Proposed Aloft South Arlington

FEASIBILITY STUDY Proposed Aloft South Arlington

SWQ INTERSTATE 20 AND SOUTH COLLINS STREET ARLINGTON, TEXAS

SUBMITTED TO:PR OPOSED PREPARED BY: Mr. Hiren Desai HVS Consulting & Valuation Stonewood Hotels Division of TS Worldwide, LLC 682 Flagstone Drive 2601 Sagebrush Drive, Suite 101 Irving, Texas Flower Mound, Texas, 75028

+1 (469) 995-9645 +1 (972) 890-3548

November-2018

November 8, 2018

Mr. Hiren Desai Stonewood Hotels 682 Flagstone Drive Irving, Texas

HVS DALLAS Re: Proposed Aloft South Arlington

2601 Sagebrush Drive, Suite 101 Arlington, Texas Flower Mound, Texas, 75028 HVS Reference: 2018021901 +1 (972) 890-3548 +1 (516) 742-3059 FAX www.hvs.com Dear Mr. Desai:

Pursuant to your request, we herewith submit our feasibility study pertaining to the above-captioned property. We have inspected the real estate and analyzed the hotel

market conditions in the Arlington, Texas area. We have studied the proposed project, and the results of our fieldwork and analysis are presented in this report. We have also reviewed the proposed improvements for this site. Our report was prepared in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), as provided by the Appraisal Foundation.

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

limiting conditions set forth herein.

Sincerely, TS Worldwide, LLC

Kathleen D. Donahue, Senior Vice President, Partner

[email protected], +1 (972) 890-3548 State Appraiser License TX 1337633 G

Superior results through unrivaled hospitality intelligence. Everywhere.

Table of Contents

SECTION TITLE PAGE 1. Executive Summary 5 Ownership, Franchise, and Management Assumptions 5 Summary of Hotel Market Trends 6 Summary of Forecast Occupancy and Average Rate 10 Summary of Forecast Income and Expense Statement 10 Feasibility Conclusion 13 2. Description of the Site and Neighborhood 16 Physical Characteristics 16 Access and Visibility 19 Airport Access 21 Neighborhood 21 Flood Zone 22 Zoning 23 3. Market Area Analysis 24 Workforce Characteristics 27 Radial Demographic Snapshot 31 Unemployment Statistics 33 Major Business and Industry 34 Office Space Statistics 35 Convention Activity 38 Airport Traffic 39 Tourist Attractions 42 4. Supply and Demand Analysis 43 Definition of Subject Hotel Market 43 Historical Supply and Demand Data 43 Competitive Supply 46 Supply Changes 50

Demand Analysis Using Market Segmentation 52 Latent Demand 53 Accommodated Demand and Market-wide Occupancy 55 5. Description of the Proposed Improvements 58 Project Overview 58 Summary of the Facilities 59 ADA and Environmental 65 Capital Expenditures 65 Construction Budget 65 Conclusion 66 6. Projection of Occupancy and Average Rate 68 Forecast of Subject Property’s Occupancy 68 Average Rate Analysis 71 7. Projection of Income and Expense 73 Comparable Operating Statements 73 Forecast of Revenue and Expense 77 Property Taxes 80 8. Feasibility Analysis 84 Construction Cost Estimate 84 Mortgage-Equity Method 87 Conclusion 89 9. Statement of Assumptions and Limiting Conditions 91 10. Certification 94

Addenda

Qualifications Copy of Appraisal License(s)

1. Executive Summary

Subject of the The subject of the feasibility study is a 113,528-square-foot (2.61-acre) site to be Feasibility Study improved with a select-service lodging facility; the hotel will be associated with the Aloft Hotels brand. The property, which is expected to open on June 1, 2020, will feature 124 rooms, a bar, 785 square feet of meeting space, an outdoor pool, an outdoor patio seating area, a fitness room, a business center, a market pantry, and a guest laundry room. The hotel will also contain the appropriate parking capacity (126) and all necessary back-of-the-house space.

RENDERING OF PROJECT

The proposed hotel represents the second Aloft hotel in the city of Arlington. The subject site’s location is in the southwest quadrant formed by Interstate 20 and South Collins Street in Arlington, Texas, 76018.

Pertinent Dates The effective date of the report is November 8, 2018. The subject site was inspected by Kathleen D. Donahue on October 16, 2018.

Ownership, Franchise, The developer of the proposed subject hotel is Hiren Desai/Stonewood Hotels, and Management which is based in Irving, Texas. The subject site is part of a larger 9.75-acre parcel. Assumptions In May 2018, Collins Road Development, LLC purchased the 9.75-acre parcel from Moritz Interests Ltd. for an unknown price; Tarrant Appraisal District records do not list the transaction details, and the buyer of the subject site was unaware of the purchase price. Prior to the 2018 sale, the 9.75-acre parcel has been owned by Moritz Interest since 1994. Since June 30, 2018, Hiren Desai has been under contract to purchase the 2.61-acre subject site from Collins Road Development, LLC for a reported price of $12.00 per square foot, or $1,362,336.

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The proposed subject hotel will be managed by Stonewood Hotels. We assume that the proposed hotel will be managed by a professional hotel-operating company, with fees deducted at rates consistent with current market standards. We have assumed a market-appropriate total management fee of 3.0% of total revenues in our study.

The proposed subject hotel will reportedly operate under a franchise agreement with Marriott International as an Aloft. A copy of the agreement was not provided for our review. Based on our review of the agreement’s terms or expected terms, the Aloft Hotels franchise is reflected in our forecasts with a royalty fee of 5.5% of rooms revenue, and a marketing assessment of 4% of rooms revenue.

Summary of Hotel This selected set of competitive hotels achieved a RevPAR of nearly $40 in 2008, Market Trends before it declined to a low point of roughly $32 by year-end 2009 because of the recession. A recovery began in 2010 that accelerated in 2011 given atypical average rate growth associated with Super Bowl XLV. From 2010 through 2016, both occupancy and average rate registered year-over-year improvements. Limited supply change and the continued expansion of the local economy were largely responsible for this period of growth. This trend reversed in 2017 as supply growth caused occupancy declines despite continued demand gains. Year-to-date 2018 data illustrate a minimal softening in occupancy and a roughly $2 gain in average rate. The continued absorption of competitive new supply, combined with the high- quality hotel inventory in South Arlington, has contributed to the latest trend. The near-term outlook is positive; while new hotel supply is expected, continued development in the area should allow for induced demand and the absorption of new supply over the long term.

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

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

Average Daily Room Occupied Room Average Year Count Available Room Nights Change Nights Change Occupancy Rate Change RevPAR Change

2008 1,193 435,445 — 301,400 — 69.2 % $57.24 — $39.62 — 2009 1,209 441,301 1.3 % 268,060 (11.1) % 60.7 53.29 (6.9) % 32.37 (18.3) % 2010 1,383 504,887 14.4 316,990 18.3 62.8 55.58 4.3 34.89 7.8 2011 1,391 507,708 0.6 345,445 9.0 68.0 60.63 9.1 41.26 18.2 2012 1,380 503,547 (0.8) 358,922 3.9 71.3 61.14 0.8 43.58 5.6 2013 1,379 503,335 (0.0) 360,567 0.5 71.6 63.67 4.2 45.61 4.7 2014 1,379 503,335 0.0 366,070 1.5 72.7 66.78 4.9 48.57 6.5 2015 1,380 503,580 0.0 370,601 1.2 73.6 71.33 6.8 52.49 8.1 2016 1,389 506,831 0.6 380,545 2.7 75.1 75.82 6.3 56.93 8.5 2017 1,481 540,565 6.7 390,266 2.6 72.2 77.64 2.4 56.05 (1.5) Year-to-Date Through September 2017 1,481 404,313 — 295,553 — 73.1 % $77.23 — $56.45 — 2018 1,481 404,313 0.0 % 293,855 (0.6) % 72.7 79.01 2.3 % 57.43 1.7 % Average Annual Compounded Change: 2008 - 2011 5.3 % 4.7 % 1.9 % 1.4 % 2011 - 2017 1.1 2.1 4.2 5.2

Competitive Number Year Year Hotels Included in Sample Class Status of Rooms Affiliated Opened Quality Inn @ Arlington Highlands Midscale Class Secondary 128 Feb 2007 Dec 1985 Motel 6 Arlington Economy Class Secondary 66 Apr 2015 Feb 1995 Studio 6 South Arlington Economy Class Secondary 142 Jan 2001 Apr 1995 Holiday Inn Express & Suites Arlington I 20 Parks Mall Upper Midscale Class Primary 101 Sep 1995 Sep 1995 La Quinta Inns & Suites Dallas Arlington South Midscale Class Primary 128 May 1997 Ma y 1997 InTown Suites Arlington I20 Economy Class Secondary 133 May 2002 Dec 1997 Microtel Inn & Suites by Wyndham Dallas Arlington Economy Class Secondary 45 Oct 1998 Oct 1998 InTown Suites Arlington Economy Class Secondary 121 Nov 1998 Nov 1998 Days Inn Arlington Economy Class Secondary 50 Nov 1999 Nov 1999 InTown Suites Arlington South Economy Class Secondary 121 Jun 2000 Jun 2000 Super 8 Arlington East Economy Class Secondary 48 Jun 2001 Jun 2001 Hampton Inn Suites Dallas Arlington South Upper Midscale Class Primary 98 Nov 2007 Nov 2007 Residence Inn Dallas Arlington South Upscale Class Primary 96 Nov 2009 Nov 2009 Courtyard Dallas Arlington South Upscale Class Primary 103 Feb 2010 Feb 2010 Homewood Suites Dallas Arlington South Upscale Class Primary 101 Dec 2016 Dec 2016

