Metro Bank November 2016

Report & Valuation

Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

savills.co.uk

30 November 2016 Giles Furze E: [email protected] Ref: WEHT370445/GF DL: +44 (0) 20 7409 8138

33 Margaret Street Metro Bank London One Southampton Row W1G 0JD London T: +44 (0) 20 7499 8644 WC1B 5HA savills.com

For the attention of Antony Slavin, Lending & Securities

Dear Sirs,

BORROWER: Openview Properties Limited PROPERTY: 30 Oak Hill, Walthamstow, London, IG8 9NY

In accordance with the instructions contained in your letter to us dated 10 November 2016, as confirmed in our letter to you dated 17 November 2016, we have inspected the property and made such enquiries as are sufficient to provide you with our opinion of value on the bases stated below. Copies of your instruction letter and of our letter of confirmation are enclosed at Appendix 1.

We draw your attention to our accompanying Report together with the General Assumptions and Conditions upon which our Valuation has been prepared, details of which are provided at the rear of our report.

We trust that our report meets your requirements, however should you have any queries, please do not hesitate to contact us.

Yours faithfully

For and on behalf of Savills (UK) Limited

Giles Furze MRICS Tim Stoyle MRICS RICS Registered Valuer RICS Registered Valuer Director Director

Offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.

Savills (UK) Limited. Chartered Surveyors. A subsidiary of Savills plc. Registered in England No. 2605138. Registered office: 33 Margaret Street, London, W1G 0JD

Report & Valuation

Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Contents Executive Summary 1 1. Instructions and Terms of Reference 5 1.1. Instructions ...... 6 1.2. Background ...... 8 2. The Property, Statutory & Legal Aspects 9 2.1. Location ...... 10 2.2. Situation ...... 11 2.3. Description ...... 11 2.4. Accommodation ...... 14 2.5. Condition ...... 17 2.6. Environmental Considerations ...... 19 2.7. Town Planning ...... 20 2.8. Taxation ...... 21 2.9. Tenure ...... 21 2.10. Occupational Agreements ...... 22 2.11. Summary of the Business ...... 25 3. Market Commentary 28 3.1. Macro Economic And Hotel Market Overview ...... 29 3.1. Overview of UK Hotel Market ...... 29 3.2. London Hotel Market ...... 35 3.3. Hotel Competition ...... 39 3.4. New Supply ...... 40 3.5. Comparable Transactions ...... 40 3.6. Development Potential ...... 42 4. Valuation Advice 43 4.1. Principal Valuation Considerations ...... 44 4.2. Approach To Valuations ...... 45 4.3. Valuations ...... 47 4.4. Indication Of Reinstatement Cost ...... 48 5. Loan Security 49 5.1. Suitability As Loan Security ...... 50 6. General Assumptions & Conditions to Valuations 51 6.1. General Assumptions and Conditions ...... 52 Appendices 54

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Executive Summary

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Executive Summary

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Background and Proposal The previous owner of the hotel encountered financial structuring problems and was forced to sell a number of hotels last year. The Best Western Epping Forest was formally brought to market in Q4 2015 by Christie + Co on behalf of Bank of Ireland and Administrators. The Borrower, Overview Properties Limited, managed to purchase the hotel direct from the previous owner and circumvent the formal sales process by Christie + Co. The Borrower has engaged a third party operator (Starboard Hotels Ltd) to manage the hotel.

Our valuations are required for loan security purposes in connection with a proposed facility to be granted to the Borrower.

Property Overview The Best Western Epping Forest was constructed in the 1970s and later extended in the 1980s. The hotel underwent a substantial refurbishment programme in 2014 and rebranded at that time (from the County Hotel in Woodford) to the Best Western Plus Epping Forest.

The property comprises a 99 guest bedroom hotel located on a 1.7 acre freehold site on the edge of Epping Forest. The hotel facilities include a restaurant, bar, 4 conference rooms and car park.

Tenure Freehold. The hotel will be operated by SBH Hospitality Ltd under a 5 year Management Agreement dated 15 August 2016.

Trading Performance

2013 2014 2015 2016F* 2017F 2018F 2019F Occ % 77.5% 74.6% 70.7% 64.5% 69.1% 71.1% 74.0% ARR (£) £44.06 £45.81 £54.36 £59.54 £57.48 £58.98 £60.48 RevPAR (£) £34.12 £34.17 £38.43 £38.42 £39.69 £41.95 £44.73 Total Revenue (£000's) £1,804 £1,579 £2,116 £660 £2,107 £2,222 £2,358 GOI (£000's) £988 £725 £1,077 £353 £1,192 £1,290 £1,405 GOP (£000's) £557 £237 £541 £202 £773 £862 £966 EBITDA (£000's) £414 £85 £358 £176 £688 £776 £878 EBITDA (% of Revenue) 22.9% 5.4% 16.9% 26.7% 32.7% 34.9% 37.2% * 4 month forecast Source: Starboard Hotels Ltd (forecast) 2014 & 2015 actual figures have been adjusted to exclude “Other Non Operating Expenses”. The forecast figures included in the table above (from 2016), prepared by Starboard Hotels, do not include management fees, nor do they include a FF&E reserve.

Principal Valuation Considerations  Freehold interest  Purpose built hotel dating back to 1970s  Midscale hotel brand  On site complimentary car parking for approximately 70 cars  Function rooms suitable for a variety of events and conference business  Relatively secluded location on the outskirts of London  Reasonable communication links to Central London

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

 Public areas and guest bedrooms finished to a good standard following refurbishment programme in 2014  Function rooms adaptable for a variety of events and conference business  Capital investment required to refresh conference & events facilities  Building services possibly in need of upgrade (boilers)  Relatively low ADR due to local demand drivers  Short term management agreement on preferential terms to owner  Residential development potential

Approach to Valuation

We have considered the Borrower’s management agreement with Starboard Hotels, together with amendments that have been confirmed to us via email (including the fixed management fee and mutual break provision). The contract is understood to be readily determinable with an owner’s break option, and we envisage good interest in the vacant property from owner operators and specialist hotel investors (introducing a manager and/or brand).

Given the bidding history experienced by the selling agent (including owner operators, specialist hotel investors and developers) we have prepared forecast P&L projections on a 10 year DCF model and discounted annual EBITDA. We have applied an exit yield to the year 10 income (into perpetuity), deferred over the cash flow period.

Suitability as Loan Security Overall, we consider that the property provides good security for a loan secured upon it, which reflects the nature of the property, our reported opinions of value and the risks involved.

Valuations

Best Western Plus – Epping Forest Value Value per bedroom

Market Value – MV1 £8,400,000 £84,848

Market Value – MV2 £7,980,000 £80,606

Market Value – MV3 £6,780,000 £68,485

Market Value – MV4 £6,570,000 £66,364

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

1. Instructions and Terms of Reference

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1.1. Instructions

1.1.1. Instructions and Basis Of Valuation

You have instructed us to provide our opinions of value on the following bases:

. The Market Value of the freehold interest in the property as a fully equipped operational entity having regard to trading potential, with all appropriate licences, contracts, consents, certificates and permits in place. . The Market Value of the Property on the same basis but subject to various additional special assumptions, including: o The business is open / closed; o The accounts and records of trade would / would not be available to, or relied upon by a prospective purchaser; o The trade inventory is in place / has been depleted or removed; o The required licences, contracts, consents, certificates and permits are in place / lost, breached or in jeopardy (as applicable); o Fully vacant possession is available; o A 180 day marketing period inn which to sell the property.

1.1.2. General Assumptions and Conditions

All our valuations have been carried out on the basis of the General Assumptions and Conditions set out in the relevant section towards the rear of this report.

1.1.3. Date of Valuation

Our opinions of value are as at the date of this report. The importance of the date of valuation must be stressed as property values can change over a relatively short period.

1.1.4. Definitions of Market Value and Market Rent

In undertaking our valuations, we have adopted the RICS definitions of Market Value, as detailed below:

Valuation Standard VPS 4 1.2 of the Red Book defines Market Value (MV) as:

“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

1.1.5. Purpose of Valuations

You instruct us that our valuations are required for immediate loan security purposes in connection with a proposed facility to be granted to the Borrower.

