Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Edinburgh Waterfront, Valuation Date: 1 May 2019 Ocean Drive, Edinburgh, EH6 6LA

APPENDIX A: MAPS AND PLANS

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Holiday Inn Express Edinburgh Waterfront, Britannia Way, Ocean Drive, Edinburgh, EH6 6JJ Holiday Inn Express, Edinburgh Waterfront, Ocean Drive, Edinburgh, EH6 6LA

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About Cushman & Wakefield

Valuation of: Holiday Inn Express, Exeter Business Park, Guardian Road, Exeter EX1 3PE

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, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

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 and Management ...... 8 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, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

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 lies less than three miles away from Exeter airport and approximately three miles away from Exeter St David’s Train Station.

Description The hotel comprises 149 guest bedrooms with ancillary Great Room and one conference and two syndicate rooms. The property was constructed in approximately 1998.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) forecast

Occupancy 87.50% 86.58% 86.63%

ADR £65.85 £65.42 £67.68

RevPAR £57.62 £56.64 £58.64

Total Revenue £3,409,169 £3,378,006 £3,491,474

NOI (post FF&E)* £1,286,991 £1,305,410 £1,087,856

Profit Margin 37.8% 38.6% 31.2%

*2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 86.00% 86.00% 86.00%

ADR £69.00 £70.38 £71.79

RevPAR £59.34 £60.53 £61.74

Total Revenue £3,533,106 £3,603,768 £3,675,843

NOI (post FF&E and £1,039,098 £1,059,880 £1,081,077 ground rent)

Profit Margin 29.4% 29.4% 29.4%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £11,900,000

Capitalisation Rate 8.75% Discount Rate 10.75%

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

Gross Initial Yield 8.75%

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 • Well located; • Strong hotel demand in local area;

Weaknesses / Risks • Hotel older than several competitors; • New Atlas hotel now open in Exeter city centre.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

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 Ian Thompson.

1. Location

1.1. Location

General The hotel is well located, lying near junction 29 of the M5 to the east of the Honiton Road roundabout, where the A30 becomes the A3015. The hotel lies less than three miles away from Exeter airport and approximately three miles away from Exeter St David’s Train Station. Exeter is one of two large urban centres within the rural county of Devon, alongside Plymouth (Exeter Council,2019). The city is on the River Exe, about 37 miles (60 km) northeast of Plymouth, and 70 miles (110 km) southwest of Bristol. According to the latest estimated in mid- 2017, Exeter count a resident population of 128,916 (ONS, 2017). Around 35,000 people commute into Exeter on a daily basis, from nearby surrounding towns and the Council records that there are 4,877 registered companies registered for business rates in the City (Exeter City Council, 2019). Exeter provides services, employment and shopping for residents within the city limits and from nearby towns in Teignbridge, Mid Devon and East Devon, together sometimes known as the Exeter & Heart of Devon area (EHOD). The Met Office, the main weather forecasting organisation for the United Kingdom and one of the most significant in the world, relocated from Bracknell in Berkshire to Exeter in early 2004. It is

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

one of the three largest employers in the area (together with the University of Exeter and Devon County Council). Although Exeter contains a number of tourist attractions, the city is not dominated by tourism. Exeter’s transport hubs include Exeter St Davids railway station, Exeter Central railway station, the M5 motorway and Exeter International Airport connecting the city both nationally and internationally.

Site Boundary

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

2. Description & Accommodation

Summary The hotel comprises 149 guest bedrooms with Great Room and one conference and two syndicate rooms. The property was constructed in 1998 and comprises ground and three upper floors of brick construction underneath a pitched tiled roof. The fenestration comprises UPVC framed double glazed units.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

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

Category Unit Count

Twin 41

Double 100

Accessible 8

Total 149

There are three room types, namely twin, double and accessible rooms (which can accommodate up to three guests). There are 41 twin bedrooms and 100 double bedrooms. In addition, there are 8 accessible bedrooms. The style of the bedrooms is a soft generation four and present well. All guest bedrooms are air conditioned.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

Food & Beverage The Great Room extends through most of the ground floor entrance area and provides covers for approximately 90 guests. The breakfast buffet area is separate to the Great room.

Meeting Rooms There is one meeting room and two smaller syndicate rooms which can accommodate 30 delegates.

Car Parking There are approximately 100 Car parking spaces, which are offered free of charge to guests.

Back of House Accommodation There is appropriate storage and back of house accommodation.

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 2007, an extension added 27 bedrooms. Further to this, in 2009, the remaining hotel bedrooms underwent a soft refurbishment, which included new beds, carpets, bedding and paintwork. The bathrooms are the original bathrooms. The most recent refurbishment was around two years ago to include bedroom carpets, curtains and wall coverings. The Great room has not been refurbished in recent years but it still presents well. We understand that the hotel is proposing/has recently undertaken the following work: • New beds; • Air conditioning maintenance; • New door locks; We have been provided with a schedule of the capital expenditure plan, which confirms the following:

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

2018 2019 Forecast £101,271 £109,086

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £12,700,000 (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 hotel is located in an area which has a low risk of flooding.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject property is determined by Exeter City 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, Exeter Hotel & Premises £340,000 In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 50.4 pence.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

5. Tenure and Management

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 Number: DN395494) 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 £195,811 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, Exeter counts 1,863 bedrooms across 36 hotels, 5 of which are located within a one-mile radius of the subject Property. Almost half of the total room supply in Exeter is of budget category (820 rooms) followed by three- star (564 rooms) and four-star (382 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. Just over 80% of this total room supply is operated by brands such as Premier Inn or Mercure.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

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: • Mercure Exeter Southgate • Holiday Inn Express Exeter M5 Junction 29 • Travelodge Exeter M5 Hotel • Jurys Inn Exeter • Premier Inn Exeter Central St David's • Hampton by Hilton Exeter Airport • Premier Inn Exeter M5 J29 The competition to the subject hotel is relatively strong with the Travelodge Exeter M5, Mercure Exeter Southgate, Mercure Exeter City Centre, Jury’s Inn and two Premier Inn’s all in close proximity. The Premier Inn at Junction 29 opened in 2013. It lies adjacent to the subject hotel and is a direct competitor. 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 trades at a higher occupancy than the competitive set with the majority of the hotels in the set having a similar number of bedrooms. The accessible location of the hotel is advantageous from an occupancy perspective and the fact that the ADR of the subject is lower than the comp set suggests there is some scope for the hotel to continue to drive ADR.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

7.3. Proposed Supply The current pipeline indicates eight projects (668 rooms), of which seven are confirmed and half are of three-star category. The only notable branded development will be the Courtyard Exeter, comprising 250 rooms and located 1.3 miles south from the subject at Sandy Park, Exeter Rugby Club. The Hampton by Hilton at Exeter airport was recently extended and there has been a new Premier Inn in Exeter City Centre, as well as the city centre Holiday Inn Express which has recently opened and will also be operated by Atlas.

8. Business Analysis

Overview The hotel, which opened in 1998, has experienced strong growth in recent years as the local economy has steadily improved. Near the hotel lie several corporate occupiers, as well as part of Exeter University and the Science Park. This has resulted in good corporate demand for the hotel. The hotel offers free breakfast, in line with the service provisions of the brand. However, it benefits from sharing a site with a Public House, The Miller & Carter, which provides dinner. This allows the hotel to attract foreign leisure guests, in contrast to competitors who do not have a dinner offering and thus deter some leisure groups. The groups come from all over the world, including China, Japan, USA, Germany, Holland and Italy. This helps balance out the corporate demand. The hotel is also well located to take advantage of this demand, lying in between Exeter town centre and Exeter airport. The recent growth in RevPAR has been largely achieved through moving away from contracted corporate business to transient leisure. Corporate bookers are tending to now book direct via the IHG website as a rewards card holder and thus benefiting from the lowest rates available. Many of the hotels corporate guests are regular repeat visitors to the hotel. The hotel has several contracts with local corporates that account for a significant proportion of their business. These include the Met Office (circa 900 room nights at £82, although volumes have been lower recently), which is situated directly behind the hotel, and the College. The hotel sits in front a Science Park and a business park. Consequently, it can take advantage of this proximity to several local, national and international corporates. These include EDF Energy, Flybe, the Met office and the University of Exeter. We understand that EDF have recently reduced staff numbers which has resulted in the hotel receiving fewer room nights. The hotel acquires most of its bookings through IHG with the remainder coming through online travel agents and direct bookings with the hotel. The OTA business has increased in the last year with bookings.com being the largest contributor at around 530 additional room nights’ year to date compared with last year. The benefit of the hotel is that they do have some regular high Platinum rewards card holders and because occupancy is high at the hotel, the hotel benefits from the full ADR. Ryan Air have recently started up some new flights from Exeter Airport which has already resulted in some park, stay and fly packages. The hotel attracts a reasonable level of dinner bed and breakfast customers who get a £25 spend allowance and so the advantage in eating at the hotel rather than the nearby restaurant is that £25 covers three courses and drinks. The meeting rooms have seen a reduction in demand with the loss of the driver awareness courses. There is strong competition from other hotels and a nearby Regus serviced office. The meeting room income equates to around £18,000 per annum.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

Operating costs are relatively stable. The largest cost pressure is on payroll.

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. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Exeter Business Park, Guardian Road, Exeter EX1 3PE

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

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.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Exeter Business Park, Guardian Road, Exeter EX1 3PE

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

Commentary on C&W Projections The hotel is a stabilised business with occupancy levels extremely consistent ranging between 86 to 87% with the full year forecast for 2019 showing a similar level. We have adopted an occupancy of 86% in each year of our projections. The hotel achieved an ADR of £65.42 in 2018, down slightly from the previous year, although management are forecasting an increase in the current year to £69.71. For the purpose of our assessment we have adopted a year one ADR of £69 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 92% 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 fee 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 £1,234,909, which compares to the forecast for the current year of £1,283,667. The hotel is forecast to achieve a net operating profit margin of 36.8% for the current year compared to 38.6% last year. Our projected net operating profit margin is 35%. After the deduction of the proposed ground rent of £195,811 per annum our adjusted net operating profit is £1,039,098, which is equivalent to a profit margin of 29.4%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

10. Principal Valuation Considerations

Location / Situation and Competition The property is well located. The M5 is approximately 500 metres away, providing excellent accessibility. Exeter airport is three miles away. It also benefits from its proximity to a number of national and international corporates.

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

Tenure 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 £195,811 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.

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, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

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 yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9.5%. Unfortunately, there have been no recent single asset transactions to have traded in Exeter. The latest hotels to be sold include the two Mercure hotels in the city centre which were sold by Lone Star to LRC in early 2018. The closest hotel to have sold more recently is the Hampton by Hilton at Bristol airport which sold in January 2019 for £24.4million which equated to £121,000 per bedroom. We consider that the hotel would achieve a softer yield than those hotels located in prime locations such as Edinburgh and Manchester but a stronger yield than those in weaker locations such as Leigh. 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 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 8.75%. We have adopted a discount rate of 10.75%. 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:

Market Value

Gross Initial Yield 8.75%

Capitalisation Rate 8.75%

Discount Rate 10.75%

Market Value £11,900,000

Capital value Per Bedroom £79,866 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 £520,000 per annum.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

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, Exeter Business Park, Valuation Date: 1 May 2019 Guardian Road, Exeter EX1 3PE

APPENDIX A: MAPS AND PLANS

Holiday Inn Express, Exeter Business Park, Guardian Road, Exeter EX1 3PE

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About Cushman & Wakefield

Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Drive, Paisley PA3 2TJ

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, Glasgow Airport, St Valuation Date: 1 May 2019 Andrews Drive, Paisley PA3 2TJ

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 and Management ...... 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, Glasgow Airport, St Valuation Date: 1 May 2019 Andrews Drive, Paisley PA3 2TJ

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 lies less than 500m away from Glasgow airport and approximately 8.5 miles away from Glasgow’s Central train station.

Description The hotel comprises 143 guest bedrooms with a Bistro Bar, two conference rooms and valeted parking. The Property was constructed in approximately 1999.

Condition Good

Tenure The hotel is held long leasehold to 2180 and subject to an occupational lease to 2074. However, we have been informed by Atlas that this is a property company rental arrangement and that it would fall away on sale.

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) forecast

Occupancy 83.90% 83.29% 85.08%

ADR £67.50 £70.29 £71.44

RevPAR £56.63 £58.55 £60.78

Total Revenue £3,946,218 £3,935,136 £4,081,058

NOI (post FF&E)* £1,184,462 £1,206,570 £1,058,625

Profit Margin 30.0% 30.7% 25.9%

*2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 85.00% 85.00% 85.00%

ADR £71.25 £72.68 £74.13

RevPAR £60.56 £61.77 £63.01

Total Revenue £4,069,560 £4,150,951 £4,233,970

NOI (post FF&E and £957,063 £976,204 £995,728 ground rent)

Profit Margin 23.5% 23.5% 23.5%

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Valuation Date: 1 May 2019 Andrews Drive, Paisley PA3 2TJ

Market Value and Yields

Valuation Date 1 May 2019

Market Value £10,600,000

Capitalisation Rate 9.00% Discount Rate 11.00%

Gross Initial Yield 9.00%

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 • Well located Airport hotel with abundant parking provision. • Modern construction will reduce risk of any immediate repairs. • Strong hotel demand in local area.

Weaknesses / Risks • The hotel is held long leasehold to 2180 and subject to an occupational lease to 2074. However, we have been informed by Atlas that this is a property company rental arrangement and that it would fall away on sale. • Hotel older than several competitors. • Limited corporate contract potential.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Valuation Date: 1 May 2019 Drive, Paisley PA3 2TJ

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 2 May 2019. The inspection was undertaken by Zhana Kostova and Eunice Kalemera.

1. Location

1.1. Location

General Glasgow is Scotland’s largest city with a population of over 626,000 people reported to be living in the city in June 2018 according to the national records of Scotland. It has been recorded that Glasgow received 601,000 overnight visitors in 2017, coming in at the sixth most popular destination in the UK that year (Visit Britain, 2017). Glasgow is one of the UK’s main regional office markets, and has a thriving Central Business District, as well as a number of significant edge of town developments and out of town business parks. The city has the largest economy in Scotland, with the financial and public sectors contributing substantially. The City remains globally competitive in a number of sectors including finance and business services, digital technology, creative, low carbon, health and life science and higher and further education industries (Invest Glasgow, 2019). The hotel is situated approximately 9 miles to the West of Glasgow city centre and is well located within Glasgow Airport. It is located to the immediate North of junction 28 off the M8 motorway. The hotel is visible from the motorway, however, access is confusing due lack of directional signage. The area immediately surrounding the subject hotel predominantly consists of customer and staff car parking, privately run car parking facilities as well car rental returns. The hotel is within walking distance from the airport and can be accessed under a covered walkway.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Valuation Date: 1 May 2019 Drive, Paisley PA3 2TJ

Site Boundary

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

2. Description & Accommodation

Summary The purpose built hotel comprises 143 guest bedrooms with an ancillary Bistro, bar, 2 meeting rooms and 134 car parking spaces. The Property was constructed in 1999 and comprises Ground and 3 upper floors. The Property is of a steel frame construction with a mix of external brick veneer, rendering and panelling. The roofing throughout comprises a dual pitch with metal profile sheeting. The windows were noted to be double glazed aluminium. There are 2 x 8 person passenger lifts and 2 stairwells.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Valuation Date: 1 May 2019 Drive, Paisley PA3 2TJ

Guestrooms The following table summarises the Property's guestroom facilities, based on information provided by the General Manager – Craig Renfrew.

Category Unit Count

Accessibility Rooms 7

Standard Twins 28

Standard Double/Family (with sofa bed) 102

Non Standard Double (with additional single bed) 6

Total 143

There are 4 room types, namely twin, accessible, standard double rooms/family which have a either a sofa bed and non-standard doubles which are located behind the lift on each floor and have an additional single bed (can accommodate up to three guests). There are 28 twin bedrooms and 102 double bedrooms. In addition, there are 7 accessible bedrooms. The bedrooms present well following their full upgrade to “fourth generation” standard which commenced in July 2016 and ended in early 2017. All guest bedrooms are air conditioned.

Food & Beverage The Great Room extends through most of the ground floor entrance area and provides covers for approximately 90 guests with space for an additional 50 at the bar area. The breakfast buffet area is separate to the Great room.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Valuation Date: 1 May 2019 Drive, Paisley PA3 2TJ

Meeting Rooms There are two meeting rooms and which can accommodate 70/30 theatre style and 30/14 in board room style.

Car Parking There are approximately 134 car parking spaces, which are offered at a charge of £8 per night to guests. There is currently no barrier system in place. The General Manager informed us that a system would be installed within the next few months at the expense of Glasgow Airport.