Total 1,481 Source: STR

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

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FIGURE 1-2 PRIMARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Weighted Weighted Annual Annual Number of Room Room Occupancy Yield

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

Hilton Garden Inn Dallas Arlington South 132 55 % 25 % 20 % 0 — — — 132 60 - 65 % $120 - $125 $75 - $80 85 - 90 % 100 - 110 %

Courtyard by Marriott Dallas Arlington South 103 65 15 20 103 80 - 85 130 - 140 105 - 110 103 75 - 80 125 - 130 100 - 105 110 - 120 130 - 140

Hampton Inn & Suites Dallas Arlington South 98 65 15 20 98 75 - 80 115 - 120 90 - 95 98 65 - 70 110 - 115 80 - 85 95 - 100 110 - 120

Holiday Inn Express & Suites Arlington I 20 Parks Mall 101 55 20 25 101 70 - 75 115 - 120 80 - 85 101 65 - 70 110 - 115 75 - 80 90 - 95 100 - 110

La Quinta Inn & Suites Dallas Arlington South 128 50 25 25 128 70 - 75 90 - 95 65 - 70 128 65 - 70 90 - 95 60 - 65 90 - 95 80 - 85

Homewood Suites by Hilton Dallas Arlington South 101 65 15 20 9 20 - 25 115 - 120 20 - 25 101 60 - 65 115 - 120 75 - 80 90 - 95 100 - 110

Residence Inn by Marriott Dallas Arlington South 96 70 10 20 96 85 - 90 140 - 150 120 - 125 96 85 - 90 130 - 140 115 - 120 120 - 130 150 - 160

Sub-Totals/Averages 759 61 % 18 % 21 % 535 77.0 % $118.66 $91.36 759 70.8 % $117.45 $83.14 99.6 % 114.4 %

Secondary Competitors 854 50 % 15 % 35 % 214 74.0 % $48.00 $35.52 214 72.0 % $49.25 $35.46 101.3 % 48.8 %

Totals/Averages 1,613 58 % 17 % 24 % 748 76.1 % $99.06 $75.43 973 71.1 % $102.28 $72.67 100.0 % 100.0 % * Specific occupancy and average rate data were utilized in our analysis, but are presented in ranges in the above table for the purposes of confidentiality.

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FIGURE 1-3 SECONDARY COMPETITORS – OPERATING PERFORMANCE

Est. Segmentation Estimated 2016 Estimated 2017

Weighted Weighted Total Annual Annual Number of Competitive Room Room

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

Secondary Competitors 854 50 % 15 % 35 % 25 % 214 70 - 75 % $45 - $50 $35 - $40 214 70 - 75 % $45 - $50 $35 - $40 Aggregate

Totals/Averages 854 50 % 15 % 35 % 25 % 214 74.0 % $48.00 $35.52 214 72.0 % $49.25 $35.46

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

November-2018 Executive Summary Proposed Aloft South Arlington – Arlington, Texas 9

Summary of Forecast Based on our analysis presented in the Projection of Occupancy and Average Rate Occupancy and chapter, we have chosen to use a stabilized occupancy level of 72% and a base-year Average Rate rate position of $115.00 for the proposed subject hotel. The following table reflects a summary of our market-wide and proposed subject hotel occupancy and average rate projections.

FIGURE 1-4 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST

Calendar Year 2017 2018 2019 2020 2021 2022 2023 2024 2025

Ma rket ADR $102.28 $104.83 $106.93 $109.07 $111.80 $115.15 $118.61 $122.16 $125.83 Projected Market ADR Growth Rate — 2.5% 2.0% 2.0% 2.5% 3.0% 3.0% 3.0% 3.0%

Proposed Subject Property ADR (As-If Stabilized) $115.00 $117.88 $120.23 $122.64 $125.70 $129.47 $133.36 $137.36 $141.48 ADR Growth Rate — 2.5% 2.0% 2.0% 2.5% 3.0% 3.0% 3.0% 3.0%

Proposed Subject Stabilized ADR Penetration 112% 112% 112% 112% 112% 112% 112% 112% 112.4%

Fiscal Year 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26

Proposed Subject Property Average Rate $123.91 $127.26 $131.08 $135.01 $139.06 $143.24 Opening Discount 2.0% 1.0% 0.0% 0.0% 0.0% 0.0% Average Rate After Discount $121.43 $125.99 $131.08 $135.01 $139.06 $143.24 Real Average Rate Growth — 3.8% 4.0% 3.0% 3.0% 3.0% Ma rket ADR $110.20 $113.18 $116.58 $120.08 $123.68 $127.39 Proposed Subject ADR Penetration (After Discount) 110% 111% 112% 112% 112% 112% ADR Expressed in Base-Year Dollars Deflated @ Inflation Rate $112.21 $113.04 $114.18 $114.18 $114.18 $114.18

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

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FIGURE 1-5 DETAILED FORECAST OF INCOME AND EXPENSE

2020/21 Begins June 2021/22 Stabilized 2023/24 2024/25 Number of Rooms: 124 124 124 124 124 Occupancy: 64% 68% 72% 72% 72% Average Rate: $121.43 $125.99 $131.08 $135.01 $139.06 RevPAR: $77.71 $85.67 $94.38 $97.21 $100.13 Days Open: 365 365 365 365 365 Occupied Rooms: 28,966 %Gross PAR POR 30,777 %Gross PAR POR 32,587 %Gross PAR POR 32,587 %Gross PAR POR 32,587 %Gross PAR POR OPERATING REVENUE Rooms $3,517 91.1 % $28,363 $121.42 $3,878 91.4 % $31,274 $126.00 $4,272 91.7 % $34,452 $131.09 $4,400 91.7 % $35,484 $135.02 $4,532 91.7 % $36,548 $139.07 Food 115 3.0 924 3.95 123 2.9 995 4.01 133 2.8 1,069 4.07 137 2.8 1,101 4.19 141 2.8 1,134 4.32 Beverage 167 4.3 1,350 5.78 178 4.2 1,436 5.79 189 4.1 1,527 5.81 195 4.1 1,573 5.99 201 4.1 1,620 6.17 Other Operated Departments 52 1.3 417 1.79 54 1.3 437 1.76 57 1.2 458 1.74 59 1.2 472 1.80 60 1.2 486 1.85 Miscellaneous Income 9 0.2 70 0.30 9 0.2 73 0.29 9 0.2 76 0.29 10 0.2 79 0.30 10 0.2 81 0.31 Total Operating Revenues 3,859 100.0 31,123 133.23 4,243 100.0 34,216 137.85 4,660 100.0 37,582 143.01 4,800 100.0 38,709 147.29 4,944 100.0 39,870 151.71 DEPARTMENTAL EXPENSES * Rooms 808 23.0 6,516 27.89 852 22.0 6,867 27.67 897 21.0 7,234 27.53 924 21.0 7,451 28.35 952 21.0 7,675 29.20 Food & Beverage 220 78.2 1,777 7.61 231 76.5 1,860 7.50 241 75.0 1,947 7.41 249 75.0 2,006 7.63 256 75.0 2,066 7.86 Other Operated Departments 27 51.2 214 0.92 27 50.6 221 0.89 28 50.0 229 0.87 29 50.0 236 0.90 30 50.0 243 0.92 Total Expenses 1,055 27.3 8,506 36.41 1,110 26.2 8,949 36.06 1,167 25.0 9,410 35.81 1,202 25.0 9,693 36.88 1,238 25.0 9,983 37.99 DEPARTMENTAL INCOME 2,805 72.7 22,617 96.82 3,133 73.8 25,267 101.80 3,493 75.0 28,172 107.20 3,598 75.0 29,016 110.41 3,706 75.0 29,886 113.72 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 356 9.2 2,868 12.28 372 8.8 2,999 12.08 389 8.4 3,138 11.94 401 8.4 3,232 12.30 413 8.4 3,329 12.67 Info & Telecom Systems 40 1.0 319 1.36 41 1.0 333 1.34 43 0.9 349 1.33 45 0.9 359 1.37 46 0.9 370 1.41 Marketing 158 4.1 1,275 5.46 165 3.9 1,333 5.37 173 3.7 1,395 5.31 178 3.7 1,437 5.47 183 3.7 1,480 5.63 Franchise Fee 334 8.7 2,694 11.53 368 8.7 2,971 11.97 406 8.7 3,273 12.45 418 8.7 3,371 12.83 431 8.7 3,472 13.21 Prop. Operations & Maint. 101 2.6 818 3.50 129 3.0 1,039 4.18 159 3.4 1,279 4.87 163 3.4 1,317 5.01 168 3.4 1,356 5.16 Utilities 132 3.4 1,062 4.55 138 3.2 1,111 4.48 144 3.1 1,162 4.42 148 3.1 1,197 4.56 153 3.1 1,233 4.69 Total Expenses 1,121 29.0 9,037 38.68 1,213 28.6 9,786 39.43 1,314 28.2 10,595 40.32 1,353 28.2 10,913 41.53 1,394 28.2 11,240 42.77 GROSS HOUSE PROFIT 1,684 43.7 13,580 58.14 1,920 45.2 15,480 62.37 2,180 46.8 17,577 66.88 2,245 46.8 18,103 68.88 2,312 46.8 18,646 70.95 Management Fee 116 3.0 934 4.00 127 3.0 1,026 4.14 140 3.0 1,127 4.29 144 3.0 1,161 4.42 148 3.0 1,196 4.55 INCOME BEFORE NON-OPR. INC. & EXP. 1,568 40.7 12,647 54.14 1,792 42.2 14,454 58.24 2,040 43.8 16,449 62.59 2,101 43.8 16,942 64.47 2,164 43.8 17,450 66.40 NON-OPERATING INCOME & EXPENSE Property Taxes 267 6.9 2,156 9.23 274 6.5 2,210 8.90 282 6.1 2,277 8.66 291 6.1 2,345 8.92 299 6.1 2,415 9.19 Insurance 54 1.4 438 1.88 56 1.3 451 1.82 58 1.2 465 1.77 59 1.2 479 1.82 61 1.2 493 1.88 Reserve for Replacement 77 2.0 622 2.66 127 3.0 1,026 4.14 186 4.0 1,503 5.72 192 4.0 1,548 5.89 198 4.0 1,595 6.07 Total Expenses 399 10.3 3,217 13.77 457 10.8 3,688 14.86 526 11.3 4,245 16.15 542 11.3 4,372 16.64 558 11.3 4,503 17.14 EBITDA LESS RESERVE $1,169 30.4 % $9,430 $40.37 $1,335 31.4 % $10,766 $43.38 $1,513 32.5 % $12,204 $46.44 $1,559 32.5 % $12,570 $47.83 $1,605 32.5 % $12,947 $49.26 *Departmental expenses are expressed as a percentage of departmental revenues.