1.1.6. Proposed Loan Terms

You have not provided us with details of the proposed loan facility.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Although we comment on the suitability of the property as loan security, we do so generally and not in the context of specific loan terms as we are not qualified to do so.

1.1.7. Conflicts of Interest

We are not aware of any conflict of interest, either with the property or with the Borrower, preventing us from providing you with an independent valuation of the property in accordance with the RICS Red Book. We will be acting as External Valuers, as defined in the Red Book.

1.1.8. Valuer Details and Inspection

The due diligence enquiries referred to below were undertaken by Giles Furze MRICS and Tory Richardson MSc (Hons). The valuations have also been reviewed by Tim Stoyle FRICS.

The property was inspected on 4 November 2016 by Giles Furze MRICS. We were able to inspect the whole of the property, both externally and internally, but limited to those areas that were easily accessible or visible. The weather on the date of our inspection was cloudy and wet.

All those above with MRICS or FRICS qualifications are also RICS Registered Valuers. Furthermore, in accordance with VPS 3.7, we confirm that the aforementioned individuals have sufficient current local, national and international (as appropriate) knowledge of the particular market and the skills and understanding to undertake the valuation competently.

1.1.9. Extent of Due Diligence Enquiries and Information Sources

The extent of the due diligence enquiries we have undertaken and the sources of the information we have relied upon for the purpose of our valuation are stated in the relevant sections of our report below.

Where reports and other information have been provided, we summarise the relevant details in this report. We do not accept responsibility for any errors or omissions in the information and documentation provided to us, nor for any consequences that may flow from such errors and omissions.

1.1.10. Liability Cap

Our letter confirming instructions at Appendix 1 includes details of any liability cap.

1.1.11. RICS Compliance

This report has been prepared in accordance with Royal Institution of Chartered Surveyors’ (“RICS”) Valuation – Professional Standards January 2014 (the “RICS Red Book”) published in November 2013 and effective from 6 January 2014, in particular in accordance with the requirements of VPS 3 entitled Valuation reports and VPGA 2 Valuations secured lending, as appropriate.

Our report in accordance with those requirements is set out below.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

1.1.12. Verification

This report contains many assumptions, some of a general and some of a specific nature. Our valuations are based upon certain information supplied to us by others. Some information we consider material may not have been provided to us. All of these matters are referred to in the relevant sections of this report.

We recommend that the Bank satisfies itself on all these points, either by verification of individual points or by judgement of the relevance of each particular point in the context of the purpose of our valuation. Our valuation should not be relied upon pending this verification process.

1.1.13. Confidentiality and Responsibility

Finally, in accordance with the recommendations of the RICS, we would state that this report is provided solely for the purpose stated above. It is confidential to and for the use only of the party to whom it is addressed only, and no responsibility is accepted to any third party for the whole or any part of its contents. Any such parties rely upon this report at their own risk. Neither the whole nor any part of this report or any reference to it may be included now, or at any time in the future, in any published document, circular or statement, nor published, referred to or used in any way without our written approval of the form and context in which it may appear.

1.2. Background

The hotel was formerly known as the County Hotel in Woodford but was rebranded to the Best Western Plus Epping Forest in 2014 following refurbishment.

After the previous owner of the hotel (Merrigold) defaulted under the terms of its facility with their lender (Bank of Ireland), the lender appointed Christie + Co to market the hotel as part of a portfolio of 4 hotels. Bank of Ireland also appointed Redefine BDL to operate the hotel and ultimately appointed Administrators (Simon Kirkhope & Andrew Johnson of FTI Consulting LLP).

We have discussed the arms length sales process that Christie + Co carried out. The agent reports a good level of interest for the Property with approximately half a dozen formal offers ranging from £8M to £8.5M, and higher offers being received on a “subject to planning” basis (between £10.5M to £11M). The agent recommended that a sale be agreed to Premier Inn, who received PLC board approval to purchase the hotel. Whilst the Premier Inn offer was not the highest, it represented the most credible and secure option for the vendor (Bank of Ireland / Administrator).

Despite the sale process being handled by Christie + Co on behalf of the previous lender, the former owner (Merrigold) agreed a sale to the Borrower before the Administrators were appointed, and we understand that the purchase price was agreed at £8,001,000. You have instructed us to prepare this loan security valuation in relation to your proposed loan facility.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

2. The Property, Statutory & Legal Aspects

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

2.1. Location

The hotel is located within the London Borough of Waltham Forest, a London Borough in the north east of London. The Borough comprises a mix of built-up urban districts with inner-city characteristics, and more affluent residential development with a variety of reservoirs, open space, small sections of Epping Forest, parks and playing fields.

The property is situated on the southern boundary of Epping Forest, an area of ancient woodland near Epping which straddles the border between north-east London and Essex. Woodford Green is located to the east, Chingford to the north and Walthamstow to the south west.

The A406 North Circular Road is within 5 minutes drive to the south which connects via the M11 to the M25 at junction 27. The hotel is located 1 mile from South Woodford underground station, which provides Central line services and direct connections to Oxford Circus in central London with a 30 minute journey time. The nearest mainline station is Highams Park which is 2 miles to the north west of the hotel, providing regular services to London Liverpool Street with a journey time of 25 minutes.

Source: Promap Source: pROMAP

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

2.2. Situation

The hotel is located in a relatively secluded and rural location. The access to the hotel is via Oak Hill Road to the southern end of the hotel site.

The surrounding area is predominantly residential. The hotel sits on the southern boundary of Epping Forest, the largest public space in Greater London which extends from the northeast of the city limits towards the M25 circular.

We have provided a Local Street Map below.

2.3. Description

2.3.1. Overview

The property comprises a purpose built hotel constructed in approximately 1972. The hotel incorporates 99 guest bedrooms in addition to a restaurant, bar and 4 conference / event rooms. All guest bedrooms are located on the second and third floors, while the first floor accommodates the conference / events space.

The hotel is comprised of various buildings arranged in an L-shape varying between 2 and 4 storeys in height. There are two principal wings; the East Wing which was constructed in the 1970’s and the West Wing extension in the 1980’s.

The hotel provides approximately 70 car parking spaces, located to the east of the East Wing and to the rear of the property, accessed via an undercroft which passes under the East Wing of the building.

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Photographs of the property are provided below.

Front Elevation – View from Oak Hill Road Hotel Reception

East Wing & Car Park Rear Elevation & Car Park

2.3.2. Construction

The property is constructed of load bearing frame with brick infill panels. Fenestration is comprised of predominantly double glazed aluminium frame sash windows although in part these have been replaced with UPVC units. Both the East and West Wings of the hotel have flat roofs.

2.3.3. Services

We were advised by management that the Property is served by mains water, electricity, gas and drainage.

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There are two plant rooms at the hotel, one located on the fourth floor servicing the East Wing and an additional plant room located on the ground floor servicing the West Wing. Heating is provided by a gas fired boilers and central system. There are two Remeha boilers in the fourth floor plant room which we were advised were installed 6/7 years ago. 2 further boilers are located in the plant room at ground floor level.

There is one Kone passenger lift with a capacity of 6 persons (410 kg) serving ground, first, second and third floors of the property.

2.3.4. Capital Expenditure

The hotel was refurbished in 2014 at a total investment of approximately £1.6 to £1.8 million. This included a soft refurbishment of all bedrooms, corridors, restaurant, bar, reception area and conference rooms. We understand that the refurbishment was principally cosmetic but also included works to the roof of the hotel.

Air conditioning units were installed to 49 guest bedrooms in the West Wing of the hotel in 2015 at a total investment of approximately £100,000.

We were informed by management that the hotel is looking to replace the storage calorifiers this year.

2.3.5. Site Area

The site of the property is roughly rectangular in shape. By reference to the Ordnance Survey Extract, we calculate that the site has an area of 6,725 sq m (1.7 acres). This area and the precise site boundaries should be confirmed by your legal advisers.