Back of House Accommodation There is appropriate storage and back of house accommodation at ground floor level. The facilities include management offices, single kitchen, stores, plant room and staff accommodation.

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. The hotel has been updated periodically updated with a ground floor refurbishment in 2008 and guest elevators upgrading works in 2013. The bathrooms are the original bathrooms. The most recent refurbishment was completed in July 2016 and involved updating the guest rooms to the most up to date ‘Generation 4’ styling. This includes bedroom carpets, curtains, wall coverings and all case goods and furniture. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £51,622 £77,311

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £12,200,000 (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)

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Valuation Date: 1 May 2019 Drive, Paisley PA3 2TJ

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

We have checked the Scottish Environment Protection Agency (SEPA) website as at 10 May 2019 and note that the Property is not within an area identified as being at risk of flooding.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject Property is determined by Renfrewshire Council We are not aware of any outstanding planning applications. The General Manager informed us that a proposal for a 28 room extension was discussed a few years ago, but not progressed.

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

Business Rates

Demise Description Rateable Values Holiday inn Express, Glasgow Airport Hotel & Premises £580,000

In Scotland, Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 49.0 pence in the pound for properties with a rateable value up to £51,000. Those properties with rateable values in excess of £51,000 are liable for a supplement of 2.6 pence in the pound.

5. Tenure and Management 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 175 year lease (Title Number: REN117115) at a peppercorn rent of £1 per annum, expiring on 16 January 2180. The lease was granted in 2005 and therefore has an unexpired term of approximately 161 years, although the proposal is to sell the long leasehold interest and simultaneously be granted a ground lease back.

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, Glasgow Airport, St Andrews Valuation Date: 1 May 2019 Drive, Paisley PA3 2TJ

Overview

Lease Term 125 years

Rent £180,986 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, the area of Glasgow counts 139 hotels and 11,817 bedrooms, six of which (826 bedrooms) are located within a one-mile radius from the subject Property. Over a third of the total room supply is of budget category (4,255 rooms), followed by four and three-star (3,454 and 2,358 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. Approximately 80% of this total room supply is branded, with a strong presence of Premier Inn and Travelodge in the budget sector.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Valuation Date: 1 May 2019 Drive, Paisley PA3 2TJ

We have been provided STR data for the hotel and the following competitive set of hotels: • Premier Inn Glasgow Airport • Holiday Inn Express Glasgow Airport • Holiday Inn Glasgow Airport • Courtyard Glasgow Airport • Travelodge Glasgow Airport Hotel The competition to the subject hotel is relatively strong with the Premier Inn; Holiday Inn; Marriott Courtyard and Travelodge all in close proximity. 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 has marginally outperformed its competitive set within the last two years with regards to occupancy levels, achieving levels of 83.3% in 2018 compared to that of the market at 79.3%. ADR levels have also followed the same trend, with the subject hotel securing a consistently higher ADR at approximately 13% higher than market levels in both 2017 and 2018. The hotel has also secured consistently strong RevPAR levels for the last two years, generating rates at approximately 15% and 17% higher than the market in 2017 and 2018 respectively. Year to Date March 2019 shows a positive outlook for the new year with an RGI of 124.

7.3. Proposed Supply There are 60 projects currently in the pipeline in Glasgow, 48 of which are confirmed and 1,623 rooms already in construction. In the budget sector, a MOXY Glasgow Scottish Exhibition Centre and Premier Inn St Enoch Square are due to open in 2020.

8. Business Analysis

Overview The Property was built circa 1999 - opening in 2000 – and has a dominant position in the market, leading in all metrics. The majority of the customers are transient in nature – with an overall business mix of around 90% for leisure and 10% for corporate business. It has been reported however, that there has been decline in business at Glasgow Airport as a result of the ongoing Brexit discussions and changes that have occurred due to the movement of airlines to alternative airports, for example the recent move of Ryanair’s International base from Glasgow Airport to Edinburgh Airport. Consequently, the hotel has experienced a decline in the number of family and corporate guests. Historically, the business is busiest from April – October with the off season running during the remainder. November – March is generally more challenging due to fewer flights on offer and less demand from holiday makers. We understand that that the hotels trade during the Easter Period in April 2019 was lower than anticipated.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Valuation Date: 1 May 2019 Drive, Paisley PA3 2TJ

Of the 10% of corporate business generated from the Hotel, we have been advised by management that the key corporate clients include Jet2, Weight Watchers and several companies from the wholesale, premium fashion and specialised medicine sectors. The hotel has capitalised on its market and geographical location close to the airport by offering a number of parking packages – including 133 street and valet parking in partnership with NCP. Through this parking package the hotel is able to provide long stay parking for airport passengers, allowing passengers to be provided with offsite parking through its valet service, depositing the car back within the onsite car park for collection. Long stay parking packages are available for four, eight or 15 days. These packages are only available direct from the hotel and allow the higher than average room rate to be achieved. The hotel provides complimentary breakfast to all guests as part of the room packages, with a typical F&B cost allocation amounting to around £1.25 per cover. We have been informed by management that there is no lunch time trade, apart from that provided within the conference rooms. Approximately 33% of guests are reported to dine within the hotel during the summer months and approximately 25% in the winter months. The hotel employs 48 staff members in total, 19 of which make up internal housekeeping department.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Drive, Paisley PA3 2TJ

-1.4% 7.6% 3.4% 3.8% 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: 143 143 143 143 143 Occupancy rate 80.20% 83.90% 83.29% 85.08% 85.08% Average Room Rate 65.64 67.50 70.29 71.44 73.59 Revenue Per Available Room (RevPAR) 52.64 56.63 58.55 60.78 62.61 Number of Days Open 365 365 365 365 365 Available Rooms 52,195 52,195 52,195 52,195 52,195 Occupied Rooms 41,860 43,792 43,473 44,407 44,407

TOTAL SALES 3,777,011 % POR PAR 3,946,218 % POR PAR 3,935,136 % POR PAR 4,081,058 % POR PAR 4,215,007 % POR PAR

BEDROOMS Room Sales 2,755,171 72.9% 65.82 19,267 2,955,907 74.9% 67.50 20,671 3,055,764 77.7% 70.29 21,369 3,172,592 77.7% 71.44 22,186 3,276,722 77.7% 73.79 22,914 Room Expenses 1,202,062 43.6% 28.72 8,406 1,279,962 43.3% 29.23 8,951 1,335,197 43.7% 30.71 9,337 1,361,517 42.9% 30.66 9,521 1,392,552 42.5% 31.36 9,738 Departmental Profit 1,553,109 56.4% 37.10 10,861 1,675,945 56.7% 38.27 11,720 1,720,567 56.3% 39.58 12,032 1,811,075 57.1% 40.78 12,665 1,884,170 57.5% 42.43 13,176

FOOD & BEVERAGE Food & Beverage Sales 623,794 16.5% 14.90 4,362 609,591 15.4% 13.92 4,263 588,879 15.0% 13.55 4,118 608,828 14.9% 13.71 4,258 628,810 14.9% 14.16 4,397 Other Income / Room Hire 20,979 0.6% 0.50 147 24,985 0.6% 0.57 175 27,455 0.7% 0.63 192 28,938 0.7% 0.65 202 29,888 0.7% 0.67 209 Food & Beverage Cost 182,482 28.3% 4.36 1,276 195,188 30.8% 4.46 1,365 191,269 31.0% 4.40 1,338 191,821 30.1% 4.32 1,341 196,194 29.8% 4.42 1,372 Departmental Profit 462,291 71.7% 11.04 3,233 439,388 69.2% 10.03 3,073 425,065 69.0% 9.78 2,972 445,945 69.9% 10.04 3,118 462,505 70.2% 10.42 3,234 -0.8% -5.0% -3.3% 4.9% 3.7% CAR PARK Car Park Revenue 354,002 9.4% 8.46 2,476 329,630 8.4% 7.53 2,305 256,119 6.5% 5.89 1,791 262,042 6.4% 5.90 1,832 270,642 6.4% 6.09 1,893 Car Park Expenses 262,778 74.2% 6.28 1,838 231,652 70.3% 5.29 1,620 173,332 67.7% 3.99 1,212 189,926 72.5% 4.28 1,328 194,256 71.8% 4.37 1,358 Departmental Profit 91,224 25.8% 2.18 638 97,978 29.7% 2.24 685 82,786 32.3% 1.90 579 72,115 27.5% 1.62 504 76,387 28.2% 1.72 534

TELEPHONE Telephone Revenue 5,871 0.2% 0.14 41 5,712 0.1% 0.13 40 5,284 0.1% 0.12 37 6,520 0.2% 0.15 46 6,734 0.2% 0.15 47 Telephone Expenses 17,110 291.4% 0.41 120 15,294 267.8% 0.35 107 15,108 285.9% 0.35 106 15,849 243.1% 0.36 111 16,210 240.7% 0.37 113 Departmental Profit (11,239) (191.4%) -0.27 79 (9,583) (167.8%) -0.22 67 (9,824) (185.9%) -0.23 69 (9,329) (143.1%) -0.21 65 (9,476) (140.7%) -0.21 66

MISCELLANEOUS Miscellaneous Revenue 17,194 0.5% 0.41 120 20,393 0.5% 0.47 143 1,637 0.0% 0.04 11 2,139 0.1% 0.05 15 2,209 0.1% 0.05 15 Miscellaneous Expenses 1,920 11.2% 0.05 13 1,597 7.8% 0.04 11 249 15.2% 0.01 2 (19,821) (926.6%) -0.45 139 (20,273) (917.6%) -0.46 142 Departmental Profit 15,274 88.8% 0.36 107 18,796 92.2% 0.43 131 1,388 84.8% 0.03 10 21,960 1026.6% 0.49 154 22,482 1017.6% 0.51 157

GROSS OPERATING INCOME 2,110,659 55.9% 50.42 14,760 2,22 2,525 56.3% 50.75 15,542 2,219,981 56.4% 51.07 15,524 2,341,766 57.4% 52.73 16,376 2,436,068 57.8% 54.86 17,035 -3.1% 5.3% -0.1% 5.5% 4.0% LESS EXPENDITURE Administrative & General 81,247 2.2% 1.94 568 92,667 2.3% 2.12 648 91,170 2.3% 2.10 638 101,565 2.5% 2.29 710 103,597 2.5% 2.33 724 Sales & Marketing 57,768 1.5% 1.38 404 61,126 1.5% 1.40 427 46,856 1.2% 1.08 328 55,054 1.3% 1.24 385 76,457 1.8% 1.72 535 Repairs & Maintenance 114,761 3.0% 2.74 803 117,038 3.0% 2.67 818 118,134 3.0% 2.72 826 109,075 2.7% 2.46 763 111,561 2.6% 2.51 780 Energy Costs 190,241 5.0% 4.54 1,330 193,385 4.9% 4.42 1,352 194,496 4.9% 4.47 1,360 208,659 5.1% 4.70 1,459 213,416 5.1% 4.81 1,492 TOTAL UNDISTRIBUTED COSTS 444,017 11.8% 10.61 3,105 464,215 11.8% 10.60 3,246 450,657 11.5% 10.37 3,151 474,353 11.6% 10.68 3,317 505,030 12.0% 11.37 3,532

GROSS OPERATING PROFIT 1,666,642 44.1% 39.81 11,655 1,758,310 44.6% 40.15 12,296 1,769,324 45.0% 40.70 12,373 1,867,413 45.8% 42.05 13,059 1,931,038 45.8% 43.48 13,504 -4.4% 5.5% 0.6% 5.5% 3.4% LESS FIXED COSTS Property Tax 151,725 4.0% 3.62 1,061 252,270 6.4% 5.76 1,764 291,450 7.4% 6.70 2,038 300,440 7.4% 6.77 2,101 300,440 7.1% 6.77 2,101 Franchise Royalty Fees 110,207 2.9% 2.63 771 118,236 3.0% 2.70 827 122,230 3.1% 2.81 855 126,903 3.1% 2.86 887 131,069 3.1% 2.95 917 Rent Payable 448,292 11.9% 10.71 3,135 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 Head Office 75,540 2.0% 1.80 528 78,924 2.0% 1.80 552 78,703 2.0% 1.81 550 81,621 2.0% 1.84 571 84,300 2.0% 1.90 590 Employee Bonus Provision 402 0.0% 0.01 3 6,031 0.2% 0.14 42 99 0.0% 0.00 1 9,596 0.2% 0.22 67 9,980 0.2% 0.22 70 TOTAL FIXED COSTS 786,166 20.8% 18.78 5,498 455,461 11.5% 10.40 3,185 492,482 12.5% 11.33 3,444 518,561 12.7% 11.68 3,626 525,789 12.5% 11.84 3,677

EBITDA (Pre FF&E Reserve) 880,476 23.3% 21.03 6,157 1,302,848 33.0% 29.75 9,111 1,276,842 32.4% 29.37 8,929 1,348,852 33.1% 30.37 9,433 1,405,249 33.3% 31.64 9,827

FF&E RESERVE 113,310 3.0% 2.71 792 118,387 3.0% 2.70 828 70,272 1.8% 1.62 491 109,242 2.7% 2.46 764 126,450 3.0% 2.85 884

NET OPERATING INCOME (Post FF&E Reserve) 767,166 20.3% 18.33 5,365 1,184,462 30.0% 27.05 8,283 1,206,570 30.7% 27.75 8,438 1,239,610 30.4% 27.91 8,669 1,278,798 30.3% 28.80 8,943 -24.5% 54.4% 1.9% 2.7% 3.2% Proposed Ground Rent (448,899) (11.9%) -10.72 3,139 - 0.0% 0.00 0 - 0.0% 0.00 0 180,986 4.4% 4.08 1,266 186,415 4.4% 4.20 1,304

NET OPERATING INCOME (Post Ground Rent) 1,216,065 32.2% 29.05 8,504 1,184,462 30.0% 27.05 8,283 1,206,570 30.7% 27.75 8,438 1,058,625 25.9% 23.84 7,403 1,092,383 25.9% 24.60 7,639

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Valuation Date: 1 May 2019 Andrews Drive, Paisley PA3 2TJ

9. C&W Trading Projections

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Glasgow Airport, St Andrews Drive, Paisley PA3 2TJ

Glasgow Airport lost Emirates and Ryanair!

