersmith, London W6 0QU

124 King St, Hammersmith, London W6 0QU

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About Cushman & Wakefield

Valuation of: Holiday Inn Express London Wandsworth, Riverside West, Smugglers Way, London SW18 1EG

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

TABLE OF CONTENTS

Executive Summary ...... 1 Property Record ...... 3 1. Location ...... 3 2. Description & Accommodation ...... 4 3. Structural Condition and Repair ...... 6 4. Statutory Enquiries ...... 7 5. Tenure ...... 8 6. Operational Structure ...... 8 7. Local Hotel Market Analysis ...... 8 8. Business Analysis ...... 10 9. C&W Trading Projections ...... 12 10. Principal Valuation Considerations ...... 15 Appendix A: Maps and Plans ...... 18

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The Property is located in between Wandsworth Town railway station and the Southbank of the River Thames within the London Borough of Wandsworth.

Description The hotel comprises 148 guest bedrooms, ancillary Great Room, four meeting rooms and on-site car park. The property was constructed in 2000.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year End December 31 2017 2018 2019 (2+10) Forecast

Occupancy 80.94% 81.19% 82.35%

ADR £89.49 £89.16 £88.75

RevPAR £72.43 £72.38 £73.08

Total Revenue £4,167,430 £4,179,914 £4,228,592

NOI (Post FF&E)* £1,775,273 £1,789,731 £1,505,197

Profit Margin 42.6% 42.8% 35.6%

*2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 82.00% 82.00% 82.00%

ADR 89.00 90.78 92.60

RevPAR 72.98 74.44 75.93

Total Revenue 4,222,880 4,307,337 4,393,484

NOI (post FF&E and £1,421,571 £1,450,002 £1,479,002 ground rent)

Profit Margin 33.7% 33.7% 33.7%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £23,700,000

Capitalisation Rate 6.00% Discount Rate 8.00%

Gross Initial Yield 6.00%

Capital expenditure None deducted from gross valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • Excellent connection to the railway system through Wandsworth Town Station; • Close proximity to some popular destinations such as Wimbledon and Richmond; • On-site car park; • Conditional planning permission granted for a 42-room extension.

Weaknesses / Risks • Lack of leisure demand generators in the immediate area of the Property; • No tube station in proximity to the Property; • Limited number of big companies located nearby.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 8 May 2019. The inspection was undertaken by Zhana Kostova.

1. Location

1.1. Location

General The hotel is located in between Wandsworth Town railway station and the Southbank of the River Thames within the London Borough of Wandsworth, a district of South West London at 4.6 miles southwest of Charing Cross. To the rear of the property is a BP petrol station and to the west, the hotel borders the B&Q car park. To the south and east of the subject hotel, the area is predominantly residential. The hotel site is adjacent to the intersection of the A217, Swandon Way and the A214, Trinity Road which leads north to Wandsworth Bridge. It is located next to Wandsworth Town railway station and in proximity of Clapham Junction, a major London railway station which services routes to the south and southwest of the country. There is no connection with the Tube system near the hotel. The closest station (one mile) is East Putney on the District Line Service to Wimbledon or via a train from Waterloo. Gatwick Airport and Heathrow Airport can be reached in 45 minutes and just over an hour respectively. Nearby attractions include Battersea Park, at less than two miles from the hotel, Stamford Bridge at half an hour by bus, Wimbledon, at a 10-minute tube ride from East Putney station and Olympia Exhibition Centre at two miles to the north. Geographically, the Borough of Wandsworth includes the town of Clapham, Balham, Tooting, Wandsworth, Putney, Battersea and Earlsfield. It is also one of the lushest boroughs in London, boasting 670 hectares of green space. The former wharf area of the river-front is now lined with new apartment blocks, with several bars and restaurants. Wandsworth High Street, 0.6 mile south of the Property, is dominated by the regenerated Southside shopping centre, cinema and restaurant complex (formerly called the Arndale Centre). Behind the shopping centre, and following the River Wandle upstream towards Earlsfield and further south to Wimbledon, is King George’s Park. Wandsworth has the lowest crime rate in inner London with the number of offences continuing to fall, according to the non-profit organisation Local Futures, reiterating the borough's reputation as a safe area and attractive to incoming investors as well as residents. Wandsworth was once the heart of industrial activity with mills along the banks of the River Wandle. With the decline of manufacturing, the Borough has been transformed into a hive of small business, serving not just the residents of its rapidly growing population (323,000 in 2017 against 307,000 in 2011 according to ONS) but providing services to other local business, the City and West End, and much further afield. The Borough of Wandsworth hosts the Wandsworth Prison, which is a Category B men’s prison. Built in 1851, it is the largest prison in London and one of the largest in Europe.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

Site Boundary

The plan above is shown for indication purposes only and may not accord strictly with the title plan which we have reviewed.

2. Description & Accommodation

Summary The hotel comprises 148 bedrooms, ancillary Great Room and one meeting room. There are approximately 35 car parking spaces in the car park located on site, which are charged £16 per day or £8 for conference attending guests. The Property was constructed in approximately 2000 and comprises ground and six upper floors. The hotel is of concrete frame construction, with brick elevations, all beneath a flat roof. Parking spaces are laid around the front, southwest flank and part of rear of the building. Some shrubbery and trees mark the boundary of the hotel site.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

Guestrooms The following table summarises the Property's guestroom facilities, based on information provided by Atlas Hotels.

Category Unit Count % Share

Double 91 61%

Twin 49 33%

Accessible 8 5%

Total 148 100%

There are 91double rooms, 49 twin rooms and eight accessible rooms. All double rooms contain a sofa bed, allowing to sleep four (a family). The bedrooms were last refurbished in 2014 according to IHG Generation Three brand standards. They are presented in a blue colour scheme with blue and beige wallpapers and carpeted floors. Bedroom facilities comprise bathroom with shower, TV, telephone, tea/coffee making facilities, desk and chair, free wifi and a hairdryer. All rooms are fully air conditioned.

Food & Beverage The Great Room extends through most of the ground floor entrance area and provides covers for approximately 80 guests plus additional 24 within the reception area. The area holding the breakfast buffet has been converted from a former meeting room and now enjoys a direct access into the kitchen which facilities the refilling. This area can be closed off the remaining seating space and is generally kept closed after the breakfast service.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

The Great Room was last renovated in 2014 according to IHG Generation Three brand standards.

Meeting Rooms A 37 sq m meeting room with daylight is available on the ground floor. The maximum capacity is 20 people. We understand that the meeting space is booked frequently for three day First Aid courses.

Car Parking

There are approximately 35 car parking spaces (three for disabled). The hotel charges £16 for car park per day for overnight guests. Additional car parking spaces are available in the car park located across the hotel.

Back of House Accommodation There is adequate storage and the back of house layout and office space appear to work well for the flow of operations within the hotel.

3. Structural Condition and Repair The Property has been well maintained and was found to be in good condition. The hotel bedrooms were upgraded in 2014 to IHG Generation Three brand standards. The works also involved a soft refurbishment of the hotel bathrooms. There are currently no immediate plans for further refurbishment. However, we understand that hotel ownership is currently perusing a 42-bedroom extension the details of which we have not been provided. This planning permission has yet to be implemented and there is no timeframe for implementation as the extension project is not currently being progressed. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £33,549 £58,238 Considering the practical completion date is ahead in the future, we do not consider that a purchaser would allow for any additional capital expenditure over and above the FF&E reserve but rather include the upside potential in the selection of the cap rate. We have adopted this approach in our valuation.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £16,300,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings) You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Flooding Risk The Property is located in Flood Zone 1.

Environmental Considerations Please refer to head report.

Planning The planning policy for the Property is determined by the Wandsworth Council Authority. We are not aware of any outstanding or unimplemented planning applications.

Conservation Area and Listed Building Status The property is not listed and nor is it located within a conservation area.

Business Rates

Demise Description Rateable Values Holiday inn Express City Hotel & Premises £580,000 Centre, London Wandsworth Total In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 50.4 pence. There is a surcharge for the City of London of 0.6 pence in the pound.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

5. Tenure

Title We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017 and based on this we summarise our understanding of the title below. The Property is subject to a 1,000-year lease at a peppercorn rent at £1 per annum (Title no TGL167462). The lease commenced on 29 October 1999 and therefore has an unexpired term of approximately 981 years. The tenant has full repairing and insuring obligations. The proposal is to sell the long leasehold interest and simultaneously be granted a ground lease back. The terms of the ground lease are set out in the head report.

Overview

Type of tenure Proposed long leasehold

Title no(s) Unknown

Lease Term 125 years

Rent £268,460 pa to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%.

Any material encumbrances or unduly None other than disclosed in the draft certificate. onerous / unusual easements, restrictions, outgoings or conditions?

Any title characteristics likely to have an None. adverse impact on value, either now or over the proposed loan term?

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday inn Express brand.

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are 32 hotels and 2,865 rooms within a 2-mile radius from the subject Property. The market is dominated by the budget sector with 1,075 rooms, followed by three and four-star hotels. This compares to a national trend characterised by less than 30% of total rooms in the four-star category and approximately 25% of total rooms in the budget sector. Of this supply, over 70% is branded, with Holiday Inn Express, Travelodge and Premier Inn dominating the budget sector.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

7.2. Competitor Trading Analysis Smith Travel Research (STR) is an independent research firm that is recognised by the hotel industry as the standard source of reliable data, providing operating statistics on the local market as a whole. We have been provided STR data for the hotel and the following competitive set of hotels: • Travelodge London Battersea Hotel • Holiday Inn Express London Wimbledon South • Days Hotel London Waterloo • Holiday Inn Express London Wandsworth • Best Western Boltons Hotel London Kensington • Premier Inn London Wandsworth Hotel • Central Hotel • Jurys Inn Swindon The table below sets out the hotels key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019*.

The competition to the subject hotel is relatively strong with the above all in close proximity. The above vary in standard in the budget to midscale categories. The hotel competes with six other internationally and UK recognised brands, with the Property’s prime competitors being the Holiday Inn Express Wimbledon and Holiday Inn Express Ear’s Court. According to historical data available for the identified competitive set and the subject for 2017- 2019 YTD trading period the Property is able to maintaing RGI over 100, nonetheless it appears that the hotel is unable to maintain its fair share in its Market Penetration Index (MPI), suggetsing that its competitors are able to yield stronger volume at discounted rates.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

7.3. Proposed Supply There are currently 14 projects (640 rooms) within the same radius, a majority of them confirmed. In the budget sector, the Hub London Fulham, 90 rooms, is in construction and due to open in 2019, and the Premier Inn London Clapham is in its planning phase for a 13-room expansion.

8. Business Analysis

Overview

The Property was constructed in 2000 as a purpose-built hotel and it currently trades as a stabilised asset.

The hotel is heavily dominated by business guests from Monday to Thursday and leisure guests from Friday to Sunday. The overall guest segmentation comprises of 60% corporate, with the remainder40% made of strong leisure demand and ad-hoc groups.

We are advised that the hotel lost its main corporate account from the Crown Hotel Programme (the Wandsworth Prison Officers) and 2018 proved challenging replacing circa 2,500 room nights per year. Being located within the immediate vicinity of multiple corporate establishments, the hotel’s weekday occupancy is primarily maintained by the corporate segment and weekend and holiday periods by the leisure and groups segments. Tech Grit, Capita and Herrenknecht are the hotel’s prime corporate account producers with their contracted rates ranging between £94 and £100 per night.

During the course of our inspection, hotel management confirmed that circa 40% of the Property’s rooms nights are produced by Online Travel Agents (OTAs) including Expedia and Booking.com. Additional room nights by leisure groups are traditionally produced by Jack Travel and other ad- hoc musical bands with the average daily rate ranging between £100 and £120 per night. The hotel does not benefit from any food and beverage business of any real significance as there is high density of high street food and beverage venues within a short walking distance of the Property. As such the meal offer in the evening is limited to pizzas and quick bites for grabs only. There is limited demand for the meeting room as the majority of occupiers on the business park already have their own meeting rooms. Additionally, Pride Park Stadium and the Derby Business Centre provide large meeting and function accommodation. The hotel employs 22 staff in total with the General Manager, the Revenue Manager and the S&M Manager being clustered over other London based properties. To summarise, despite increased competition from new supply in London, the hotel has shown consistent resilience over the last three years, primarily through occupancy. Nonetheless, submitted 2019 forecast does not present a continued YoY growth above inflationary levels in the hotel’s KPIs and total sales.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Riverside West, Smugglers Way, Valuation Date: 1 May 2019 London SW18 1EG

3.2% 5.7% -0.1% 1.0% 3.0%

Data Type Actual Actual Actual Forecast Budget Period Ending December December December December December Year 2016 2017 2018 2019 (2+10) 2020

No of Bedrooms: 148 148 148 148 148 Occupancy rate 83.60% 80.94% 81.19% 82.35% 82.35% Average Room Rate 82.00 89.49 89.16 88.75 91.41 Revenue Per Available Room (RevPAR) 68.55 72.43 72.38 73.08 75.27 Number of Days Open 365 365 365 365 365 Available Rooms 54,020 54,020 54,020 54,020 54,020 Occupied Rooms 45,161 43,725 43,858 44,484 44,484