We provide below an extract from the Ordnance Survey below showing the property edged in red and its immediate vicinity.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

2.4. Accommodation

2.4.1. Bedrooms

The hotel provides a total of 99 guest bedrooms, a breakdown for which is provided below:

Room Type Number

Single with shower 2 Twin with bath 30 Twin with shower 22

Double with bath 23 Double with shower 6 Triple 2

Family 14 Total 99

In addition to the 99 guest bedrooms available to guests, there are an additional 6 rooms which are no longer available as guest bedrooms and instead used as staff facilities (canteen / staff room) and as store rooms.

All guest bedrooms provide a Freeview TV, direct dial telephone, complimentary tea / coffee making facility, hairdryer, toiletries, and safe with an iron / ironing board available upon request.

49 guest bedrooms within the West Wing of the hotel are air-conditioned, while the remaining 50 rooms located in the East Wing do not benefit from air-conditioning.

The guest bedrooms are all ensuite and incorporate a bath with overhead shower or shower only. The shower only rooms typically have smaller bathrooms.

The guest bedrooms were found to be in good condition at the time of inspection with minimal wear and tear to case goods, communal corridors, doors and skirting/architraves. The bedrooms are generally of reasonable size and in line with that expected of a full service hotel located on the edge of London. The bedrooms in the West Wing are typically larger than those in the East Wing.

The guest bedroom product is consistent throughout the hotel following a comprehensive refurbishment in 2014. However, the bathrooms were not fully refurbished and are somewhat dated. We were informed that only the shower screen, shower heads and sink taps were replaced, in addition to white goods where necessary. The principal reason for this was the cost of replacing the bathroom tiles; a trial was carried out in one guest bedroom at a significant cost. As a general comment, the tiling in the bathrooms would benefit from being re-grouted.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Typical Twin Bedroom (West Wing) – Room 118 Ensuite Bathroom – Room 118

Family Bedroom (East Wing) – Room 201 Ensuite Bathroom – Room 201

Single Bedroom (East Wing) – Room 203 Typical amenities – Room 118

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

2.4.2. Food and Beverage Facilities

The hotel has one main restaurant and bar; the Forest Restaurant and Bar, located on the ground floor of the hotel to the rear of the reception. The restaurant accommodates approximately 54 covers and serves breakfast, lunch and dinner, in addition to afternoon tea. The bar accommodates 30 to 35 covers and can also be used as an overflow restaurant. We understand from the General Manager that the majority of trade is from hotel guests with a small amount of non-resident passing trade, principally for afternoon tea.

The restaurant is served by an adjoining kitchen which we were advised is fit for purpose.

Restaurant Bar Area

Area Connecting Restaurant and Bar Restaurant Kitchen

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2.4.3. Conference and Event Facilities

The hotel has 4 main meeting rooms. Statesman Suites 1, 2, and 3 are located on the first floor and can be adapted using partitioning to accommodate up to 250 delegates. An atrium area runs down the length of the rooms and is also available for hire. The rooms benefit from natural daylight and air conditioning.

Facilities serving the events space include a large satellite kitchen designed for events catering, a bar and male and female washrooms. The space is available for dry hire and we were advised that approximately 50% of events are sold in this manner.

A smaller boardroom is located on the ground floor near reception which can accommodate up to 8 delegates.

Statesman Suites 1, 2 and 3 Atrium Area

2.4.4. Other

The hotel provides approximately 70 car parking spaces, located to the east of the East Wing and to the rear of the property, accessed via an undercroft which passes under the East Wing.

2.5. Condition

2.5.1. General Condition

As instructed, we have not carried out a structural survey, nor have we tested any of the services. However, we would comment, without liability, that during the course of our inspection for valuation purposes, we observed that the property appears to be in good condition throughout.

We were advised by the General Manager that the building has no structural issues although much of the hotel plant is relatively old. Following the installation of new services at the hotel, including new water pumps, the boilers are impaired and causing periodic issues.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Only the west wing of the hotel benefits from air conditioning and the property would benefit from the installation of air conditioning in the east wing in addition. By contrast, as a result of the installation of the new water pumps in the east wing of the hotel, the water pressure is enhanced and the showers are more powerful in this wing.

The guest bedrooms were refurbished in 2014 and are in good condition, although as noted above, the bathrooms are somewhat dated and would benefit from an upgrade.

The carpets in the Statesman Suites are in very poor condition and require replacing throughout. Management have estimated that replacement carpets will cost in the region of £26,000.

Statesman Suite carpet badly stained Uneven car park surface

We have been provided with a schedule of recent cap-ex which we outline below:

Project Description Projected spend Progress Supply new calorifier £10,500 Open Replace public area AC units that have R22 gas £20,67 Closed Upgrade emergency lighting £19,531 Closed Install PCI compliant firewall £655 Closed Replace XP machine £509 Closed Upgrade front desk and back office PC £281 Closed Supply IP camera for comms room £142 Closed Supply Cabinet for server £475 Closed Supply event logging and file integrity checking software £452 Closed Air condition to 49 rooms £90,494 Closed TV replacement project £19,280 Closed New bedroom safes for brand standard £8,823 Closed

We have been provided with the following cap-ex budget prepared by Starboard Hotels, for imminent works to the hotel:

Project Description Projected spend Progress BT Internet Line Install £1,000 Open IT systems upgrade £25,000 Open Iron & Iron boards £5,100 Open Mini Fridges £2,500 Open Wet rooms/old bathrooms £90,000 Open Carpet Cleaner £350 Open 22 Phones £1,000 Open Duvets £4,500 Open

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Mattress topper £4,500 Open Bar Tables & Stools £5,000 Open Tables & Chairs outside £1,500 Open Buffet equipment £500 Open Chaffing Dish’s breakfast, electrical £1,000 Open Cutlery £1,000 Open Front canopy to have foliage £350 Open Shower Mixers £650 Open Bath tap Mixers £2,500 Open Integrated ovens £6,000 Open Microwaves £1,500 Open Music system £6,000 Open Boilers £10,000 Open Total £169,950

2.6. Environmental Considerations

2.6.1. Informal Enquiries

As instructed, we have not carried out a soil test or an environmental audit. Whilst we are unaware of the precise history of the site, given the location of the hotel in a predominantly residential area on the edge of Epping Forest, we consider the possibility of contamination to be low. This comment is made without liability.

2.6.2. Assumption

As our informal enquiries have suggested that land contamination is unlikely, we have valued the property on the basis that it has not suffered any land contamination in the past, nor is it likely to become so contaminated in the foreseeable future. However, should it subsequently be established that contamination exists at the property, or on any neighbouring land, then we may wish to review our valuation advice.

2.6.3. Flooding

We have made enquires with regard to potential flooding at the Environment Agency website, www.environment-agency.gov.uk and note that the Property is not considered to be in an area that may be potentially affected by flooding, the Environment Agency considering the threat of flooding to be ‘very low’. The very low risk category states that the location is in an area that is unlikely to flood except in extreme conditions. The chance of flooding as estimated by the Environment Agency each year is 0.1% (1 in 1,000) or less.

2.6.4. Sustainability

We have been provided with the EPC certificate for the building and note that the property was awarded Rating of ‘C’ (64) in October 2015, which is above average for a building of this type. This indicates that the building’s fabric and installed mechanical and electrical equipment are relatively efficient when compared to the benchmark rating for similar buildings of ‘81’.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

2.7. Town Planning

2.7.1. Statutory Background

We have made informal oral enquiries of the local planning authority, the London Borough of Waltham Forest, who inform us that the statutory plan covering planning policy and development control for the area is the Waltham Forest local plan. The core strategy, adopted by the council in March 2012, forms a key part of the Local Plan. It sets out the long term spatial vision for the borough that all other planning policies should conform to.

The property is stated neither to be Listed or to be within a Conservation Area. The site is, however, located in an environmentally sensitive location with a number of designations of this regard.

2.7.2. Planning History

Our researches of the Statutory Register have failed to reveal any recent planning permissions relating to the original construction of the building or its present use, although we understand that the original hotel consent was granted in 1964. In the circumstances, we assume that these were either consented under permissions we have not seen, or become established within the meaning of the Planning Acts. We recommend that your solicitors verify the position before drawdown of the proposed loan. We would be happy to comment on the findings of your solicitors as and when this information becomes available.

The only planning application revealed by our enquires of the London Borough of Waltham Forest council website includes the residential redevelopment of the site and the application for this was withdrawn (Outline Planning Application Ref: 205/0303/OUT). From the planning documents available online associated with this application, we understand that permission for the existing hotel was granted in 1964.