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FIGURE 1-6 TEN-YEAR FORECAST OF INCOME AND EXPENSE

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

Number of Rooms: 124 124 124 124 124 124 124 124 124 124 Occupied Rooms: 28,966 30,777 32,587 32,587 32,587 32,587 32,587 32,587 32,587 32,587 Occupancy: 64% 68% 72% 72% 72% 72% 72% 72% 72% 72% Average Rate: $121.43 % of $125.99 % of $131.08 % of $135.01 % of $139.06 % of $143.24 % of $147.53 % of $151.96 % of $156.52 % of $161.21 % of RevPAR: $77.71 Gross $85.67 Gross $94.38 Gross $97.21 Gross $100.13 Gross $103.13 Gross $106.22 Gross $109.41 Gross $112.69 Gross $116.07 Gross OPERATING REVENUE Rooms $3,517 91.1 % $3,878 91.4 % $4,272 91.7 % $4,400 91.7 % $4,532 91.7 % $4,668 91.7 % $4,808 91.7 % $4,952 91.7 % $5,100 91.7 % $5,253 91.7 % Food 115 3.0 123 2.9 133 2.8 137 2.8 141 2.8 145 2.8 149 2.8 154 2.8 158 2.8 163 2.8 Beverage 167 4.3 178 4.2 189 4.1 195 4.1 201 4.1 207 4.1 213 4.1 220 4.1 226 4.1 233 4.1 Other Operated Departments 52 1.3 54 1.3 57 1.2 59 1.2 60 1.2 62 1.2 64 1.2 66 1.2 68 1.2 70 1.2 Miscellaneous Income 9 0.2 9 0.2 9 0.2 10 0.2 10 0.2 10 0.2 11 0.2 11 0.2 11 0.2 12 0.2 Total Operating Revenues 3,859 100.0 4,243 100.0 4,660 100.0 4,800 100.0 4,944 100.0 5,092 100.0 5,245 100.0 5,402 100.0 5,564 100.0 5,730 100.0 DEPARTMENTAL EXPENSES * Rooms 808 23.0 852 22.0 897 21.0 924 21.0 952 21.0 980 21.0 1,010 21.0 1,040 21.0 1,071 21.0 1,103 21.0 Food & Beverage 220 78.2 231 76.5 241 75.0 249 75.0 256 75.0 264 75.0 272 75.0 280 75.0 288 75.0 297 75.0 Other Operated Departments 27 51.2 27 50.6 28 50.0 29 50.0 30 50.0 31 50.0 32 50.0 33 50.0 34 50.0 35 50.0 Total Expenses 1,055 27.3 1,110 26.2 1,167 25.0 1,202 25.0 1,238 25.0 1,275 25.0 1,313 25.0 1,353 25.0 1,393 25.0 1,435 25.0 DEPARTMENTAL INCOME 2,805 72.7 3,133 73.8 3,493 75.0 3,598 75.0 3,706 75.0 3,817 75.0 3,932 75.0 4,049 75.0 4,170 75.0 4,295 75.0 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 356 9.2 372 8.8 389 8.4 401 8.4 413 8.4 425 8.4 438 8.4 451 8.4 465 8.4 479 8.4 Info & Telecom Systems 40 1.0 41 1.0 43 0.9 45 0.9 46 0.9 47 0.9 49 0.9 50 0.9 52 0.9 53 0.9 Marketing 158 4.1 165 3.9 173 3.7 178 3.7 183 3.7 189 3.7 195 3.7 200 3.7 207 3.7 213 3.7 Franchise Fee 334 8.7 368 8.7 406 8.7 418 8.7 431 8.7 443 8.7 457 8.7 470 8.7 485 8.7 499 8.7 Prop. Operations & Maint. 101 2.6 129 3.0 159 3.4 163 3.4 168 3.4 173 3.4 178 3.4 184 3.4 189 3.4 195 3.4 Utilities 132 3.4 138 3.2 144 3.1 148 3.1 153 3.1 157 3.1 162 3.1 167 3.1 172 3.1 177 3.1 Total Expenses 1,121 29.0 1,213 28.6 1,314 28.2 1,353 28.2 1,394 28.2 1,436 28.2 1,479 28.2 1,523 28.2 1,569 28.2 1,616 28.2 GROSS HOUSE PROFIT 1,684 43.7 1,920 45.2 2,180 46.8 2,245 46.8 2,312 46.8 2,381 46.8 2,453 46.8 2,526 46.8 2,602 46.8 2,680 46.8 Management Fee 116 3.0 127 3.0 140 3.0 144 3.0 148 3.0 153 3.0 157 3.0 162 3.0 167 3.0 172 3.0 INCOME BEFORE NON-OPR. INC. & EXP. 1,568 40.7 1,792 42.2 2,040 43.8 2,101 43.8 2,164 43.8 2,229 43.8 2,296 43.8 2,364 43.8 2,435 43.8 2,508 43.8 NON-OPERATING INCOME & EXPENSE Property Taxes 267 6.9 274 6.5 282 6.1 291 6.1 299 6.1 308 6.1 318 6.1 327 6.1 337 6.1 347 6.1 Insurance 54 1.4 56 1.3 58 1.2 59 1.2 61 1.2 63 1.2 65 1.2 67 1.2 69 1.2 71 1.2 Reserve for Replacement 77 2.0 127 3.0 186 4.0 192 4.0 198 4.0 204 4.0 210 4.0 216 4.0 223 4.0 229 4.0 Total Expenses 399 10.3 457 10.8 526 11.3 542 11.3 558 11.3 575 11.3 592 11.3 610 11.3 628 11.3 647 11.3 EBITDA LESS RESERVE $1,169 30.4 % $1,335 31.4 % $1,513 32.5 % $1,559 32.5 % $1,605 32.5 % $1,654 32.5 % $1,703 32.5 % $1,754 32.5 % $1,806 32.5 % $1,860 32.5 % 1 1 1 1 1 1 1 1 1 1

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

Feasibility Conclusion The Feasibility Analysis chapter of this report converts these cash flows into a net present value indication assuming set-forth debt and equity requirements. The conclusion of this analysis indicates that an equity investor contributing $5,245,000 (roughly 35% of the $15,000,000 development cost) could expect to receive a 20.5% internal rate of return over a ten-year holding period, assuming that the investor obtains financing at the time of the project’s completion at the loan-to-value ratio and interest rate set forth. The proposed subject hotel has an opportunity to provide an elevated guestroom product within the South Arlington market. Based on our market analysis, there is sufficient market support for the proposed Aloft hotel. Our review of investor surveys indicates equity returns ranging from 12.7% to 26.1%, with an average of 19.1%. Based on these parameters, the calculated return to the equity investor, 20.5%, is above the average and within the range of market-level returns given the developer's anticipated cost of $15,000,000 (does not include entrepreneurial incentive).

Assignment Conditions “Extraordinary Assumption” is defined in USPAP as follows:

An assignment-specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser’s opinions or conclusions. Comment: Uncertain information might include physical, legal, or economic characteristics of the subject property; or conditions external to the property, such as market conditions or trends; or the integrity of data used in an analysis.1

The analysis is based on the extraordinary assumption that the described improvements have been completed as of the stated date of opening. The reader should understand that the completed subject property does not yet exist as of the date of this report. Our feasibility study does not address unforeseeable events that could alter the proposed project, and/or the market conditions reflected in the analyses; we assume that no significant changes, other than those anticipated and explained in this report, shall take place between the date of inspection and stated date of opening. The use of this extraordinary assumption may have affected the assignment results. We have made no other extraordinary assumptions specific to this feasibility study. However, several important general assumptions have been made that apply to this feasibility study and our studies of proposed hotels in

1 The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, 2018–2019 ed.

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general. These aspects are set forth in the Assumptions and Limiting Conditions chapter of this report.