TOTAL SALES 3,959,820 % POR PAR 4,167,430 % POR PAR 4,179,914 % POR PAR 4,228,592 % POR PAR 4,367,383 % POR PAR

BEDROOMS Room Sales 3,713,362 93.8% 82.23 25,090 3,912,769 93.9% 89.49 26,438 3,910,198 93.5% 89.16 26,420 3,947,766 93.4% 88.75 26,674 4,077,339 93.4% 91.66 27,550 Room Expenses 1,166,397 31.4% 25.83 7,881 1,226,939 31.4% 28.06 8,290 1,281,623 32.8% 29.22 8,660 1,277,555 32.4% 28.72 8,632 1,306,677 32.0% 29.37 8,829 Departmental Profit 2,546,965 68.6% 56.40 17,209 2,685,829 68.6% 61.43 18,147 2,628,575 67.2% 59.93 17,761 2,670,211 67.6% 60.03 18,042 2,770,663 68.0% 62.28 18,721

FOOD & BEVERAGE Food & Beverage Sales 92,647 2.3% 2.05 626 103,075 2.5% 2.36 696 112,978 2.7% 2.58 763 115,497 2.7% 2.60 780 119,288 2.7% 2.68 806 Other Income / Room Hire 22,031 0.6% 0.49 149 25,117 0.6% 0.57 170 26,493 0.6% 0.60 179 26,747 0.6% 0.60 181 27,625 0.6% 0.62 187 Food & Beverage Cost 34,419 30.0% 0.76 233 38,862 30.3% 0.89 263 43,516 31.2% 0.99 294 40,394 28.4% 0.91 273 41,315 28.1% 0.93 279 Departmental Profit 80,259 70.0% 1.78 542 89,329 69.7% 2.04 604 95,955 68.8% 2.19 648 101,850 71.6% 2.29 688 105,598 71.9% 2.37 713

CAR PARK Car Park Revenue 122,668 3.1% 2.72 829 119,152 2.9% 2.73 805 123,685 3.0% 2.82 836 129,711 3.1% 2.92 876 133,968 3.1% 3.01 905 Car Park Expenses - 0.0% 0.00 0 87 0.1% 0.00 1 1,337 1.1% 0.03 9 1,318 1.0% 0.03 9 1,348 1.0% 0.03 9 Departmental Profit 122,668 100.0% 2.72 829 119,065 99.9% 2.72 804 122,348 98.9% 2.79 827 128,393 99.0% 2.89 868 132,620 99.0% 2.98 896

TELEPHONE Telephone Revenue 3,355 0.1% 0.07 23 2,850 0.1% 0.07 19 2,369 0.1% 0.05 16 2,564 0.1% 0.06 17 2,648 0.1% 0.06 18 Telephone Expenses 17,551 523.1% 0.39 119 15,247 535.0% 0.35 103 13,976 589.9% 0.32 94 13,474 525.5% 0.30 91 13,781 520.4% 0.31 93 Departmental Profit (14,196) (423.1%) -0.31 96 (12,397) (435.0%) -0.28 84 (11,607) (489.9%) -0.26 78 (10,910) (425.5%) -0.25 74 (11,133) (420.4%) -0.25 75

MISCELLANEOUS Miscellaneous Revenue 5,757 0.1% 0.13 39 4,468 0.1% 0.10 30 4,190 0.1% 0.10 28 6,307 0.1% 0.14 43 6,514 0.1% 0.15 44 Miscellaneous Expenses 2,888 50.2% 0.06 20 1,085 24.3% 0.02 7 2,320 55.4% 0.05 16 (12,165) (192.9%) -0.27 82 (12,442) (191.0%) -0.28 84 Departmental Profit 2,869 49.8% 0.06 19 3,383 75.7% 0.08 23 1,870 44.6% 0.04 13 18,472 292.9% 0.42 125 18,956 291.0% 0.43 128 GROSS OPERATING INCOME 2,738,565 69.2% 60.64 18,504 2,885,210 69.2% 65.99 19,495 2,837,141 67.9% 64.69 19,170 2,908,015 68.8% 65.37 19,649 3,016,704 69.1% 67.82 20,383

LESS EXPENDITURE 38,868 Administrative & General 95,867 2.4% 2.12 648 102,353 2.5% 2.34 692 104,812 2.5% 2.39 708 101,759 2.4% 2.29 688 103,794 2.4% 2.33 701 Sales & Marketing 112,018 2.8% 2.48 757 117,863 2.8% 2.70 796 78,994 1.9% 1.80 534 109,827 2.6% 2.47 742 122,320 2.8% 2.75 826 Repairs & Maintenance 96,351 2.4% 2.13 651 115,601 2.8% 2.64 781 128,535 3.1% 2.93 868 118,382 2.8% 2.66 800 121,080 2.8% 2.72 818 Energy Costs 126,463 3.2% 2.80 854 134,143 3.2% 3.07 906 124,184 3.0% 2.83 839 137,725 3.3% 3.10 931 140,864 3.2% 3.17 952 TOTAL UNDISTRIBUTED COSTS 430,699 10.9% 9.54 2,910 469,960 11.3% 10.75 3,175 436,525 10.4% 9.95 2,949 467,692 11.1% 10.51 3,160 488,058 11.2% 10.97 3,298

GROSS OPERATING PROFIT 2,307,866 58.3% 51.10 15,594 2,415,251 58.0% 55.24 16,319 2,400,617 57.4% 54.74 16,220 2,440,323 57.7% 54.86 16,489 2,528,645 57.9% 56.84 17,085

LESS FIXED COSTS Property Tax 211,560 5.3% 4.68 1,429 270,058 6.5% 6.18 1,825 295,510 7.1% 6.74 1,997 301,887 7.1% 6.79 2,040 301,887 6.9% 6.79 2,040

Franchise Royalty Fees 148,535 3.8% 3.29 1,004 156,511 3.8% 3.58 1,058 156,408 3.7% 3.57 1,057 157,910 3.7% 3.55 1,067 163,094 3.7% 3.67 1,102 Head Office 79,196 2.0% 1.75 535 83,349 2.0% 1.91 563 83,598 2.0% 1.91 565 84,572 2.0% 1.90 571 87,348 2.0% 1.96 590 Employee Bonus Provision 2,813 0.1% 0.06 19 5,038 0.1% 0.12 34 727 0.0% 0.02 5 9,107 0.2% 0.20 62 9,471 0.2% 0.21 64 TOTAL FIXED COSTS 442,104 11.2% 9.79 2,987 514,955 12.4% 11.78 3,479 536,243 12.8% 12.23 3,623 553,476 13.1% 12.44 3,740 561,800 12.9% 12.63 3,796

EBITDA (Pre FF&E Reserve) 1,865,762 47.1% 41.31 12,607 1,900,296 45.6% 43.46 12,840 1,864,374 44.6% 42.51 12,597 1,886,847 44.6% 42.42 12,749 1,966,846 45.0% 44.21 13,289

FF&E RESERVE 118,795 3.0% 2.63 803 125,023 3.0% 2.86 845 74,643 1.8% 1.70 504 113,191 2.7% 2.54 765 131,021 3.0% 2.95 885

NET OPERATING INCOME (Post FF&E Reserve) 1,746,967 44.1% 38.68 11,804 1,775,273 42.6% 40.60 11,995 1,789,731 42.8% 40.81 12,093 1,773,656 41.9% 39.87 11,984 1,835,824 42.0% 41.27 12,404

Proposed Ground Rent - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 268,460 6.3% 6.03 1,814 276,513 6.3% 6.22 1,868

NET OPERATING INCOME (Post Ground Rent) 1,746,967 44.1% 38.68 11,804 1,775,273 42.6% 40.60 11,995 1,789,731 42.8% 40.81 12,093 1,505,197 35.6% 33.84 10,170 1,559,311 35.7% 35.05 10,536

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

9. C&W Trading Projections

Trading Projections The following chart depicts our summary profit and loss projections showing the hotels income and expenses for the five years commencing May 2020. The statements are expressed in inflated terms for each year.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Riverside West, Smugglers Way, Valuation Date: 1 May 2019 London SW18 1EG

1 2 3 4 5 Data Type Projected Projected Projected Projected Projected Period Ending April April April April April Year 2020 2021 2022 2023 2024 No of Bedrooms: 148 148 148 148 148 Occupancy Rate 82.00% 82.00% 82.00% 82.00% 82.00% Average Room Rate 89.00 90.78 92.60 94.45 96.34 Revenue Per Available Room (RevPAR) 72.98 74.44 75.93 77.45 79.00 Days Open 365 365 365 365 365 Available Rooms 54,020 54,020 54,020 54,020 54,020 Occupied Rooms 44,296 44,296 44,296 44,296 44,296 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 4,222,880 % POR PAR 4,307,337 % POR PAR 4,393,484 % POR PAR 4,481,354 % POR PAR 4,570,981 % POR PAR

BEDROOMS Room Sales 3,942,380 93.4% 89.00 26,638 4,021,227 93.4% 90.78 27,170 4,101,652 93.4% 92.60 27,714 4,183,685 93.4% 94.45 28,268 4,267,358 93.4% 96.34 28,834 Room Expenses 1,280,000 32.5% 28.90 8,649 1,305,600 32.5% 29.47 8,822 1,331,712 32.5% 30.06 8,998 1,358,346 32.5% 30.66 9,178 1,385,513 32.5% 31.28 9,362 Departmental Profit 2,662,380 67.5% 60.10 17,989 2,715,627 67.5% 61.31 18,349 2,769,940 67.5% 62.53 18,716 2,825,339 67.5% 63.78 19,090 2,881,845 67.5% 65.06 19,472

FOOD & BEVERAGE Food & Beverage Sales 115,000 2.7% 2.60 777 117,300 2.7% 2.65 793 119,646 2.7% 2.70 808 122,039 2.7% 2.76 825 124,480 2.7% 2.81 841 Other Income / Room Hire 27,000 0.6% 0.61 182 27,540 0.6% 0.62 186 28,091 0.6% 0.63 190 28,653 0.6% 0.65 194 29,226 0.6% 0.66 197 Food & Beverage Cost 40,400 28.5% 0.91 273 41,208 28.5% 0.93 278 42,032 28.5% 0.95 284 42,873 28.5% 0.97 290 43,730 28.5% 0.99 295 Departmental Profit 101,600 71.5% 2.29 686 103,632 71.5% 2.29 686 105,705 71.5% 2.39 714 107,819 71.5% 2.43 729 109,975 71.5% 2.48 743

CAR PARK Car Park Revenue 130,000 3.1% 2.93 878 132,600 3.1% 2.99 896 135,252 3.1% 3.05 914 137,957 3.1% 3.11 932 140,716 3.1% 3.18 951 Car Park Expenses 1,300 1.0% 0.03 9 1,326 1.0% 0.03 9 1,353 1.0% 0.03 9 1,380 1.0% 0.03 9 1,407 1.0% 0.03 10 Departmental Profit 128,700 99.0% 2.91 870 131,274 99.0% 2.96 9 133,899 99.0% 3.02 9 136,577 100.0% 3.08 9 139,309 99.0% 3.14 10 TELEPHONE Telephone Revenue 2,500 0.1% 0.06 17 2,550 0.1% 0.06 17 2,601 0.1% 0.06 17 2,653 0.1% 0.06 18 2,706 0.1% 0.06 18 Telephone Expenses 13,500 540.0% 0.30 91 13,770 540.0% 0.31 93 14,045 540.0% 0.32 95 14,326 540.0% 0.32 97 14,613 540.0% 0.33 99 Departmental Profit (11,000) (440.0%) (0.25) (74) (11,220) (440.0%) (0.25) (76) (11,444) (440.0%) (0.26) (77) (11,673) (440.0%) (0.26) (79) (11,907) (440.0%) (0.27) (80)

MISCELLANEOUS Miscellaneous Revenue 6,000 0.1% 0.14 41 6,120 0.1% 0.14 41 6,242 0.1% 0.14 42 6,367 0.1% 0.14 43 6,495 0.1% 0.15 44 Miscellaneous Expenses (12,000) (200.0%) (0.27) (81) (12,240) (200.0%) (0.28) (83) (12,485) (200.0%) (0.28) (84) (12,734) (200.0%) (0.29) (86) (12,989) (200.0%) (0.29) (88) Departmental Profit 18,000 300.0% 0.41 122 18,360 300.0% 0.41 124 18,727 300.0% 0.42 127 19,102 300.0% 0.43 129 19,484 300.0% 0.44 132

GROSS OPERATING INCOME 2,899,680 68.7% 65.46 19,592 2,957,673 68.7% 66.77 19,984 3,016,827 68.7% 68.11 20,384 3,077,163 68.7% 69.47 20,792 3,138,706 68.7% 70.86 21,207

LESS EXPENDITURE Administrative & General 100,000 2.4% 2.26 676 102,000 2.4% 2.30 689 104,040 2.4% 2.35 703 106,121 2.4% 2.40 717 108,243 2.4% 2.44 731 Sales & Marketing 21,114 0.5% 0.48 143 21,537 0.5% 0.49 146 21,967 0.5% 0.50 148 22,407 0.5% 0.51 151 22,855 0.5% 0.52 154 Repairs & Maintenance 118,000 2.8% 2.66 797 120,360 2.8% 2.72 813 122,767 2.8% 2.77 830 125,223 2.8% 2.83 846 127,727 2.8% 2.88 863 Energy Costs 135,000 3.2% 3.05 912 137,700 3.2% 3.11 930 140,454 3.2% 3.17 949 143,263 3.2% 3.23 968 146,128 3.2% 3.30 987 TOTAL UNDISTRIBUTED COSTS 374,114 8.9% 8.45 2,528 381,597 8.9% 8.61 2,578 389,229 8.9% 8.79 2,630 397,013 8.9% 8.96 2,683 404,953 8.9% 9.14 2,736

GROSS OPERATING PROFIT 2,525,565 59.8% 57.02 17,065 2,576,077 59.8% 58.16 17,406 2,627,598 59.8% 59.32 17,754 2,680,150 59.8% 60.50 18,109 2,733,753 59.8% 61.72 18,471