2.7.3. GL Hearn Planning Note

We have been provided with a planning note prepared by GL Hearn which outlines the following:

 The site is within an environmentally sensitive location, surrounded by Metropolitan Green Belt, a site of Metropolitan Importance to Nature Conservation, A Green Corridor, 2no Sites of Specific Scientific Interest and 2 no Special Areas of Conservation.  Three options for the site have been considered (extension to the hotel, change of use and extension for residential use and redevelopment for residential use) and all are thought to be acceptable in principle.  Any planning proposal will need to be sensitive to the development’s impact on the natural environment.  Conversion and extension of the building to residential use may prove problematic with regard to planning policy requirements.  Redeveloping the site may provide the best opportunity to meet development plan requirements in respect of density of development, space standards, affordable housing, mix of units etc. In 2013 the site was considered a housing site in the Council’s Strategic Housing Land Assessment.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

2.7.4. Summary

During the course of our inspection of the property, we did not observe anything which would indicate that any of the properties planning permissions are being contravened. In valuing the property, we have assumed that the building is used in accordance with its present lawful uses and that the building complies with current planning laws and building regulations and that it is not subject to any adverse proposals or possible enforcement actions. We acknowledge the potential to redevelop the site for residential use and have considered this within our approach to valuation.

2.8. Taxation

2.8.1. Rates

From informal enquiries of the Valuation Office Agency Internet Rating List www.voa.gov.uk, we understand that the following entries appear:

Property Address Description Rateable Value

The County Hotel, 30 Oak Hill, Woodford, Hotel and Premises – 2010 Valuation £123,000 Essex, IG8 9NY

The County Hotel, 30 Oak Hill, Woodford, Hotel and Premises – 2017 Valuation £120,000 Essex, IG8 9NY

The Uniform Business Rate for the 2016/17 financial year is 50.7 pence in the Pound including the Crossrail business rate supplement. We calculate that the rates currently payable are £62,361 excluding any transitional or other relief.

The 2017 draft rateable valuation for the property has been rounded down to £120,000. The estimated multiplier for the next financial year is 48.6 pence including the Crossrail business rate supplement. We calculate the rates payable for the next financial period to be £58,320 excluding any transitional or other relief.

2.8.2. VAT

Our valuation is exclusive of VAT.

2.9. Tenure

We have been provided with a report on title dated 20 June 2016 which has been prepared by ABGM Solicitors for Openview Properties Limited in respect of the proposed purchase of the Freehold property known as The County Hotel Moat House, 30 Oak Hill, Woodford Green, IG8 9NY from Merrigold Limited.

The report identifies that the Seller’s Freehold title is registered at HM Land Registry under title number EGL98721 and that the freehold interest contains positive and restrictive covenants which must be complied with.

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We have inspected the title plan and identified the boundaries of the freehold interest in Red on the Ordnance Survey Extract above. We would highlight that the plan does not appear to cover the entire site occupied by the hotel (notably the car park exit appears to fall outside the registered title plan). We recommend that this is investigated in further detail by your solicitors.

For the purpose of our valuations, we have assumed that full rights of access are enjoyed, and that no third parties enjoy any rights over the subject property. Your solicitors should confirm that there are no onerous restrictions or obligations as part of the due diligence process.

2.10. Occupational Agreements

There are stated to be no leases in existence, and therefore we have valued the property with the benefit of vacant possession.

The hotel is branded and operates as a Best Western Plus hotel under an affiliation with Best Western hotels. We have been provided with copies of the application / service agreement with Best Western Hotels dated March 2014, for which we summarise the main provisions below:

Signed Date 13 March 2014

1) Interchange and Consort Hotels Ltd trading as “Best Western Hotels” (“the Company”) Parties 2) Merrigold Ltd / T/A County Hotel (“the Member”)

Brand Best Western Plus

The Member must pay the Company Subscription Fee on the first day of January each year or part of Payments a year of membership.

Withdrawal from The member may withdraw from membership of the Company by giving notice in writing to the Membership Company. Such fee is to be determined by the Company in a general meeting.

If the Member sells the Hotel:  The date of the sale (the Transfer Date) is deemed to be the date of the transfer of legal title to the Hotel or the date on which there is a change of control of the hotel.  The Member must advise the Company in writing of any sale fourteen (14) days before the Transfer Date.  All Best Western bookings prior to the transfer date must be honoured  If the purchaser applies for membership of the Company, the Member’s liabilities to the Company under Clause 4 of the service agreement (Payments) shall remain in force until Sale of the Hotel such time as the purchaser becomes a Member of the Company at which time the Member’s liabilities shall be the responsibility of the purchaser.  If the purchaser applies for membership of the Company but that application is rejected by the Company, the Member shall be deemed to have terminated membership on the Transfer Date.  If the purchaser does not apply for membership of the Company, the Member shall be deemed to have given notice of withdrawal from membership on the Transfer Date.  If the Hotel is sold to a group of hotels the Board may take such action as teh Board considers to be in the best interests of the Members as a whole.

Termination The Company may terminate the Service Agreement if:

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 the Member is in breach of the Service Agreement and such breach has not been remedied in such manner and in such reasonable time as the Company requires.  The Member becomes insolvent or appoints or resolves to appoint a liquidator (except for the purposes of a solvent reorganisation previously approved in writing by the Company) or if an administrator, administrative receiver, or receiver is appointed over any of the assets of the Member or if the Member is declared bankrupt or if the Member becomes or proposes to become the subject of a voluntary arrangement

2.10.1. Management Agreement

The hotel was purchased with vacant possession (the previous management agreement between Merrigold and Redfine BDL was terminated at acquisition). The Borrower (Openview Properties Ltd) has negotiated a new short term management agreement with Starboard Hotels Ltd.

We have been provided with a copy of the unsigned management agreement, under which the owner of the hotel grants the manager full operational control to manage the hotel. We summarise the principal provisions as follows:

Effective Date 15 August 2016

1) Openview Properties Limited (Owner) Parties 2) SBH Hospitality Limited (Manager)

Site Best Western Plus County Hotel, 30 Oak Hill Woodford Green, Essex, IG9 9NY

Management Period Minimum 5 years (60 months)

The Owner can terminate the agreement in the event of default of the terms of the Agreement or non-payment by the Manager to the Owner of the payment pursuant to Clause 4 of the agreement (see above), unless payment is received within 7 days of default the Owner shall be entitled to serve written notice on the Manager terminating the Termination agreement.

The Manager can terminate the Agreement upon giving the Owner 6 months notice at any time.

The Owner and Manager may assign the contract to another party with the Owner’s consent, such consent not to Alienation be unreasonably withheld.

The Management Agreement stipulates that the Manager shall pay the Owner an Annual Revenue of £550,000 from the trading income of the hotel. We have been advised by the Manager that this is no longer the case and that the Agreement is being amended to provide a flat management fee of £50,000 per annum.

We have also been advised that the Management Agreement will be further amended to include a mutual termination provision which will enable the hotel to be offered with vacant possession (subject to a 6 month notice period).

We understand that there is also a profit share agreement between Owner and Manager under a separate agreement, although this is only applicable for the duration of the term and calculated with reference to profit after loan and interest repayments.

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The Operator will continue to trade the hotel under the Best Western brand.

2.10.2. Brand Overview

Best Western GB is part of Best Western International, based in America, who founded the brand in 1946. In the 1960s, the brand was launched overseas and is now represented in over 80 countries with over 4,000 hotels worldwide, all independently owned and managed. Best Western branded hotels worldwide won four times more TripAdvisor Certificate of Excellence awards than industry average.

Best Western Plus sits between Best Western and Best Western Premier. Best Western is a midscale hotel that offers guests great value, free high-speed internet and breakfast. They are rated two- or three-diamond from AAA/CAA. Best Western Plus is an upper-midscale property that offers a more premium experience, featuring updated contemporary furnishings in comfortable and spacious rooms and common areas. They offer all of the amenities of Best Western hotels, along with high-quality bedding, upgraded bath amenities and select sundry items. Best Western Plus hotels are AAA/CAA three-diamond rated. Best Western Premier is an upscale property offering greater luxury.