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: 143 143 143 143 143 Occupancy Rate 85.00% 85.00% 85.00% 85.00% 85.00% Average Room Rate 71.25 72.68 74.13 75.61 77.12 Revenue Per Available Room (RevPAR) 60.56 61.77 63.01 64.27 65.55 Days Open 365 365 365 365 365 Available Rooms 52,195 52,195 52,195 52,195 52,195 Occupied Rooms 44,366 44,366 44,366 44,366 44,366 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 4,069,560 % POR PAR 4,150,951 % POR PAR 4,233,970 % POR PAR 4,318,649 % POR PAR 4,405,022 % POR PAR

BEDROOMS Room Sales 3,161,060 77.7% 71.25 22,105 3,224,281 77.7% 72.68 22,547 3,288,766 77.7% 74.13 22,998 3,354,542 77.7% 75.61 23,458 3,421,633 77.7% 77.12 23,928 Room Expenses 1,350,000 42.7% 30.43 9,441 1,377,000 42.7% 31.04 9,629 1,404,540 42.7% 31.66 9,822 1,432,631 42.7% 32.29 10,018 1,461,283 42.7% 32.94 10,219 Departmental Profit 1,811,060 57.3% 40.82 12,665 1,847,281 57.3% 41.64 12,918 1,884,226 57.3% 42.47 13,176 1,921,911 57.3% 43.32 13,440 1,960,349 57.3% 44.19 13,709

FOOD & BEVERAGE Food & Beverage Sales 610,000 15.0% 13.75 4,266 622,200 15.0% 14.02 4,351 634,644 15.0% 14.30 4,438 647,337 15.0% 14.59 4,527 660,284 15.0% 14.88 4,617 Food & Beverage Cost 192,000 30.0% 4.33 1,343 195,840 30.0% 4.41 1,370 199,757 30.0% 4.50 1,397 203,752 30.0% 4.59 1,425 207,827 30.0% 4.68 1,453 Departmental Profit 448,000 70.0% 10.10 3,133 456,960 70.0% 10.10 3,133 466,099 70.0% 10.51 3,259 475,421 70.0% 10.72 3,325 484,930 70.0% 10.93 3,391

CAR PARK Car Park Revenue 260,000 6.4% 5.86 1,818 265,200 6.4% 5.98 1,855 270,504 6.4% 6.10 1,892 275,914 6.4% 6.22 1,929 281,432 6.4% 6.34 1,968 Car Park Expenses 190,000 73.1% 4.28 1,329 193,800 73.1% 4.37 1,355 197,676 73.1% 4.46 1,382 201,630 73.1% 4.54 1,410 205,662 73.1% 4.64 1,438 Departmental Profit 70,000 26.9% 1.58 490 71,400 26.9% 1.61 1,355 72,828 26.9% 1.64 1,382 74,285 100.0% 1.67 1,410 75,770 26.9% 1.71 1,438 TELEPHONE Telephone Revenue 6,500 0.2% 0.15 45 6,630 0.2% 0.15 46 6,763 0.2% 0.15 46 6,898 0.2% 0.16 48 7,036 0.2% 0.16 49 Telephone Expenses 15,800 243.1% 0.36 110 16,116 243.1% 0.36 113 16,438 243.1% 0.37 115 16,767 243.1% 0.38 117 17,102 243.1% 0.39 120 Departmental Profit (9,300) (143.1%) (0.21) (65) (9,486) (143.1%) (0.21) (66) (9,676) (143.1%) (0.22) (68) (9,869) (143.1%) (0.22) (69) (10,067) (143.1%) (0.23) (70)

MISCELLANEOUS Miscellaneous Revenue 2,000 0.0% 0.05 14 2,040 0.0% 0.05 14 2,081 0.0% 0.05 15 2,122 0.0% 0.05 15 2,165 0.0% 0.05 15 Miscellaneous Expenses (19,800) (990.0%) (0.45) (138) (20,196) (990.0%) (0.46) (141) (20,600) (990.0%) (0.46) (144) (21,012) (990.0%) (0.47) (147) (21,432) (990.0%) (0.48) (150) Departmental Profit 21,800 1090.0% 0.49 152 22,236 1090.0% 0.50 155 22,681 1090.0% 0.51 159 23,134 1090.0% 0.52 162 23,597 1090.0% 0.53 165

GROSS OPERATING INCOME 2,341,560 57.5% 52.78 16,375 2,388,391 57.5% 53.83 16,702 2,436,159 57.5% 54.91 17,036 2,484,882 57.5% 56.01 17,377 2,534,580 57.5% 57.13 17,724

LESS EXPENDITURE Administrative & General 100,000 2.5% 2.25 699 102,000 2.5% 2.30 713 104,040 2.5% 2.35 728 106,121 2.5% 2.39 742 108,243 2.5% 2.44 757 Sales & Marketing 20,348 0.5% 0.46 142 20,755 0.5% 0.47 145 21,170 0.5% 0.48 148 21,593 0.5% 0.49 151 22,025 0.5% 0.50 154 Repairs & Maintenance 110,000 2.7% 2.48 769 112,200 2.7% 2.53 785 114,444 2.7% 2.58 800 116,733 2.7% 2.63 816 119,068 2.7% 2.68 833 Energy Costs 208,000 5.1% 4.69 1,455 212,160 5.1% 4.78 1,484 216,403 5.1% 4.88 1,513 220,731 5.1% 4.98 1,544 225,146 5.1% 5.07 1,574 TOTAL UNDISTRIBUTED COSTS 438,348 10.8% 9.88 3,065 447,115 10.8% 10.08 3,127 456,057 10.8% 10.28 3,189 465,178 10.8% 10.49 3,253 474,482 10.8% 10.69 3,318

GROSS OPERATING PROFIT 1,903,212 46.8% 42.90 13,309 1,941,276 46.8% 43.76 13,575 1,980,102 46.8% 44.63 13,847 2,019,704 46.8% 45.52 14,124 2,060,098 46.8% 46.43 14,406

LESS FIXED COSTS Property Tax 299,300 7.4% 6.75 2,093 305,286 7.4% 6.88 2,135 311,392 7.4% 7.02 2,178 317,620 7.4% 7.16 2,221 323,972 7.4% 7.30 2,266 Management Base Fee 81,391 2.0% 1.83 569 83,019 2.0% 1.87 581 84,679 2.0% 1.91 592 86,373 2.0% 1.95 604 88,100 2.0% 1.99 616 Franchise Royalty Fees 158,053 5.0% 3.56 1,105 161,214 5.0% 3.63 1,127 164,438 5.0% 3.71 1,150 167,727 5.0% 3.78 1,173 171,082 5.0% 3.86 1,196 Franchise Marketing Fees 94,832 3.0% 2.14 663 96,728 3.0% 2.18 676 98,663 3.0% 2.22 690 100,636 3.0% 2.27 704 102,649 3.0% 2.31 718 Employee Bonus Provision 9,500 0.2% 0.21 66 9,690 0.2% 0.22 68 9,884 0.2% 0.22 69 10,081 0.2% 0.23 70 10,283 0.2% 0.23 72 TOTAL FIXED COSTS 643,076 15.8% 14.49 4,497 655,937 15.8% 14.78 4,587 669,056 15.8% 15.08 4,679 682,437 15.8% 15.38 4,772 696,086 15.8% 15.69 4,868

EBITDA (Pre FF&E Reserve) 1,260,136 31.0% 28.40 8,812 1,285,339 31.0% 28.97 8,988 1,311,045 31.0% 29.55 9,168 1,337,266 31.0% 30.14 9,352 1,364,012 31.0% 30.74 9,539

FF&E RESERVE 122,087 3.0% 2.75 854 124,529 3.0% 2.81 871 127,019 3.0% 2.86 888 129,559 3.0% 2.92 906 132,151 3.0% 2.98 924

NET OPERATING INCOME (Post FF&E Reserve) 1,138,049 28.0% 25.65 7,958 1,160,810 28.0% 26.16 8,118 1,184,026 28.0% 26.69 8,280 1,207,707 28.0% 27.22 8,446 1,231,861 28.0% 27.77 8,614

Proposed Ground Rent 180,986 9.5% 4.08 1,266 184,606 9.5% 4.16 1,291 188,298 9.5% 4.24 1,317 192,064 9.5% 4.33 1,343 195,905 9.5% 4.42 1,370

NET OPERATING INCOME (Post Ground Rent) 957,063 23.5% 21.57 6,693 976,204 23.5% 22.00 6,827 995,728 23.5% 22.44 6,963 1,015,643 23.5% 22.89 7,102 1,035,956 23.5% 23.35 7,244

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Valuation Date: 1 May 2019 Andrews Drive, Paisley PA3 2TJ

Commentary on C&W Projections The hotel is a stabilised business with occupancy levels extremely consistent ranging between 80-85% with the full year forecast for 2019 showing a similar level. We have therefore adopted an occupancy of 85% in each year of our projections. The hotel achieved an ADR of £70.29 in 2018, a 4% increase from the previous year, and management are forecasting a further 1.6% increase in the current year to £71.44. For the purpose of our assessment we have adopted a year one ADR of £71.25 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 77.7% 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 £1,138,049, which compares to the forecast for the current year of £1,239,610. The hotel is forecast to achieve a net operating profit margin of 30.4% for the current year compared to 30.7% last year. Our projected net operating profit margin is 28.0%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Valuation Date: 1 May 2019 Andrews Drive, Paisley PA3 2TJ

After the deduction of the proposed ground rent of £180,986 per annum our adjusted net operating profit is £957,063, which is equivalent to a profit margin of 23.5%.

10. Principal Valuation Considerations

Location / Situation and Competition The Property is well located. The M8 is directly adjacent to the hotel, providing excellent accessibility. Furthermore, the subject hotel is 500m away from Glasgow airport and also benefits from its proximity to the Glasgow Airport Business Centre From an investment perspective Derby 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 leasehold basis. In addition to the existing 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 £180,986 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.

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

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Valuation Date: 1 May 2019 Andrews Drive, Paisley PA3 2TJ

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 there would be fewer purchasers 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. We have had regard to the following transactions:

Address Transaction Details

Holiday Inn Express Aberdeen • Sold February 2019 Airport • Interest: Freehold • £11,000,000 • £56,994 per bedroom • The hotel was sold as part of a two property portfolio to M&L Hospitality by developer Dominvs. The hotel’s performance is good considering Aberdeen’s recovering hotel market with the allocated purchase price reflecting an initial yield of 7.6%.

The hotel is a similar location, being close to an airport and will have similar demand drivers compared to the subject hotel. Additionally, the hotel will likely attract most of its demand through the airport much like the subject premises. Hotel Indigo, Glasgow • Sold in October 2018 • £9,490,800 • £101,000 per bedroom • Reported Leasehold NIY: 7.0% • The 175 year leasehold interest in the 94 bedroom upscale hotel was purchased by Heeton Holdings JV with KSH Holdings and Lian Beng Group from Maven Capital. The hotel is located within a more desirable location within the Glasgow city centre. Radisson Blu Hotel, Glasgow • Sold in October 2018 • £39,250,000 • £140,000 per bedroom • Reported NIY: 7.25% (hotel only) • The Swedish hotel owner Pandox the long leasehold interest in the 247- bedroom Radisson Blu Hotel Glasgow for £39.3 million from Azure Group Holdings in

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Valuation Date: 1 May 2019 Andrews Drive, Paisley PA3 2TJ

Address Transaction Details October 2018. The hotel offers a variety of bedrooms and suites, restaurant, bar and gym. There are an additional two retail units, accounting for approximately £5 million of the total value of the asset. The hotel is located within a stronger location, within Glasgow city centre.

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. Specifically, we have had regard to the following sales: The yields for similar quality hotels held on a freehold basis have ranged between 7.00% and 7.6%. 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 7.75%. 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 9.00%. We have adopted a discount rate of 11.00%. 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:

Market Value

Gross Initial Yield 9.00%

Capitalisation Rate 9.00%

Discount Rate 11.00%

Market Value £10,600,000

Capital value Per Bedroom £74,126

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £480,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Glasgow Airport, St Valuation Date: 1 May 2019 Andrews Drive, Paisley PA3 2TJ

APPENDIX A: MAPS AND PLANS

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About Cushman & Wakefield

Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Street, Glasgow, G1 4LW

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, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

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 and Management ...... 7 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, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

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 Riverside area of Glasgow city centre, immediately North of the Clyde and approximately 0.5 miles away from Glasgow’s Central train station.

Description The hotel comprises 128 guest bedrooms with an ancillary bar, restaurant and one meeting room. The Property was constructed in approximately 1997.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) forecast

Occupancy 82.05% 83.37% 85.10%

ADR £69.91 £74.75 £75.22

RevPAR £57.36 £62.32 £64.01

Total Revenue £2,968,613 £3,168,129 £3,219,372

NOI (post FF&E)* £1,151,651 £1,297,274 £1,087,966

Profit Margin 38.8% 40.9% 33.8%

*2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 85.00% 85.00% 85.00%

ADR £75.25 £76.76 £78.29

RevPAR £63.96 £65.24 £66.55

Total Revenue £3,216,928 £3,281,267 £3,346,892

NOI (post FF&E and £1,030,517 £1,050,877 £1,071,645 ground rent)

Profit Margin 32% 32% 32%

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

Market Value and Yields

Valuation Date 1 May 2019

Market Value £11,800,000

Capitalisation Rate 8.75% Discount Rate 10.75%

Gross Initial Yield 8.76%

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 • Central Glasgow location. • Modern construction will reduce risk of any immediate repairs. • Potential to acquire a new tenant for the adjoining restaurant once the current interest expires.

Weaknesses / Risks • Hotel older than several competitors. • Limited corporate contract potential. • Although central location, no critical mass of retail/restaurants nearby, affecting footfall past the restaurant. • Rapid increase in new competition and pipeline competition within the Glasgow City Centre Area. • Lack of events being held within the city centre at present.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 2 May 2019. The inspection was undertaken by Zhana Kostova and Eunice Kalemera.

1. Location

1.1. Location

General The hotel is located within the Riverside area of Glasgow city centre occupying a prominent corner position on Stockwell Street close to the junction with Clyde Street. The immediate surrounding area of the subject hotel predominantly consists of residential property with a few commercial units at ground floor level. The hotel is a short walk from Glasgow’s main shopping streets of Argyle Street, Buchanan Street and Sauchiehall Street. Glasgow is Scotland’s largest city with a population of over 626,000 people reported to be living in the city in June 2018 according to the national records of Scotland. Glasgow is one of the UK’s main regional office markets, and has a thriving Central Business District, as well as a number of significant edge of town developments and out of town business parks. The city has the largest economy in Scotland, with the financial and public sectors contributing substantially. The City remains globally competitive in a number of sectors including finance and business services, digital technology, creative, low carbon, health and life science and higher and further education industries (Invest Glasgow, 2019). Glasgow’s City region is home to more than 48,000 companies representing 28% of Scottish Companies and supporting 34% of the jobs available in Scotland (856,000 jobs) (Invest Glasgow, 2019). The city is also known for its retail offer, with over 5.3 million sq ft of retail space, and is consistently ranked 2nd in the UK, after London. The leisure and restaurant sector has also grown considerably in recent years, attracting a wide range of new entrants. In addition to the above, Glasgow is notable for its primary event venues, namely the Scottish Exhibition and Conference Centre (SECC) and SSE Hydro. These attract over 2 million visitors per year, and the latter is the second busiest music arena in the world in terms of ticket sales. The city is committed to attracting tourism, and is the first city in the UK to have launched a formal Major Events Charter, designed to support organisers bringing major cultural and sporting events to the city. Glasgow continues to attract a growing number of tourists, with reports of 787,000 tourists visiting the City in 2017 representing an increase of 19% compared to the previous year. This generated a spend of £319 million (Invest Glasgow, 2018). The city has a Tourism and Visitor Plan, which envisages an additional million tourists by 2023 and a spending increase of £771 million (Invest Glasgow).

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

Site Boundary

The plan above is shown for indication purposes only and many not accord strictly with the title

plan which we have reviewed.

2. Description & Accommodation

Summary The hotel comprises 128 guest bedrooms with ancillary bar, meeting room and adjoining sub-let restaurant. The Property was constructed in 1997 and comprises Ground and 4 upper floors. The Property comprises a steel frame with brick work elevations under a pitched tiled roof. The windows are aluminium framed. There are 2 guest elevators and 2 stairwells.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

Guestrooms The following table summarises the Property's guestroom facilities, based on information provided by General Manager – Agnes Skowronska.

Category Unit Count

Accessibility Rooms 8

Standard Twins 45

Standard Double/Family 75

Total 128

There are three room types, namely twin, accessible, and double rooms (which can accommodate up to three guests). There are 45 twin bedrooms and 75 double bedrooms. In addition, there are 8 accessible bedrooms. The bedroom stock presents well having been subject to a partial “generation 4” refurbishment which completed in June 2017. All guest bedrooms are air conditioned.

Food & Beverage The ancillary bar and restaurant extends through most of the ground floor entrance area and provides covers for approximately 85 guests. Within the curtilage of the Property, there is a restaurant unit let to a third party on commercial terms. This trades as an Italian restaurant under the name Al dente!

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

Meeting Rooms There are no meeting rooms.

Car Parking There are no parking facilities available for guests on site.

Back of House Accommodation There is appropriate storage and back of house accommodation, including offices, kitchen, stores, plant room and staff accommodation at ground floor level.

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. The hotel has been updated periodically updated with a ground floor refurbishment in 2011 with further bar/breakfast area and corridor renovations in 2013. The bathrooms are the original bathrooms. The most recent refurbishment was carried out in June 2017 and involved updating of the guest rooms to the most up to date ‘Generation 4’ styling. This includes bedroom carpets, curtains and wall coverings. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £40,842 £91,437

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £10,900,000 (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, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

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 Environmental report states that the site is located within an area of high flooding risk. Please refer to the head report for further details.

Environmental Considerations Please refer to head report.

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

Conservation Area and Listed Building Status The Property is not listed and but is located within the Glasgow Central Conservation Area.

Business Rates

Demise Description Rateable Values Holiday Inn Express, Riverside Hotel & Premises £298,000

5. Tenure and Management

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 Heritable, although the proposal is to sell the heritable 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 £192,414 pa to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

Overview

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. Third Party Leases & Other Agreements During the inspection we were informed by hotel management that the adjoining restaurant forms part of the hotels demise. We have been advised that the restaurant was sublet to an independent restaurant operator on a 15 year lease from 2009 for a rent of £14,526 per annum. The tenant advised the hotel that they were to cease trading in December 2018 and vacated the premises without the official termination of the lease and therefore remains unoccupied. As such, the hotel is currently considering a variety of options for the space whilst they await termination of the lease, including potentially re-letting of the space, using the space for their own F&B offering or converting the space to provide additional bedrooms.