Intended Use of the This feasibility report is being prepared for use in the development of the proposed Feasibility Study subject hotel.

Identification of the The client for this engagement is Stonewood Hotels. This report is intended for the Client and Intended addressee firm and may not be distributed to or relied upon by other persons or User(s) entities.

Scope of Work The methodology used to develop this study is based on the market research and valuation techniques set forth in the textbooks authored by Hospitality Valuation Services for the American Institute of Real Estate Appraisers and the Appraisal Institute, entitled The Valuation of Hotels and Motels,2 Hotels, Motels and Restaurants: Valuations and Market Studies,3 The Computerized Income Approach to Hotel/Motel Market Studies and Valuations,4 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations,5 and Hotels and Motels – Valuations and Market Studies.6

1. All information was collected and analyzed by the staff of TS Worldwide, LLC. Information was supplied by the client and/or the property’s development team. 2. The subject site has been evaluated from the viewpoint of its physical utility for the future operation of a hotel, as well as access, visibility, and other relevant factors. 3. The subject property's proposed improvements have been reviewed for their expected quality of construction, design, and layout efficiency. 4. The surrounding economic environment, on both an area and neighborhood level, has been reviewed to identify specific hostelry-related economic and demographic trends that may have an impact on future demand for hotels.

2 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of Real Estate Appraisers, 1978). 3 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies. (Chicago: American Institute of Real Estate Appraisers, 1983). 4 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990). 5 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations (Chicago: Appraisal Institute, 1992). 6 Stephen Rushmore and Erich Baum, Hotels and Motels – Valuations and Market Studies. (Chicago: Appraisal Institute, 2001).

November-2018 Executive Summary Proposed Aloft South Arlington – Arlington, Texas 14

5. Dividing the market for hotel accommodations into individual segments defines specific market characteristics for the types of travelers expected to utilize the area's hotels. The factors investigated include purpose of visit, average length of stay, facilities and amenities required, seasonality, daily demand fluctuations, and price sensitivity. 6. An analysis of existing and proposed competition provides an indication of the current accommodated demand, along with market penetration and the degree of competitiveness. Unless noted otherwise, we have inspected the competitive lodging facilities summarized in this report. 7. Documentation for an occupancy and ADR projection is derived utilizing the build-up approach based on an analysis of lodging activity. 8. A detailed projection of income and expense made in accordance with the Uniform System of Accounts for the Lodging Industry sets forth the anticipated economic benefits of the proposed subject property. 9. A feasibility analysis is performed, in which the market equity yield that an investor would expect is compared to the equity yield that an investor must accept.

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2. Description of the Site and Neighborhood

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

The subject site is located in South Arlington, in the southwest quadrant of the intersection formed by the Interstate 20 frontage road and South Collins Street. This site is in the city of Arlington, Texas.

Physical Characteristics The subject site measures approximately 2.61 acres, or 113,528 square feet. The parcel's adjacent uses are set forth in the following table.

FIGURE 2-1 SUBJECT PARCEL'S ADJACENT USES

Direction Adjacent Use

North Vacant Land East Access Road Easement, Vacant Land South Vacant Land West Arlington Municipal Airport

VIEW OF SUBJECT SITE

November-2018 Description of the Site and Neighborhood Proposed Aloft South Arlington – Arlington, Texas 16

SITE PLAN

Topography and The topography of the site is generally flat, and the shape should permit efficient Site Utility use of the site for building and site improvements, including ingress and egress. Upon completion of construction, the subject site will not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. It is expected that the site will be developed fully with building and site improvements, thus contributing to the overall profitability of the hotel.

November-2018 Description of the Site and Neighborhood Proposed Aloft South Arlington – Arlington, Texas 17

AERIAL PHOTOGRAPH

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

November-2018 Description of the Site and Neighborhood Proposed Aloft South Arlington – Arlington, Texas 18

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

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

November-2018 Description of the Site and Neighborhood Proposed Aloft South Arlington – Arlington, Texas 19

MAP OF REGIONAL ACCESS ROUTES

Regional access to/from the city of Arlington and the subject site, in particular, is considered very good. The subject market is served by a variety of additional local highways, which are illustrated on the map.

Primary vehicular access to the subject site will be provided by an access easement road extending from South Collins Street. The subject site is located near a busy intersection and is relatively simple to locate from Interstate 20, which is the nearest major highway. The proposed subject hotel is anticipated to have adequate signage at the street, as well as on its façade. The proposed hotel is expected to benefit from very good visibility within its immediate neighborhood, due to its proposed four-story structure. Overall, the subject site benefits from very good accessibility, and the proposed hotel is expected to enjoy very good visibility from within its local neighborhood.

November-2018 Description of the Site and Neighborhood Proposed Aloft South Arlington – Arlington, Texas 20

Airport Access The proposed subject hotel will be served by the Dallas/Fort Worth International Airport, which is located approximately 13 miles to the north of the subject site. The proposed subject hotel will also be served by the Dallas Love Field Airport, which is located approximately 16 miles to the northeast of the subject site.

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

The neighborhood surrounding the subject site can be generally described as the Interstate 20 corridor between Cooper Street to the west and State Highway 360 to the east. The neighborhood is characterized by freestanding retail stores and larger retail complexes, such as the Park Mall at Arlington and Arlington Highlands; restaurants; office complexes; automobile dealerships; industrial centers and warehouses; two hospitals; and residential areas. The Arlington Municipal Airport, a "reliever" airport for corporate, cargo, and recreational pilots, is also located in this neighborhood. In general, this neighborhood's growth in recent years has been paced by retail expansions such as a new Duluth Trading Company store and Summit Racing's 700,000-square-foot facility; however, new hotels and other retail centers are also examples of recent development. A Hilton Garden Inn opened in January 2017, and a Fairfield Inn & Suites by Marriott is currently under construction. Finally, General Motors operates three financial centers in the neighborhood, having occupied its newest facility in late 2017. The proposed subject hotel's opening should be a positive influence on the area; the hotel will be in character with and will complement surrounding land uses.

November-2018 Description of the Site and Neighborhood Proposed Aloft South Arlington – Arlington, Texas 21

MAP OF NEIGHBORHOOD

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

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

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

Flood Zone According to the Federal Emergency Management Agency, the subject site is located in flood zone X. The flood zone definition for the X designation is as follows: areas outside the 500-year flood plain; areas of the 500-year flood; areas of the 100-year

November-2018 Description of the Site and Neighborhood Proposed Aloft South Arlington – Arlington, Texas 22

flood with average depths of less than one foot or with drainage areas less than one square mile and areas protected by levees from the 100-year flood.

Zoning According to the local planning office, the subject property is zoned as follows: APO- CG - General Commercial, Airport Overlay. Additional details pertaining to the proposed subject property’s zoning regulations are summarized in the following table.

FIGURE 2-2 ZONING

Municipality Governing Zoning City of Arlington Current Zoni ng General Commercial, Airport Overlay Current Us e Vacant Land Is Current Use Permitted? Not Applicable Is Change in Zoning Likely? No Permitted Us es Retail, Restaurants, Hotels Hotel Allowed Yes Legally Non-Conforming Not Applicable

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

Conclusion We have analyzed the issues of size, topography, access, visibility, and the availability of utilities. The subject site is favorably located near the interstate and a major interchange. In general, the site should be well suited for future hotel use, with acceptable access, visibility, and topography for an effective operation.

November-2018 Description of the Site and Neighborhood Proposed Aloft South Arlington – Arlington, Texas 23

3. Market Area Analysis

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

Market Area Definition The market area for a lodging facility is the geographical region where the sources of demand and the competitive supply are located. The subject site is located in the city of Arlington, the county of Tarrant, and the state of Texas. Arlington is the seventh-largest city in Texas and is the largest city in the United States without mass transit. The city, which is located twelve miles east of Downtown Fort Worth and 20 miles west of Downtown Dallas, was founded in 1876 along the Texas and Pacific Railroad. Large-scale industrialization began in 1954 with the arrival of a General Motors assembly plant. Automotive and aerospace development gave the city one of the nation's greatest population growth rates between 1950 and 1990. Arlington is home to the Globe Life Park in Arlington, Six Flags Over Texas, Six Flags Hurricane Harbor, The University of Texas at Arlington, and the AT&T Stadium.

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

November-2018 Market Area Analysis Proposed Aloft South Arlington – Arlington, Texas 24

MAP OF MARKET AREA

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

These data are summarized in the following table.