According to AMPM Hotels, there are currently 274 hotels operating under the Best Western brand in the UK and Ireland. Of these, approximately 43 are Best Western Plus Hotels, which account for approximately 16% of Best Western Hotel supply in the UK. The majority (226) are branded as Best Western, the flagship brand of the group while there are 5 Best Western Premier Hotels.

In 2015, Best Western announced plans for a global rebrand designed to appeal to new consumer groups and move perception away from being a mid-market only group. As part of the rebrand, the group intend to retire their famous logo of over 20 years and launch a new suite of seven logos in addition to launching new hotel concepts; Glo, a suburban mid-market boutique hotel brand; Vib, a technology-centric urban hotel concept; and BW Premier Collection, a soft brand consisting of carefully selected high-end hotels.

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2.11. Summary of the Business

2.11.1. Review of Historic Trading

We have been provided with historic and forecast trading information and summarise the headline data in the table below:

2013 2014 2015 2016F* 2017F 2018F 2019F Occ % 77.5% 74.6% 70.7% 64.5% 69.1% 71.1% 74.0% ARR (£) £44.06 £45.81 £54.36 £59.54 £57.48 £58.98 £60.48 RevPAR (£) £34.12 £34.17 £38.43 £38.42 £39.69 £41.95 £44.73 Total Revenue (£000's) £1,804 £1,579 £2,116 £660 £2,107 £2,222 £2,358 GOI (£000's) £988 £725 £1,077 £353 £1,192 £1,290 £1,405 GOP (£000's) £557 £237 £541 £202 £773 £862 £966 EBITDA (£000's) £414 £85 £358 £176 £688 £776 £878 EBITDA (% of Revenue) 22.9% 5.4% 16.9% 26.7% 32.7% 34.9% 37.2% * 4 month forecast Source: Starboard Hotels Ltd (forecast)

The data above has been provided by the Borrower and proposed Operator (Starboard Hotels Limited). We have added back exceptional ‘Non Operating Expenses’ back into the P&L for the years 2014 and 2015. Furthermore, please note that the Operator’s forecasts from 2016 onwards do not include any management fees, nor do they include an allowance for annual FF&E replacement / reserve.

We have discussed the operating history of the hotel with the selling agent (Christie + Co were appointed by the Bank of Ireland). We understand that the previous owner of the hotel (Merrigold Ltd), prior to the administration process, had employed a third party hotel operator to manage the hotel on his behalf. However, following refinance in 2013 (to fund the 2014 refurbishment), and subsequent request from the Bank of Ireland (BOI) for a consensual sale process, BOI insisted that the third party operator be removed, and replaced by BDL Redefine on an interim basis.

We have been advised that BOI’s initiation of the sale process frustrated its customer, who has since been uncooperative with both BOI and BDL Redefine. Furthermore, the BOI’s customer agreed heads of terms with the Borrower (Openview Properties Ltd) before Administrators were introduced, in spite of the formal marketing process being handled by Christie + Co on behalf of BOI / Administrators.

During the refurbishment year in 2014, revenues fell by -12.5% and EBITDA by -79.5%. Following the refurbishment, and against a backdrop of ownership and operator turbulence, the hotel managed to increase total revenue during the 2015 period by 34.0%, and regain most of its profit. This performance was led by a £10 increase in ADR on the back of the enhanced room product, as well as considerable growth in M&E / F&B sales.

As a general comment, the hotel trades off a low ADR, which reflects the location, quality and management strategy of the hotel. The hotel is principally driven by corporate bookings, accounting for approximately 70% of room sales. The hotel has around 30 corporate contracts with key clients including Morrisons and TSS. Other demand is driven from Enfield workers, local business parks and locally negotiated rates.

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The remaining 30% of rooms sales is largely driven by leisure bookings and we were informed that Group Tours form an important segment of demand and helps to top up occupancy levels, although rooms are sold at a lower rate in general. Online Travel Agents (OTA’s) account for approximately 300 bed nights per month.

The chart above illustrates that in the last full financial year (2015) revenues represented 67.6% from accommodation sales, 29.0% from F&B, 3.1% from room hire and 0.2% from other minor items. This is broadly in line with expectation for a 3 star asset of this calibre.

There are a few different food and beverage (F&B) outlets in the hotel, including the main restaurant, bar and event space. We were advised that average F&B spend per head is around £8 YTD, but there is scope to increase this.

The hotel has good provision of conference and events space, and is popular for hosting Bah Mitzvahs and weddings. Room hire (plus event kitchen) is typically £1,500, plus £1,000 minimum bar spend. There are 18 wedding events booked for 2016 with an average spend of approximately £4,200. There are 2 weddings on the books for 2017.

Smaller events at the hotel include regular meetings and lunch / dinners from local organisations such as the Woodford Rotary, Waltham Forest CCG and CITB National Construction College. Over the last 9 months of the current year (April – December) the hotel has bookings representing net income of around £37,500 for room hire and F&B spend. The principal competition to the hotel in terms of meetings, incentives, events and conference (MICE) business comes from the Hallmark Prince Regent hotel.

Profit conversion after fees, franchise costs and the 4.0% FF&E reserve were 22.9% in 2013. This dropped down to just 5.4% during the refurbishment year. We have not had an opportunity to discuss the business at that point due to the change in management, but room and F&B revenue during this period was down by £179,000 and £47,600 respectively (which we would largely attribute to business interruption), and operating costs increased in Admin & General (up £42,400), and F&B (up £27,000).

2015 performance showed promising improvement on the back of the newly branded and largely refurbished product, but momentum appears to have been lost during the change in ownership, management, administration and sales process. The hotel will benefit from Starboard Hotel Ltd’s experience and wider management resource across its portfolio of owned and managed hotels.

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2.11.2. STR Comp Set

We have been provided with STR data from October 2014 to October 2015. We understand that the competitor set includes the following hotels:

- Ibis London Barking - Premier Inn Loughton Buckhurst Hill - Holiday Inn Express London Chingford North Circular - Hallmark Hotel London Chigwell Prince Regent - Premier Inn London Barking - Holiday Inn Express London Newbury Park - Premier Inn Chingford

We outline the comparative key performance indicators in the table below.

Epping Occupancy ADR RevPAR Forest STR Comp Comp Comp RevPAR Subject % Diff Subject % Diff Subject % Diff Set Set Set Rank Oct 2014 – Oct 2015 75.50% 84.40% -11.8% £53.70 £63.54 -18.3% £40.53 £53.66 -32.4% 8 of 8 Oct 2013 – Oct 2014 78.10% 84.40% -8.1% £45.49 £59.14 -30.0% £35.55 £49.94 -40.5% 8 of 8 Source: STR

The STR data shows that the hotel is performing significantly below its competitive set and is ranked 8 out of 8 within its competitor set in terms of RevPAR. However, it is important to highlight that the hotels within the comp set cover a wide area, most likely as a result of the lack of direct comparables within close proximity to the subject hotel.

Internet review sites such as Tripadvisor have become increasingly important in the hotel sector. Whilst any interpretation of review data should be treated with caution, it can provide a useful indicator for the customer experience of the hotel. We provide the current rating for the hotel which shows the majority of guest feedback (76%) to range from average to excellent.

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3. Market Commentary

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3.1. Macro Economic And Hotel Market Overview

We enclose a Macro Economic Overview at Appendix 2.

3.1. Overview of UK Hotel Market

In general, the UK hotel industry experienced downward pressure on both occupancy and room rates caused by the economic downturn, resulting in declines in RevPAR in many markets between 2007 and 2010. However, overall the trend from 2010 has been more positive with a stabilising, and more recently growth, in average rate resulting in a 3.6% average annual growth in Revenue per available room (RevPAR) 2010-2015.

The level of inbound and domestic tourism (fuelled by key events such as the Olympics, the Queen’s Diamond Jubilee and Rugby World Cup) and strengthening corporate demand has driven the overall recovery and growth of the industry in the UK. 2015 saw a slowdown in occupancy growth; however, continued growth in rates resulted in a 4.3% increase in RevPAR from 2014.