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, the city of Glasgow accounts for 121 hotels and 10,228 bedrooms, 30 of which (2,878 rooms) are located within a 0.5-mile radius from the subject Property. Approximately 35% of the room supply is in the budget category (3,560 rooms), followed by four- star (3.130 rooms) and three-star (1,630 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 80% is run by branded operators, such as Holiday Inn, Premier Inn and Travelodge.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

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: • Mercure Glasgow City Hotel • Holiday Inn Express Glasgow City Centre Theatreland • Holiday Inn Express Glasgow City Centre Riverside • Premier Inn Glasgow City Centre South • Campanile Glasgow ibis Glasgow City Centre-Sauchiehall The competition to the subject hotel is relatively strong with the Holiday Inn Express – Theatreland; Mercure; Premier Inn, Campanile and Ibis all in close proximity. 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 has marginally outperformed its competitive set within the last two years with regards to occupancy levels, achieving levels of 83.4% in 2018 compared to that of the market at 80.1%. ADR levels have also followed the same trend, with the subject hotel securing a consistently higher ADR at approximately 12% higher than market levels 2017 and 13% in 2018. The hotel has also secured consistently strong RevPAR levels for the last two years, generating rates at approximately 12% and 17% higher than the market in 2017 and 2018 respectively. Year to Date March 2019 shows a positive outlook for the new year with an RGI of 129.3.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

8. Business Analysis

Overview The hotel is well established having been open for trade since around 1997. The hotel benefits from a business mix split between leisure and corporate. Corporate business account for 10-12% of trade, with the remaining trade coming from leisure equating to approximately 88-90%. The Hydro events venue is competing with major European venues and attracting high profile events, conferences etc. throughout the year, driving a mixture of leisure and business trade through week days and weekends. However, we have been informed by management that there has been a significant decrease in the number of events held within the city centre in 2019 so far, and this is expected to continue throughout the year. Nonetheless, it is anticipated that there 2020 will see a number of well-known events and popular conferences including specialised medical conferences that occur biannually and the hosting of the UEFA Euro 2020.

The hotel has several company contracts at present with third party booking agencies such as Jack Travel that are managed with various dynamic pricing strategies, reflective of anticipated trade throughout the week. OTA’s are hugely relied upon across all hotels within the city centre market. Booking.com remains the dominant platform used to for booking, contributing circa 35% of the hotel’s room nights. The hotel does not benefit from any food and beverage business of any real significance, apart from the breakfast trade which remains a commentary service of the Holiday Inn Express model, with a typical breakfast cost allocation around £1.35 per cover. There are numerous pubs and restaurants in close proximity as well as numerous outlets in the city centre. As such the meal offer centres around the snack/bar menu in the evening. There is limited demand for meeting room hire and the hotel has removed their meeting room to create a larger Great Room. The hotel currently employs 19 people across the hotel, excluding housekeeping which is outsourced.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Street, Glasgow, G1 4LW

8.7% 6.6% 8.6% 2.7% 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: 128 128 128 128 128 Occupancy rate 83.36% 82.05% 83.37% 85.10% 85.10% Average Room Rate 64.57 69.91 74.75 75.22 77.48 Revenue Per Available Room (RevPAR) 53.83 57.36 62.32 64.01 65.93 Number of Days Open 365 365 366 365 365 Available Rooms 46,720 46,720 46,848 46,720 46,720 Occupied Rooms 38,946 38,335 39,056 39,758 39,758

TOTAL SALES 2,742,534 % POR PAR 2,968,613 % POR PAR 3,168,129 % POR PAR 3,219,372 % POR PAR 3,325,038 % POR PAR

BEDROOMS Room Sales 2,521,608 91.9% 64.75 19,700 2,679,828 90.3% 69.91 20,936 2,911,543 91.9% 74.55 22,746 2,990,693 92.9% 75.22 23,365 3,088,854 92.9% 77.69 24,132 Room Expenses 910,986 36.1% 23.39 7,117 942,741 35.2% 24.59 7,365 1,039,332 35.7% 26.61 8,120 1,078,902 36.1% 27.14 8,429 1,103,495 35.7% 27.76 8,621 Departmental Profit 1,610,622 63.9% 41.35 12,583 1,737,087 64.8% 45.31 13,571 1,872,210 64.3% 47.94 14,627 1,911,791 63.9% 48.09 14,936 1,985,358 64.3% 49.94 15,511

FOOD & BEVERAGE Food & Beverage Sales 117,669 4.3% 3.02 919 121,632 4.1% 3.17 950 155,748 4.9% 3.99 1,217 153,019 4.8% 3.85 1,195 158,042 4.8% 3.98 1,235 Other Income / Room Hire - 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 Food & Beverage Cost 38,935 33.1% 1.00 304 43,004 35.4% 1.12 336 53,280 34.2% 1.36 416 47,481 31.0% 1.19 371 48,563 30.7% 1.22 379 Departmental Profit 78,734 66.9% 2.02 615 78,628 64.6% 2.05 614 102,467 65.8% 2.62 801 105,538 69.0% 2.65 825 109,478 69.3% 2.75 855

CAR PARK Car Park Revenue 53,613 2.0% 1.38 419 61,793 2.1% 1.61 483 70,009 2.2% 1.79 547 69,072 2.1% 1.74 540 71,340 2.1% 1.79 557 Car Park Expenses 29,119 54.3% 0.75 227 29,153 47.2% 0.76 228 32,202 46.0% 0.82 252 28,667 41.5% 0.72 224 29,321 41.1% 0.74 229 Departmental Profit 24,494 45.7% 0.63 191 32,641 52.8% 0.85 255 37,807 54.0% 0.97 295 40,405 58.5% 1.02 316 42,019 58.9% 1.06 328

TELEPHONE Telephone Revenue 2,577 0.1% 0.07 20 1,985 0.1% 0.05 16 2,103 0.1% 0.05 16 2,679 0.1% 0.07 21 2,767 0.1% 0.07 22 Telephone Expenses 14,311 555.4% 0.37 112 12,955 652.7% 0.34 101 13,605 647.1% 0.35 106 12,546 468.4% 0.32 98 12,832 463.8% 0.32 100 Departmental Profit (11,734) (455.4%) -0.30 92 (10,971) (552.7%) -0.29 86 (11,502) (547.1%) -0.29 90 (9,867) (368.4%) -0.25 77 (10,065) (363.8%) -0.25 79

MISCELLANEOUS Miscellaneous Revenue 47,068 1.7% 1.21 368 103,375 3.5% 2.70 808 28,727 0.9% 0.74 224 3,909 0.1% 0.10 31 4,037 0.1% 0.10 32 Miscellaneous Expenses 45,216 96.1% 1.16 353 51,195 49.5% 1.34 400 28,942 100.7% 0.74 226 (17,141) (438.5%) -0.43 134 (17,531) (434.3%) -0.44 137 Departmental Profit 1,852 3.9% 0.05 14 52,180 50.5% 1.36 408 (215) (0.7%) -0.01 2 21,050 538.5% 0.53 164 21,569 534.3% 0.54 169

GROSS OPERATING INCOME 1,703,967 62.1% 43.75 13,312 1,889,566 63.7% 49.29 14,762 2,000,767 63.2% 51.23 15,631 2,068,917 64.3% 52.04 16,163 2,148,359 64.6% 54.04 16,784

LESS EXPENDITURE Administrative & General 73,700 2.7% 1.89 576 86,538 2.9% 2.26 676 90,701 2.9% 2.32 709 85,738 2.7% 2.16 670 87,453 2.6% 2.20 683 Sales & Marketing 77,145 2.8% 1.98 603 81,179 2.7% 2.12 634 61,021 1.9% 1.56 477 85,799 2.7% 2.16 670 92,666 2.8% 2.33 724 Repairs & Maintenance 79,532 2.9% 2.04 621 72,516 2.4% 1.89 567 67,724 2.1% 1.73 529 73,638 2.3% 1.85 575 75,316 2.3% 1.89 588 Energy Costs 107,306 3.9% 2.76 838 102,920 3.5% 2.68 804 111,772 3.5% 2.86 873 123,264 3.8% 3.10 963 126,074 3.8% 3.17 985 TOTAL UNDISTRIBUTED COSTS 337,683 12.3% 8.67 2,638 343,153 11.6% 8.95 2,681 331,218 10.5% 8.48 2,588 368,439 11.4% 9.27 2,878 381,509 11.5% 9.60 2,981

GROSS OPERATING PROFIT 1,366,284 49.8% 35.08 10,674 1,546,413 52.1% 40.34 12,081 1,669,549 52.7% 42.75 13,043 1,700,479 52.8% 42.77 13,285 1,766,850 53.1% 44.44 13,804

LESS FIXED COSTS Property Tax 144,139 5.3% 3.70 1,126 146,300 4.9% 3.82 1,143 149,745 4.7% 3.83 1,170 154,364 4.8% 3.88 1,206 154,364 4.6% 3.88 1,206 Rental Income Receivable - 0.0% 0.00 0 (14,517) (0.5%) -0.38 113 (14,517) (0.5%) -0.37 113 (12,340) (0.4%) -0.31 96 (14,514) (0.4%) -0.37 113

Franchise Royalty Fees 102,229 3.7% 2.62 799 105,829 3.6% 2.76 827 116,462 3.7% 2.98 910 119,628 3.7% 3.01 935 123,554 3.7% 3.11 965 Employee Bonus Provision 5,342 0.2% 0.14 42 8,720 0.3% 0.23 68 647 0.0% 0.02 5 7,883 0.2% 0.20 62 8,198 0.2% 0.21 64 TOTAL FIXED COSTS 306,561 11.2% 7.87 2,395 305,703 10.3% 7.97 2,388 315,699 10.0% 8.08 2,466 333,923 10.4% 8.40 2,609 338,104 10.2% 8.50 2,641

EBITDA (Pre FF&E Reserve) 1,059,723 38.6% 27.21 8,279 1,240,710 41.8% 32.36 9,693 1,353,849 42.7% 34.66 10,577 1,366,556 42.4% 34.37 10,676 1,428,747 43.0% 35.94 11,162

FF&E RESERVE 82,276 3.0% 2.11 643 89,058 3.0% 2.32 696 56,575 1.8% 1.45 442 86,176 2.7% 2.17 673 99,751 3.0% 2.51 779

NET OPERATING INCOME (Post FF&E Reserve) 977,447 35.6% 25.10 7,636 1,151,651 38.8% 30.04 8,997 1,297,274 40.9% 33.22 10,135 1,280,380 39.8% 32.20 10,003 1,328,996 40.0% 33.43 10,383

Proposed Ground Rent (14,517) (0.5%) -0.37 113 - 0.0% 0.00 0 - 0.0% 0.00 0 192,414 6.0% 4.84 1,503 198,186 6.0% 4.98 1,548

NET OPERATING INCOME (Post Ground Rent) 991,964 36.2% 25.47 7,750 1,151,651 38.8% 30.04 8,997 1,297,274 40.9% 33.22 10,135 1,087,966 33.8% 27.36 8,500 1,130,810 34.0% 28.44 8,834

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

9. C&W Trading Projections

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Street, Glasgow, G1 4LW

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: 128 128 128 128 128 Occupancy Rate 85.00% 85.00% 85.00% 85.00% 85.00% Average Room Rate 75.25 76.76 78.29 79.86 81.45 Revenue Per Available Room (RevPAR) 63.96 65.24 66.55 67.88 69.24 Days Open 365 365 365 365 365 Available Rooms 46,720 46,720 46,720 46,720 46,720 Occupied Rooms 39,712 39,712 39,712 39,712 39,712 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 3,216,928 % POR PAR 3,281,267 % POR PAR 3,346,892 % POR PAR 3,413,830 % POR PAR 3,482,106 % POR PAR

BEDROOMS Room Sales 2,988,328 92.9% 75.25 23,346 3,048,095 92.9% 76.76 23,813 3,109,056 92.9% 78.29 24,290 3,171,238 92.9% 79.86 24,775 3,234,662 92.9% 81.45 25,271 Room Expenses 1,075,000 36.0% 27.07 8,398 1,096,500 36.0% 27.61 8,566 1,118,430 36.0% 28.16 8,738 1,140,799 36.0% 28.73 8,912 1,163,615 36.0% 29.30 9,091 Departmental Profit 1,913,328 64.0% 48.18 14,948 1,951,595 64.0% 49.14 15,247 1,990,626 64.0% 50.13 15,552 2,030,439 64.0% 51.13 15,863 2,071,048 64.0% 52.15 16,180

FOOD & BEVERAGE Food & Beverage Sales 153,000 4.8% 3.85 1,195 156,060 4.8% 3.93 1,219 159,181 4.8% 4.01 1,244 162,365 4.8% 4.09 1,268 165,612 4.8% 4.17 1,294 Food & Beverage Cost 47,500 31.0% 1.20 371 48,450 31.0% 1.22 379 49,419 31.0% 1.24 386 50,407 31.0% 1.27 394 51,416 31.0% 1.29 402 Departmental Profit 105,500 69.0% 2.66 824 107,610 69.0% 2.66 824 109,762 69.0% 2.76 858 111,957 69.0% 2.82 875 114,197 69.0% 2.88 892

OTHER Other Revenue 69,000 2.1% 1.74 539 70,380 2.1% 1.77 550 71,788 2.1% 1.81 561 73,223 2.1% 1.84 572 74,688 2.1% 1.88 583 Other Expenses 28,600 41.4% 0.72 223 29,172 41.4% 0.73 228 29,755 41.4% 0.75 232 30,351 41.4% 0.76 237 30,958 41.4% 0.78 242 Departmental Profit 40,400 58.6% 1.02 316 41,208 58.6% 1.04 228 42,032 58.6% 1.06 232 42,873 100.0% 1.08 237 43,730 58.6% 1.10 242 TELEPHONE Telephone Revenue 2,700 0.1% 0.07 21 2,754 0.1% 0.07 22 2,809 0.1% 0.07 22 2,865 0.1% 0.07 22 2,923 0.1% 0.07 23 Telephone Expenses 12,500 463.0% 0.31 98 12,750 463.0% 0.32 100 13,005 463.0% 0.33 102 13,265 463.0% 0.33 104 13,530 463.0% 0.34 106 Departmental Profit (9,800) (363.0%) (0.25) (77) (9,996) (363.0%) (0.25) (78) (10,196) (363.0%) (0.26) (80) (10,400) (363.0%) (0.26) (81) (10,608) (363.0%) (0.27) (83)

MISCELLANEOUS Miscellaneous Revenue 3,900 0.1% 0.10 30 3,978 0.1% 0.10 31 4,058 0.1% 0.10 32 4,139 0.1% 0.10 32 4,221 0.1% 0.11 33 Miscellaneous Expenses (17,000) (435.9%) (0.43) (133) (17,340) (435.9%) (0.44) (135) (17,687) (435.9%) (0.45) (138) (18,041) (435.9%) (0.45) (141) (18,401) (435.9%) (0.46) (144) Departmental Profit 20,900 535.9% 0.53 163 21,318 535.9% 0.54 167 21,744 535.9% 0.55 170 22,179 535.9% 0.56 173 22,623 535.9% 0.57 177

GROSS OPERATING INCOME 2,070,328 64.4% 52.13 16,174 2,111,735 64.4% 53.18 16,498 2,153,969 64.4% 54.24 16,828 2,197,049 64.4% 55.32 17,164 2,240,990 64.4% 56.43 17,508

LESS EXPENDITURE Administrative & General 85,700 2.7% 2.16 670 87,414 2.7% 2.20 683 89,162 2.7% 2.25 697 90,946 2.7% 2.29 711 92,764 2.7% 2.34 725 Sales & Marketing 16,085 0.5% 0.41 126 16,406 0.5% 0.41 128 16,734 0.5% 0.42 131 17,069 0.5% 0.43 133 17,411 0.5% 0.44 136 Repairs & Maintenance 73,500 2.3% 1.85 574 74,970 2.3% 1.89 586 76,469 2.3% 1.93 597 77,999 2.3% 1.96 609 79,559 2.3% 2.00 622 Energy Costs 123,000 3.8% 3.10 961 125,460 3.8% 3.16 980 127,969 3.8% 3.22 1,000 130,529 3.8% 3.29 1,020 133,139 3.8% 3.35 1,040 TOTAL UNDISTRIBUTED COSTS 298,285 9.3% 7.51 2,330 304,250 9.3% 7.66 2,377 310,335 9.3% 7.81 2,424 316,542 9.3% 7.97 2,473 322,873 9.3% 8.13 2,522

GROSS OPERATING PROFIT 1,772,043 55.1% 44.62 13,844 1,807,484 55.1% 45.51 14,121 1,843,634 55.1% 46.43 14,403 1,880,507 55.1% 47.35 14,691 1,918,117 55.1% 48.30 14,985