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FIGURE 3-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY

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

Resident Population (Thousands) Tarrant County 1,456.9 1,817.7 2,016.9 2,123.5 2.2 % 1.7 % 1.3 % Dallas-Fort Worth-Arlington, TX MSA 5,235.4 6,452.7 7,233.3 7,730.2 2.1 1.9 1.7 Dallas-Fort Worth, TX-OK CSA 5,628.3 6,878.5 7,673.3 8,186.7 2.0 1.8 1.6 State of Texas 20,944.5 25,244.3 27,862.6 29,611.5 1.9 1.7 1.5 United States 282,162.4 309,348.1 323,132.3 335,057.8 0.9 0.7 0.9 Per-Capita Personal Income* Tarrant County $36,669 $39,060 $43,370 $45,574 0.6 1.8 1.2 Dallas-Fort Worth-Arlington, TX MSA 40,540 39,952 46,123 49,024 (0.1) 2.4 1.5 Dallas-Fort Worth, TX-OK CSA 39,586 39,360 45,441 48,322 (0.1) 2.4 1.5 State of Texas 33,856 37,276 41,768 44,737 1.0 1.9 1.7 United States 36,812 39,622 44,450 47,348 0.7 1.9 1.6 W&P Wealth Index Tarrant County 102.3 101.2 100.1 98.8 (0.1) (0.2) (0.3) Dallas-Fort Worth-Arlington, TX MSA 112.7 103.8 106.2 105.8 (0.8) 0.4 (0.1) Dallas-Fort Worth, TX-OK CSA 109.5 101.9 104.2 103.9 (0.7) 0.4 (0.1) State of Texas 93.4 95.4 95.3 95.7 0.2 (0.0) 0.1 United States 100.0 100.0 100.0 100.0 0.0 0.0 0.0 Food and Beverage Sales (Millions)* Tarrant County $2,360 $3,182 $4,256 $4,584 3.0 5.0 1.9 Dallas-Fort Worth-Arlington, TX MSA 8,138 10,654 14,693 15,998 2.7 5.5 2.2 Dallas-Fort Worth, TX-OK CSA 8,492 11,087 15,273 16,609 2.7 5.5 2.1 State of Texas 27,748 37,635 52,906 57,560 3.1 5.8 2.1 United States 368,829 447,728 582,294 615,384 2.0 4.5 1.4 Total Retail Sales (Millions)* Tarrant County $22,869 $27,725 $34,833 $37,859 1.9 3.9 2.1 Dallas-Fort Worth-Arlington, TX MSA 80,693 94,010 118,487 130,757 1.5 3.9 2.5 Dallas-Fort Worth, TX-OK CSA 85,514 98,721 124,004 136,665 1.4 3.9 2.5 State of Texas 291,221 341,775 428,825 470,718 1.6 3.9 2.4 United States 3,902,830 4,130,414 4,880,293 5,227,450 0.6 2.8 1.7

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

November-2018 Market Area Analysis Proposed Aloft South Arlington – Arlington, Texas 26

The U.S. population has grown at an average annual compounded rate of 0.7% from 2010 through 2016. The county’s population has increased at a quicker pace than the nation’s population; the average annual growth rate of 1.7% between 2010 and 2016 reflects a gradually expanding area. Following this population trend, per- capita personal income increased slowly, at 1.8% on average annually for the county between 2010 and 2016. Local wealth indexes have remained stable in recent years, registering a relatively near average 100.1 level for the county in 2016.

Food and beverage sales totaled $4,256 million in the county in 2016, versus $3,182 million in 2010. This reflects a 5.0% average annual change, which is stronger than the 3.0% pace recorded in the prior decade, the latter years of which were adversely affected by the recession. Over the long term, the pace of growth is forecast to moderate to a more sustainable level of 1.9%, which is forecast through 2020. The retail sales sector demonstrated an annual increase of 1.9% registered in the decade 2000 to 2010, followed by an increase of 3.9% in the period 2010 to 2016. An increase of 2.1% average annual change is expected in county retail sales through 2020.

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

The following table sets forth the county workforce distribution by business sector in 2000, 2010, and 2016, as well as a forecast for 2020.

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

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

Farm 1.5 0.2 % 1.5 0.1 % 1.4 0.1 % 1.6 0.1 % (0.0) % (0.6) % 2.6 % Forestry, Fishing, Related Activities And Other 0.6 0.1 0.7 0.1 0.7 0.1 0.7 0.1 2.7 (0.8) 2.2 Mi ni ng 8.0 0.9 19.7 1.9 26.2 2.2 27.3 2.1 9.5 4.9 1.0 Utilities 1.5 0.2 2.1 0.2 2.3 0.2 2.4 0.2 3.3 1.9 0.9 Construction 54.8 6.2 57.0 5.5 73.1 6.0 82.4 6.3 0.4 4.2 3.0 Manufacturi ng 100.7 11.4 80.4 7.8 86.4 7.1 91.8 7.1 (2.2) 1.2 1.5 Total Trade 147.0 16.7 149.8 14.6 178.1 14.7 193.7 14.9 0.2 2.9 2.1 Wholesale Trade 40.0 4.5 41.9 4.1 53.7 4.4 56.2 4.3 0.5 4.2 1.2 Retail Trade 107.0 12.1 107.9 10.5 124.5 10.3 137.5 10.6 0.1 2.4 2.5 Transportation And Warehousing 66.3 7.5 65.8 6.4 90.0 7.4 90.2 6.9 (0.1) 5.4 0.1 Information 22.2 2.5 17.1 1.7 14.3 1.2 14.6 1.1 (2.6) (2.9) 0.6 Finance And Insurance 44.1 5.0 69.5 6.8 76.9 6.4 83.7 6.4 4.7 1.7 2.1 Real Estate And Rental And Lease 24.7 2.8 40.3 3.9 49.2 4.1 53.8 4.1 5.0 3.4 2.3 Total Services 316.6 35.9 412.1 40.1 493.6 40.8 534.1 41.1 2.7 3.1 2.0 Professional And Technical Services 44.6 5.1 59.2 5.8 65.8 5.4 70.3 5.4 2.9 1.8 1.7 Management Of Companies And Enterprises 3.3 0.4 7.6 0.7 10.6 0.9 11.4 0.9 8.6 5.6 1.8 Administrative And Waste Services 63.4 7.2 74.9 7.3 84.1 7.0 90.2 6.9 1.7 2.0 1.8 Educational Services 10.9 1.2 19.1 1.9 20.3 1.7 21.7 1.7 5.7 1.0 1.8 Health Care And Social Assistance 68.1 7.7 92.9 9.0 117.2 9.7 129.5 10.0 3.2 3.9 2.5 Arts, Entertainment, And Recreation 16.2 1.8 23.5 2.3 26.8 2.2 28.5 2.2 3.8 2.2 1.5 Accommodation And Food Services 62.0 7.0 74.8 7.3 93.7 7.7 100.1 7.7 1.9 3.8 1.7 Other Services, Except Public Administration 48.0 5.4 60.1 5.8 75.2 6.2 82.4 6.3 2.3 3.8 2.3 Total Government 93.4 10.6 112.5 10.9 117.6 9.7 124.3 9.6 1.9 0.7 1.4 Federal Civilian Government 13.8 1.6 15.1 1.5 14.7 1.2 14.6 1.1 0.9 (0.5) (0.1) Federal Military 4.8 0.5 5.1 0.5 5.5 0.5 5.5 0.4 0.5 1.3 0.1 State And Local Government 74.8 8.5 92.3 9.0 97.4 8.1 104.1 8.0 2.1 0.9 1.7

TOTAL 881.2 100.0 % 1,028.4 100.0 % 1,209.9 100.0 % 1,300.6 100.0 % 1.6 % 2.7 % 1.8 %

MSA 3,436.6 — 3,963.1 — 4,792.7 — 5,223.8 — 1.4 % 3.2 % 2.2 % U.S. 165,372.0 — 173,034.7 — 193,668.4 — 208,570.0 — 1.0 1.9 1.9

Source: Woods & Poole Economics, Inc.

November-2018 Market Area Analysis Proposed Aloft South Arlington – Arlington, Texas 28

Woods & Poole Economics, Inc. reports that during the period from 2000 to 2010, total employment in the county grew at an average annual rate of 1.6%. This trend was above the growth rate recorded by the MSA and also outpaced the national average. More recently, the pace of total employment growth in the county accelerated to 2.7% on an annual average from 2010 to 2016, reflecting the initial years of the recovery.

Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2010 to 2016, increasing by 81,451 people, or 19.8%, and rising from 40.1% to 40.8% of total employment. Of the various service sub-sectors, Health Care And Social Assistance and Accommodation And Food Services were the largest employers. Strong growth was also recorded in the Total Trade sector, as well as the Transportation And Warehousing sector, which expanded by 18.9% and 7.5%, respectively, in the period 2010 to 2016. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 1.8% on average annually through 2020. The trend is below the forecast rate of change for the U.S. as a whole during the same period.