% change CAGR % UK Hotels 2010 2011 2012 2013 2014 2015 14/15 2010-2015 Occ (%) 72.5% 73.8% 72.4% 75.0% 77.2% 77.5% 0.4% 1.7% ARR (£) £76.18 £78.43 £80.65 £80.84 £84.60 £87.89 3.9% 3.6% RevPAR (£) £55.26 £57.87 £58.35 £60.64 £65.33 £68.11 4.3% 5.4% Source: STR

£100 78%

£90 77%

£80 76%

£70 75% £60 74% £50 73%

£40 Occupancy% 72% ARR /RevPAR ARR (£) £30 £20 71% £10 70% £0 69% 2010 2011 2012 2013 2014 2015

ARR (£) RevPAR (£) Occ (%)

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3.1.1. UK Supply & Pipeline

According to AMPM Hotels, the UK Hotel industry accounts for approximately 620,000 bedrooms with a net increase of 10,500 bedrooms in 2015. London and the UK in general saw a large increase in supply in the run up to the 2012 Olympics but this new supply seems to have been largely absorbed by the market as 2013 and 2014 occupancies increased. This is due to London’s underlying demand generators, but also the conversion of some hotel stock into residential use.

UK Hotel Room Supply 2015

1%

4% London 11% 23% England South England Central England North 20% Scotland Wales 30% 11% Northern Ireland

The chart below illustrates the potential increase to supply with an opening date within the next three years. This data has been collected from AMPM and is subject to change.

12000

10000 London 8000 England South England Central 6000 England North

4000 Scotland

Wales Active Pipeline Pipeline Active (Rooms) 2000 Northern Ireland

0 2016 2017 2018

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3.1.2. Branded Hotel Sector

The largest branded operators in the UK are Whitbread (Premier Inn), IHG (Holiday Inn, Holiday Inn Express, Crowne Plaza) and Travelodge, accounting for nearly 50% of total branded supply. A full breakdown is provided below.

UK & Ireland Hotels Company UK Hotel Rooms Whitbread 52,786 19.7% IHG 39,519 14.8% Wyndham Others Travelodge 37,184 13.9% GLH Whitbread Britainnia Accor 26,915 10.1% Hilton 24,281 9.1% Rezidor IHG Marriott 11,526 4.3% Hilton Rezidor 9,348 3.5% Travelodge Britannia 8,941 3.3% Marriott Accor GLH 8,279 3.1% Wyndham 7,835 2.9% Others 40,822 15.3% Total 267,436 100.0% Source: BDO Hotel Britain 2015

In general, branded operators continue to exert pressure on independent hoteliers, with many of the latter closing, rebranding or changing the use of their properties. This has been particularly prevalent in the three star sectors. The largest branded operators have built powerful global sales and marketing platforms, utilised digital technologies and central reservations systems and pursued aggressive expansion (often through franchising or management models rather than capital intensive property acquisition). However, the majority of hotels in the UK are still independently operated and to suggest all are threatened by branded competitors would be an inaccurate generalisation.

3.1.3. UK Regional Hotel Market

Due to the size and dynamics of the London hotel market, the UK regions are often analysed, as a separate market (at a high level). The regions have seen a steady growth rate of occupancy with an increase from 69.5% to 75.4% in the period of 2010 to 2014, which has accounted for much of the UK’s overall growth in occupancy and has aided to the regions outperforming London in terms of CAGR of RevPAR during 2010-2014. In particular, 2014 saw a 10.6% growth in RevPAR in the regional market from the previous year.

UK Regional % change CAGR % 2010 2011 2012 2013 2014 2015 Hotels 14/15 2010-2015 Occ (%) 69.5% 71.2% 69.8% 72.7% 75.4% 76.0% 0.8% 2.3% ARR (£) £59.02 £58.60 £59.30 £60.06 £64.03 £67.34 5.2% 3.4% RevPAR (£) £41.08 £41.69 £41.40 £43.66 £48.27 £51.20 6.1% 5.7% Source: STR

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£80 78%

£70 76%

£60

74% £50

£40 72%

£30 Occupancy% 70% ARR /RevPAR ARR (£) £20 68% £10

£0 66% 2010 2011 2012 2013 2014 2015

ARR (£) RevPAR (£) Occ (%)

We highlight below hotel market key performance indicator information for a selection of regional UK cities for 2015.

£100 85% £90 80% £80

75%

£70 £60 70% £50 65%

£40 Occupancy%

ARR / RevPAR / RevPAR (£) ARR £30 60% £20 55% £10 £0 50%

ARR (£) RevPAR (£) Occ (%)

Source: STR

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Below we summarise the RevPAR growth of major regional UK hotel markets from 2014-2015:

RevPAR Growth 2014-2015 City RevPAR Growth % Milton Keynes 15.0 Cardiff 14.2 Belfast 12.0 Bristol 11.5 Birmingham 11.3 Bradford 10.6 Coventry 10.4 Nottingham 9.1 Plymouth 8.9 Sheffield 8.6 Leeds 8.3 Southampton 8.0 Manchester 7.2 Gatwick Airport 6.8 Brighton 6.4 Newcastle 5.4 Norwich 5.3 Liverpool 5.2 Edinburgh 3.2 York 2.1 Heathrow Airport 1.9 London 1.5 Glasgow -0.5 Aberdeen -25.4 Source: STR Dec 2015

3.1.4. UK Transactional Market

A record number of tourists and a recovery in corporate travel in recent years have boosted operational performance in the UK’s major hotels market. This improved operational performance is one reason for the increase in appetite for hotel assets amongst investors. In many areas, markets formerly characterised by distressed sellers (those compelled to dispose of assets) are now subject to high levels of competition for available stock as investment funds seek to deploy capital and private equity-backed management platforms seek to grow their portfolios. Paired with the lack of stock within the London market, the number of eager buyers has lead to many investors having to look beyond the Capital and towards the UK’s prime regional cities.

The UK hotel transaction market saw its biggest year since its peak in 2006 of £8.3 billion with £8.1 billion. Savills anticipate 2016 to be another strong year for hotel transactions. £8.1 billion worth of transactions in 2015 represents a fivefold increase in three years from £1.66 billion in 2012 and highlights the rapid recovery of investor confidence and attractiveness of hotel assets, and real estate in general, since the global financial crisis.

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UK Hotel Transactions (£millions) £9,000 £8,000 £7,000 £6,000 £5,000 London £4,000 £3,000 Regions £2,000 £1,000

£0

2001 2006 2011 2002 2003 2004 2005 2007 2008 2009 2010 2012 2013 2014 2015 2000 Source: Savills Research

Notable portfolio transactions in the last 18 months include the purchase of the Mint Portfolio, consisting of five former Mint hotels, by Marathon Asset Management for £133,333 per room, the Jurys Portfolio of 31 hotels totalling 7,523 rooms purchased at a price of £89,858 per room and Cerberus Capital Management’s purchase of the LRG2 Portfolio of 18 Holiday Inn hotels for £92,000 per room.

Notable single asset transactions in London include the Ace Hotel in Shoreditch with a sale price of £542,000 per bedroom, the purchase of the St Ermin’s Hotel in Westminster for £559,000 per bedroom and the purchase of the Kingsway Hall Hotel for £565,000 per bedroom. In the regions, a large proportion of the sales have been in the branded sector, particularly the branded budget sector, with an increase in Premier Inn and Travelodge investment and forward funding transactions. In addition to these two brands, notable transactions include the purchase of the Radisson Blu Edinburgh by Deka for an above-guide price of £265,000 per bedroom, the purchase of the Doubletree Chester for £189,000 per bedroom, the purchase of Hilton Newcastle Gateshead for £148,000 per room, the Novotel and Ibis hotel in Reading purchased for £97,000 per bedroom and the purchase of the independent Cedar Court Grand Hotel in York for £243,000 per bedroom.

2015 also saw the transfer of some of London’s most iconic hotels. The purchase of the Barclay Brother’s and Patrick McKillen’s shares of the Maybourne Group (the holders of the Connaught, Claridge’s and the Berkley), earlier in 2015, valued the hotels at approximately £3 million per room. This shows the level of demand for assets of this calibre in Central London. The details of the transaction and marketing process of the Maybourne Group share sale were not fully disclosed and therefore should not be looked at as an absolute market value. Similarly, we are aware of the sale of the 85 room, 5-star Bulgari Hotel in Knightsbridge for more than £3 million per key.