LESS FIXED COSTS Property Tax 153,800 4.8% 3.87 1,202 156,876 4.8% 3.95 1,226 160,014 4.8% 4.03 1,250 163,214 4.8% 4.11 1,275 166,478 4.8% 4.19 1,301 Management Base Fee 64,339 2.0% 1.62 503 65,625 2.0% 1.65 513 66,938 2.0% 1.69 523 68,277 2.0% 1.72 533 69,642 2.0% 1.75 544 Rental Income Receivable (12,500) (0.4%) (0.31) (98) (12,500) (0.4%) (0.31) (98) (12,500) (0.4%) (0.31) (98) (12,500) (0.4%) (0.31) (98) (12,500) (0.4%) (0.31) (98) Franchise Royalty Fees 149,416 5.0% 3.76 1,167 152,405 5.0% 3.84 1,191 155,453 5.0% 3.91 1,214 158,562 5.0% 3.99 1,239 161,733 5.0% 4.07 1,264 Franchise Marketing Fees 89,650 3.0% 2.26 700 91,443 3.0% 2.30 714 93,272 3.0% 2.35 729 95,137 3.0% 2.40 743 97,040 3.0% 2.44 758 Rent Payable - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - Employee Bonus Provision 7,900 0.2% 0.20 62 8,058 0.2% 0.20 63 8,219 0.2% 0.21 64 8,384 0.2% 0.21 65 8,551 0.2% 0.22 67 TOTAL FIXED COSTS 452,605 14.1% 11.40 3,536 461,907 14.1% 11.63 3,609 471,395 14.1% 11.87 3,683 481,073 14.1% 12.11 3,758 490,944 14.1% 12.36 3,836

EBITDA (Pre FF&E Reserve) 1,319,439 41.0% 33.23 10,308 1,345,577 41.0% 33.88 10,512 1,372,239 41.0% 34.55 10,721 1,399,434 41.0% 35.24 10,933 1,427,172 41.0% 35.94 11,150

FF&E RESERVE 96,508 3.0% 2.43 754 98,438 3.0% 2.48 769 100,407 3.0% 2.53 784 102,415 3.0% 2.58 800 104,463 3.0% 2.63 816

NET OPERATING INCOME (Post FF&E Reserve) 1,222,931 38.0% 30.79 9,554 1,247,139 38.0% 31.40 9,743 1,271,832 38.0% 32.03 9,936 1,297,019 38.0% 32.66 10,133 1,322,709 38.0% 33.31 10,334

Proposed Ground Rent 192,414 10.8% 4.85 1,503 196,262 10.8% 4.94 1,533 200,188 10.8% 5.04 1,564 204,191 10.8% 5.14 1,595 208,275 10.8% 5.24 1,627

NET OPERATING INCOME (Post Ground Rent) 1,030,517 32.0% 25.95 8,051 1,050,877 32.0% 26.46 8,210 1,071,645 32.0% 26.99 8,372 1,092,827 32.0% 27.52 8,538 1,114,434 32.0% 28.06 8,707

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

Commentary on C&W Projections The hotel is a stabilised business with occupancy levels extremely consistent ranging between 82-85% 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 £74.75 in 2018, an increase of around 6% on the previous year. For the purpose of our assessment we have adopted a year one ADR of £75.25 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 93% 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 We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. 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. We have been advised by hotel ownership that the current retail outlet is no longer occupied, nonetheless the hotel will continue receiving rental income from the current tenant. We have therefore incorporated the rental income of £14,526 generated from the retail outlet, based on the assumption that the unit will be re-let for an equivalent amount. 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 £1,222,931, which compares to the forecast for the current year of £1,280,380. The hotel is forecast to achieve a net operating profit margin of 39.8% for the current year compared to 40.9% last year. Our projected net operating profit margin is 38.0%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

After the deduction of the proposed ground rent of £192,414 per annum our adjusted net operating profit is £1,030,517, which is equivalent to a profit margin of 32.0%.

10. Principal Valuation Considerations

Location / Situation and Competition The Property is well located in the Riverside area of Glasgow City Centre. Other competitors are in similar central locations scattered around the centre. Furthermore, the subject hotel is 800m away from Glasgow Central train station. Glasgow offers a range of drivers, including flagship retail, top quality concerts, events and conferences, in addition to the business accommodation needs of its growing commercial sector. From an investment perspective Glasgow 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.

The proposed rent payable will be £192,414 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. However, income security may be affected by the increased level of competition generated from the anticipated pipeline supply and apparent market volatility from other changes occurring within the local market. 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.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

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 there would be fewer purchasers in the market than for the equivalent freehold interest.

10.1. Market Value

Address Transaction Details

The hotel is located within close proximity to a major transport hub, being located by Aberdeen airport. The hotel will therefore be subject to different demand drivers compared to the subject hotel which is located within the Glasgow city centre. Hotel Indigo, Glasgow • Sold in October 2018 • £9,490,800 • £101,000 per bedroom • Reported Leasehold NIY: 7.0% • The 175 year leasehold interest in the 94 bedroom upscale hotel was purchased by Heeton Holdings JV with KSH Holdings and Lian Beng Group from Maven Capital. The hotel is located within a more central location within the Glasgow city centre. Radisson Blu Hotel, Glasgow • Sold in October 2018 • £39,250,000 • £140,000 per bedroom • Reported NIY: 7.25% (hotel only) • The Swedish hotel owner Pandox the long leasehold interest in the 247- bedroom Radisson Blu Hotel

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

Address Transaction Details Glasgow for £39.3 million from Azure Group Holdings in October 2018. The hotel offers a variety of bedrooms and suites, restaurant, bar and gym. There are an additional two retail units, accounting for approximately £5 million of the total value of the asset. The hotel is located within a relatively similar location within Glasgow city centre.

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 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 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 8.75%. We have adopted a discount rate of 10.75%. 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 approach and inputs:

Market Value

Gross Initial Yield 8.76%

Capitalisation Rate 8.75%

Discount Rate 10.75%

Market Value £11,800,000

Capital value Per Bedroom £92,188 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 £520,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Riverside, 122 Stockwell Valuation Date: 1 May 2019 Street, Glasgow, G1 4LW

APPENDIX A: MAPS AND PLANS

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About Cushman & Wakefield

Valuation of: Holiday Inn Express Gloucester South, Waterwells Business Park, Davy Way, Quedgeley, Gloucester GL2 2AB

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Valuation of: Holiday Inn Express Gloucester South, Cushman & Wakefield | Morgan Stanley Bank N.A. Waterwells Business Park, Davy Way, Quedgeley, Valuation Date: 1 May 2019 Gloucester GL2 2AB

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 ...... 11 10. Principal Valuation Considerations ...... 14 Appendix A: Maps and Plans ...... 17

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 lies to the north of Junction 12 of the M5 Motorway, to the east of the A38, in Watermills Business Park. The hotel is about 3.5 miles to the south of Gloucester city centre.

Description The hotel comprises 106 guest bedrooms with ancillary Great Room and three meeting rooms. The property was constructed in 2000.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) forecast

Occupancy 82.79% 84.36% 84.38%

ADR £60.99 £63.65 £66.63

RevPAR £50.49 £53.70 £56.23

Total Revenue £2,115,156 £2,257,777 £2,329,866

NOI (post FF&E)* £744,406 £898,830 £760,225

Profit Margin 35.2% 39.8% 32.6%

*2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 84.00% 84.00% 84.00%

ADR £67.00 £68.34 £69.71

RevPAR £56.28 £57.41 £58.55

Total Revenue £2,330,673 £2,377,287 £2,424,832

NOI (post FF&E and £725,363 £739,871 £754,668 ground rent)

Profit Margin 31.1% 31.1% 31.1%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £7,100,000

Capitalisation Rate 10.25% Discount Rate 12.25%

Gross Initial Yield 10.25%

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 just south of Junction 12 of the M5 Motorway, in Waterwells Business Park; • Good provision of car parking; • Extend relationship with local corporates;

Weaknesses / Risks • No formal dining offer; • 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 9 May 2019. The inspection was undertaken by Ian Thompson.

1. Location

1.1. Location

General Gloucester is a city, district and county town of Gloucestershire in the South West region of England. Gloucester lies close to the Welsh border, and on the River Severn, approximately 32 miles (51 km) north-east of Bristol, 45 miles (72 km) south-southwest of Birmingham and approximated 100 miles (160 km) north west of London. According to the latest estimate in mid- 2017, Gloucester count a resident population of 129,083. The corporate hinterland is strong, not only from the business park, but also from such large corporates such as Gardiner Brothers and the Government listening post, GCHQ. The Health sector is the largest in terms of employees accounting for some 14% or 39,000 of the total number of employees. Hospital activities account for the largest number of employees spread across the numerous hospitals in the County as well as residential care. This locally concentrated sector has experienced an annual average growth rate of 3% which is represented by almost a 20% growth in the number of employees. The Manufacturing sector is the second largest sector with 35,000 employees equating to 13% of the total number of employees which is well above the regional and national figures indicating that the sector is the most locally concentrated of all the sectors. The computer, electronic and optical products, fabricated metal products, manufacture of machinery and equipment, aerospace, rubber and plastics and food products sub sectors account for the highest number of employees. The hotel lies to the north of Junction 12 of the M5 Motorway, to the east of the A38, in Watermills Business Park. The hotel is about 3.5 miles to the south of Gloucester city centre and is well located to serve the Cotswolds and the Forest of Dean, both tourist destinations. Gloucester Cathedral, used as Hogwarts School in the Harry Potter films is a major attraction and Cheltenham, with its Regency architecture and famous racecourse, is a short drive distant. Gloucester Cathedral, in the north of the city near the river, originates in the foundation of an abbey dedicated to Saint Peter in 681. It is the burial place of King Edward II of England and Walter de Lacy. The main sport in Gloucester is rugby union where the club competes in the top division of the premiership and comprises a good number of international players. The nearest rail station is in Gloucester, with services to Bristol (to the west) and London (to the east). Gloucestershire Airport is located between Cheltenham and Gloucester. It provides services to the Isle of Man, Belfast and Jersey. The main airport in the area is at Bristol. Bristol

Airport located at Lulsgate Bottom in North Somerset, is the commercial airport serving the city of Bristol, located roughly 40 miles from the subject property.

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 106 guest bedrooms with ancillary Great Room and three meeting rooms. The property was constructed in approximately 2000 and comprises ground and two upper floors of brick construction underneath a pitched, tiled mansard roof. 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 26

Double 74

Accessible 6

Total 106

There are three room types, namely twin, accessible and double rooms (which can accommodate up to three guests). There are 26 twin bedrooms and 74 double bedrooms. In addition, there are 6 accessible bedrooms. The style of the bedrooms is fourth generation and they present well as they were just refurbished in Q3 2016. The guest bedrooms are not air conditioned.

Food & Beverage The Great Room extends through most of the ground floor entrance area and provides covers for approximately 100 guests. The breakfast buffet area is separate to the Great room.

Meeting Rooms There are three meeting room on the ground floor which can accommodate from 25 to 35 delegates theatre style.

Car Parking

There are approximately 90 Car parking spaces allocated to the hotel, which are offered free of charge to guests. There are about 40 additional spaces that are allocated to the adjacent public house, The Bumble Bee, which does not form part of the hotel.

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. The public areas on the ground floor are anticipated to be this year per the General Manager but this has not been confirmed to us by the borrower and costs have not been provided for our review. The most recent refurbishment was in Q3 2016 which included bedroom carpets, curtains and wall coverings. The Great room has not been refurbished in several years but it still presents well. There are currently no immediate plans for further refurbishment other than the afore mentioned public areas. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £11,534 £22,291

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £9,100,000 (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.

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 Gloucester City Council. There are no outstanding planning applications which are awaiting decision.

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, South Hotel & Premises £215,000 Gloucester 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. The Property is held freehold (Title Number: GR215943) 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 £134,825 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 29 hotels and 1,599 bedrooms in Gloucester city, three of which (136 rooms) are located within a one-mile radius from the subject Property. Circa half of the total room supply is in the budget category, followed by four-star (392 rooms), and three-star (304 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. Of this supply, approximately 65% is branded, with a strong presence of Premier Inn 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: • Holiday Inn Gloucester Cheltenham • Holiday Inn Express Gloucester South • Premier Inn Gloucester Barnwood • Travelodge Gloucester • ibis Gloucester The competition to the subject hotel is not within the immediate environs of the hotel which bodes well for capturing market share not concentrated in the city centre. The Premier Inn and Travelodge are the most direct competitors to the hotel given the quality of product and service offer. 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 122 in 2018. For the first three months of 2019, the hotel has increased its MPI and ARI rates.

7.3. Proposed Supply There are five projects in the pipeline in Gloucester at the moment, all of independent nature except for the extension of the Premier Inn Gloucester Barnwood, 21 rooms. All other projects are in the three-star category and in their planning phase.

8. Business Analysis

Overview The hotel originally opened in 2000 and is situated in the Waterwells Business Park in close proximity to the M5. The hotel has managed to improve its trading performance in recent years and benefits from being within a reasonable distance to a number of corporate occupiers, which comprises the majority of demand at the hotel. Some of the more prominent corporate clients at the hotel include McDonalds, Slimming World, and G4S (security services). Corporates rates generally range from £60 to £80 per night and generate 200 to 250 room nights per company. Leisure demand was reported to comprise approximately 40% of the business, of which tour groups can account for as much as 75% of occupancy on certain nights. Other leisure demand generators in the area include Gloucester Quays shopping centre, Cheltenham Racecourse, and Kingsholm rugby stadium. The hotel offers free breakfast, in line with the service provisions of the brand. The recent growth in RevPAR has been largely achieved through leveraging room demand from tour groups on quiet nights at the hotel and procuring additional room nights from local corporates. Many of the hotels corporate guests are regular repeat visitors to the hotel. The hotel is used either as a base to explore the Cotswolds or attend local events or a stopping point for visitors travelling to other destinations given its proximity to the M5 motorway. The hotel acquires most about half of its bookings through IHG with the remainder coming through online travel agents (OTAs) or through direct bookings with the hotel. The OTA business has been a consistent demand driver in recent years generating approximately a third of rooms business. Booking.com and expedia are the largest contributors, but booking.com is a significantly stronger demand driver. Commissions paid to the OTAs range from 8% to 10%. There are three meeting rooms at the hotel which are all similar in size, seating anywhere from 25 to 35 delegates theatre style. The rooms are predominantly sold on a room hire basis with an additional option to add beverage or light food service. The quoted room hire rates are £150 for a full day and £75 for a half day. Income from month to month can be quite variable. The hotel offers beverages, pizzas and light snacks through the bar and a 24/7 kiosk in the lobby. Food and beverage revenues at the hotel have not been a major portion of business, generally gravitating towards only 5.0% of total trading. The proximity of the adjacent public house known as ‘The Bumble Bee’ is a bit of a detriment in this regard as most guests prefer to leave the hotel for meals besides breakfast.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Gloucester South, Waterwells Business Park, Davy Way, Valuation Date: 1 May 2019 Quedgeley, Gloucester GL2 2AB

Valuation of: Holiday Inn Express Gloucester South, Cushman & Wakefield | Morgan Stanley Bank N.A. Waterwells Business Park, Davy Way, Quedgeley, Valuation Date: 1 May 2019 Gloucester GL2 2AB

9. C&W Trading Projections

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Gloucester South, Waterwells Business Park, Davy Way, Valuation Date: 1 May 2019 Quedgeley, Gloucester GL2 2AB

Property Record Valuation of: Holiday Inn Express Gloucester South, Cushman & Wakefield | Morgan Stanley Bank N.A. Waterwells Business Park, Davy Way, Quedgeley, Valuation Date: 1 May 2019 Gloucester GL2 2AB

Commentary on C&W Projections The hotel is a stabilised business with occupancy levels extremely consistent at around 84%. However, notably, the hotel has been able to improve ADR through both the transient segment and also pushing up agreed corporate rates. The hotel benefits from a high proportion of repeat business. The hotel achieved an ADR of £63.65 in 2018, which was 4.3% up on the previous year, and the forecast for 2019 is set to see a further growth of 4.6%. For the purpose of our assessment we have adopted a year one ADR of £67 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 94% 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 £860,188, which compares to the forecast for the current year of £895,050. The hotel is forecast to achieve a net operating profit margin of 38.4% for the current year compared to 39.8% last year. Our projected net operating profit margin is 36.9%. After the deduction of the proposed ground rent of £134,825 per annum our adjusted net operating profit is £725,363, which is equivalent to a profit margin of 31.1%.