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

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

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

2005 851,500 — 232,079 — 148,623 — 739,800 — 2,006,070 — $96,268 — 2006 879,370 3.3 % 239,295 3.1 % 153,837 3.5 % 757,180 2.3 % 2,049,990 2.2 % 101,851 5.8 % 2007 902,700 2.7 245,031 2.4 155,808 1.3 776,460 2.5 2,100,080 2.4 106,223 4.3 2008 903,670 0.1 245,679 0.3 151,490 (2.8) 790,470 1.8 2,147,130 2.2 110,464 4.0 2009 867,070 (4.1) 239,697 (2.4) 138,440 (8.6) 799,970 1.2 2,187,890 1.9 102,640 (7.1) 2010 879,830 1.5 245,259 2.3 140,821 1.7 803,160 0.4 2,221,030 1.5 108,436 5.6 2011 910,330 3.5 254,414 3.7 146,027 3.7 816,830 1.7 2,257,280 1.6 112,493 3.7 2012 938,400 3.1 261,673 2.9 151,947 4.1 831,670 1.8 2,293,380 1.6 120,788 7.4 2013 959,230 2.2 266,478 1.8 153,904 1.3 846,410 1.8 2,327,960 1.5 121,230 0.4 2014 987,570 3.0 270,615 1.6 157,583 2.4 860,040 1.6 2,371,230 1.9 129,750 7.0 2015 998,500 1.1 271,119 0.2 154,702 (1.8) 872,990 1.5 2,419,640 2.0 130,317 0.4 2016 1,014,330 1.6 273,497 0.9 154,421 (0.2) 886,140 1.5 2,466,490 1.9 131,030 0.5 2017 1,038,830 2.4 278,884 2.0 159,277 3.1 902,440 1.8 2,511,970 1.8 134,289 2.5

Forecasts 2018 1,063,250 2.4 % 286,973 2.9 % 161,093 1.1 % 922,460 2.2 % 2,560,940 1.9 % $139,594 4.0 % 2019 1,083,590 1.9 292,454 1.9 162,721 1.0 942,110 2.1 2,608,340 1.9 143,957 3.1 2020 1,097,830 1.3 296,137 1.3 163,378 0.4 960,580 2.0 2,655,230 1.8 147,569 2.5 2021 1,112,490 1.3 300,317 1.4 163,922 0.3 979,900 2.0 2,704,180 1.8 152,590 3.4 2022 1,130,180 1.6 305,700 1.8 164,788 0.5 999,370 2.0 2,754,240 1.9 157,642 3.3

Average Annual Compound Change 2005 - 2017 1.7 % 1.5 % 0.6 % 1.7 % 1.9 % 2.8 % 2005 - 2007 3.0 2.8 2.4 2.4 2.3 5.0 2007 - 2010 (0.9) 0.0 (3.3) 1.1 1.9 0.7 2010 - 2017 2.4 1.9 1.8 1.7 1.8 5.5 Forecast 2018 - 2022 1.5 % 1.6 % 0.6 % 2.0 % 1.8 % 3.1 %

Source: REIS Report, 2nd Quarter, 2018

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For the Fort Worth market, of the roughly 1,000,000 persons employed, 27% are categorized as office employees, while 15% are categorized as industrial employees. Total employment decreased by an average annual compound rate of -0.9% during the recession of 2007 to 2010, followed by an increase of 2.4% from 2010 to 2017. By comparison, office employment reflected compound change rates of 0.0% and 1.9%, during the same respective periods. Total employment is expected to expand by 2.4% in 2018, while office employment is forecast to expand by 2.9% in 2018. From 2018 through 2022, REIS anticipates that total employment will expand at an average annual compound rate of 1.5%, while office employment will expand by 1.6% on average annually during the same period.

The number of households is forecast to expand by 2.0% on average annually between 2018 and 2022. Population is forecast to expand during this same period, at an average annual compounded rate of 1.8%. Household average income is forecast to grow by 3.1% on average annually from 2018 through 2022.

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

November-2018 Market Area Analysis Proposed Aloft South Arlington – Arlington, Texas 31

FIGURE 3-4 DEMOGRAPHICS BY RADIUS

0.00 - 1.00 miles 0.00 - 3.00 miles 0.00 - 5.00 miles Population 2023 Projection 9,469 158,812 379,091 2018 Estimate 8,887 148,749 354,098 2010 Census 8,127 134,593 317,417 2000 Census 7,589 113,910 252,524 Percent Change: 2018 to 2023 6.6% 6.8% 7.1% Percent Change: 2010 to 2018 9.4% 10.5% 11.6% Percent Change: 2000 to 2010 7.1% 18.2% 25.7% Households 2023 Projection 3,245 53,322 124,503 2018 Estimate 3,059 50,089 116,894 2010 Census 2,827 45,866 107,033 2000 Census 2,482 39,369 87,950 Percent Change: 2018 to 2023 6.1% 6.5% 6.5% Percent Change: 2010 to 2018 8.2% 9.2% 9.2% Percent Change: 2000 to 2010 13.9% 16.5% 21.7% Income 2018 Est. Average Household Income $66,460 $70,943 $79,565 2018 Est. Median Household Income 58,284 56,817 62,317 2018 Est. Civ. Employed Pop 16+ by Occupation Architecture/Engineering 38 857 2,907 Arts/Design/Entertainment/Sports/Media 72 1,055 2,615 Building/Grounds Cleaning/Maintenance 166 2,703 6,352 Business/Financial Operations 293 3,626 8,775 Community/Social Services 88 949 2,234 Computer/Mathematical 135 1,836 4,577 Construction/Extraction 248 3,739 9,786 Education/Training/Library 232 3,622 10,015 Farming/Fishing/Forestry 4 179 268 Food Preparation/Serving Related 156 4,360 10,118 Healthcare Practitioner/Technician 209 4,269 9,817 Healthcare Support 114 1,661 3,570 Installation/Maintenance/Repair 236 3,086 6,801 Legal 7 410 1,151 Life/Physical/Social Science 4 148 612 Management 326 4,879 13,607 Office/Administrative Support 632 11,701 26,507 Production 227 5,313 11,621 Protective Servi ces 72 1,541 3,796 Sales/Related 564 7,990 19,210 Personal Care/Service 205 2,451 5,455 Transportation/Material Moving 317 6,792 14,944 Source: Environics Analytics

November-2018 Market Area Analysis Proposed Aloft South Arlington – Arlington, Texas 32

This source reports a population of 354,098 within a five-mile radius of the subject site, and 116,894 households within this same radius. Average household income within a five-mile radius of the subject site is currently reported at $79,565, while the median is $62,317.

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

FIGURE 3-5 UNEMPLOYMENT STATISTICS

Year City MSA State U.S. 2008 4.5 % 4.9 % 4.8 % 5.8 % 2009 7.2 7.8 7.6 9.3 2010 8.2 8.1 8.1 9.6 2011 7.6 7.6 7.8 8.9 2012 6.5 6.6 6.7 8.1 2013 6.1 6.1 6.3 7.4 2014 5.0 5.0 5.1 6.2 2015 4.0 4.1 4.4 5.3 2016 3.9 3.9 4.6 4.9 2017 3.7 3.6 4.3 4.4

Recent Month - Aug 2017 3.9 % 3.8 % 4.4 % 4.4 % 2018 3.6 3.6 3.9 3.9

Source: U.S. Bureau of Labor Statistics

Current U.S. unemployment levels are now firmly below the annual averages of the last economic cycle peak of 2006 and 2007, when annual averages were 4.6%. National unemployment registered 4.1% each month during the first quarter of 2018, as well as the last quarter of 2017, roughly six points below the October 2009 peak of 10.0%. In August, September, and October of 2018, the rate remained low at 3.9%, 3.7%, and 3.7%, respectively. Total nonfarm payroll employment increased by 118,000, 286,000, and 250,000 jobs in August, September, and October of 2018, respectively. Gains in October occurred in the health care, manufacturing, construction, transportation, and warehousing sectors. Unemployment has remained under the 5.0% mark since May 2016, reflecting a trend of relative stability and the overall strength of the U.S. economy. The unemployment rate fell to a 48-year low in September and October.

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Locally, the unemployment rate was 3.7% in 2017; for this same area in 2018, the most recent month’s unemployment rate was registered at 3.6%, versus 3.9% for the same month in 2017. Unemployment rose in 2009 as the region entered an economic slowdown, and this trend continued in 2010 as the height of the national recession took hold. However, unemployment declined in 2011 as the economy rebounded, a trend that continued through 2017. The most recent comparative period illustrates a decrease in unemployment, indicated by the lower unemployment rate in the latest available data for 2018. The Dallas/Fort Worth area continues to be one of the top U.S. metropolitan areas for job growth. Moreover, the local unemployment rate is well below the state and national levels. Local employment has been strong within the entertainment industry and at such entities as The University of Texas at Arlington, General Motors Arlington Assembly Plant, and Texas Health Arlington Memorial Hospital. An abundance of construction activity and robust entertainment and retail sectors should provide strong employment in the market. Our interviews with economic development officials reflect an optimistic outlook.

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

FIGURE 3-6 MAJOR EMPLOYERS

Number of Rank Firm Employees

1 Arlington ISD 8,200 2 University of Texas at Arlington 5,300 3 General Motors Co. 4,484 4 Texas Health Resources 4,063 5 Six Flags Over Texas 3,800 6 The Parks Mall 3,500 7 General Motors Financial 3,300 8 Ci ty of Arl i ngton 2,509 9 JPMorgan Chase 1,965 10 Texas Rangers 1,881

Source: City of Arlington Office of Economic Development, 2017

The entertainment, retail, and tourism industries represent significant sources of revenue and employment for the area. In August 2018, the first phase of Texas Live, a new, $4-billion, public-private partnership, mixed-use development, located between AT&T Stadium and Globe Life Park in Arlington, opened. Globe Life Field,

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the Texas Rangers' new ballpark, will open in 2020. Arlington also boasts numerous shopping venues. In the center of Arlington’s Entertainment District, Lincoln Square offers an outdoor mall that is complemented by restaurants and nightlife options. In South Arlington, the Parks Mall at Arlington combines shopping and entertainment venues, including a menagerie-themed carousel, an NHL-sized ice arena, and an AMC movie theater with stadium-style seating. Nearby, the Arlington Highlands lifestyle center blends office, retail, restaurant, hotel, and entertainment uses. At The University of Texas at Arlington, a $125-million, 220,000-square-foot Science, Engineering Innovation and Research building opened in September 2018. General Motors (GM) operates an assembly plant in Arlington that has been in operation for over 50 years. In October 2018, Bell unveiled its expanded Flight Research Center; this South Arlington facility houses many of the Fort Worth-based newest technology and innovations, including the Bell V-280 Valor, 525 Relentless, V-247 Vigilant and the Autonomous Pod Transport (APT). To the east in Grand Prairie, North Texas' second IKEA furniture store opened in December 2017. The Epic development in Grand Prairie, a massive $75-million water park opened in January 2018. The entertainment industry, complemented by new retail, entertainment, and lodging developments, should remain an important anchor for the Arlington economy.