LESS FIXED COSTS Property Tax 300,000 7.1% 6.77 2,027 306,000 7.1% 6.91 2,068 312,120 7.1% 7.05 2,109 318,362 7.1% 7.19 2,151 324,730 7.1% 7.33 2,194 Management Base Fee 84,458 2.0% 1.91 571 86,147 2.0% 1.94 582 87,870 2.0% 1.98 594 89,627 2.0% 2.02 606 91,420 2.0% 2.06 618 Franchise Royalty Fees 197,119 5.0% 4.45 1,332 201,061 5.0% 4.54 1,359 205,083 5.0% 4.63 1,386 209,184 5.0% 4.72 1,413 213,368 5.0% 4.82 1,442 Franchise Marketing Fees 118,271 3.0% 2.67 799 120,637 3.0% 2.72 815 123,050 3.0% 2.78 831 125,511 3.0% 2.83 848 128,021 3.0% 2.89 865 Employee Bonus Provision 9,000 0.2% 0.20 61 9,180 0.2% 0.21 62 9,364 0.2% 0.21 63 9,551 0.2% 0.22 65 9,742 0.2% 0.22 66 TOTAL FIXED COSTS 708,848 16.8% 16.00 4,790 723,025 16.8% 16.32 4,885 737,485 16.8% 16.65 4,983 752,235 16.8% 16.98 5,083 767,280 16.8% 17.32 5,184

EBITDA (Pre FF&E Reserve) 1,816,717 43.0% 41.01 12,275 1,853,052 43.0% 41.83 12,521 1,890,113 43.0% 42.67 12,771 1,927,915 43.0% 43.52 13,026 1,966,473 43.0% 44.39 13,287

FF&E RESERVE 126,686 3.0% 2.86 856 129,220 3.0% 2.92 873 131,805 3.0% 2.98 891 134,441 3.0% 3.04 908 137,129 3.0% 3.10 927

NET OPERATING INCOME (Post FF&E Reserve) 1,690,031 40.0% 38.15 11,419 1,723,831 40.0% 38.92 11,648 1,758,308 40.0% 39.69 11,880 1,793,474 40.0% 40.49 12,118 1,829,344 40.0% 41.30 12,360

Proposed Ground Rent 268,460 10.6% 6.06 1,814 273,829 10.6% 6.18 1,850 279,306 10.6% 6.31 1,887 284,892 10.6% 6.43 1,925 290,590 10.6% 6.56 1,963

NET OPERATING INCOME (Post Ground Rent) 1,421,571 33.7% 32.09 9,605 1,450,002 33.7% 32.73 9,797 1,479,002 33.7% 33.39 9,993 1,508,582 33.7% 34.06 10,193 1,538,754 33.7% 34.74 10,397

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

Commentary on C&W Projections Our projections have been prepared on the basis that the hotel has established trading history and is likely to continue to grow in the coming years. Achieved occupancy levels at the hotel have remained in the low 80% mark for the 2015-2018 trading period and are forecast to reach 82.35% in 2019. On the basis this is a stabilised business having regard to the historic and current levels, we have adopted an occupancy of 82% in our projections. Recorded ADR growth has been inconsistent for the 2015-2018 trading period owed to the loss of some of the hotel’s prime corporate account producers and in 2018 ADR declined by 0.4% YoY and forecast 2019 ADR is estimated to remained flat, thus resulting in similar RevPAR levels to 2018. For the purpose of our assessment we have adopted a year one ADR of £89 and have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. Thames Tideway project has been one of the prime sources of demand for the hotel along with other European companies based within the local area of the hotel. Owed to the close proximity to some of central London’s main sights, weekend demand has also proven to be consistent. Nonetheless, reliance on Online Travel Agents (OTAs) appears to be high with circa 35% of the hotel’s room night generated by such third party booking channels with Booking.co and Expedia being the prime contributors. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management we have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis. We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £1,690,031, which compares to the forecast for the current year of £1,773,656. The hotel is forecast to achieve a net operating profit margin of 41.9% for the current year compared to 42.8% last year. Our projected net operating profit margin is 40.0%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

After the deduction of the proposed ground rent of £268,460 per annum our adjusted net operating profit is £1,421,571, which is equivalent to a profit margin of 33.7%.

10. Principal Valuation Considerations

Location / Situation and Competition The Property is located in London although not in the city centre. There is no tube station located in close proximity of the hotel and accessibility to a London airport is not particularly easy. Nonetheless, from an investment perspective Wandsworth would be viewed as a primary hotel market with consistent corporate presence and demand. That said it is not a recognised as one of London’s preferred leisure areas which can impact significantly occupancy levels at weekends.

Building Design / Condition / Suitability The Property was purpose built as a hotel and it is therefore suitable for its current use of its room configuration which are considered adequate for the grade and location of the hotel. The hotel is in good condition having been well maintained over the years.

Tenure The hotel is held under a long lease with unexpired term of 981 tears. The unexpired term is sufficiently long to appeal to a range of purchaser’s. There is limited comparable evidence of the sale of long leasehold as the structure is relatively new within the hotel market. We would however expect there to be a narrower pool of purchasers for the leasehold interest compared to the freehold interest, which will result in the interest achieving a softer yield. We consider the yield gap between a freehold interest and a ground lease interest will be influenced by a number of factors including location, quality of the asset and rent cover. The yield gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as the hotel will lose some of its appeal and economies of being operated as part of a larger platform. The proposed rent payable will be £268,460 per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI. We consider the proposed rent to fall within an acceptable range of NOI based on other transactions that have occurred in the market providing sufficient rent cover in the short term.

Business & Income Security The hotel is a stable business and well established in its local market and has produced relatively consistent levels of revenue and net operating profit with the profit margin being achieved good. We would originally consider the security of income to be reasonable primarily due to the location of the Property. Nevertheless, there could be some fluctuation depending on the potential pipeline in the immediate local area, but other than that demand is fairly consistent. Whilst the profitability of the hotel has been good there is potential for the current margins to be eroded by the ground rent in the event that earnings do not keep pace with RPI.

Asset Management Opportunities There is limited scope for additional growth through specific asset management. The hotel is stabilised. However, should the 42-bedroom extension materialise there remains some good asset management opportunities to improve trading performance.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 9 to 12 months Market Value?

Purchaser demand is likely to be Good

The market for hotels held on long ground leases such as that proposed has been largely untested to date. Whilst this will result in a greater level of uncertainty in terms of purchaser appetite and saleability, we are of the opinion that the would be fewer purchaser in the market than for the equivalent freehold interest.

10.1. Market Value

Value Conclusion In assessing the value of the hotel we have adopted a discounted cash flow (DCF) based on our trading projections and rationale as set out above.

Holiday Inn Express London Ealing • On the market May 2019 • Guide £17,000,000 • £212,500 per bedroom • NIY approx. 4% Sold as part of a portfolio which includes the Seraphine Hammersmith and the Seraphine Kensington Olympia. The Holiday Inn Express London Ealing comprises of 182 bedrooms and is held on a freehold basis. It includes a retail element worth £1.5m. The yield quoted is reflecting the hotel element only.

In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of Holiday Inn Express hotels that have occurred generally as set out in our head report together with other hotels in the surrounding area. We have had regard to the recently brought on the market Holiday Inn Express London Ealing, which is guided at a yield of approximately 4%. We consider Ealing to be a slightly better location and guide pricing needs to be considered with caution as it has a tendency to be at quite a sharp yield. Therefore, we have adjusted the yield of the subject hotel by 150 bps. There has been limited sales of hotels held on ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of Holiday Inn Express hotels that have occurred generally as set out in our head report together with other hotels in the surrounding area. There has been limited sales of hotels held on ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. The yields for similar quality hotels held on a freehold basis have ranged between 5.50% and 7.50%. Having regard to the comments above and the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 5.50%. We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold interest having regard to the location of the hotel and the level of rent payable as detailed in the

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

head report. Based on these factors, we have adopted a capitalisation rate of 6.00%. We have adopted a discount rate of 8.00%. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate. In summary, in arriving at our opinion of value we have adopted the following approach and inputs:

Market Value

Gross Initial Yield 6.00%

Capitalisation Rate 6.00%

Discount Rate 8.00%

Market Value £23,700,000

Capital value Per Bedroom £160,135

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £780,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express London Wandsworth, Valuation Date: 1 May 2019 Riverside West, Smugglers Way, London SW18 1EG

APPENDIX A: MAPS AND PLANS

Holiday Inn Express London Wandsworth Riverside West, Smugglers Way, London SW18 1EG

Riverside West, Smugglers Way, London SW18 1EG

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About Cushman & Wakefield

Valuation of: Holiday Inn Express Luton Airport, 2 Percival Way, Luton LU2 9GP

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Luton Airport, 2 Percival Valuation Date: 1 May 2019 Way, Luton LU2 9GP

TABLE OF CONTENTS

Executive Summary ...... 1 Property Record ...... 3 1. Location ...... 3 2. Description & Accommodation ...... 4 3. Structural Condition and Repair ...... 6 4. Statutory Enquiries ...... 7 5. Tenure ...... 7 6. Operational Structure ...... 8 7. Local Hotel Market Analysis ...... 8 8. Business Analysis ...... 9 9. C&W Trading Projections ...... 12 10. Principal Valuation Considerations ...... 15 Appendix A: Maps and Plans ...... 18

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Luton Airport, 2 Percival Valuation Date: 1 May 2019 Way, Luton LU2 9GP

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The hotel is strategically located next to London Luton Airport, in a highly visible and elevated position. It is the closest existing hotel to the airport terminal.

Description The hotel comprises 154 bedrooms with ancillary Great Room, 4 syndicate meeting rooms, and 61 car parking spaces. The property was constructed in 2002.

Condition Good

Tenure Long Leasehold

Operating Structure Owner Operator

Trading Performance

Year End 31 December 2017 2018 2019 (2+10) Forecast

Occupancy 84.61% 85.98% 84.94%

ADR £69.95 £70.99 £72.38

RevPAR £59.18 £61.04 £61.47

Total Revenue £4,043,617 £4,189,171 £4,246,226

NOI (Post FF&E)* £1,520,050 £1,676,047 £1,698,355

Profit Margin 37.6% 40.0% 40.0%

*A ground rent will not be payable at this Property.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 85.0% 85.0% 85.0%

ADR £72.00 £73.44 £74.91

RevPAR £61.20 £62.42 £63.67

Total Revenue £4,227,852 £4,312,409 £4,398,657

NOI (Post FF&E) £1,575,535 £1,607,046 £1,639,187

Profit Margin 37.3% 37.3% 37.3%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £20,300,000

Capitalisation Rate 7.75% Discount Rate 9.75%

Gross Initial Yield 7.75%

Capital expenditure None deducted from gross valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • In close proximity to Luton Airport, the largest demand generator in the area; • Modern purpose-built design; • Long leasehold at a ground rent equivalent to 3.5% of Turnover; • On site car parking;

Weaknesses / Risks • Reliant on the business prosperity of the Airport; • Recent addition of Ibis budget and Marriott Courtyard near the airport will capture some market share from the Property; • Other new competition entering the market; • Economic and / or political events might reduce corporate / leisure demand at certain points in the future;

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 10 May 2019. The inspection was undertaken by Chris Mieczkowski.

1. Location

1.1. Location

General Luton was traditionally an industrial town, and remains as such, however due to the financial crisis in 2008, the town has lost some major industrial occupiers. Major corporate occupiers/employers in Luton include Luton Borough Council, Luton and Dunstable NHS, Easyjet Plc, IBC Vehicles Ltd and Mailbox Distribution Ltd. The subject hotel is heavily reliant on airport related business, therefore, we focus on the hotel’s proximity to this major demand generator in our location overview. Luton Airport is located approximately two miles to the east of the town centre providing freight, domestic and international flights and is one of largest airports in the South East. A £160 million redevelopment of Luton Airport is underway as of February 2017 and it is anticipated to finish in 2020. The overhaul will enable EasyJet to continue its ambitious growth strategy at the Airport which will result in an even greater range of business and leisure destinations for passengers. The plans, including an expanded and modernised terminal building and improved surface access, are forecast to increase the Airport’s annual economic impact by £283million to £1.2billion and create over 5,000 jobs in Luton and the surrounding area. Luton has grown considerably in popularity over the years given its strong affiliation with EasyJet and other budget carriers. In 2014, the commercial passengers utilising the airport was just over 9.5 million people. In 2016, this number grew in excess of 14.5 million passengers. In 2018, a record 16.6 million passengers used the airport, up 5% from 2017 figures. Luton Airport is now the fifth busiest airport in the UK and the fourth largest in the Greater London area out of a possible six airports. The most prominent airlines that have a base at the airport include EasyJet, Ryanair, TUI Airways (formerly Thomson) and now Wizz Air. In 2018, WIZZ Air announced it would further expand its Luton presence with a ninth A321 Airbus and expand its UK route network to Lisbon and Kharkiv (Ukraine), bringing the total number of new UK routes for 2018 to 19. The hotel is the closest situated existing hotel to the airport terminal. This is a physical attribute that bodes very well for the marketability and appeal of the hotel to passengers that are taking a flight. There are good road links nearby with the A1M and the M1 within 15 minutes’ drive. Both the A1M and the M1 link directly to the M25 and both roads continue north to Edinburgh and Leeds respectively. Luton Airport Parkway station was built in 1999 to serve the airport and it served by both Thameslink and Midland Trains. Travel time to London St Pancras can be as little as approximately 25 minutes depending on the train service.