10. Principal Valuation Considerations

Location / Situation and Competition The hotel lies to the north of Junction 12 of the M5 Motorway, to the east of the A38, in Watermills Business Park. The hotel is about 3.5 miles to the south of Gloucester city centre and is well located to serve the Cotswolds and the Forest of Dean, both tourist destinations. Gloucester Cathedral, used as Hogwarts School in the Harry Potter films is a major attraction and Cheltenham, with its Regency architecture and famous racecourse, is a short drive distant.

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

Tenure 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 £134,825 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.

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. 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 7.5% and 9.5%. Unfortunately, there have been no recent single asset transactions to have traded in Gloucester or the M5 corridor with the exception of the Hampton by Hilton at Bristol Airport which sold in January 2019 for £24.4million at around £121,000 per bedroom. The Hallmark Gloucester hotel sold in February 2019, but we have been unable to identify any individual apportionment of the overall purchase price. 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 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 adopted a capitalisation rate of 10.25%. We have adopted a discount rate of 12.25%. 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. In summary, in arriving at our opinion of value we have adopted the following:

Market Value

Gross Initial Yield 10.25%

Capitalisation Rate 10.25%

Discount Rate 12.25%

Market Value £7,100,000

Capital value Per Bedroom £66,981 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 £360,000 per annum.

Appendix A: Maps and Plans Valuation of: Holiday Inn Express Gloucester South, Cushman & Wakefield | Morgan Stanley Bank N.A. Waterwells Business Park, Davy Way, Quedgeley, Valuation Date: 1 May 2019 Gloucester GL2 2AB

APPENDIX A: MAPS AND PLANS

Holiday Inn Express Gloucester South,Davy Way, Gloucester GL2 2AB

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

ES753998 press Gloucester South, Waterwells Business Park, Davy Way, Quedgeley, Glouce

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.

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About Cushman & Wakefield

Valuation of: Holiday Inn Express - Hamilton Keith Street, Hamilton ML3 7LB

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 - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

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 and Management ...... 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 - Hamilton Keith Valuation Date: 1 May 2019 Street, Hamilton ML3 7LB

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 lies less than 100m away from Hamilton town centre and adjacent to the slip road leading to the M74.

Description The hotel opened in 2010 and comprises 104 guest bedrooms with Great Room and three conference rooms. There is no dedicated parking on site, although abundant public parking is available nearby

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10 Forecast)

Occupancy 82.07% 80.26% 82.27%

ADR £62.65 £66.65 £66.76

RevPAR £51.41 £53.49 £54.92

Total Revenue £2,123,313 £2,244,908 £2,281,039

NOI (post FF&E)* £625,845 £762,626 £588,065

Profit Margin 29.5% 34.0% 25.8%

* 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 £66.75 £68.09 £69.45

RevPAR £54.74 £55.83 £56.95

Total Revenue £2,273,741 £2,319,215 £2,365,600

NOI (post FF&E and £553,253 £564,318 £575,605 ground rent)

Profit Margin 24.3% 24.3% 24.3%

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

Market Value and Yields

Valuation Date 1 May 2019

Market Value £5,000,000

Capitalisation Rate 11.00% Discount Rate 13.00%

Gross Initial Yield 11.00%

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.

Valuations subject to Special Assumptions None requested

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • Modern construction will reduce risk of any immediate repairs. • Limited hotels within Hamilton to offer competition.

Weaknesses / Risks • Limited corporate contract potential. • Less desirable location.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

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 Nick Maltby MRICS.

1. Location

1.1. Location

General The hotel is situated approximately within central Hamilton and approximately 15 miles to the South West of Glasgow city centre. It is located to the immediate West of junction 6 off the M74 motorway. The area immediately surrounding the subject hotel predominantly consists of customer and staff car parking and shopping facilities – namely The Regent Shopping Centre which lies to the West of the subject hotel. The hotel is within walking distance from Hamilton town centre and further shopping facilities. Hamilton Palace Towers Retail Park sits immediately to the north. Hamilton forms part of the Glasgow conurbation, and is the 4th largest town in Scotland. It is a popular commuter town, with a catchment population of 1.62 million within a 30 minute drive time (CACI). The town is the administrative centre for South Lanarkshire, where job growth has recently been concentrated in the high-tech and service sectors. Hamilton International Technology Park, 2 miles west of the town centre, is one of Scotland’s most successful enterprise zones and home to over 6,300 staff across 80 companies including John Lewis, HSBC, Scottish Power and Babcock Rail. Hamilton is also notable for its award-winning Hamilton Park Racecourse. Horse racing is Scotland’s 2nd most watched sport and contributes an estimated £173 million annually to the Scottish economy.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

Site Boundary

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

2. Description & Accommodation

Summary The purpose built hotel comprises 5 floors and provides 104 guest bedrooms with a ground floor bar and restaurant, 3 meeting rooms but no car parking provision. The property was constructed in 2008 and comprises Ground and 4 upper floors. There is a retail unit at lower ground level / ground level to the east elevation occupied by Next Home which is understood to be in separate ownership. The Property is of a steel frame construction with a mix of painted render, glazed and panel finishes. The roofing throughout is flat in nature and presumably covered in a waterproof membrane. The windows were noted to be double glazed aluminium framed units. It is understood that the hotel was originally built as a higher specification Holiday Inn and benefits from 24 sq. m rooms which are generous for the Holiday Inn Express brand standard.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

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

Category Unit Count

Accessibility Rooms (2 Dbl, 4 Twin) 6

Standard Twins 32

Standard Double/Family (with sofa bed) 66

Total 104

There are three room types, namely twin, accessible and standard double/twin rooms (which can accommodate up to three guests). There are 32 twin bedrooms and 66 double bedrooms. In addition, there are 6 accessible bedrooms. The style of the bedrooms is fourth generation and present well after being upgraded in spring 2017. All guest bedrooms are air conditioned.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

Food & Beverage The Great Room extends through most of the ground floor entrance area and provides covers for approximately 110 guests. The breakfast buffet area is separate to the Great room.

Meeting Rooms There are two meeting rooms, and which can accommodate 60 delegates.

Car Parking There is no parking provided on-site. There is abundant council provided parking at Keith Street at rates of £5.80 per 24 hour period. Overnight parking is also permitted at the retail park at nil cost. Back of House Accommodation There is appropriate storage and back of house accommodation. Including offices, kitchen, stores, plant room and staff accommodation. Air conditioning condensers and plant is situated at ground level to the rear of the property within a secure yard.

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. The hotel has was updated and involved updating of the guest rooms to the most up to date ‘Generation 4’ styling. This includes bedroom carpets, curtains and wall coverings. We do not consider that a purchaser would allow for any additional capital expenditure over and above the FF&E reserve.

Upcoming Refurbishment Works We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £16,732 £65,726

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

The expenditure in 2018 was for minor works. The forecast expenditure in 2019 is allocated for general improvements to the building.

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £8,900,000 (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 Please refer to head report.

Flooding Risk Please refer to head report.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject property is determined by South Lanarkshire 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, Hotel & Premises £274,500 Hamilton In Scotland, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 49.0 pence in the pound for properties with a rateable value up to £51,000. Those properties with rateable values in excess of £51,000 are liable for a supplement of 2.6 pence in the pound.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

5. Tenure and Management

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 on a long leasehold (Title LAN192382), expiring 28 November 2156, with a rent of £1 per annum, if asked. 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 £114,394 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 six hotels in Hamilton, with 243 bedrooms, all of which are located within a 1.5-mile radius of the subject Property. More than half of the total supply is of budget category, followed by three star and hostel. The three categories make the entirety of the supply, and the two branded properties accounting for half the rooms are the Days Inn Hamilton and the subject Property. 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.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

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: • Holiday Inn Express Strathclyde Park M74 Junction • Holiday Inn Glasgow East Kilbride • DoubleTree by Hilton Hotel Strathclyde • Premier Inn Glasgow Bellshill • Macdonald Crutherland House • Holiday Inn Express Hamilton • Premier Inn Glasgow East Kilbride Nerston Toll The competition to the subject hotel is reasonable with the hotels noted above, located in similarly sized towns in relative proximity to Glasgow and transport links. 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 has outperformed the competitive set in occupancy for the last three years. ADR has fluctuated over the last three years, with the subject property’s ADR competing at a similar level at YTD 2019. The Hotel is outperforming the competitive set overall as evidenced by the RGI score of 118.3 at YTD 2019.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

7.3. Proposed Supply There are four projects currently in the pipeline in Hamilton (327 rooms), with a Premier Inn Hamilton and a Hampton by Hilton Hamilton Park currently in construction and accounting for two thirds of these rooms in the budget and three-star sector.

8. Business Analysis

Overview Hamilton Holiday Inn Express has had a soft refurbishment over the last three years and is now a ‘generation four’ hotel. The hotel opened in 2007. This is fundamentally a corporate hotel, making up approximately 70% of total rooms business. Corporate business is dominant during the week days of Monday to Thursday. The hotel has a broad base of corporate contracts. The highest revenue generating contracts are Siemens, who have an agreed rate of £82 bed and breakfast. Siemens are providing approximately 200 room nights to the hotel annually. The Siemens guests predominantly stay on the Tuesday and Wednesday nights when the hotel is at its busiest. As these are the busiest nights of the week for the hotel, Siemens pay a higher rate than other corporate contracts The other main corporate contract is Linbrooke who are on an agreed rate of £65. These guests tend to stay each night of the week, not specifically on a Tuesday or a Wednesday. The hotel receives some transient corporate business. This tends to be railways project related and windfarms business. As this is project work, this can be quite sporadic. Weekends are dominated by leisure guests who come mostly from the north of England. There are some Scottish guests. There is a handful of international guests, including Chinese groups and the occasional European group or transient leisure travellers. Leisure guests are drawn to the hotel due to its proximity to Tollcross International Swimming Centre and RavensCraig Regional Sports Facility. Spectators and athletes both stay at the hotel during events at each venue. Most bookings (approximately 60%) are received directly through the brand website or by telephone. approximately 20% of bookings come through Online Travel Agents (OTA’s). the remainder come through other channels such as consortia and group tour websites. Breakfast is served between 6.30am and 9.30am weekdays and 7.00am to 10.30am during the weekend. The hotel provides very few individual lunches with perhaps three covers a week. It does however provide for some conference lunches when requested. The hotel provides a 24 hour snack menu. During dinner the menu is added to with a few dishes of the day. There is a reasonable uptake of dinner during the week with approximately 50 dinners served over that period. There are three meeting rooms at the hotel, which have a good occupancy, with 250 to 300 room hires a year. There is one major client, the Red Cross who conduct first aid training in these rooms. Of the 300 room hires a year, the Red Cross account for approximately 160 of them. Room hire is set at £250 per day. There is no parking at the hotel, but guests can use the nearby public parking (NCP) or they can park in the retail car park to the rear/side of the hotel.

Historic 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. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express - Hamilton Keith Street, Hamilton ML3 7LB

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: 104 104 104 104 104 Occupancy rate 82.40% 82.07% 80.26% 82.27% 82.27% Average Room Rate 60.60 62.65 66.65 66.76 68.77 Revenue Per Available Room (RevPAR) 49.93 51.41 53.49 54.92 56.57 Number of Days Open 365 365 365 365 365 Available Rooms 37,960 37,960 37,960 37,960 37,960 Occupied Rooms 31,279 31,153 30,466 31,229 31,229

TOTAL SALES 2,071,437 % POR PAR 2,123,313 % POR PAR 2,244,908 % POR PAR 2,281,039 % POR PAR 2,355,907 % POR PAR

BEDROOMS Room Sales 1,901,179 91.8% 60.78 18,281 1,951,621 91.9% 62.65 18,766 2,030,631 90.5% 66.65 19,525 2,084,934 91.4% 66.76 20,047 2,153,366 91.4% 68.95 20,705 Room Expenses 732,049 38.5% 23.40 7,039 782,620 40.1% 25.12 7,525 802,930 39.5% 26.35 7,720 836,771 40.1% 26.79 8,046 855,845 39.7% 27.41 8,229 Departmental Profit 1,169,130 61.5% 37.38 11,242 1,169,001 59.9% 37.52 11,240 1,227,701 60.5% 40.30 11,805 1,248,163 59.9% 39.97 12,002 1,297,521 60.3% 41.55 12,476

FOOD & BEVERAGE Food & Beverage Sales 83,618 4.0% 2.67 804 100,333 4.7% 3.22 965 136,776 6.1% 4.49 1,315 139,116 6.1% 4.45 1,338 143,682 6.1% 4.60 1,382 Other Income / Room Hire 39,237 1.9% 1.25 377 36,155 1.7% 1.16 348 42,586 1.9% 1.40 409 44,987 2.0% 1.44 433 46,463 2.0% 1.49 447 Food & Beverage Cost 25,137 20.5% 0.80 242 34,191 25.1% 1.10 329 44,407 24.8% 1.46 427 41,988 22.8% 1.34 404 42,945 22.6% 1.38 413 Departmental Profit 97,719 79.5% 3.12 940 102,297 74.9% 3.28 984 134,955 75.2% 4.43 1,298 142,115 77.2% 4.55 1,366 147,200 77.4% 4.71 1,415

TELEPHONE Telephone Revenue 1,555 0.1% 0.05 15 1,745 0.1% 0.06 17 1,596 0.1% 0.05 15 2,045 0.1% 0.07 20 2,112 0.1% 0.07 20 Telephone Expenses 14,656 942.7% 0.47 141 16,648 954.1% 0.53 160 13,996 876.7% 0.46 135 11,174 546.4% 0.36 107 11,429 541.1% 0.37 110 Departmental Profit (13,101) (842.7%) -0.42 126 (14,903) (854.1%) -0.48 143 (12,399) (776.7%) -0.41 119 (9,129) (446.4%) -0.29 88 (9,316) (441.1%) -0.30 90

MISCELLANEOUS Miscellaneous Revenue 45,848 2.2% 1.47 441 33,459 1.6% 1.07 322 33,319 1.5% 1.09 320 9,957 0.4% 0.32 96 10,284 0.4% 0.33 99 Miscellaneous Expenses 37,763 82.4% 1.21 363 32,838 98.1% 1.05 316 36,304 109.0% 1.19 349 (417) (4.2%) -0.01 4 (427) (4.1%) -0.01 4 Departmental Profit 8,085 17.6% 0.26 78 622 1.9% 0.02 6 (2,985) (9.0%) -0.10 29 10,374 104.2% 0.33 100 10,710 104.1% 0.34 103

GROSS OPERATING INCOME 1,261,832 60.9% 40.34 12,133 1,257,017 59.2% 40.35 12,087 1,347,272 60.0% 44.22 12,955 1,391,523 61.0% 44.56 13,380 1,446,115 61.4% 46.31 13,905

LESS EXPENDITURE Administrative & General 104,762 5.1% 3.35 1,007 89,350 4.2% 2.87 859 127,665 5.7% 4.19 1,228 102,837 4.5% 3.29 989 104,894 4.5% 3.36 1,009 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 59,157 2.9% 1.89 569 57,030 2.7% 1.83 548 41,215 1.8% 1.35 396 57,401 2.5% 1.84 552 64,601 2.7% 2.07 621 Repairs & Maintenance 66,538 3.2% 2.13 640 70,463 3.3% 2.26 678 61,798 2.8% 2.03 594 77,150 3.4% 2.47 742 78,909 3.3% 2.53 759 Energy Costs 77,119 3.7% 2.47 742 77,911 3.7% 2.50 749 83,761 3.7% 2.75 805 87,800 3.8% 2.81 844 89,801 3.8% 2.88 863 TOTAL UNDISTRIBUTED COSTS 307,576 14.8% 9.83 2,957 294,753 13.9% 9.46 2,834 314,440 14.0% 10.32 3,023 325,189 14.3% 10.41 3,127 338,205 14.4% 10.83 3,252

GROSS OPERATING PROFIT 954,256 46.1% 30.51 9,176 962,264 45.3% 30.89 9,253 1,032,832 46.0% 33.90 9,931 1,066,334 46.7% 34.15 10,253 1,107,910 47.0% 35.48 10,653

LESS FIXED COSTS Property Tax 88,983 4.3% 2.84 856 125,676 5.9% 4.03 1,208 82,961 3.7% 2.72 798 146,030 6.4% 4.68 1,404 146,030 6.2% 4.68 1,404 Franchise Royalty Fees 95,059 4.6% 3.04 914 97,581 4.6% 3.13 938 101,532 4.5% 3.33 976 104,246 4.6% 3.34 1,002 107,668 4.6% 3.45 1,035 Head Office 41,429 2.0% 1.32 398 42,466 2.0% 1.36 408 44,898 2.0% 1.47 432 45,621 2.0% 1.46 439 47,118 2.0% 1.51 453 Employee Bonus Provision 8,406 0.4% 0.27 81 6,996 0.3% 0.22 67 727 0.0% 0.02 7 6,920 0.3% 0.22 67 7,197 0.3% 0.23 69 TOTAL FIXED COSTS 233,877 11.3% 7.48 2,249 272,720 12.8% 8.75 2,622 230,117 10.3% 7.55 2,213 302,817 13.3% 9.70 2,912 308,013 13.1% 9.86 2,962