The UK offers a relatively transparent market in terms of hotel investment, and this should ensure that high levels of investment and transactions continue into and beyond 2016. With banks seeking further divestment and sovereign wealth funds, private equity, high net worth individuals and specialist hotel investors actively seeking opportunities there is certainly potential for high levels of transactional activity to continue in the short to medium term. A sustained and balanced economic recovery is not guaranteed, but a more positive outlook could result in an increased interest in regional hotels and portfolios.

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3.2. London Hotel Market

3.2.1. Overview

London is one of the world’s leading leisure and business destinations and a key international meeting place, benefiting from diverse demand drivers. Occupancy experienced the UK-wide dip in 2012 as a result of an influx of supply and rise in rates in relation to the London Olympics, followed by a recovery in 2013 and 2014. 2015 saw the first dip in occupancy since 2012, falling 0.8 percentage points to 82.2%.

Despite this, RevPAR has continued to see year-on-year growth, and London hotels have fully recovered their pre-recession performance, with RevPAR in 2015 lying above its 2008 peak.

% change CAGR % London 2010 2011 2012 2013 2014 2015 14/15 2010-2015 Occ (%) 82.4% 82.3% 80.6% 82.4% 83.0% 82.2% -0.8% -0.1% ARR (£) £124.03 £134.59 £140.11 £137.90 £140.93 £143.95 2.1% 3.8% RevPAR (£) £102.18 £110.80 £112.96 £113.63 £117.01 £118.27 1.1% 3.7% Source: STR

£160 84%

£140 83% 83%

£120

82% £100 82% £80 81%

£60 Occupancy%

81% ARR /RevPAR ARR (£) £40 80%

£20 80%

£0 79% 2010 2011 2012 2013 2014 2015

ARR (£) RevPAR (£) Occ (%)

London has consistently traded strongly in comparison to other European cities. The graph overleaf illustrates key performance indicators for London hotels, against a backdrop of European cities, for year end December 2015, taken from a 31 city data set produced by STR

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€300 85% 80% €250

75%

)

€ €200 70% 65% €150 60%

€100 55% Occupancy% ARR /RevPAR ARR ( 50% €50 45% €0 40%

ARR (€) RevPAR (€) Occ (%)

In terms of occupancy, London and Dublin (both 82.2%) outperform all of the listed cities for 2015, with the lowest occupancies being achieved in Geneva and Frankfurt. In relation to 2015 ARR, the European cities detailed produced a range of £44.05 (Vilnius, not shown in graph) to £255.85 (Paris).

RevPAR figures show Paris and Zurich in first and second place respectively, with London in fourth place behind Geneva. It should be noted that the ARR data is presented in Euros and will therefore reflect currency fluctuations.

3.2.2. London ‘Tourist’ Sector

In their annual hotel survey, BDO categorise London hotels by tariff boundaries. We summarise below the various grades identified in the BDO Hotel Britain 2015 report and their corresponding price ranges.

No. of Rooms in % of Sample Grade Price Range Sample Total Superior Deluxe >£200 5,241 18.9% Deluxe >£150 9,310 33.6% International Deluxe £150-£200 4,069 14.7% First Class £100-£150 9,200 33.2% Business Class £75-£100 3,929 14.2% Tourist <£75 4,574 16.5% Townhouse/Boutique >£100 718 2.6% Sample Total 27,731 100.0% Source: BDO Hotel Britain 2015

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The table and graph below taken from BDO’s Hotel Britain Report 2015, show KPI’s for London’s ‘Tourist’ hotels. BDO classify a ‘Tourist’ hotel as having an ARR of less than £75; a spread which the subject hotel falls into.

Occupancy rates in this particular sector of the London market saw a significant drop in 2012 as tourists were deterred by high prices centred around the London Olympics. The following years saw gradual recovery but 2014 occupancy was still lower than the 2010 peak of 82.9%. The ARR has shown a rise of £6.34 between 2010 and 2014.

Finally, RevPAR has gradually edged up over the last five years, peaking last year at £46.02 in 2014, an increase of 9.9% from 2013.

% Change Tourist 2010 2011 2012 2013 2014 CAGR % 13/14 Occ (%) 82.9% 82.6% 77.6% 79.9% 80.2% 0.3% -0.8% ARR (£) 51.04 52.35 53.06 52.41 57.38 9.5% 3.0% RevPAR (£) 42.32 43.24 41.19 41.89 46.02 9.9% 2.1% Source: BDO Hotel Britain 2015

£70 84% 83% £60 82% £50 81% 80% £40 79% £30

78% Occupancy Occupancy %

ARR /ARR RevPAR (£) £20 77% 76% £10 75% £0 74% 2010 2011 2012 2013 2014

ARR (£) RevPAR (£) Occ (%)

3.2.3. Forecasts

According to PwC forecasts, London places thirteenth in RevPAR projections for 2016 and 2017 among other European Cities. This is mainly down to growth in ARR where, despite a high supply pipeline, occupancy is already very high.

RevPAR Growth (local currency) City 2016 City 2017 Rome 19.2% Dublin 8.2%

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Dublin 9.1% Lisbon 6.9% Prague 6.6% Porto 5.8% Madrid 5.8% Barcelona 5.5% Lisbon 5.7% Prague 4.9% Porto 4.5% Milan 4.1% Moscow 4.0% Moscow 3.9% Barcelona 3.3% Madrid 3.8% Berlin 3.1% Frankfurt 2.9% Amsterdam 2.5% Edinburgh 2.8% Edinburgh 2.4% Paris 2.7% Frankfurt 2.2% Berlin 2.6% London 1.9% London 2.2% Vienna 1.7% Brussels 2.1% Zurich 1.1% Amsterdam 2.1% Paris 0.4% Vienna 1.4% Geneva 0.1% Zurich 0.7% Brussels -0.8% Geneva -0.1% Milan -24.2% Rome -14.9% Source: PWC Forecasts February 2016

London remains at the forefront of major transactions with high prices still being achieved. But further supply additions could depress ARR in trough periods in certain locations. There remain opportunities for new build, renovation, rebranding and operational enhancement for those with the funding and skills to invest.

Hotels in London failed to see the same stellar performance in 2015 that was seen in 2014. Although key performance indicators remain at the upper end in relation to most global cities, growth has been less that anticipated. Demand has remained strong; however, the falling Euro has dampened overall performance as tourists within Eurozone countries are deterred by high real prices. Data has shown that the majority of this slowdown in the first half of 2015 has been seen in the mid-market segment more than the luxury or budget segments.

Tourism aided in a resurgence of performance growth in the second half of 2015, partly due to the UK hosting the Rugby World Cup.

3.2.4. Current Supply and Pipeline

London accounts for approximately 22% of the total UK supply of bedrooms. London saw a surge in supply in the lead up to the 2012 Olympics, with 11,000 new rooms opening in 2011 and 2012. Following this surge, UK supply experienced a cooling off period with only 1,800 rooms opening in 2013 followed by an increase to 5,200 in 2014 (4% increase).

Four star hotels account for the greatest proportion of rooms in London with 36% of the total supply. This represents the highest 4-star portion of total supply throughout the other regional cities within the UK. There is then a significant drop in portion size with the second highest made up of budget hotels equating to a 20% share of total room supply.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

According to AMPM Hotels (as of January 2016) Greater London has a current hotel supply of 139,723 bedrooms. Central London, including the boroughs of City of London, Tower Hamlets, City of Westminster, Hackney, Camden, Islington and Kensington and Chelsea, Wandsworth, Lambeth, Southwark and Greenwich has a supply of 99,343 bedrooms. The boroughs with the largest number of bedrooms are Westminster (37,519 bedrooms), Camden (17,465 bedrooms) and Kensington & Chelsea (14,979 bedrooms).