A shuttle bus service connects the railway station to the airport, a distance of just over one mile. In 2016, plans by the current airport owners were announced to build a 1.4-mile (2.3 km) light rail link from the station to the airport at a cost of approximately £200 million. A planning application was submitted and eventually accepted in June 2017. The light rail is estimated to come into passenger service by the end of 2020. Site Boundary

The plan above is shown for indication purposes only and may not accord strictly with the title plan which we have reviewed.

2. Description & Accommodation

Summary The hotel comprises 154 bedrooms with ancillary Great Room, 4 syndicate meeting rooms, and 61 car parking spaces. The Property was constructed in 2002 with the first 110 bedrooms, a further 37 bedrooms were added in 2004. An additional 7 bedrooms were added in late-2016, eliminating three meeting rooms and creating the existing 154-bedroom footprint. The Property comprises a steel frame with brick work elevations under a pitched tiled roof. The windows are aluminium framed and triple glazed given the hotel’s proximity to the airport and related noise.

Guestrooms The following table summarises the Property's guestroom facilities, based on information provided by Atlas Hotels.

Category Unit Count

Twin 52

Double 96

Accessible 6

Total 154

There are three room types, namely twin, accessible and double rooms (which can accommodate up to three guests). There are 52 twin bedrooms and 96 double bedrooms. In addition, there are 6 accessible bedrooms. Whilst offering a different configuration the bedrooms are all decorated to the same standard. The rooms are fitted and finished in line with the Holiday Inn Express Generation Four standard and present well. All guest bedrooms are air conditioned.

Food & Beverage The Great Room extends through most of the ground floor entrance area and consists of a lounge area with capacity for 40 covers and a restaurant area with capacity for 120 covers.

Meeting Rooms There are four syndicate meeting rooms which can only accommodate up to 4 delegates. There were three other meeting rooms that were eliminated in correlation with the recent 7 bedroom expansion at the end of 2016.

Car Parking There are approximately 70 car parking spaces, which are offered to guests at a rate of £5 per day or £14 overnight. Non-residents apparently can use the spaces for £45 per day (although the planning permission and head lease prohibits the use for non-residents).

Back of House Accommodation There is appropriate storage and back of house accommodation including a kitchen, a back office and a staff canteen on the ground floor.

3. Structural Condition and Repair The property has been well maintained, benefitting from a full-time in house maintenance member of staff, and was found to be in good condition. In 2012, the public areas on the ground floor were refurbished. The most recent refurbishment was in 2016 which included bedroom carpets, curtains and wall coverings. The Great room has not been refurbished since 2012 but it still presents well. There are currently no immediate plans for further refurbishment. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £72,114 £31,074

We do not consider that a purchaser would allow for any additional capital expenditure over and above the FF&E reserve.

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £13,100,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings)

You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Flooding Risk The property is in Flood Zone 1. Land and property in Flood Zone 1 have a low probability of flooding.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject property is determined by Luton Borough Council. We are not aware of any outstanding or unimplemented planning applications.

Conservation Area and Listed Building Status The property is not listed and nor is it located within a conservation area.

Business Rates

Demise Description Rateable Values Holiday Inn Express, Luton Airport Hotel & Premises £400,000

In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 50.4 pence.

5. Tenure

Title We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017 and based on this we summarise our understanding of the title below:

Overview

Type of tenure Long Leasehold

Title no(s) BD225335 and BD236124

Any material encumbrances or unduly None other than disclosed in the draft certificate of onerous / unusual easements, restrictions, title and for which title indemnity insurance has outgoings or conditions? been obtained.

Overview

Any title characteristics likely to have an None. adverse impact on value, either now or over the proposed loan term?

The property is subject to a lease that expires in 2028, however, there is a clause in the lease that refers to a grant of a Second Lease that commences on expiry. The terms of the Second lease were reported to be for a term of 99 years from practical completion. Practical Completion occurred in March 2002, so there is approximately 82 years unexpired. The head lease is geared to 3.5% of Turnover and the tenant has full repairing and insuring obligations. The rent payable in 2018 was £149,192.

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday inn Express brand.

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are 29 hotels in Luton, accounting for 2,575 bedrooms, six of which are located by the airport, within a one-mile radius of the subject Property. The budget segment makes the majority of the supply with 1,300 bedrooms, followed by the three- star segment (934 rooms). This compares to a national trend characterised by less than 30% of total rooms in the four-star category and approximately 25% of total rooms in the budget sector. Out of this supply, over 70% is branded and the budget sector is shared between Premier Inn, Travelodge, Holiday Inn Express and Hampton by Hilton.

• Ibis London Luton Airport • Holiday Inn Express Luton Airport • Premier Inn Luton Airport • Hampton by Hilton London Luton Airport • Holiday Inn London Luton Airport The table below sets out the hotels key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019*.

The hotel outperforms the competitive set in both occupancy and ADR and achieved an RGI of 117.1 in 2018. For the first three months of 2019, the hotel has increased its MPI although its ARI has decreased considerably. The recent addition of the Ibis budget and Courtyard by Marriott along the Airport corridor has led the hotel to pursue a more volume led strategy rather than rate.

7.3. Proposed Supply There are currently 11 projects in the pipeline in Luton, accounting for 1,257 rooms. Two of these projects are unconfirmed and two are budget. The most notable project is the Airport Way Century Park, 125 bedrooms and independent, although still in its planning phase.

8. Business Analysis

Overview The hotel, which originally opened as a 110 bedroom hotel in 2002, had a 37 bed extension in 2004 and more recently an additional 7 bedroom extension in 2016. The hotel is now comprised of 154 bedrooms with restaurant and bar and three syndicate meeting rooms. In correlation with the growth in air traffic volume at Luton Airport, the hotel has recently grown its overall revenue year on year with exception to 2016 where a slight decrease was observed from the prior year. The hotel presently sits closer to the Airport than any existing competitor. This bodes well for the hotel as a shuttle bus to the terminals stops directly in front of the hotel. Guests can also walk to the terminal in approximately ten minutes. The General Manager reported that about 90% of business at the hotel is airport related, therefore, the hotel is in a prime position to take advantage of its proximity through attracting travellers that value convenience. Sunday night occupancy is usually high (95%+) due to business persons taking the red-eye flights in the morning from the airport. The business mix at the hotel was reported to be 70/30 in favour of leisure. There is not a great deal of formal corporate contracts, however, EasyJet has a significant amount of its corporate office personnel use the hotel. It was reported that EasyJet supplies about 1,000 room nights per annum at a rate of £90. Tui (Formerly Thomson) and Signature Flight Support used to collectively contribute to circa 1,500 room nights per annum, but this business has been dramatically reduced with Tui now at about 200 per annum and Signature flights even less. It is likely that a competitor may have been able to negotiate this business away from the hotel. Courtyard by Marriott is a new addition to the area which opened earlier this year and comprises 250 bedrooms. Hampton by Hilton near Luton Airport Parkway station is also another competitor that has potential to gain

additional corporate business through Hilton’s global corporate accounts platform. EasyJet is the hotel’s only formal corporate rate with others reflecting a variable discount on the best available rate (BAR). The corporate segment at the hotel is largely transient and the average stay is one night for both corporate and leisure guests. Leisure guests are predominantly travellers utilising the airport for holidays, both domestic and abroad. Given the high volume of international guests, the frequency of online travel agencies (OTAs) driving business into the hotel is high, in the region of 40% of the rooms accommodation. The hotel still acquires most of its bookings through IHG’s central reservation system, but the influence of the system will come under pressure as new supply affiliated with other global brands has come into the immediate area. Booking.com, expedia and hotels.com are among the largest room night generators and commission are around the 8% to 15% mark. Holiday extras is a prominent leisure travel agent that brings guests to the hotel from rates of £38 to £100 depending on demand and availability. The General Manager estimated they would provide approximately 1,00 room nights per annum. The hotel sells rooms inclusive of breakfast, in line with the service provisions of the brand. The hotel however benefits from having 120 covers in the restaurant/bar area and a 3 starters-4 mains-3 desserts food offer. Many of the hotels in the immediate vicinity do not offer hot prepared food which has allowed the hotel to attract residents from its competitors for meal services. The food and beverage sales at the hotel have gravitated towards around 14% of total revenue, which is above average for a limited service product. The General Manager reported the hotel routinely has about 80 covers for dinner with an average spend north of £6 per person for food and drink. The hotel makes additional revenue from parking and occasionally its meeting rooms. Addison Lee was reported to be one of the more frequent users of the meeting facilities.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express Luton Airport, 2 Percival Way, Luton LU2 9GP

Data Type Actual Actual Actual Forecast Forecast Period Ending December December December March December Year 2016 2017 2018 2019 (2+10) 2020

No of Bedrooms: 154 154 154 154 154 Occupancy rate 77.35% 84.61% 85.98% 84.94% 84.94% Average Room Rate 74.43 69.95 70.99 72.38 74.55 Revenue Per Available Room (RevPAR) 57.57 59.18 61.04 61.47 63.32 Number of Days Open 365 365 365 365 365 Available Rooms 56,210 56,210 56,210 56,210 56,210 Occupied Rooms 43,479 47,558 48,330 47,743 47,743

TOTAL SALES 3,813,104 % POR PAR 4,043,617 % POR PAR 4,189,171 % POR PAR 4,246,226 % POR PAR 4,385,595 % POR PAR

BEDROOMS Room Sales 3,120,086 81.8% 71.76 20,260 3,326,786 82.3% 69.95 21,603 3,431,024 81.9% 70.99 22,279 3,455,405 81.4% 72.38 22,438 3,568,818 81.4% 74.75 23,174 Room Expenses 1,072,619 34.4% 24.67 6,965 1,237,442 37.2% 26.02 8,035 1,289,704 37.6% 26.69 8,375 1,284,740 37.2% 26.91 8,342 1,314,025 36.8% 27.52 8,533 Departmental Profit 2,047,467 65.6% 47.09 13,295 2,089,344 62.8% 43.93 13,567 2,141,319 62.4% 44.31 13,905 2,170,665 62.8% 45.47 14,095 2,254,793 63.2% 47.23 14,642

FOOD & BEVERAGE Food & Beverage Sales 537,927 14.1% 12.37 3,493 585,903 14.5% 12.32 3,805 593,708 14.2% 12.28 3,855 612,740 14.4% 12.83 3,979 632,851 14.4% 13.26 4,109 Other Income / Room Hire 32,201 0.8% 0.74 209 11,033 0.3% 0.23 72 16,396 0.4% 0.34 106 14,576 0.3% 0.31 95 15,055 0.3% 0.32 98 Food & Beverage Cost 171,988 30.2% 3.96 1,117 194,314 32.6% 4.09 1,262 183,659 30.1% 3.80 1,193 192,056 30.6% 4.02 1,247 196,434 30.3% 4.11 1,276 Departmental Profit 398,140 69.8% 9.16 2,585 402,622 67.4% 8.47 2,614 426,445 69.9% 8.82 2,769 435,260 69.4% 9.12 2,826 451,472 69.7% 9.46 2,932

CAR PARK Car Park Revenue 110,374 2.9% 2.54 717 113,300 2.8% 2.38 736 142,557 3.4% 2.95 926 157,683 3.7% 3.30 1,024 162,859 3.7% 3.41 1,058 Car Park Expenses 763 0.7% 0.02 5 - 0.0% 0.00 0 467 0.3% 0.01 3 323 0.2% 0.01 2 330 0.2% 0.01 2 Departmental Profit 109,611 99.3% 2.52 712 113,300 100.0% 2.38 736 142,090 99.7% 2.94 923 157,360 99.8% 3.30 1,022 162,528 99.8% 3.40 1,055

TELEPHONE Telephone Revenue 3,429 0.1% 0.08 22 3,125 0.1% 0.07 20 3,633 0.1% 0.08 24 3,192 0.1% 0.07 21 3,296 0.1% 0.07 21 Telephone Expenses 16,437 479.4% 0.38 107 15,172 485.6% 0.32 99 14,497 399.1% 0.30 94 14,433 452.2% 0.30 94 14,762 447.8% 0.31 96 Departmental Profit (13,008) (379.4%) -0.30 84 (12,047) (385.6%) -0.25 78 (10,864) (299.1%) -0.22 71 (11,242) (352.2%) -0.24 73 (11,466) (347.8%) -0.24 74

MISCELLANEOUS Miscellaneous Revenue 9,087 0.2% 0.21 59 3,470 0.1% 0.07 23 1,854 0.0% 0.04 12 2,631 0.1% 0.06 17 2,717 0.1% 0.06 18 Miscellaneous Expenses 3,069 33.8% 0.07 20 1,529 44.1% 0.03 10 581 31.4% 0.01 4 (16,237) (617.3%) -0.34 105 (16,607) (611.3%) -0.35 108 Departmental Profit 6,018 66.2% 0.14 39 1,940 55.9% 0.04 13 1,273 68.6% 0.03 8 18,868 717.3% 0.40 123 19,324 711.3% 0.40 125

GROSS OPERATING INCOME 2,548,228 66.8% 58.61 16,547 2,595,160 64.2% 54.57 16,852 2,700,263 64.5% 55.87 17,534 2,770,911 65.3% 58.04 17,993 2,876,651 65.6% 60.25 18,680