EBITDA (Pre FF&E Reserve) 720,379 34.8% 23.03 6,927 689,544 32.5% 22.13 6,630 802,714 35.8% 26.35 7,718 763,518 33.5% 24.45 7,342 799,897 34.0% 25.61 7,691

FF&E RESERVE 62,143 3.0% 1.99 598 63,699 3.0% 2.04 612 40,088 1.8% 1.32 385 61,059 2.7% 1.96 587 70,677 3.0% 2.26 680

NET OPERATING INCOME (Post FF&E Reserve) 658,236 31.8% 21.04 6,329 625,845 29.5% 20.09 6,018 762,626 34.0% 25.03 7,333 702,459 30.8% 22.49 6,754 729,220 31.0% 23.35 7,012

Proposed Ground Rent - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 114,394 5.0% 3.66 1,100 117,826 5.0% 3.77 1,133

NET OPERATING INCOME (Post Ground Rent) 658,236 31.8% 21.04 6,329 625,845 29.5% 20.09 6,018 762,626 34.0% 25.03 7,333 588,065 25.8% 18.83 5,654 611,395 26.0% 19.58 5,879

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

9. C&W Trading Projections

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express - Hamilton Keith Street, Hamilton ML3 7LB

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: 104 104 104 104 104 Occupancy Rate 82.00% 82.00% 82.00% 82.00% 82.00% Average Room Rate 66.75 68.09 69.45 70.84 72.25 Revenue Per Available Room (RevPAR) 54.74 55.83 56.95 58.09 59.25 Days Open 365 365 365 365 365 Available Rooms 37,960 37,960 37,960 37,960 37,960 Occupied Rooms 31,127 31,127 31,127 31,127 31,127 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 2,273,741 % POR PAR 2,319,215 % POR PAR 2,365,600 % POR PAR 2,412,912 % POR PAR 2,461,170 % POR PAR

BEDROOMS Room Sales 2,077,741 91.4% 66.75 19,978 2,119,295 91.4% 68.09 20,378 2,161,681 91.4% 69.45 20,785 2,204,915 91.4% 70.84 21,201 2,249,013 91.4% 72.25 21,625 Room Expenses 845,000 40.7% 27.15 8,125 861,900 40.7% 27.69 8,288 879,138 40.7% 28.24 8,453 896,721 40.7% 28.81 8,622 914,655 40.7% 29.38 8,795 Departmental Profit 1,232,741 59.3% 39.60 11,853 1,257,395 59.3% 40.40 12,090 1,282,543 59.3% 41.20 12,332 1,308,194 59.3% 42.03 12,579 1,334,358 59.3% 42.87 12,830

FOOD & BEVERAGE Food & Beverage Sales 139,000 6.1% 4.47 1,337 141,780 6.1% 4.55 1,363 144,616 6.1% 4.65 1,391 147,508 6.1% 4.74 1,418 150,458 6.1% 4.83 1,447 Other Income / Room Hire 45,000 2.0% 1.45 433 45,900 2.0% 1.47 441 46,818 2.0% 1.50 450 47,754 2.0% 1.53 459 48,709 2.0% 1.56 468 Food & Beverage Cost 42,320 23.0% 1.36 407 43,166 23.0% 1.39 415 44,030 23.0% 1.41 423 44,910 23.0% 1.44 432 45,809 23.0% 1.47 440 Departmental Profit 141,680 77.0% 4.55 1,362 144,514 77.0% 4.55 1,362 147,404 77.0% 4.74 1,417 150,352 77.0% 4.83 1,446 153,359 77.0% 4.93 1,475 TELEPHONE Telephone Revenue 2,000 0.1% 0.06 19 2,040 0.1% 0.07 20 2,081 0.1% 0.07 20 2,122 0.1% 0.07 20 2,165 0.1% 0.07 21 Telephone Expenses 11,200 560.0% 0.36 108 11,424 560.0% 0.37 110 11,652 560.0% 0.37 112 11,886 560.0% 0.38 114 12,123 560.0% 0.39 117 Departmental Profit (9,200) (460.0%) (0.30) (88) (9,384) (460.0%) (0.30) (90) (9,572) (460.0%) (0.31) (92) (9,763) (460.0%) (0.31) (94) (9,958) (460.0%) (0.32) (96)

MISCELLANEOUS Miscellaneous Revenue 10,000 0.4% 0.32 96 10,200 0.4% 0.33 98 10,404 0.4% 0.33 100 10,612 0.4% 0.34 102 10,824 0.4% 0.35 104 Miscellaneous Expenses (500) (5.0%) (0.02) (5) (510) (5.0%) (0.02) (5) (520) (5.0%) (0.02) (5) (531) (5.0%) (0.02) (5) (541) (5.0%) (0.02) (5) Departmental Profit 10,500 105.0% 0.34 101 10,710 105.0% 0.34 103 10,924 105.0% 0.35 105 11,143 105.0% 0.36 107 11,366 105.0% 0.37 109

GROSS OPERATING INCOME 1,375,721 60.5% 44.20 13,228 1,403,235 60.5% 45.08 13,493 1,431,300 60.5% 45.98 13,762 1,459,926 60.5% 46.90 14,038 1,489,124 60.5% 47.84 14,319

LESS EXPENDITURE Administrative & General 102,318 4.5% 3.29 984 104,365 4.5% 3.35 1,004 106,452 4.5% 3.42 1,024 108,581 4.5% 3.49 1,044 110,753 4.5% 3.56 1,065 Information & Technology - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - Sales & Marketing 11,369 0.5% 0.37 109 11,596 0.5% 0.37 112 11,828 0.5% 0.38 114 12,065 0.5% 0.39 116 12,306 0.5% 0.40 118 Repairs & Maintenance 77,480 3.4% 2.49 745 79,030 3.4% 2.54 760 80,610 3.4% 2.59 775 82,222 3.4% 2.64 791 83,867 3.4% 2.69 806 Energy Costs 88,000 3.9% 2.83 846 89,760 3.9% 2.88 863 91,555 3.9% 2.94 880 93,386 3.9% 3.00 898 95,254 3.9% 3.06 916 TOTAL UNDISTRIBUTED COSTS 279,167 12.3% 8.97 2,684 284,750 12.3% 9.15 2,738 290,445 12.3% 9.33 2,793 296,254 12.3% 9.52 2,849 302,179 12.3% 9.71 2,906

GROSS OPERATING PROFIT 1,096,554 48.2% 35.23 10,544 1,118,485 48.2% 35.93 10,755 1,140,854 48.2% 36.65 10,970 1,163,671 48.2% 37.38 11,189 1,186,945 48.2% 38.13 11,413

LESS FIXED COSTS Property Tax 142,000 6.2% 4.56 1,365 144,840 6.2% 4.65 1,393 147,737 6.2% 4.75 1,421 150,692 6.2% 4.84 1,449 153,705 6.2% 4.94 1,478 Management Base Fee 45,475 2.0% 1.46 437 46,384 2.0% 1.49 446 47,312 2.0% 1.52 455 48,258 2.0% 1.55 464 49,223 2.0% 1.58 473 Franchise Royalty Fees 103,887 5.0% 3.34 999 105,965 5.0% 3.40 1,019 108,084 5.0% 3.47 1,039 110,246 5.0% 3.54 1,060 112,451 5.0% 3.61 1,081 Franchise Marketing Fees 62,332 3.0% 2.00 599 63,579 3.0% 2.04 611 64,850 3.0% 2.08 624 66,147 3.0% 2.13 636 67,470 3.0% 2.17 649 Employee Bonus Provision 7,000 0.3% 0.22 67 7,140 0.3% 0.23 69 7,283 0.3% 0.23 70 7,428 0.3% 0.24 71 7,577 0.3% 0.24 73 TOTAL FIXED COSTS 360,694 15.9% 11.59 3,468 367,908 15.9% 11.82 3,538 375,266 15.9% 12.06 3,608 382,771 15.9% 12.30 3,680 390,427 15.9% 12.54 3,754

EBITDA (Pre FF&E Reserve) 735,860 32.4% 23.64 7,076 750,577 32.4% 24.11 7,217 765,588 32.4% 24.60 7,361 780,900 32.4% 25.09 7,509 796,518 32.4% 25.59 7,659

FF&E RESERVE 68,212 3.0% 2.19 656 69,576 3.0% 2.24 669 70,968 3.0% 2.28 682 72,387 3.0% 2.33 696 73,835 3.0% 2.37 710

NET OPERATING INCOME (Post FF&E Reserve) 667,647 29.4% 21.45 6,420 681,000 29.4% 21.88 6,548 694,620 29.4% 22.32 6,679 708,513 29.4% 22.76 6,813 722,683 29.4% 23.22 6,949

Proposed Ground Rent 114,394 10.4% 3.68 1,100 116,682 10.4% 3.75 1,122 119,016 10.4% 3.82 1,144 121,396 10.4% 3.90 1,167 123,824 10.4% 3.98 1,191

NET OPERATING INCOME (Post Ground Rent) 553,253 24.3% 17.77 5,320 564,318 24.3% 18.13 5,426 575,605 24.3% 18.49 5,535 587,117 24.3% 18.86 5,645 598,859 24.3% 19.24 5,758

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

C&W Projections The hotel is a stabilised business with occupancy levels showing consistency ranging between 80% - 83% with the full year forecast for 2019 showing an occupancy of 82.27%. We have adopted an occupancy of 82% in each year of our projections. The hotel achieved an ADR of £66.65 in 2018, £4 stronger than the previous year, and management are forecasting a 3.0% increase in the current year to £68.77. For the purpose of our assessment we have adopted a year one ADR of £66.75 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 92% 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 £667,647, which compares to the forecast for the current year of £702,459. The hotel is forecast to achieve a net operating profit margin of 30.8% for the current year compared to 34.0% last year. Our projected net operating profit margin is 29.4%. After the deduction of the proposed ground rent of £114,394 per annum our adjusted net operating profit is £553,253 which is equivalent to a profit margin of 24.3%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

10. Principal Valuation Considerations

Location / Situation and Competition The property is well located. The M74 is directly adjacent to the hotel, providing excellent accessibility. Furthermore, the subject hotel is 100m away from Hamilton town centre.

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 existing 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 £114,394 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.

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 9 to 12 months Market Value?

Purchaser demand is likely to be Good

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

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. 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. We have had regard to the following transactions:

Address Transaction Details

Holiday Inn Express Aberdeen • Sold February 2019 Airport • Interest: Freehold • £11,000,000 • £56,994 per bedroom The hotel was sold as part of a two property portfolio to M&L Hospitality by developer Dominvs. The hotel’s performance is good considering Aberdeen’s recovering hotel market with the allocated purchase price reflecting an initial yield of 7.6%. This hotel is in a better location than the subject, and as it is close to the airport it will have different demand drivers, obtaining most of its demand from the airport. Holiday Inn Express, Strathclyde • Sold June 2018 Park M74 Junction 5 • Interest: Leasehold • £5,500,000 • £45,833 per bedroom The 120-bedroom was sold by Geminex Hotel & Leisure Management to Hetherley Capital Partners. It will continue to be operated under a franchise agreement from IHG and managed by Hetherley Hotel Management. The property is

planned to undergo a comprehensive refurbishment program costing in excess of £1.5m. The Holiday Inn Express Strathclyde is in a similar secondary location as the subject hotel and is a similar size, this makes for a strong comparable.

Holiday Inn Express, Edinburgh • Sold January 2017 City Centre • Interest: Superior Leasehold • £17,725,000 • £100,093 per bedroom The 161-bedroom was sold by FRP Advisory to International Hotel Properties Ltd. This hotel is in a much stronger location than the subject, in Scotland’s prime city.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

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 8.5%. 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 11.00%. We have adopted a discount rate of 13.00%. 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:

Market Value

Gross Initial Yield 11.00%

Capitalisation Rate 11.00%

Discount Rate 13.00%

Market Value £5,000,000

Capital value Per Bedroom £48,077 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 £280,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express - Hamilton Keith Street, Valuation Date: 1 May 2019 Hamilton ML3 7LB

APPENDIX A: MAPS AND PLANS

Holiday Inn Express Hamilton, Keith Street, Hamilton, ML3 7BL

Princes Gate

7 6

emorial

Cinema

8 8

5 8

El Sub Sta

4 o 6

Gas Meter House

9 7 KEIT H ST REET 5 to

1 LB

0m 8 25m 50m 75m

Holiday Inn Express Hamilton, Keith Street, Hamilton, ML3 7BL

Cushman & Wakefield | Morgan Stanley Bank N.A. About Cushman & Wakefield Holiday Inn Express - Valuation Date: 1 May 2019 Hamilton Keith Street, Hamilton ML3 7LB

About Cushman & Wakefield

Valuation of: Holiday Inn Express Hemel Hempstead, Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

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 Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

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 ...... 12 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 Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

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 next to Apsley train station, which has direct links to London Euston.

Description Limited service hotel

Facilities The hotel comprises 116 rooms, ancillary Great Room, three meeting rooms and parking facilities. The hotel was constructed in 2004.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

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

Occupancy 77.21% 81.93% 83.36%

ADR £69.17 £68.52 £70.51

RevPAR £53.41 £56.14 £58.78

Total Revenue £2,455,281 £2,605,289 £2,714,549

NOI (post FF&E)* £911,498 £962,862 £873,138

Profit Margin 37.1% 37.0% 37.5%

* 2019 figures include the proposed ground rent payable

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 83.0% 83.0% 83.0%

ADR £70.25 £71.66 £73.09

RevPAR £58.31 £59.47 £60.66

Total Revenue £2,697,140 £2,751,242 £2,806,267

NOI (post FF&E and £782,269 £795,065 £964,291 ground rent)

Profit Margin 29.0% 29.0% 29.0%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £8,700,000

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

Capitalisation Rate 9.00% Discount Rate 11.00%

Gross Initial Yield 9.00%

Capital expenditure None deducted from gross valuation

Purchase price and date Undisclosed Date: July 2016

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 • Easy connectivity into central London; • Park facilities on site.

Weaknesses / Risks • Potential new supply coming into the market; • Changes in leisure demand resulting in reduced hotel occupancy.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

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 Zhana Kostova.

1. Location

1.1. Location

General The hotel is conveniently located next to Apsley Train Station, which has direct links to London Euston within 30 minutes. It is close to the A41 which has direct links to the M25 to the south and the M40 to the north. Hemel Hempstead is a new town in Hertfordshire, located 24 miles northwest of London. According to the latest information (ONS, 2017), it has a population of just over 100,000. Developed after the Second World War as a new town, it has existed as a settlement since the eighth century. It is part of the district (and borough since 1984) of Dacorum and the Hemel Hempstead constituency. In late 2014, the "Hemel Evolution" project by the council began, with £30 million devoted to improving the town centre's appearance. The project started with the Old Town (one of the six zones in the area as identified by the Hemel Hempstead Town Centre Masterplan). The improvements include a new one-way system, more on-street parking and physical improvements that highlight the Old Town as a conservation area. A new events space has also been created. The overall visual appearance of the Old Town has been enhanced to reflect is historic character through new paving, street furniture, landscaping and improved signage. Bespoke new gates have also been installed at the entrance to the high street at Queensway along with new lighting. There is also an availability of development sites coupled with the commitment and support of Dacorum Borough Council. As an example, Prologis Park was developed on Maylands gateway and comprises of grade A industrial / distribution space, strategically located on the M1 corridor to best serve London and the Midlands. The scheme is aimed to secure over £80 million of private sector investment and based on research undertaken by Prologis, as well as that of Cranfield University, the scheme is aimed to support around 750 -1,000 jobs in the manufacturing and logistics sectors. Additionally, there have been offers for land of over 600,000 square foot on Maylands, including the 150,000+ sq. ft. Aviva Retail Scheme on Maylands Avenue at present consists of retail units and phase two is to add further 7,000 square metres of retail space and A3 units. Marylands building (formerly Diamond Point) is another redevelopment of 140,000 sq. ft. of class “A” offices. The hotel is located on the A4251 road and opposite of it is Apsley train station, making it easily accessible for the corporate and leisure traveller. London’s closes indoor real snow slope is located in Hemel Hempstead and is within a five minute drive of the hotel.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

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 116 bedrooms, the Great Room, three meeting rooms and on-site parking. The Property was constructed in 2004 and comprises a steel frame with brick work elevations under a pitched tiled roof. The windows are aluminium frame double glazed. There are approximately 46 car parking spaces available on site at no extra cost. Additional overflow parking is available within spaces marked for PSP only.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

2.1. Accommodation

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

Category Unit Count % Share

Double (incl. sofa bed) 64 55%

Double (excl. sofa bed) 18 16%

Twin 29 22%

Accessible 5 4%

Total 116 100%

The hotel includes 82 double rooms, 29 twin rooms and five accessible rooms. All bedrooms were upgraded to IHG’s Generation Four (Soft) brand standards at the end of 2015. Bedrooms were redecorated and received new carpets, new wallpaper, new kettle and new hair dryer. Bathrooms were not changed expect for replacing the existing shower curtains with shower screens. All rooms include free wifi and air conditioning.