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

FIGURE 3-7 OFFICE SPACE STATISTICS – MARKET OVERVIEW

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

1 Southeast 105 5,573,000 4,764,900 14.5 % $18.44 2 Southwest 25 1,742,000 1,512,100 13.2 19.30 3 Northwest 51 3,706,000 3,328,000 10.2 21.55 4 CBD 44 8,375,000 7,353,300 12.2 24.48 5 Northeast 158 6,893,000 4,556,300 33.9 18.58 Totals and Averages 383 26,289,000 21,514,600 18.2 % $20.90 Source: REIS Report, 2nd Quarter, 2018

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The greater Fort Worth market comprises a total of 26.3 million square feet of office space. For the 2nd Quarter of 2018, the market reported a vacancy rate of 18.2% and an average asking rent of $20.90. The subject property is located in the Southeast submarket, which houses 5,573,000 square feet of office space. The submarket's vacancy rate of 14.5% is below the overall market average. The average asking lease rate of $18.44 is below the average for the broader market.

The following table illustrates a trend of office space statistics for the overall Fort Worth market and the Southeast submarket.

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

Fort Worth Market Southeast Submarket Available Occupied Vacancy Asking Available Occupied Vacancy Asking Year Office Space % Chg Office Space % Chg Rate Lease Rate % Chg Office Space % Chg Office Space % Chg Rate Lease Rate % Chg

2005 24,561,000 — 20,705,000 — 15.7 % $17.19 — 5,993,000 — 5,070,000 — 15.4 % $16.19 — 2006 24,530,000 (0.1) % 21,371,000 3.2 % 12.9 18.11 5.4 % 6,013,000 0.3 % 5,189,000 2.3 % 13.7 16.87 4.2 % 2007 24,499,000 (0.1) 21,786,000 1.9 11.1 19.03 5.1 5,774,000 (4.0) 4,908,000 (5.4) 15.0 17.37 3.0 2008 24,915,000 1.7 21,537,000 (1.1) 13.6 19.61 3.0 5,583,000 (3.3) 4,584,000 (6.6) 17.9 17.62 1.4 2009 25,054,000 0.6 20,829,000 (3.3) 16.9 19.12 (2.5) 5,550,000 (0.6) 4,573,000 (0.2) 17.6 17.27 (2.0) 2010 25,003,000 (0.2) 20,682,000 (0.7) 17.3 19.13 0.1 5,538,000 (0.2) 4,585,000 0.3 17.2 16.91 (2.1) 2011 25,206,000 0.8 20,738,000 0.3 17.7 19.27 0.7 5,573,000 0.6 4,715,000 2.8 15.4 17.11 1.2 2012 25,261,000 0.2 20,983,000 1.2 16.9 19.35 0.4 5,573,000 0.0 4,698,000 (0.4) 15.7 17.12 0.1 2013 25,483,000 0.9 21,557,000 2.7 15.4 19.77 2.2 5,573,000 0.0 4,798,000 2.1 13.9 17.57 2.6 2014 25,638,000 0.6 21,582,000 0.1 15.8 20.02 1.3 5,573,000 0.0 4,782,000 (0.3) 14.2 18.03 2.6 2015 25,401,000 (0.9) 21,684,000 0.5 14.6 20.37 1.7 5,573,000 0.0 4,731,000 (1.1) 15.1 18.27 1.3 2016 25,560,000 0.6 21,539,000 (0.7) 15.7 20.52 0.7 5,573,000 0.0 4,793,000 1.3 14.0 18.10 (0.9) 2017 25,908,000 1.4 21,371,000 (0.8) 17.5 20.71 0.9 5,573,000 0.0 4,804,000 0.2 13.8 18.43 1.8

Forecasts 2018 26,339,000 1.7 % 21,530,000 0.7 % 18.3 % $21.04 1.6 % 5,588,000 0.3 % 4,747,000 (1.2) % 15.1 % $18.66 1.2 % 2019 26,569,000 0.9 21,631,000 0.5 18.6 21.37 1.6 5,598,000 0.2 4,675,000 (1.5) 16.5 18.85 1.0 2020 26,693,000 0.5 21,630,000 (0.0) 19.0 21.71 1.6 5,643,000 0.8 4,637,000 (0.8) 17.8 19.04 1.0 2021 26,857,000 0.6 21,628,000 (0.0) 19.5 22.14 2.0 5,701,000 1.0 4,604,000 (0.7) 19.3 19.27 1.2 2022 27,039,000 0.7 21,645,000 0.1 19.9 22.55 1.9 5,769,000 1.2 4,577,000 (0.6) 20.7 19.43 0.8

Average Annual Compound Change 2005 - 2017 0.4 % 0.3 % 1.6 % (0.6) % (0.4) % 1.1 % 2005 - 2007 (0.1) 2.6 5.2 (1.8) (1.6) 3.6 2007 - 2010 0.7 (1.7) 0.2 (1.4) (2.2) (0.9) 2010 - 2017 0.5 0.5 1.1 0.1 0.7 1.2 Forecast 2018 - 2022 0.7 % 0.1 % 1.7 % 0.8 % (0.9) % 1.0 %

Source: REIS Report, 2nd Quarter, 2018

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The inventory of office space in the Fort Worth market increased at an average annual compound rate of 0.4% from 2005 through 2017, while occupied office space expanded at an average annual rate of 0.3% over the same period. During the period of 2005 through 2010, occupied office space expanded at an average annual compound rate of 2.6%. From 2010 through 2013, occupied office space contracted at an average annual compound rate of -1.7%, reflecting the impact of the recession. The onset of the recovery is evident in the 0.5% average annual change in occupied office space from 2013 to 2017. From 2017 through 2022, the inventory of occupied office space is forecast to increase at an average annual compound rate of 0.1%, with available office space expected to increase 0.7%, thus resulting in an anticipated vacancy rate of 19.9% as of 2022. Within Arlington, the majority of the office space is located in North Arlington, although rapid retail growth along the Interstate 20 corridor in South Arlington has prompted the addition of space within the South Arlington submarket.

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

The following table illustrates recent use statistics for this facility.

FIGURE 3-9 CONVENTION CENTER STATISTICS

Percent Number of Percent Year Number of Events Change Delegates Change

2010/11 169 — 237,390 — 2011/12 160 (5.3) % 177,690 (25.1) % 2012/13 165 3.1 188,631 6.2 2013/14 147 (10.9) 170,983 (9.4) 2014/15 156 6.1 172,599 0.9 2015/16 163 4.5 184,039 6.6

Source: Arlington Convention Center

The Arlington Convention Center contains approximately 101,000 square feet of gross space. In November 2018, the center will be rebranded as Esports Stadium Arlington, a dedicated facility serving the unique and technologically advanced

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demands of the esports industry. Situated in the heart of the Entertainment District, the facility is nestled among Globe Life Park in Arlington (home of the Texas Rangers), AT&T Stadium (home of the Cowboys), Six Flags Over Texas, Six Flags Hurricane Harbor, and numerous hotels and restaurants.

It was reported that the convention center has been affected by several regional changes. In addition to groups outgrowing the facility, activity at the center has been affected by the opening of the Gaylord Texan in 2004 and the increased popularity of the Fort Worth Convention Center following the opening of the Omni Convention Hotel in 2009. Furthermore, the opening of the Irving Convention Center in January 2011 has influenced usage trends at the Arlington Convention Center. Per the last two fiscal years of available data, the number of events and delegates increased, supported by the entertainment and retail options in North Arlington; however, usage statistics for 2016/17 and 2017/18 were unavailable upon request at the time of this report. In March 2018, the City of Arlington announced plans to transform the Arlington Convention Center into a state-of-the-art esports arena through a $10-million private-public partnership. The convention center will still be available for other events, such as training groups.

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

Dallas/Fort Worth International Airport (DFW) is one of the nation's largest airports and serves as headquarters for American Airlines. In February 2011, the $2.7-billion DFW International Airport Terminal Renewal and Improvement Program (TRIP), a seven-year plan to improve Terminals A, B, C, and E, commenced. Additionally, the DART Rail Orange Line connection inside the airport opened in August 2014. The comprehensive renovation of Terminal A was completed in January 2017, and Terminal E was completed in August 2017. Terminal B is still undergoing renovations, which are expected to be completed in 2018. Plans to renovate Terminal C have been placed on hold as the possibility of building a sixth terminal (Terminal F) is considered; officials estimate that construction would span roughly five years if the project were to move forward. In August 2018, the Federal Aviation Administration granted $180 million to DFW to add new perimeter taxiways to eliminate the waiting period required for aircraft to safely cross runways during busy periods. Construction on these new taxiways is expected to start by the end of 2018.

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The following table illustrates recent operating statistics for the Dallas/Fort Worth International Airport, which is the primary airport facility serving the proposed subject hotel’s submarket.