LESS EXPENDITURE Administrative & General 83,007 2.2% 1.91 539 93,783 2.3% 1.97 609 101,436 2.4% 2.10 659 96,524 2.3% 2.02 627 98,455 2.2% 2.06 639 Sales & Marketing 63,790 1.7% 1.47 414 66,679 1.6% 1.40 433 52,518 1.3% 1.09 341 60,821 1.4% 1.27 395 71,376 1.6% 1.50 463 Repairs & Maintenance 70,766 1.9% 1.63 460 102,831 2.5% 2.16 668 101,395 2.4% 2.10 658 93,183 2.2% 1.95 605 95,307 2.2% 2.00 619 Energy Costs 136,085 3.6% 3.13 884 123,027 3.0% 2.59 799 120,641 2.9% 2.50 783 126,247 3.0% 2.64 820 129,125 2.9% 2.70 838 TOTAL UNDISTRIBUTED COSTS 353,648 9.3% 8.13 2,296 386,320 9.6% 8.12 2,509 375,991 9.0% 7.78 2,441 376,774 8.9% 7.89 2,447 394,262 9.0% 8.26 2,560

GROSS OPERATING PROFIT 2,194,580 57.6% 50.47 14,251 2,208,840 54.6% 46.45 14,343 2,324,272 55.5% 48.09 15,093 2,394,137 56.4% 50.15 15,546 2,482,389 56.6% 51.99 16,119

LESS FIXED COSTS Property Tax 198,400 5.2% 4.56 1,288 206,112 5.1% 4.33 1,338 202,608 4.8% 4.19 1,316 201,999 4.8% 4.23 1,312 201,999 4.6% 4.23 1,312 Franchise Royalty Fees 124,803 3.3% 2.87 810 133,071 3.3% 2.80 864 137,241 3.3% 2.84 891 138,216 3.3% 2.90 898 142,753 3.3% 2.99 927 Rent Payable 133,459 3.5% 3.07 867 141,209 3.5% 2.97 917 149,192 3.6% 3.09 969 147,331 3.5% 3.09 957 147,331 3.4% 3.09 957 Head Office 76,262 2.0% 1.75 495 80,872 2.0% 1.70 525 83,783 2.0% 1.73 544 84,925 2.0% 1.78 551 87,712 2.0% 1.84 570 Employee Bonus Provision 2,498 0.1% 0.06 16 6,217 0.2% 0.13 40 592 0.0% 0.01 4 9,648 0.2% 0.20 63 10,034 0.2% 0.21 65 TOTAL FIXED COSTS 535,422 14.0% 12.31 3,477 567,482 14.0% 11.93 3,685 573,417 13.7% 11.86 3,723 582,118 13.7% 12.19 3,780 589,828 13.4% 12.35 3,830

EBITDA (Pre FF&E Reserve) 1,659,158 43.5% 38.16 10,774 1,641,358 40.6% 34.51 10,658 1,750,855 41.8% 36.23 11,369 1,812,018 42.7% 37.95 11,766 1,892,561 43.2% 39.64 12,289

FF&E RESERVE 114,393 3.0% 2.63 743 121,309 3.0% 2.55 788 74,808 1.8% 1.55 486 113,663 2.7% 2.38 738 131,568 3.0% 2.76 854

NET OPERATING INCOME (Post FF&E Reserve) 1,544,765 40.5% 35.53 10,031 1,520,050 37.6% 31.96 9,870 1,676,047 40.0% 34.68 10,883 1,698,355 40.0% 35.57 11,028 1,760,993 40.2% 36.88 11,435

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Luton Airport, 2 Percival Valuation Date: 1 May 2019 Way, Luton LU2 9GP

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express Luton Airport, 2 Percival Way, Luton LU2 9GP

1 2 3 4 5 Data Type Projected Projected Projected Projected Projected Period Ending April April April April April Year 2020 2021 2022 2023 2024 No of Bedrooms: 154 154 154 154 154 Occupancy Rate 85.00% 85.00% 85.00% 85.00% 85.00% Average Room Rate 72.00 73.44 74.91 76.41 77.94 Revenue Per Available Room (RevPAR) 61.20 62.42 63.67 64.95 66.24 Days Open 365 365 365 365 365 Available Rooms 56,210 56,210 56,210 56,210 56,210 Occupied Rooms 47,779 47,779 47,779 47,779 47,779 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 4,227,852 % POR PAR 4,312,409 % POR PAR 4,398,657 % POR PAR 4,486,630 % POR PAR 4,576,363 % POR PAR

BEDROOMS Room Sales 3,440,052 81.4% 72.00 22,338 3,508,853 81.4% 73.44 22,785 3,579,030 81.4% 74.91 23,240 3,650,611 81.4% 76.41 23,705 3,723,623 81.4% 77.94 24,179 Room Expenses 1,280,000 37.2% 26.79 8,312 1,305,600 37.2% 27.33 8,478 1,331,712 37.2% 27.87 8,647 1,358,346 37.2% 28.43 8,820 1,385,513 37.2% 29.00 8,997 Departmental Profit 2,160,052 62.8% 45.21 14,026 2,203,253 62.8% 46.11 14,307 2,247,318 62.8% 47.04 14,593 2,292,264 62.8% 47.98 14,885 2,338,110 62.8% 48.94 15,183

FOOD & BEVERAGE Food & Beverage Sales 610,000 14.4% 12.77 3,961 622,200 14.4% 13.02 4,040 634,644 14.4% 13.28 4,121 647,337 14.4% 13.55 4,203 660,284 14.4% 13.82 4,288 Other Income / Room Hire 15,000 0.4% 0.31 97 15,300 0.4% 0.32 99 15,606 0.4% 0.33 101 15,918 0.4% 0.33 103 16,236 0.4% 0.34 105 Food & Beverage Cost 192,000 30.7% 4.02 1,247 195,840 30.7% 4.10 1,272 199,757 30.7% 4.18 1,297 203,752 30.7% 4.26 1,323 207,827 30.7% 4.35 1,350 Departmental Profit 433,000 69.3% 9.06 2,812 441,660 69.3% 9.06 2,812 450,493 69.3% 9.43 2,925 459,503 69.3% 9.62 2,984 468,693 69.3% 9.81 3,043

CAR PARK Car Park Revenue 157,000 3.7% 3.29 1,019 160,140 3.7% 3.35 1,040 163,343 3.7% 3.42 1,061 166,610 3.7% 3.49 1,082 169,942 3.7% 3.56 1,104 Car Park Expenses 300 0.2% 0.01 2 306 0.2% 0.01 2 312 0.2% 0.01 2 318 0.2% 0.01 2 325 0.2% 0.01 2 Departmental Profit 156,700 99.8% 3.28 1,018 159,834 99.8% 3.35 2 163,031 99.8% 3.41 2 166,291 100.0% 3.48 2 169,617 99.8% 3.55 2

TELEPHONE Telephone Revenue 3,200 0.1% 0.07 21 3,264 0.1% 0.07 21 3,329 0.1% 0.07 21 3,396 0.1% 0.07 22 3,464 0.1% 0.07 22 Telephone Expenses 14,400 450.0% 0.30 94 14,688 450.0% 0.31 95 14,982 450.0% 0.31 97 15,281 450.0% 0.32 99 15,587 450.0% 0.33 101 Departmental Profit (11,200) (350.0%) (0.23) (73) (11,424) (350.0%) (0.24) (74) (11,652) (350.0%) (0.24) (76) (11,886) (350.0%) (0.25) (77) (12,123) (350.0%) (0.25) (79)

MISCELLANEOUS Miscellaneous Revenue 2,600 0.1% 0.05 17 2,652 0.1% 0.06 17 2,705 0.1% 0.06 18 2,759 0.1% 0.06 18 2,814 0.1% 0.06 18 Miscellaneous Expenses (16,200) (623.1%) (0.34) (105) (16,524) (623.1%) (0.35) (107) (16,854) (623.1%) (0.35) (109) (17,192) (623.1%) (0.36) (112) (17,535) (623.1%) (0.37) (114) Departmental Profit 18,800 723.1% 0.39 122 19,176 723.1% 0.40 125 19,560 723.1% 0.41 127 19,951 723.1% 0.42 130 20,350 723.1% 0.43 132

GROSS OPERATING INCOME 2,757,352 65.2% 57.71 17,905 2,812,499 65.2% 58.87 18,263 2,868,749 65.2% 60.04 18,628 2,926,124 65.2% 61.24 19,001 2,984,646 65.2% 62.47 19,381

LESS EXPENDITURE Administrative & General 96,500 2.3% 2.02 627 98,430 2.3% 2.06 639 100,399 2.3% 2.10 652 102,407 2.3% 2.14 665 104,455 2.3% 2.19 678 Sales & Marketing 21,139 0.5% 0.44 137 21,562 0.5% 0.45 140 21,993 0.5% 0.46 143 22,433 0.5% 0.47 146 22,882 0.5% 0.48 149 Repairs & Maintenance 93,000 2.2% 1.95 604 94,860 2.2% 1.99 616 96,757 2.2% 2.03 628 98,692 2.2% 2.07 641 100,666 2.2% 2.11 654 Energy Costs 126,000 3.0% 2.64 818 128,520 3.0% 2.69 835 131,090 3.0% 2.74 851 133,712 3.0% 2.80 868 136,386 3.0% 2.85 886 TOTAL UNDISTRIBUTED COSTS 336,639 8.0% 7.05 2,186 343,372 8.0% 7.19 2,230 350,239 8.0% 7.33 2,274 357,244 8.0% 7.48 2,320 364,389 8.0% 7.63 2,366

GROSS OPERATING PROFIT 2,420,713 57.3% 50.67 15,719 2,469,127 57.3% 51.68 16,033 2,518,510 57.3% 52.71 16,354 2,568,880 57.3% 53.77 16,681 2,620,257 57.3% 54.84 17,015

LESS FIXED COSTS Property Tax 201,600 4.8% 4.22 1,309 205,632 4.8% 4.30 1,335 209,745 4.8% 4.39 1,362 213,940 4.8% 4.48 1,389 218,218 4.8% 4.57 1,417 Management Base Fee 84,557 2.0% 1.77 549 86,248 2.0% 1.81 560 87,973 2.0% 1.84 571 89,733 2.0% 1.88 583 91,527 2.0% 1.92 594 Rental Income Receivable - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - -

Franchise Royalty Fees 172,003 5.0% 3.60 1,117 175,443 5.0% 3.67 1,139 178,952 5.0% 3.75 1,162 182,531 5.0% 3.82 1,185 186,181 5.0% 3.90 1,209 Franchise Marketing Fees 103,202 3.0% 2.16 670 105,266 3.0% 2.20 684 107,371 3.0% 2.25 697 109,518 3.0% 2.29 711 111,709 3.0% 2.34 725 Rent Payable 147,331 3.5% 3.08 957 150,278 3.5% 3.15 976 153,283 3.5% 3.21 995 156,349 3.5% 3.27 1,015 159,476 3.5% 3.34 1,036

Employee Bonus Provision 9,650 0.2% 0.20 63 9,843 0.2% 0.21 64 10,040 0.2% 0.21 65 10,241 0.2% 0.21 66 10,445 0.2% 0.22 68 TOTAL FIXED COSTS 718,342 17.0% 15.03 4,665 732,709 17.0% 15.34 4,758 747,363 17.0% 15.64 4,853 762,310 17.0% 15.96 4,950 777,557 17.0% 16.27 5,049

EBITDA (Pre FF&E Reserve) 1,702,371 40.3% 35.63 11,054 1,736,418 40.3% 36.34 11,275 1,771,146 40.3% 37.07 11,501 1,806,569 40.3% 37.81 11,731 1,842,701 40.3% 38.57 11,966

FF&E RESERVE 126,836 3.0% 2.65 824 129,372 3.0% 2.71 840 131,960 3.0% 2.76 857 134,599 3.0% 2.82 874 137,291 3.0% 2.87 891

NET OPERATING INCOME (Post FF&E Reserve) 1,575,535 37.3% 32.98 10,231 1,607,046 37.3% 33.64 10,435 1,639,187 37.3% 34.31 10,644 1,671,970 37.3% 34.99 10,857 1,705,410 37.3% 35.69 11,074

Proposed Ground Rent - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - -

NET OPERATING INCOME (Post Ground Rent) 1,575,535 37.3% 32.98 10,231 1,607,046 37.3% 33.64 10,435 1,639,187 37.3% 34.31 10,644 1,671,970 37.3% 34.99 10,857 1,705,410 37.3% 35.69 11,074

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Luton Airport, 2 Percival Valuation Date: 1 May 2019 Way, Luton LU2 9GP

C&W Projections The hotel is a stabilised business with recent occupancy levels generally ranging between 84- 86% with the full year forecast for 2019 showing a similar level. We have adopted an occupancy of 85% in each year of our projections. The hotel achieved an ADR of £70.99 in 2018, up about £1 from the previous year, although management are forecasting a 2.0% increase in the current year to £72.38. For the purpose of our assessment we have adopted a year one ADR of £72.00 to reflect our starting date of May 2019. We have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. There is somewhat limited other revenue generated from the hotel with rooms revenue accounting for around 81% of the total. Accordingly, we have adopted a similar business mix within our projections and similar levels of food and beverage and other revenue to that currently being achieved. The format of the accounts is not strictly in accordance with the Uniform System of Accounts for the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being allocated to individual departments given the nature of the operation. As a result, it is more difficult to undertake full benchmarking of the departmental expenses. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management we have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis. We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £1,575,535, which compares to the forecast for the current year of £1,698,355. The hotel is forecast to achieve a net operating profit margin of 40.0% for the current year compared to 40.0% last year. Our projected net operating profit margin is 37.3%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Luton Airport, 2 Percival Valuation Date: 1 May 2019 Way, Luton LU2 9GP

10. Principal Valuation Considerations

Location / Situation and Competition The property is well located to Luton Airport. There is strong competition in the immediate vicinity, although the hotel is the closest to the airport in comparison to the other airport hotels. From an investment perspective Luton Airport would be viewed as a secondary hotel market.