Food & Beverage The Great Room extends through most of the ground floor entrance area accessed from the reception lobby. Also located in the lobby is a vending machine. The great Room incorporates a bar with sofa seating for 30 covers adjoining the reception area, beyond which is the restaurant area for 80 covers, providing an overall capacity of 110. The breakfast buffet area is located at the end of the Great Room and can be hidden outside breakfast times.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

Meeting Rooms The Property offers three meeting rooms with capacity for up to 40 delegates in theatre style.

Back of House Accommodation Storage, back of the house office and operational areas, are all located on the ground floor.

3. Structural Condition and Repair The Property has been well maintained and was found to be in good condition. In early 2016, all bedrooms and bathrooms were upgraded to IHG Generation Four (soft) brand standards. In the same occasion, the corridors received new carpets and were redecorated. The Great Room has remained unchanged since its opening except for the redecoration of the window frames early this year. 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 £18,114 £50,117 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 £9,900,000 (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 Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

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 located in Flood Zone 1.

Environmental considerations Please refer to head report.

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

Business Rates

Demise Description Rateable Values Holiday Inn Express Hemel Hotel and Premises £262,000 Hempstead 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. The Property is held freehold 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 £144,429 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?

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

Overview

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 15 hotels in Hemel Hempstead, accounting for 979 rooms, seven of which are located less than 1.5 miles from the subject Property. The majority of the supply is of budget category and three 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. Approximately 67% of this supply is branded, mostly Holiday Inn, Premier Inn and Travelodge.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

• Holiday Inn Express Hemel Hempstead • Premier Inn Hemel Hempstead Central • Travelodge Hemel Hempstead Gateway 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*.

Based on the information provided, the hotel has consistently outperformed the competitive set in the last two years, achieving an MPI of 114.2 in 2018. The hotel’s strong performance is also evident in terms of ADR, which despite a small decrease year on year registered an ARI of 112.1 in 2018. RevPAR was consistently higher than the competitive set driven by both occupancy and ADR, with an RGI of 128 in 2018 and over 129 for the three months to March 2019.

7.3. Proposed Supply There are two independent hotels in the pipeline in Hemel Hempstead, accounting for 8 two-star rooms and 30 four-star, both in the planning phase.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

8. Business Analysis

Overview

The property is a well-established, purpose-built hotel having been open for trade since 2004.

The hotel is situated within a 30 minute train journey from central London in the region of amongst other regionally established corporate towns such as Watford, St Albans, Elstree and Luton and is therefore able to draw upon the leisure and corporate demand from the nearby commercial and leisure demand generators.

The overall guest segmentation comprises 60% corporate and 40% leisure guests. The hotel is heavily dominated by business guests during the first part of the week and leisure guests towards the end of the week. Owed to the Property’s business mix, the hotel achieves different levels of occupancy and ADR throughout the week with a significant dip in demand in the shoulder nights of Thursday and Sundays. Moreover, the hotel does not benefit from strong food and beverage and as such the meal offer in the evening is limited to pizzas only and convenient bites. During the course of our site visit, hotel management informed us that owed to the Property’s close proximity to Harry Potter Studios the hotels tends to trade at full occupancy levels during school holidays.

The hotel’s main corporate account is Epson, who have their headquarters at the Westside Development. Other corporate accounts include RES and Sopra Steria. The hotel recently lost the group training contract with HM Prison The Mount, nonetheless they have been aiming to replace it with smaller, although higher rated contracts from local businesses.

The hotel benefits from nearby leisure demand generators including Legoland and Windsor. In addition, it takes advantage of its direct connection to Wembley station, located nearby Wembley stadium, and Euston Station. The hotel is the preferred choice especially by Northern football supporters (i.e. Hull and Norfolk).

The Property acquires most of its bookings through online travel agencies (OTAs). According to hotel management, the number of OTAs-driven bookings has increased throughout the years and in the 2018 the reliance on OTAs was estimated to produce circa 40% of the hotel’s room nights.

At the end of 2015, all rooms were upgraded to IHG Generation Four brand standards (soft refurbishment). All bedrooms received new carpets, wallpapers, kettle and hairdryer, with shower screens in the bathrooms. Corridors received new carpets and were decorated in February 2016. The Great Room has remained unchanged since the hotel opening in 2004. To summarise, the hotel has shown resilience across the period, with key performance indicators demonstrating continued year-on-year growth, with 2019 forecast to register 4.7% YoY increase in RevPAR and 0.5% stronger NOP conversion.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Stationers Pl, Apsley, Hemel Hempstead Valuation Date: 1 May 2019 HP3 9RH

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

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 Hemel Hempstead, Stationers Pl, Apsley, Hemel Hempstead Valuation Date: 1 May 2019 HP3 9RH

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: 116 116 116 116 116 Occupancy Rate 83.00% 83.00% 83.00% 83.00% 83.00% Average Room Rate 70.25 71.66 73.09 74.55 76.04 Revenue Per Available Room (RevPAR) 58.31 59.47 60.66 61.88 63.11 Days Open 365 365 365 365 365 Available Rooms 42,340 42,340 42,340 42,340 42,340 Occupied Rooms 35,142 35,142 35,142 35,142 35,142 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 2,697,140 % POR PAR 2,751,242 % POR PAR 2,806,267 % POR PAR 2,862,393 % POR PAR 2,919,640 % POR PAR

BEDROOMS Room Sales 2,468,740 91.5% 70.25 21,282 2,518,114 91.5% 71.66 21,708 2,568,477 91.5% 73.09 22,142 2,619,846 91.5% 74.55 22,585 2,672,243 91.5% 76.04 23,037 Room Expenses 945,000 38.3% 26.89 8,147 963,900 38.3% 27.43 8,309 983,178 38.3% 27.98 8,476 1,002,842 38.3% 28.54 8,645 1,022,898 38.3% 29.11 8,818 Departmental Profit 1,523,740 61.7% 43.36 13,136 1,554,214 61.7% 44.23 13,398 1,585,299 61.7% 45.11 13,666 1,617,005 61.7% 46.01 13,940 1,649,345 61.7% 46.93 14,218

FOOD & BEVERAGE Food & Beverage Sales 192,000 7.1% 5.46 1,655 195,840 7.1% 5.57 1,688 199,757 7.1% 5.68 1,722 203,752 7.1% 5.80 1,756 207,827 7.1% 5.91 1,792 Other Income / Room Hire 32,000 1.2% 0.91 276 32,640 1.2% 0.93 281 33,293 1.2% 0.95 287 33,959 1.2% 0.97 293 34,638 1.2% 0.99 299 Food & Beverage Cost 63,000 28.1% 1.79 543 64,260 28.1% 1.83 554 65,545 28.1% 1.87 565 66,856 28.1% 1.90 576 68,193 28.1% 1.94 588 Departmental Profit 161,000 71.9% 4.58 1,388 164,220 71.9% 4.58 1,388 167,504 71.9% 4.77 1,444 170,854 71.9% 4.86 1,473 174,272 71.9% 4.96 1,502 TELEPHONE Telephone Revenue 2,000 0.1% 0.06 17 2,200 0.1% 0.06 19 2,244 0.1% 0.06 19 2,289 0.1% 0.07 20 2,335 0.1% 0.07 20 Telephone Expenses 10,600 530.0% 0.30 91 10,812 491.5% 0.31 93 11,028 491.5% 0.31 95 11,249 491.5% 0.32 97 11,474 491.5% 0.33 99 Departmental Profit (8,600) (430.0%) (0.24) (74) (8,612) (391.5%) (0.25) (74) (8,784) (391.5%) (0.25) (76) (8,960) (391.5%) (0.25) (77) (9,139) (391.5%) (0.26) (79)

MISCELLANEOUS Miscellaneous Revenue 2,400 0.1% 0.07 21 2,448 0.1% 0.07 21 2,497 0.1% 0.07 22 2,547 0.1% 0.07 22 2,598 0.1% 0.07 22 Miscellaneous Expenses (10,800) (450.0%) (0.31) (93) (11,016) (450.0%) (0.31) (95) (11,236) (450.0%) (0.32) (97) (11,461) (450.0%) (0.33) (99) (11,690) (450.0%) (0.33) (101) Departmental Profit 13,200 550.0% 0.38 114 13,464 550.0% 0.38 116 13,733 550.0% 0.39 118 14,008 550.0% 0.40 121 14,288 550.0% 0.41 123

GROSS OPERATING INCOME 1,689,340 62.6% 48.07 14,563 1,723,286 62.6% 49.04 14,856 1,757,752 62.6% 50.02 15,153 1,792,907 62.6% 51.02 15,456 1,828,765 62.6% 52.04 15,765

LESS EXPENDITURE Administrative & General 81,000 3.0% 2.30 698 82,620 3.0% 2.35 712 84,272 3.0% 2.40 726 85,958 3.0% 2.45 741 87,677 3.0% 2.49 756 Sales & Marketing 13,486 0.5% 0.38 116 13,756 0.5% 0.39 119 14,031 0.5% 0.40 121 14,312 0.5% 0.41 123 14,598 0.5% 0.42 126 Repairs & Maintenance 88,500 3.3% 2.52 763 90,270 3.3% 2.57 778 92,075 3.3% 2.62 794 93,917 3.3% 2.67 810 95,795 3.3% 2.73 826 Energy Costs 108,000 4.0% 3.07 931 110,160 4.0% 3.13 950 112,363 4.0% 3.20 969 114,610 4.0% 3.26 988 116,903 4.0% 3.33 1,008 TOTAL UNDISTRIBUTED COSTS 290,986 10.8% 8.28 2,508 296,806 10.8% 8.45 2,559 302,742 10.8% 8.61 2,610 308,797 10.8% 8.79 2,662 314,973 10.8% 8.96 2,715

GROSS OPERATING PROFIT 1,398,354 51.8% 39.79 12,055 1,426,480 51.8% 40.59 12,297 1,455,010 51.8% 41.40 12,543 1,484,110 51.8% 42.23 12,794 1,513,792 51.8% 43.08 13,050

LESS FIXED COSTS Property Tax 132,000 4.9% 3.76 1,138 134,640 4.9% 3.83 1,161 137,333 4.9% 3.91 1,184 140,079 4.9% 3.99 1,208 142,881 4.9% 4.07 1,232 Management Base Fee 53,943 2.0% 1.53 465 55,025 2.0% 1.57 474 56,125 2.0% 1.60 484 57,248 2.0% 1.63 494 58,393 2.0% 1.66 503 Rental Income Receivable - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - Franchise Royalty Fees 123,437 5.0% 3.51 1,064 125,906 5.0% 3.58 1,085 128,424 5.0% 3.65 1,107 130,992 5.0% 3.73 1,129 133,612 5.0% 3.80 1,152 Franchise Marketing Fees 74,062 3.0% 2.11 638 75,543 3.0% 2.15 651 77,054 3.0% 2.19 664 78,595 3.0% 2.24 678 80,167 3.0% 2.28 691 Rent Payable - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - Employee Bonus Provision 7,300 0.3% 0.21 63 7,446 0.3% 0.21 64 7,595 0.3% 0.22 65 7,747 0.3% 0.22 67 7,902 0.3% 0.22 68 TOTAL FIXED COSTS 390,742 14.5% 11.12 3,368 398,560 14.5% 11.34 3,436 406,531 14.5% 11.57 3,505 414,662 14.5% 11.80 3,575 422,955 14.5% 12.04 3,646

EBITDA (Pre FF&E Reserve) 1,007,612 37.4% 28.67 8,686 1,027,920 37.4% 29.25 8,861 1,048,479 37.4% 29.84 9,039 1,069,448 37.4% 30.43 9,219 1,090,837 37.4% 31.04 9,404

FF&E RESERVE 80,914 3.0% 2.30 698 82,537 3.0% 2.35 712 84,188 3.0% 2.40 726 85,872 3.0% 2.44 740 87,589 3.0% 2.49 755

NET OPERATING INCOME (Post FF&E Reserve) 926,698 34.4% 26.37 7,989 945,383 34.4% 26.90 8,150 964,291 34.4% 27.44 8,313 983,576 34.4% 27.99 8,479 1,003,248 34.4% 28.55 8,649

Proposed Ground Rent 144,429 10.3% 4.11 1,245 147,318 10.3% 4.19 1,270 150,264 10.3% 4.28 1,295 153,269 10.3% 4.36 1,321 156,335 10.3% 4.45 1,348

NET OPERATING INCOME (Post Ground Rent) 782,269 29.0% 22.26 6,744 798,065 29.0% 22.71 6,880 814,027 29.0% 23.16 7,017 830,307 29.0% 23.63 7,158 846,913 29.0% 24.10 7,301

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

Commentary on 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. Based on the historical performance occupancy levels have increased in the last two years (2017- 2018) and are forecast to continue maintaining that trend, projected to achieve 83.36% in 2019. Taking a general perspective over the achieved occupancy levels, we have adopted a stabilised trading stance at 83% occupancy throughout our projection period. Even though the hotel appears to be able to drive stronger ADR growth that is above the average 2% annual inflation, it registered a 0.9% decline in 2018 due to losing the group training contract with HM Prison The Mount. 2019 forecast projects ADR to reach £70.51 or grow by 2.9% YoY. We have therefore forecast an ADR of £70.25 in our first year, and assumed inflationary increases thereafter taking into account the stabilised nature of the operation. Based on our submitted owner’s projections, total revenue is estimated to be £2.7 million, which is approximately 4.1% ahead the achieved total sales in 2018 and approximately 92% of total revenue. 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 £926,698, which compares to the forecast for the current year of £1,017,568. The hotel is forecast to achieve a net operating profit margin

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

of 37.4% for the current year compared to 38.7% last year. Our projected net operating profit margin is 34.4%. After the deduction of the proposed ground rent of £144,429 per annum our adjusted net operating profit is £782,269, which is equivalent to a profit margin of 29.0%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

10. Principal Valuation Considerations

Location / Situation and Competition

The hotel is conveniently located next to Apsley Train Station, which has direct links to London Euston within 30 minutes. It is close to the A41 which has direct links to the M25 to the south and the M40 to the north. Whilst not located in the heart of the city centre the property occupies a favourable location relative to some of its competitors due to its immediate demand drivers and ease of access. From an investment perspective Hemel Hempstead would be viewed as a secondary hotel market.

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

Tenure At present the hotel is held freehold, however 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 £144,429 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. Even though the hotel is a mature business, as a trading hotel it is likely to be vulnerable to fluctuations of supply and demand of external market forces. The security of income may become more susceptible should there be withdrawal of corporate demand in the immediate area of the hotel. 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.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 9-12 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. 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 consider the subject hotel to be in a lesser location compared to the Holiday Inn Express Stansted and have thus discounted by 100 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. 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 8.00%. 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 9.00%. We have adopted a discount rate of 11.00%. 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:

Market Value

Gross Initial Yield 9.00%

Capitalisation Rate 9.00%

Discount Rate 11.00%

Market Value £8,700,000

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

Market Value

Capital value Per Bedroom 75,000

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £390,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Hemel Hempstead, Valuation Date: 1 May 2019 Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

APPENDIX A: MAPS AND PLANS

Holiday Inn Express Hemel Hempstead Stationers Pl, Apsley, Hemel Hempstead HP3 9RH

a A g EV John Dickenson e

Enterprise Centre

9 o

79 o

o t

El Sub Sta 0 8

6 1 The Paper Mill FB

E C A L 1

P to S 1 R 2 E N Gr IO T A T a S n 14 d to 25 U n io R n iv C e r a n G 2 a a 1 6 l t L t o 21 o o n 3 g 7 ma n C o House u rt 3 8

to 4 9

Hotel

to 2 El Sub Sta 1 5 0

to 6 1 Frances House

6 2

to 7 3

L O N Und D O N R O A D Bond Court S 1 to 49 ta ti on

33 C to o 7 C 1 o ns t, E D & W a rd B

y Cavendish Court

1 6

0m 10m 20m 30m