FIGURE 3-10 AIRPORT STATISTICS - DALLAS/FORT WORTH INTERNATIONAL AIRPORT

Passenger Percent Percent Year Traffic Change* Change**

2008 57,093,187 — — 2009 56,030,457 (1.9) % (1.9) % 2010 56,905,600 1.6 (0.2) 2011 57,806,918 1.6 0.4 2012 58,590,633 1.4 0.6 2013 60,436,739 3.2 1.1 2014 63,522,823 5.1 1.8 2015 65,512,471 3.1 2.0 2016 65,598,618 0.1 1.8 2017 67,092,224 2.3 1.8 Year-to-date, Aug 2017 44,821,164 — — 2018 46,824,504 4.5 % —

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

Source: Dallas/Fort Worth International Airport

This facility recorded 67,092,224 passengers in 2017. The change in passenger traffic between 2016 and 2017 was 2.3%. The average annual change during the period shown was 1.8%.

Dallas Love Field Airport is a public airport located northwest of Dallas, Texas. Love Field was the primary airport for Dallas until Dallas/Fort Worth International Airport opened in 1974. Love Field was designated as a Texas State Historical Site in 2003, celebrating 90 years in the aviation industry in 2007. The five-year, $519- million renovation of Love Field, through a joint venture between the City of Dallas and Southwest Airlines, was completed in October 2014. The timing of the capital project's completion coincided with the end of federal restrictions on how far planes can fly from the airport as part of the Wright Amendment. The project included replacing the terminals with a 20-gate concourse; the first twelve gates opened in 2013, while the remaining eight gates opened in early October 2014. Other

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renovation projects included an expanded baggage-claim area, a remodeled lobby, and a new ticketing wing; additionally, a 5,000-space parking garage was completed in October 2018. The airport is primarily served by Southwest Airlines; however, Delta Air Lines has been trying to increase the number of gates it operates because of the continued growth in passenger traffic.

The following table illustrates recent operating statistics for the Dallas Love Field, which is the secondary airport facility serving the proposed subject property’s submarket.

FIGURE 3-11 AIRPORT STATISTICS – DALLAS LOVE FIELD

Passenger Percent Percent Year Traffic Change* Change**

2008 8,060,792 — — 2009 7,744,522 (3.9) % (3.9) % 2010 7,960,809 2.8 (0.6) 2011 7,982,844 0.3 (0.3) 2012 8,173,927 2.4 0.3 2013 8,470,586 3.6 1.0 2014 9,413,706 11.1 2.6 2015 14,497,498 54.0 8.7 2016 15,562,738 7.3 8.6 2017 15,723,617 1.0 7.7 Year-to-date, Aug 2017 10,324,992 — — 2018 10,811,640 4.7 % —

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

Source: Dallas Love Field

Air traffic registered 15,723,617 passengers in 2017. The change in passenger traffic between 2016 and 2017 was 1.0%. The double-digit increases in passenger traffic at Dallas Love Field Airport in 2014 and 2015 were primarily attributed to the addition of Virgin Airlines and increased service by Southwest Airlines following the repeal of the Wright Amendment on October 13, 2014. After the notable increases in 2014 and 2015, growth began to moderate given the size of the airport.

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Tourist Attractions The subject market benefits from a variety of tourism and leisure attractions in the area. Leisure demand generators include Six Flags Over Texas, Six Flags Hurricane Harbor, AT&T Stadium, and Globe Life Park in Arlington. Special events also play a role during key weekends, such as events at The University of Texas at Arlington, Texas Ranger games, Dallas Cowboys games, and other events held at AT&T Stadium. AT&T Stadium and Globe Life Park have begun to expand the types and number of events they host through new initiatives. The Dallas metropolitan area features a multitude of professional sports venues that generate demand for area hotels; American Airlines Center in Downtown Dallas hosts the Dallas Mavericks basketball team and the Dallas Stars hockey team, as well as many high-profile concerts, special events, and shows. The 2018 opening of Texas Live and the planned 2020 opening of Globe Life Field should allow Arlington to remain known as the "Entertainment Capital of Texas."

Conclusion This section discussed a wide variety of economic indicators for the pertinent market area. Arlington is experiencing a period of economic strength and expansion, led by the tourism and manufacturing industries, as well as the education and healthcare sectors. The city benefits from established institutions such as The University of Texas at Arlington, as well as a highly popular mix of tourism attractions that continue to drive strong visitation during the summer months. Moreover, many local corporations, such as General Motors, Bell, and American Airlines, are nationally renowned entities. The population and residential housing development continues to grow within the city. Overall, the strengthening economic trend in the Metroplex, as well as new developments within Arlington, should also bode well for this market.

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4. Supply and Demand Analysis

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

Definition of Subject The subject site is located in the greater Arlington lodging market. Within this Hotel Market greater market, the proposed subject hotel will compete with a smaller set of hotels in South Arlington based on various factors, such as product, price, and brand.

Historical Supply STR is an independent research firm that compiles and publishes data on the lodging and Demand Data industry, routinely used by typical hotel buyers. HVS has ordered and analyzed an STR Trend Report of historical supply and demand data for a group of hotels considered applicable to this analysis for the proposed subject hotel. This information is presented in the following table, along with the market-wide occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.

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FIGURE 4-1 HISTORICAL SUPPLY AND DEMAND TRENDS

Average Daily Room Occupied Room Average Year Count Available Room Nights Change Nights Change Occupancy Rate Change RevPAR Change

Average Annual Compounded Change: 2008 - 2011 5.3 % 4.7 % 1.9 % 1.4 % 2011 - 2017 1.1 2.1 4.2 5.2 Competitive Number Year Year Hotels Included in Sample Class Status of Rooms Affiliated Opened

Quality Inn @ Arlington Highlands Mids ca le Cl as s Secondary 128 Feb 2007 Dec 1985 Motel 6 Arl ington Economy Class Secondary 66 Apr 2015 Feb 1995 Studio 6 South Arlington Economy Class Secondary 142 Jan 2001 Apr 1995 Holiday Inn Express & Suites Arlington I 20 Parks Mall Upper Midscale Class Primary 101 Sep 1995 Sep 1995 La Quinta Inns & Suites Dallas Arlington South Mids ca le Cl as s Primary 128 May 1997 Ma y 1997 InTown Suites Arlington I20 Economy Class Secondary 133 May 2002 Dec 1997 Microtel Inn & Suites by Wyndham Dallas Arlington Economy Class Secondary 45 Oct 1998 Oct 1998 InTown Suites Arlington Economy Class Secondary 121 Nov 1998 Nov 1998 Days Inn Arlington Economy Class Secondary 50 Nov 1999 Nov 1999 InTown Suites Arlington South Economy Class Secondary 121 Jun 2000 Jun 2000 Super 8 Arlington East Economy Class Secondary 48 Jun 2001 Jun 2001 Hampton Inn Suites Dallas Arlington South Upper Midscale Class Primary 98 Nov 2007 Nov 2007 Residence Inn Dallas Arlington South Upscale Class Primary 96 Nov 2009 Nov 2009 Courtyard Dallas Arlington South Upscale Class Primary 103 Feb 2010 Feb 2010 Homewood Suites Dallas Arlington South Upscale Class Primary 101 Dec 2016 Dec 2016

Total 1,481

Source: STR

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FIGURE 4-2 HISTORICAL SUPPLY AND DEMAND TRENDS (STR)

600,000 80.0 70.0 500,000 60.0 400,000 50.0 300,000 40.0 30.0

Room Nights Room 200,000 20.0 Occupancy (%) 100,000 10.0 0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Available Room Nights Occupied Room Nights Occupancy

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

The STR data for the competitive set reflect a market-wide occupancy level of 2017 in 72.2%, which compares to 75.1% for 2016. The overall average occupancy level for the calendar years presented equates to 72.7%. The STR data for the competitive set reflect a market-wide ADR level of $77.64 in 2017, which compares to $75.82 For 2016. The average across all calendar years presented for ADR equates to $69.57. These occupancy and average rate trends resulted in a RevPAR level of $56.05 in 2017.

This selected set of competitive hotels achieved a RevPAR of nearly $40 in 2008, before it declined to a low point of roughly $32 by year-end 2009 because of the recession. A recovery began in 2010 that accelerated in 2011 given atypical average rate growth associated with Super Bowl XLV. From 2010 through 2016, both occupancy and average rate registered year-over-year improvements. Limited supply change and the continued expansion of the local economy were largely responsible for this period of growth. This trend reversed in 2017 as supply growth caused occupancy declines despite continued demand gains. Year-to-date 2018 data

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illustrate a minimal softening in occupancy and a roughly $2 gain in average rate. The continued absorption of competitive new supply, combined with the high- quality hotel inventory in South Arlington, has contributed to the latest trend. The near-term outlook is positive; while new hotel supply is expected, continued development in the area should allow for induced demand and the absorption of new supply over the long term.

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

Primary competitors generally encompass South Arlington’s upper midscale and upscale properties; the interior-corridor midscale La Quinta Inn was also considered a primary competitor. The complement of hotel inventory in the South Arlington market, inclusive of midscale and economy properties, represent the secondary competitive set. Given the large disparity in product quality, brand, and price point between the primary and secondary competitors, the secondary competitors have been weighted minimally competitive in our analysis.

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FIGURE 4-3 PRIMARY COMPETITORS – OPERATING PERFORMANCE