Building Design / Condition / Suitability The hotel is in good condition having been well maintained over the years.

Tenure The hotel is held on a long leasehold basis, with the head rent linked to turnover. Accordingly, we would expect some discount to the freehold equivalent.

Business & Income Security The hotel is a stable business and well established in its local market being one of the stronger performing hotels. The hotel has produced relatively consistent levels of revenue and net operating profit with the profit margin being achieved good. That said, the recent additions to supply will test the business in the coming years as guests have more options and the progression of rate growth in the immediate vicinity remains to be seen. Whilst the profitability of the hotel has been good there is potential for the current margins to be eroded in the event that earnings do not keep pace with RPI.

Asset Management Opportunities There is limited scope for additional growth through specific asset management. The hotel is stabilised.

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 6 to 9 months Market Value?

Purchaser demand is likely to be Good

10.1. Market Value

Value Conclusion In assessing the value of the hotel we have adopted a discounted cash flow (DCF) based on our trading projections and rationale as set out above. In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of Holiday Inn Express hotels that have occurred generally as set out in our head report together with other hotels in the surrounding area. There has been limited sales of hotels held on ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. The most recent sales in the surrounding area are somewhat historic and have included the following:

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Luton Airport, 2 Percival Valuation Date: 1 May 2019 Way, Luton LU2 9GP

Bedford Swan Hotel • Sold March 2018 • £11.5 million • £101,770 per bedroom

The Distinct Group acquired the 113 bedroom Bedford Swan Hotel in Bedford from BDL Select Hotels off a guide price of £11.5M, in a deal brokered by JLL. The hotel was sold free of management and branding. The Distinct Group owns the Cromwell Hotel and Rump and Wade brasserie in Stevenage, which it acquired in 2015. In 2017, the company sold four pubs in order to focus on its hotel operations. The hotel is situated in Bedford which has inferior demand drivers relative to Luton Airport. The trading metrics at the subject property can flex to greater levels as such and we therefore would expect the subject to yield a higher price per room in a sales scenario.

Holiday Inn Luton South • Sold June 2016 • £6.95 million • £49,643 per bedroom • NIY 8.6% The freehold 140 bed Holiday Inn Luton South was sold in June 2016 on behalf of Marathon Asset Management. The purchase price reflected a gross yield of 10.5% and a NIY after purchaser’s costs and an FF&E reserve of 8.6% on the prior years trading performance. The hotel is located on the outskirts of Luton and is a secondary location relative to the town centre and the product was somewhat dated. We would expect the hotel to achieve a lower yield given its close proximity to Luton Airport. The price per bedroom at the Property would therefore be higher due to the stronger trading performance.

The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9%. Having regard to the comments above and the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 7.5%. We have not made an adjustment in our choice of capitalisation rate as the existing leasehold interest comprises over 80 years unexpired and the Property will not be subject to a ground lease like most of the hotels in the portfolio. Based on these factors, we have adopted a capitalisation rate of 7.75%. We have adopted a discount rate of 9.75%. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate. In summary, in arriving at our opinion of value we have adopted the following:

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Luton Airport, 2 Percival Valuation Date: 1 May 2019 Way, Luton LU2 9GP

Market Value

Gross Initial Yield 7.75%

Capitalisation Rate 7.75%

Discount Rate 9.75%

Market Value £20,300,000

Capital value Per Bedroom £131,818 per bedroom

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £790,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Luton Airport, 2 Percival Valuation Date: 1 May 2019 Way, Luton LU2 9GP

APPENDIX A: MAPS AND PLANS

Holiday Inn Express Luton Airport, 2 Percival Way, Luton LU2 9GP

This plan is published for convenience of identification. Any site boundaries shown are indicative only and should be checked against Title Deeds.

ES753998 Holiday Inn Express Luton Airport, 2 Percival Way, Luton LU2 9GP

This plan is published for convenience of identification. Any site boundaries shown are indicative only and should be checked against Title Deeds.

ES753998 Holiday Inn Express Luton Airport, 2 Percival Way, Luton LU2 9GP

Lighting Tower

Lighting Tower P REN TICE WAY

156.7m Radar Tower Lighting Tower

El Sub Sta 155.8m

I V

Y AIRPORT WAY

Hotel

Shelter

0m 25m 50m 75m Shelter

This plan is published for convenience of identification. Any site boundaries shown are indicative only and should be checked against Title Deeds.

About Cushman & Wakefield

Valuation of: Holiday Inn Express Manchester East, Debdale Park, Hyde Road, Manchester M18 7LJ

Prepared for Morgan Stanley Bank, N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Valuation Date: 1 May 2019 Debdale Park, Hyde Road, Manchester M18 7LJ

TABLE OF CONTENTS

Executive Summary ...... 1 Property Record ...... 3 1. Location ...... 3 2. Description & Accommodation ...... 4 3. Structural Condition and Repair ...... 6 4. Statutory Enquiries ...... 7 5. Tenure ...... 7 6. Operational Structure ...... 8 7. Local Hotel Market Analysis ...... 8 8. Business Analysis ...... 10 9. C&W Trading Projections ...... 13 10. Principal Valuation Considerations ...... 16 Appendix A: Maps and Plans ...... 19

Executive Summary Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Valuation Date: 1 May 2019 Debdale Park, Hyde Road, Manchester M18 7LJ

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The hotel is located approximately four miles to the east of Manchester City centre in the suburban area of Hyde, just off the main A57.

Description The hotel comprises 97 guest bedrooms with ancillary Great Room and two meeting rooms. The property was constructed in 2000.

Condition Average

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year End 31 December 2017 2018 2019 (2+10) Forecast

Occupancy 75.33% 78.02% 77.38%

ADR £55.11 £54.98 £55.80

RevPAR £41.52 £42.90 £43.18

Total Revenue £1,649,403 £1,703,343 £1,711,565

NOI (Post FF&E) * £414,494 £441,035 £338,107

Profit Margin 25.1% 25.9% 19.8%

* Please note 2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 77.0% 77.0% 77.0%

ADR £56.00 £57.12 £58.26

RevPAR £43.12 £43.98 £44.86

Total Revenue £1,709,564 £1,743,755 £1,778,630

NOI (Post FF&E and £306,100 £312,222 £318,466 ground rent)

Profit Margin 17.9% 17.9% 17.9%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £2,900,000

Capitalisation Rate 10.50% Discount Rate 12.50%

Gross Initial Yield 10.50%

Capital expenditure No deducted from gross valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • Competitive room rates when compared against city centre hotels; • Freehold asset; • Good levels of customer service when compared to budget hotels in competitor set; • Strong meeting room business from daily Speed Awareness courses; • Free car parking; • Continued refurbishment with a next generation bedroom refurbishment at some point in the near future;

Weaknesses / Risks • Located away from the city centre, in peripheral location; • No air-conditioning in the bedrooms, which is a guest estimation for Holiday Inn Express hotels; • Surrounding environs are below average from an aesthetics perspective and there are limited personal and convenience uses within walking distance; • New supply in city centre which reduces displacement to outlying areas;

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 9 May 2019. The inspection was undertaken by Chris Mieczkowski.

1. Location

1.1. Location Manchester has a highly diversified economy as a centre for cultural industries, retail, financial and manufacturing. A number of globally trading firms are also based in Manchester such as Umbro and The Co-operative Group. Further, other international companies have their UK headquarters based in Manchester such as Kellogg’s Company, Adidas and Siemens. The movement of BBC to Manchester signalled the beginning of MediaCityUK, a development by Peel Media and is now home to several media companies and the University of Salford’s media-related teaching and research. This has hugely increased the employment in this sector. Manchester is a city with a rich and diverse cultural landscape. It is particularly known for its music scene and is home to Manchester Arena, the largest arena of its type in Europe. It also has a thriving theatre scene with a number of large venues including the Manchester Opera House, The Palace Theatre and the Royal Exchange Theatre. The city has two football clubs in the Premier League – Manchester City and Manchester United. Manchester is also home to the National Cycling Centre including a velodrome and BMX arena. Lancashire CCC play at Old Trafford Cricket Ground where the 2013 Ashes were hosted. The 2015 Rugby World Cup was hosted at nearby Old Trafford. The hotel is located approximately four miles to the east of Manchester City centre in the suburban area of Hyde, just off the main A57. The hotel benefits from close proximity to the M60 motorway which is Manchester’s main orbital motorway route providing fast connectivity to the east (Leeds), to the south (Birmingham), to the west (Liverpool) and to the north (Bolton/Preston). As the hotel is not very visible from the main A57 there is signage to assist hotel guests. This is clearer when approaching the hotel from Manchester city centre, but when travelling in the opposite direction towards Manchester from the M60, the signage for the hotel can be easily missed. The hotel is situated in Debdale Park which comprises a mixed use scheme incorporating a McDonalds Restaurant, Pure Gym (Health & Fitness), a pub called the Bandstand and Debdale Outdoor Centre which hosts a variety of leisure pursuits including Kayak and canoeing courses, Power boating and sailing. The approach road and landscaping around the above described units, including the hotel, is relatively poor. Road access to the hotel is good with the M60 Motorway close by and the hotel itself lying just off the A57, a main arterial route leading into Manchester City centre. Several regional railway station are within proximity of the subject hotel. Belle Vue is the closest, 1 mile west of the hotel. Others such as Ryder Brown and Reddish North provide suburban rail services within the Greater Manchester area. However, there are only a limited number of services to Manchester Piccadilly per hour. Manchester Piccadilly can also be reached via a bus service (around 24 min). Manchester Airport (MAN) is located 12 miles southwest of the subject property. Railway connections to the airport are available from Manchester Piccadilly which can be reached via a bus from the subject property.

Site Boundary

The plan above is shown for indication purposes only and may not accord strictly with the title plans which we have reviewed.

2. Description & Accommodation

Summary The hotel comprises 97 guest bedrooms with ancillary Great Room and two meeting rooms. The property is built over ground and two upper floors, is L-shaped with the two wings referred to as North and South. A single storey entrance lobby building is provided to the south side of the south wing and a double height external porte cochère is provided outside the main entrance. The building is of brick construction with interlocking concrete tile roof weathering. A Glass Reinforced Plastic copula is provided above the pitched roof line where the two wings meet. The fenestration comprises UPVC framed double glazed units.

Guestrooms The following table summarises the Property's guestroom facilities, based on information provided by Atlas Hotels.

Category Unit Count

Twin 34

Double 58

Accessible 5

Total 97

There are three room types, namely twin, accessible and double rooms (which can accommodate up to three guests). There are 34 twin bedrooms and 58 double bedrooms. In addition, there are 5 accessible bedrooms. Following a refurbishment in late 2013, the style of the bedrooms was updated to more contemporary standards and they do still present relatively well. The guest bedrooms are not served by air conditioning.

Food & Beverage The Great Room comprises 80 covers plus seating for 16 within the reception area. The Great room benefits from a part tiled/part carpeted floor with the bar connecting with the reception counter, typical of other Holiday Inn Express hotels. The bar and reception counter benefit from a more modern marble effect work top piece.

Meeting Rooms

There are two meeting rooms, both situated at ground floor level close to reception and the capacity is up to 35 delegates theatre style.

Car Parking

There are approximately 120 car parking spaces. The car park is free for hotel guests.

Back of House Accommodation The back of house accommodation is mostly arranged at ground floor level. Off the main reception are staff offices. To the rear of the Great Room is a fully equipped kitchen, which is of appropriate size for the requirements of the business. There is appropriate storage throughout the building.

3. Structural Condition and Repair The property has generally been well maintained and was found to be in average condition. It was reported to us during our site visit that the bedrooms were refurbished in 2013. The most recent refurbishment was in 2016, when the corridors were refurbished. The Great Room has not been refurbished in recent years but presents reasonably well. At the time of our visit, the roof was in the process of being repaired and three rooms on the first floor were being repaired after sustaining water damage from storms. The roof was reported to be completed by months end and also plans for a new General Manager office where the current retail kiosk sits were revealed. We assume the costs associated with this endeavour have been paid in full as of our valuation date and reserve the right to amend our valuation should different information be provided at a later date. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £334,023 £63,663

We do not consider that a purchaser would allow for any additional capital expenditure over and above the FF&E reserve.

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £8,300,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings) You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Ground Conditions Please refer to head report.

Flooding Risk The property is in Flood Zone 1. Land and property in flood zone 1 have a low probability of flooding.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject property is determined by Manchester City Council Planning Department. We are not aware of any outstanding or unimplemented planning applications.

Conservation Area and Listed Building Status The property is not listed and nor is it located within a conservation area.

Business Rates

Demise Description Rateable Values Holiday Inn Express, Manchester East Hotel & Premises £154,000 Total In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 for England has been set at 50.4 pence. There is a surcharge for the City of London of 0.5 pence in the pound.

5. Tenure

Title We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017 and based on this we summarise our understanding of the title below.

The Property is held freehold (GM821643) although the proposal is to sell the freehold interest and simultaneously be granted a ground lease back. The terms of the ground lease are set out in the head report.

Overview

Type of tenure Proposed long leasehold

Title no(s) Unknown

Lease Term 125 years

Rent £66,155 pa to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%.

Any material encumbrances or unduly None other than disclosed in the draft certificate. onerous / unusual easements, restrictions, outgoings or conditions?

Any title characteristics likely to have an None. adverse impact on value, either now or over the proposed loan term?

Full details of the proposed leasehold interest are detailed in the head report.

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday inn Express brand.

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are 164 hotels in Manchester, accounting for 18,264 bedrooms, only one of which is located within a one-mile radius of the subject Property. The market is largely dominated by the four-star and budget segments, with 6,785 and 6,475 rooms respectively. This compares to a national trend characterised by less than 30% of total rooms in the four-star category and approximately 25% of total rooms in the budget sector. Out of this supply, approximately 84% is branded, with a strong presence of Premier Inn and Travelodge in the budget sector.

Manchester Room Supply by Category

0.7% 3.3%

7.6% 12.6%

J5.5%

37,1% 1 2.7%

■ 2-Star ■ 3-Star * 4-Star 5-Star ■ Budget ■ Apartment ■ Hostel

7.2. Competitor Trading Analysis Smith Travel Research (STR) is an independent research firm that is recognised by the hotel industry as the standard source of reliable data, providing operating statistics on the local market as a whole. We have been provided STR data for the hotel and the following competitive set of hotels: • Travelodge Manchester Sportcity Hotel • Premier Inn Manchester Denton • Holiday Inn Express Manchester East • Holiday Inn Manchester Central Park • Premier Inn Manchester Hyde • Village Hotel Ashton Moss The competition to the subject hotel is relatively reflective of dated stock in regards to the Travelodge and two Premier Inns. This is to be expected with the tertiary location of these hotels outside the central core of the city. The table below sets out the hotels key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019.

The subject’s occupancy has been higher than its competitive set for both 2017 and 2018. The hotel recorded an MPI of 104 for both these years and 100.2 for the first three months of this year to March 2019. In contrast, ADR performance sat below the market average in 2017 and 2018 at a rate of £55. The ARI has decreased year on year from 91.2 in 2017, 90.8 in 2018 and 88.5 for the first quarter of 2019. As a result, the hotel is underperforming its competitive set when it comes to RevPAR, with a RGI just under 95 in 2017 and 2018 and 88.7 through March 2019.

7.3. Proposed Supply There are currenlty 67 projects in Manchester accounting for slighly over 9,500 rooms. Out of these projects, 53 are confirmed and 20 in construction. These are mostly in the three and four- star segments, and no budget hotel is planned within a one-mile radius of the subject Property.

8. Business Analysis

Overview The Holiday Inn Manchester East is a limited service hotel which opened in 2000 and comprises 97 bedrooms with restaurant and bar facilities as well as two meeting rooms. Although the hotel is not city centre located, it tends to pick up displaced business and the hotel’s ability to offer free parking together with a more competitive rate does prove to be attractive for those guests willing to make a compromise. We understand that the taxi fare into the city centre is around £10.

The business mix was reported to be 70/30 in favour of leisure. The hotel routinely hosts tour groups and those catering to holidaymakers of Chinese or Indian origin were reported to be th most prevalent. Operators include Dracoin, and CHR with negotiated rates ranging from £51 to £60 per room. These operators will typically utilise 18 to 25 rooms per visit which results in over 1,000 room nights per annum each. The majority of hotel guests are domestic UK, although Manchester is recognised as a global city and so by virtue of the diverse range of events being held in the city, hotel guests visit from all corners of the globe, particularly Asia. Manchester has over the last few years become an increasingly event led location with a significant increase in the number of concerts held at the city. Facilities such as the cycling Velodrome have also attracted regular championship events which often results in an increase in rooms demand, with additional training camps also taking place throughout the year. Furthermore, the proximity of the hotel to Manchester City’s Etihad Stadium has contributed to demand in regard to football matches and in other ways with a busy event calendar of concerts and shows. Although Manchester City does not have the worldwide fan base of Manchester United, the presence of both in the city bodes well for generating demand for room nights during the football season. The hotel has a base of corporate mid-week business through transient guests and almost exclusively local arrangements rather than any national contracts, which tend to be mainly awarded to the city centre hotels. We understand that the hotel has a handful of local contracts but few generate more than around 50 room nights per annum and generating average rates around the £60 area. These include Trant Engineering, Mary Profiles and British Cycling. RMI Pressure was reported to be over 200 nights per annum at a rate of £65. Approximately 40% of revenue is derived from online travel agencies (OTAs) such as booking.com and expedia, with a majority of business coming in direct through the IHG central reservation system. Although the hotel would like to limit its reliance on OTAs, the considerable influence of international guests visiting Manchester for special events or football matches at Etihad Stadium or Old Trafford makes this difficult. Commissions are in the range of approximately 18% to 24%, according to the Duty Manager. There are two meeting rooms which can accommodate 35 to 40 people theatre style at a daily hire rate of around £190 depending on demand. A basic lunch package with unlimited tea and coffees can be added for £8.95 per delegate. The rooms are utilised five times a week, three times a day for drive safety courses by the local council which generates approximately £35,000 per annum. The meeting rooms are seldom utilised outside of this arrangement with the local council. There are 120 parking spaces on site which are provided to guests at no additional charge. There is no significant external income generated from the parking facility. Trading Performance The income and expense statements, illustrated in the table on the following page, were provided by Atlas Hotels. The statements show the subject's operating history for the years ended December 2016-2018, forecast for 2019 including 2 months actuals and trading projections for 2019, which includes the proposed ground rent.

Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Debdale Park, Hyde Road, Manchester Valuation Date: 1 May 2019 M18 7LJ

Data Type Actual Actual Actual Forecast Forecast Period Ending December December December March December Year 2016 2017 2018 2019 (2+10) 2020

No of Bedrooms: 97 97 97 97 97 Occupancy rate 82.33% 75.33% 78.02% 77.38% 77.38% Average Room Rate 54.15 55.11 54.98 55.80 57.48 Revenue Per Available Room (RevPAR) 44.58 41.52 42.90 43.18 44.48 Number of Days Open 365 365 365 365 365 Available Rooms 35,405 35,405 35,405 35,405 35,405 Occupied Rooms 29,150 26,671 27,624 27,397 27,397

TOTAL SALES 1,774,909 % POR PAR 1,649,403 % POR PAR 1,703,343 % POR PAR 1,711,565 % POR PAR 1,767,742 % POR PAR

BEDROOMS Room Sales 1,582,747 89.2% 54.30 16,317 1,469,942 89.1% 55.11 15,154 1,518,704 89.2% 54.98 15,657 1,528,832 89.3% 55.80 15,761 1,579,011 89.3% 57.63 16,278 Room Expenses 733,710 46.4% 25.17 7,564 721,506 49.1% 27.05 7,438 749,263 49.3% 27.12 7,724 767,542 50.2% 28.02 7,913 785,037 49.7% 28.65 8,093 Departmental Profit 849,037 53.6% 29.13 8,753 748,436 50.9% 28.06 7,716 769,441 50.7% 27.85 7,932 761,290 49.8% 27.79 7,848 793,974 50.3% 28.98 8,185

FOOD & BEVERAGE Food & Beverage Sales 152,290 8.6% 5.22 1,570 142,584 8.6% 5.35 1,470 149,487 8.8% 5.41 1,541 149,041 8.7% 5.44 1,537 153,933 8.7% 5.62 1,587 Other Income / Room Hire 35,052 2.0% 1.20 361 33,323 2.0% 1.25 344 31,653 1.9% 1.15 326 30,687 1.8% 1.12 316 31,694 1.8% 1.16 327 Food & Beverage Cost 60,150 32.1% 2.06 620 60,138 34.2% 2.25 620 52,742 29.1% 1.91 544 48,558 27.0% 1.77 501 49,665 26.8% 1.81 512 Departmental Profit 127,192 67.9% 4.36 1,311 115,769 65.8% 4.34 1,193 128,399 70.9% 4.65 1,324 131,170 73.0% 4.79 1,352 135,962 73.2% 4.96 1,402

CAR PARK Car Park Revenue 133 0.0% 0.00 1 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 Car Park Expenses - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 Departmental Profit 133 100.0% 0.00 1 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0

TELEPHONE Telephone Revenue 2,095 0.1% 0.07 22 1,697 0.1% 0.06 17 1,845 0.1% 0.07 19 1,564 0.1% 0.06 16 1,615 0.1% 0.06 17 Telephone Expenses 12,530 598.2% 0.43 129 12,376 729.1% 0.46 128 12,219 662.3% 0.44 126 11,806 754.9% 0.43 122 12,075 747.5% 0.44 124 Departmental Profit (10,435) (498.2%) -0.36 108 (10,678) (629.1%) -0.40 110 (10,374) (562.3%) -0.38 107 (10,242) (654.9%) -0.37 106 (10,459) (647.5%) -0.38 108

MISCELLANEOUS Miscellaneous Revenue 2,592 0.1% 0.09 27 1,857 0.1% 0.07 19 1,653 0.1% 0.06 17 1,441 0.1% 0.05 15 1,488 0.1% 0.05 15 Miscellaneous Expenses 58 2.2% 0.00 1 640 34.5% 0.02 7 725 43.9% 0.03 7 (9,091) (630.8%) -0.33 94 (9,298) (624.7%) -0.34 96 Departmental Profit 2,534 97.8% 0.09 26 1,217 65.5% 0.05 13 928 56.1% 0.03 10 10,532 730.8% 0.38 109 10,787 724.7% 0.39 111

GROSS OPERATING INCOME 968,461 54.6% 33.22 9,984 854,743 51.8% 32.05 8,812 888,393 52.2% 32.16 9,159 892,751 52.2% 32.59 9,204 930,263 52.6% 33.95 9,590

LESS EXPENDITURE Administrative & General 44,824 2.5% 1.54 462 52,103 3.2% 1.95 537 48,522 2.8% 1.76 500 48,824 2.9% 1.78 503 49,801 2.8% 1.82 513 Information & Technology - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 Sales & Marketing 48,326 2.7% 1.66 498 44,189 2.7% 1.66 456 31,052 1.8% 1.12 320 42,759 2.5% 1.56 441 47,370 2.7% 1.73 488 Repairs & Maintenance 78,648 4.4% 2.70 811 53,027 3.2% 1.99 547 86,199 5.1% 3.12 889 79,492 4.6% 2.90 820 81,304 4.6% 2.97 838 Energy Costs 84,218 4.7% 2.89 868 76,617 4.6% 2.87 790 84,313 4.9% 3.05 869 94,186 5.5% 3.44 971 96,333 5.4% 3.52 993 TOTAL UNDISTRIBUTED COSTS 256,016 14.4% 8.78 2,639 225,937 13.7% 8.47 2,329 250,086 14.7% 9.05 2,578 265,262 15.5% 9.68 2,735 274,808 15.5% 10.03 2,833

GROSS OPERATING PROFIT 712,445 40.1% 24.44 7,345 628,806 38.1% 23.58 6,483 638,307 37.5% 23.11 6,580 627,490 36.7% 22.90 6,469 655,455 37.1% 23.92 6,757

LESS FIXED COSTS Property Tax 61,008 3.4% 2.09 629 70,607 4.3% 2.65 728 71,313 4.2% 2.58 735 76,245 4.5% 2.78 786 76,245 4.3% 2.78 786 Franchise Royalty Fees 63,310 3.6% 2.17 653 58,798 3.6% 2.20 606 60,748 3.6% 2.20 626 61,153 3.6% 2.23 630 63,160 3.6% 2.31 651 Franchise Marketing Fees - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 Head Office 35,498 2.0% 1.22 366 32,988 2.0% 1.24 340 34,067 2.0% 1.23 351 34,231 2.0% 1.25 353 35,355 2.0% 1.29 364 Employee Bonus Provision 6,932 0.4% 0.24 71 2,437 0.1% 0.09 25 727 0.0% 0.03 7 5,783 0.3% 0.21 60 6,014 0.3% 0.22 62 TOTAL FIXED COSTS 166,748 9.4% 5.72 1,719 164,830 10.0% 6.18 1,699 166,855 9.8% 6.04 1,720 177,413 10.4% 6.48 1,829 180,775 10.2% 6.60 1,864

EBITDA (Pre FF&E Reserve) 545,697 30.7% 18.72 5,626 463,976 28.1% 17.40 4,783 471,452 27.7% 17.07 4,860 450,077 26.3% 16.43 4,640 474,680 26.9% 17.33 4,894

FF&E RESERVE 53,247 3.0% 1.83 549 49,482 3.0% 1.86 510 30,417 1.8% 1.10 314 45,815 2.7% 1.67 472 53,032 3.0% 1.94 547

NET OPERATING INCOME (Post FF&E Reserve) 492,450 27.7% 16.89 5,077 414,494 25.1% 15.54 4,273 441,035 25.9% 15.97 4,547 404,262 23.6% 14.76 4,168 421,648 23.9% 15.39 4,347

Proposed Ground Rent - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 66,155 3.9% 2.41 682 68,140 3.9% 2.49 702

NET OPERATING INCOME (Post Ground Rent) 492,450 27.7% 16.89 5,077 414,494 25.1% 15.54 4,273 441,035 25.9% 15.97 4,547 338,107 19.8% 12.34 3,486 353,508 20.0% 12.90 3,644

Property Record Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Valuation Date: 1 May 2019 Debdale Park, Hyde Road, Manchester M18 7LJ

9. C&W Trading Projections

Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Debdale Park, Hyde Road, Manchester Valuation Date: 1 May 2019 M18 7LJ

1 2 3 4 5 Data Type Projected Projected Projected Projected Projected Period Ending April April April April April Year 2020 2021 2022 2023 2024 No of Bedrooms: 97 97 97 97 97 Occupancy Rate 77.00% 77.00% 77.00% 77.00% 77.00% Average Room Rate 56.00 57.12 58.26 59.43 60.62 Revenue Per Available Room (RevPAR) 43.12 43.98 44.86 45.76 46.67 Days Open 365 365 365 365 365 Available Rooms 35,405 35,405 35,405 35,405 35,405 Occupied Rooms 27,262 27,262 27,262 27,262 27,262 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 1,709,564 % POR PAR 1,743,755 % POR PAR 1,778,630 % POR PAR 1,814,203 % POR PAR 1,850,487 % POR PAR

BEDROOMS Room Sales 1,526,664 89.3% 56.00 15,739 1,557,197 89.3% 57.12 16,054 1,588,341 89.3% 58.26 16,375 1,620,108 89.3% 59.43 16,702 1,652,510 89.3% 60.62 17,036 Room Expenses 765,000 50.1% 28.06 7,887 780,300 50.1% 28.62 8,044 795,906 50.1% 29.19 8,205 811,824 50.1% 29.78 8,369 828,061 50.1% 30.37 8,537 Departmental Profit 761,664 49.9% 27.94 7,852 776,897 49.9% 28.50 8,009 792,435 49.9% 29.07 8,169 808,284 49.9% 29.65 8,333 824,449 49.9% 30.24 8,499

FOOD & BEVERAGE Food & Beverage Sales 150,000 8.8% 5.50 1,546 153,000 8.8% 5.61 1,577 156,060 8.8% 5.72 1,609 159,181 8.8% 5.84 1,641 162,365 8.8% 5.96 1,674 Other Income / Room Hire 30,000 1.8% 1.10 309 30,600 1.8% 1.12 315 31,212 1.8% 1.14 322 31,836 1.8% 1.17 328 32,473 1.8% 1.19 335 Food & Beverage Cost 48,500 26.9% 1.78 500 49,470 26.9% 1.81 510 50,459 26.9% 1.85 520 51,469 26.9% 1.89 531 52,498 26.9% 1.93 541 Departmental Profit 131,500 73.1% 4.82 1,356 134,130 73.1% 4.82 1,356 136,813 73.1% 5.02 1,410 139,549 73.1% 5.12 1,439 142,340 73.1% 5.22 1,467

TELEPHONE Telephone Revenue 1,500 0.1% 0.06 15 1,530 0.1% 0.06 16 1,561 0.1% 0.06 16 1,592 0.1% 0.06 16 1,624 0.1% 0.06 17 Telephone Expenses 11,800 786.7% 0.43 122 12,036 786.7% 0.44 124 12,277 786.7% 0.45 127 12,522 786.7% 0.46 129 12,773 786.7% 0.47 132 Departmental Profit (10,300) (686.7%) (0.38) (106) (10,506) (686.7%) (0.39) (108) (10,716) (686.7%) (0.39) (110) (10,930) (686.7%) (0.40) (113) (11,149) (686.7%) (0.41) (115)

MISCELLANEOUS Miscellaneous Revenue 1,400 0.1% 0.05 14 1,428 0.1% 0.05 15 1,457 0.1% 0.05 15 1,486 0.1% 0.05 15 1,515 0.1% 0.06 16 Miscellaneous Expenses (9,000) (642.9%) (0.33) (93) (9,180) (642.9%) (0.34) (95) (9,364) (642.9%) (0.34) (97) (9,551) (642.9%) (0.35) (98) (9,742) (642.9%) (0.36) (100) Departmental Profit 10,400 742.9% 0.38 107 10,608 742.9% 0.39 109 10,820 742.9% 0.40 112 11,037 742.9% 0.40 114 11,257 742.9% 0.41 116

GROSS OPERATING INCOME 893,264 52.3% 32.77 9,209 911,129 52.3% 33.42 9,393 929,351 52.3% 34.09 9,581 947,938 52.3% 34.77 9,773 966,897 52.3% 35.47 9,968

LESS EXPENDITURE Administrative & General 48,000 2.8% 1.76 495 48,960 2.8% 1.80 505 49,939 2.8% 1.83 515 50,938 2.8% 1.87 525 51,957 2.8% 1.91 536 Sales & Marketing 8,548 0.5% 0.31 88 8,719 0.5% 0.32 90 8,893 0.5% 0.33 92 9,071 0.5% 0.33 94 9,252 0.5% 0.34 95 Repairs & Maintenance 79,500 4.7% 2.92 820 81,090 4.7% 2.97 836 82,712 4.7% 3.03 853 84,366 4.7% 3.09 870 86,053 4.7% 3.16 887 Energy Costs 94,000 5.5% 3.45 969 95,880 5.5% 3.52 988 97,798 5.5% 3.59 1,008 99,754 5.5% 3.66 1,028 101,749 5.5% 3.73 1,049 TOTAL UNDISTRIBUTED COSTS 230,048 13.5% 8.44 2,372 234,649 13.5% 8.61 2,419 239,342 13.5% 8.78 2,467 244,129 13.5% 8.95 2,517 249,011 13.5% 9.13 2,567

GROSS OPERATING PROFIT 663,216 38.8% 24.33 6,837 676,480 38.8% 24.81 6,974 690,010 38.8% 25.31 7,114 703,810 38.8% 25.82 7,256 717,886 38.8% 26.33 7,401

LESS FIXED COSTS Property Tax 77,600 4.5% 2.85 800 79,152 4.5% 2.90 816 80,735 4.5% 2.96 832 82,350 4.5% 3.02 849 83,997 4.5% 3.08 866 Management Base Fee 34,191 2.0% 1.25 352 34,875 2.0% 1.28 360 35,573 2.0% 1.30 367 36,284 2.0% 1.33 374 37,010 2.0% 1.36 382 Rental Income Receivable - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - -

Franchise Royalty Fees 76,333 5.0% 2.80 787 77,860 5.0% 2.86 803 79,417 5.0% 2.91 819 81,005 5.0% 2.97 835 82,625 5.0% 3.03 852 Franchise Marketing Fees 45,800 3.0% 1.68 472 46,716 3.0% 1.71 482 47,650 3.0% 1.75 491 48,603 3.0% 1.78 501 49,575 3.0% 1.82 511 Rent Payable - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - -

Employee Bonus Provision 5,750 0.3% 0.21 59 5,865 0.3% 0.22 60 5,982 0.3% 0.22 62 6,102 0.3% 0.22 63 6,224 0.3% 0.23 64 TOTAL FIXED COSTS 239,674 14.0% 8.79 2,471 244,468 14.0% 8.97 2,520 249,357 14.0% 9.15 2,571 254,344 14.0% 9.33 2,622 259,431 14.0% 9.52 2,675

EBITDA (Pre FF&E Reserve) 423,541 24.8% 15.54 4,366 432,012 24.8% 15.85 4,454 440,652 24.8% 16.16 4,543 449,466 24.8% 16.49 4,634 458,455 24.8% 16.82 4,726

FF&E RESERVE 51,287 3.0% 1.88 529 52,313 3.0% 1.92 539 53,359 3.0% 1.96 550 54,426 3.0% 2.00 561 55,515 3.0% 2.04 572

NET OPERATING INCOME (Post FF&E Reserve) 372,255 21.8% 13.65 3,838 379,700 21.8% 13.93 3,914 387,294 21.8% 14.21 3,993 395,039 21.8% 14.49 4,073 402,940 21.8% 14.78 4,154

Proposed Ground Rent 66,155 10.0% 2.43 682 67,478 10.0% 2.48 696 68,828 10.0% 2.52 710 70,204 10.0% 2.58 724 71,608 10.0% 2.63 738

NET OPERATING INCOME (Post Ground Rent) 306,100 17.9% 11.23 3,156 312,222 17.9% 11.45 3,219 318,466 17.9% 11.68 3,283 324,835 17.9% 11.92 3,349 331,332 17.9% 12.15 3,416

Property Record Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Valuation Date: 1 May 2019 Debdale Park, Hyde Road, Manchester M18 7LJ

C&W Projections The hotel is a stabilised business with recent occupancy levels ranging between 75-78% with the full year forecast for 2019 showing a similar level. We have adopted an occupancy of 77% in each year of our projections. The hotel achieved an ADR of £54.98 in 2018, similar to the previous year, with management forecasting a 1.5% increase in the current year to £55.80. For the purpose of our assessment we have adopted a year one ADR of £56.00 to reflect our starting date of May 2019. We have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. There is limited other revenue generated from the hotel with rooms revenue accounting for around 90% of the total. Accordingly, we have adopted a similar business mix within our projections and similar levels of food and beverage and other revenue to that currently being achieved. The format of the accounts is not strictly in accordance with the Uniform System of Accounts for the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being allocated to individual departments given the nature of the operation. As a result, it is more difficult to undertake full benchmarking of the departmental expenses. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management. We have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis. We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £372,255, which compares to the forecast for the current year of £404,262. The hotel is forecast to achieve a net operating profit margin of 23.6% for the current year compared to 25.9% last year. Our projected net operating profit margin is 21.8%. After the deduction of the proposed ground rent of £66,155 per annum our adjusted net operating profit is £306,100, which is equivalent to a profit margin of 17.9%.

Property Record Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Valuation Date: 1 May 2019 Debdale Park, Hyde Road, Manchester M18 7LJ

10. Principal Valuation Considerations

Location / Situation and Competition The hotel is located approximately four miles to the east of Manchester City centre, in the suburban area of Hyde, just off the main A57. Peripheral locations such as this are starting to lose market share as the city centre room inventory expands outward, but they still have some appeal for lower rated leisure guests. From an investment perspective, Manchester would be considered as a primary hotel market.

Building Design / Condition / Suitability The hotel is in average condition having been well maintained over the years.

Tenure The hotel is held on a freehold basis. The hotel will be held on long lease for a term of 125 years with a buy back option at year 60 for £1. There is limited comparable evidence of the sale of long leasehold as the structure is relatively new within the hotel market. We would however expect there to be a narrower pool of purchasers for the leasehold interest compared to the freehold interest, which will result in the interest achieving a softer yield. We consider the yield gap between a freehold interest and a ground lease interest will be influenced by a number of factors including location, quality of the asset and rent cover. The yield gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as the hotel will lose some of its appeal and economies of being operated as part of a larger platform. The proposed rent payable will be £66,155 per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI. We consider the proposed rent to fall within an acceptable range of NOI based on other transactions that have occurred in the market providing sufficient rent cover in the short term.

Business & Income Security The hotel is a stable business and it has produced relatively consistent levels of revenue and net operating profit with the profit margin being achieved reasonable. Whilst the profitability of the hotel has been stable there is potential for the current margins to be eroded in the event that earnings do not keep pace with RPI.

Asset Management Opportunities There is limited scope for additional growth through specific asset management. The hotel is stabilised, albeit declining in performance more recently.

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 6 to 9 months Market Value?

Purchaser demand is likely to be Good

Property Record Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Valuation Date: 1 May 2019 Debdale Park, Hyde Road, Manchester M18 7LJ

The market for hotels held on long ground leases such as that proposed has been largely untested to date. Whilst this will result in a greater level of uncertainty in terms of purchaser appetite and saleability, we are of the opinion that there would be fewer purchaser in the market than for the equivalent freehold interest.

10.1. Market Value

Value Conclusion In assessing the value of the hotel, we have adopted a discounted cash flow (DCF) based on our trading projections and rationale as set out above. In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of Holiday Inn Express hotels that have occurred generally as set out in our head report together with other hotels in the surrounding area. There has been limited sales of hotels held on ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. The most recent sales in the surrounding area are somewhat historic and have included the following:

Address Transaction Details

The Midland Hotel, Manchester • Sold September 2018 • £116,000,000 • £371,795 per bedroom • 4.2% yield

The 312-bedroom hotel was sold by Aprirose to a joint venture of Pandox and Fattal Hotels, who is going to operate it under its Leonardo brand going forward.

The Principal, Manchester • Sold June 2018 • £72,000,000 (allocated Portfolio price) • £266,667 per bedroom • 5.2% yield

The 270 bedroom hotel was sold as part of a wider portfolio by Starwood Capital Group to Covivio.

The above transactions are limited in nature and not comparable for analysis relative to the subject. Therefore, nominal reliance is placed on the yields achieved for these transactions. Having regard to the comments above and the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 8.25%. We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold interest having regard to the location of the hotel and the level of rent payable as detailed in the head report. Based on these factors, we have made an adjustment to the freehold yield and adopted a capitalisation rate of 10.50%. We have adopted a discount rate of 12.50%. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit

Property Record Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Valuation Date: 1 May 2019 Debdale Park, Hyde Road, Manchester M18 7LJ

deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate. In summary, in arriving at our opinion of value we have adopted the following:

Market Value

Gross Initial Yield 10.50%

Capitalisation Rate 10.50%

Discount Rate 12.50%

Market Value £2,900,000

Capital value Per Bedroom £29,897 per bedroom

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £150,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank, N.A. Valuation of: Holiday Inn Express Manchester East, Valuation Date: 1 May 2019 Debdale Park, Hyde Road, Manchester M18 7LJ

APPENDIX A: MAPS AND PLANS

liday Inn Express Manchester East, Debdale Park, Hyde Road, Manchester M18 7L

This plan is published for convenience of identification. Any site boundaries shown are indicative only and should be checked against Title Deeds.

ES753998 liday Inn Express Manchester East, Debdale Park, Hyde Road, Manchester M18 7L

This plan is published for convenience of identification. Any site boundaries shown are indicative only and should be checked against Title Deeds.

ES753998 e Debdale Outdoor Centr FB anchester M18 7LJ El Sub Sta (PH) The Bandstand FB ES753998

W D 1:1250 should be checked against Title Deeds. should be checkedTitle against Any site boundaries areAny indicative and shown only This plan is published for convenience of identification. Hotel 75m © Crown Copyright 2017. All 2017.rights Copyright reserved.© Crown Licence number 100022432. Plotted Scale - 50m Ordnance Survey Holiday Inn Express Manchester East, Debdale Park, Hyde Road, M 25m

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