London Hotel Supply Number of % of by Grade Bedrooms Total Hostel 2,673 1.9% Apartment 10,396 7.4% Budget 27,917 20.0% 2-star 11,731 8.4% 3-star 19,644 14.1% 4-star 50,760 36.3% 5-star 16,602 11.9% Total 139,723 100.0% Source: AMPM Hotels

There is an active pipeline of 15,889 hotel rooms in Greater London and 7,664 planned for Central London in the next three years remaining above the rest of the UK in terms of percentage increase.

3.3. Hotel Competition

There are 19 hotels within a 3 mile radius of the subject hotel, equating to 944 guest bedrooms supplied. By number of guest bedrooms, budget hotels (69%) provide the majority of accommodation by bedroom stock, followed by 4-star (11%), 2-star (11%) and 3-star (3%) hotels.

A summary of the hotel’s primary competition is highlighted below. Some of this information has been provided by third parties and we cannot guarantee its accuracy.

Rate Rate Hotel Name Grade Bedrooms Midweek* Weekend* Subject Property 4 99 £99.00 £129.00 Hallmark Hotel London Chigwell Prince 4 61 £107.00 £185.00 Regent Holiday Inn Express London - Chingford Budget 102 £99.00 £106.00 North Circular Travelodge London Budget 24 £113.00 £132.00 Snaresbrook Premier Inn Loughton / Budget 50 £85.50 £105.00 Buckhurst Hill Travelodge London Budget 107 £62.00 £119.00 Walthamstow Source: AMPM Hotels / Savills Research *Best available Midweek/Weekend rate in July based on two people sharing incl. VAT

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

We were advised by the General Manager that the hotel’s primary competition comprises the Hallmark Hotel London Chigwell Prince Regent, Premier Inn Loughton / Buckhurst Hill and Holiday Inn Express London – Chigworth North Circular.

The Hallmark Hotel comprises a 61 bedroom, 4-star hotel. Hotel facilities include a restaurant, bar and lounge, terrace, six meeting rooms with a capacity for up to 350 delegates and 105 parking spaces on site. Based on the facilities provided, we consider this hotel to serve as the main competition to the subject property.

The Premier Inn Loughton / Buckhurst Hill and Holiday Inn Express London – Chigworth North Circular are both limited service hotels and do not offer conference or events space. Nevertheless, given the sensitive ADR at the subject hotel, these would represent an element of competition to the Best Western Plus Epping Forest.

3.4. New Supply

The Table below outlines the potential increase to market-wide hotel supply in the short to medium term within a 3 mile radius of the subject property. These proposed hotels are at various stages within the development pipeline and some are more certain than others. We have endeavoured to provide the most up to date information available at the time of writing. Once again some of this information is taken from third parties and we cannot guarantee its accuracy.

Hotel Name Brand Grade Bedrooms Opening Planning status Holiday Inn Express London - Chingford North Holiday Inn Budget 24 Speculative Awaiting Planning Circular (extension) Express Manor Independent 2 17 Speculative Full 2015 Hotel Ibis London Leytonstone Ibis Budget 54 On Hold Full 2014 Ibis Styles London Leyton (extension 2) Ibis Styles Budget 10 Speculative Full 2015 Ibis Styles London Leyton (extension 1) Ibis Styles Budget 7 Speculative Full 2013 Lion & Key - phase 2 Independent 3 8 Speculative Full 2014 Lion & Key - phase 1 Independent 3 12 Speculative Full 2014 Coronation House (extension) Independent Budget 46 Speculative Pre-planning

The majority of the proposals within the development pipeline have the benefit of full planning consent, however all of the proposed supply is currently speculative or on hold. Furthermore, it is important to highlight that a relatively large amount of the new supply is to be brought about by extensions to existing hotels within the area as opposed to new openings. As such, we are of the opinion that there is limited risk of additional hotel supply within the local area in the short to medium term.

3.5. Comparable Transactions

We have undertaken research and investigations into recent comparable transactions of hotels with a similar market positioning to that of the subject Hotel.

The hotel market, unlike other commercial property sectors, is more secretive about providing detailed information on transactions, as analysis is required of trading information, which is extremely sensitive between operators.

For the purpose of our Valuation, we have had regard to other hotels that we have valued or sold and analysed Turnover, Net Operating Profit (before tax and interest) and achieved prices, albeit on a confidential basis.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Transactions we are aware of are listed below and whilst these provide a useful guide, we would again point out that some of this information has been obtained from third parties and we cannot validate its accuracy. Furthermore, many of the transactions that we have considered during our valuation are subject to confidentiality clauses and as such we are unable to refer to them directly. The transactions which follow are nevertheless of assistance in providing a broad “cross-check”.

We provide below a summary table of transactions relevant to the property:

Price per Year Property Rooms Sale Price Yield Description room Nov-16 Best Western 83 £7,000,000 £84,337 The 56 bedroom hotel plus an adjacent 27-bed Plus Connaught ‘Connaught Lodge’ were acquired off-market by Brael Hotel Ltd. Bournemouth Oct-16 Mercure Oak 76 £5,850,000 £76,974 Placed on the market amongst a portfolio of 6 hotels in Hotel, Hatfield May 2016. Managed by Focus Hotels Management with Accor franchise. Sold to Hatfield Hotels Ltd off a guide of £5.85m. Aug-16 Mercure St 110 £7,250,000 £65,909 Sold by Amaris Hospitality to Nine Group off £7.25m Albans Noke guide. Rebranded in 2015 from The Thistle St Albans. Hotel Grade II listed and operated under a management agreement by Accor Hotel Services. Set within 10 acres. Mar-16 Travelodge 80 £3,982,500 £49,781 5.90% Opened Nov 2015 and let to Travelodge until 2040 at Hackney (blended) £392,000 initial rent. 5.90% blended yield. Yield is weak due to possible Cross Rail CPO issues. Deal also included 2 retail units let to TK Maxx and Carphone Warehouse. Total price for the hotel and retail units £13.5 million. Jul-15 Travelodge 99 £8,310,000 £83,939 5.85% Opened in 2014. Forward Commitment by LaSalle Walthamstow Investment Management.

Jul-15 Premier Inn 81 £7,600,000 £93,827 4.75% 2015 new build purchased in off market deal. Pre let to Basingstoke Premier Inn on a 25 year lease at a rent of £385,000.

Oct-14 Travelodge 188 £18,200,000 £96,809 5.00% Includes Bar Café. Rent of £963,500 (£5,125 per London bedroom). Acquired for £18m, yield reflects £18.2m. Stratford Jul-14 Travelodge 66 £5,753,000 £87,166 6.70% Long leasehold with 144 years unexpired. Total London Barking passing rent of £407,653.52 p.a. 95% of rent let to Travelodge (£314,1478.74) and Tesco (£72,504.78) with the remainder being let to Explore Learning £21,000 p.a.). Tesco lease expiring Feb 2024. THL element appraised at 6.45% Mar-14 Park Inn 100 £5,025,000 £50,250 Sold by Mountain Capital. Purchased by Bravo Hotels Watford Group. Sold with vacant possession. Had been making minimal EBITDA under management agreement with Rezidor. Nov-13 Menzies Prince 61 £6,000,000 £98,360 Part of a portfolio transaction. Topland purchased for Regent, (guide) (guide) £83.5m from KPMG. Freehold Georgian conversion Chigwell property within 2 acres.

The most relevant information available in the market relates to the sales process that was handled by Christie + Co on behalf of Bank of Ireland. We understand that the hotel was introduced to the market in October 2015 (together with 3 other hotels) in an arms length process. The subject hotel in isolation is reported to have received a good level of interest with 6 offers submitted, 4 of which were within a range of £8.0M - £8.5M. Additional interest at up to £11M was reported from residential developers, but being conditional upon planning consent for redevelopment was discounted from the process.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Beyond the actual sales process being handled for the subject hotel itself, there are limited direct comparables hotel in this specific location, however we have considered evidence from other similar towns with proximity (or accessibility) to London. The Travelodge and Premier Inn comparables represent leased assets with secure guaranteed income and are therefore not directly comparable to the subject property. However, the price per room range of £49,781 to £96,809 is useful to contextualise the Best Western Plus Epping Forest.

3.6. Development Potential

The property has been valued for existing use. We have specifically not taken regard of any alternative use value. We would of course be pleased to undertake this if required under separate instruction.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

4. Valuation Advice

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

4.1. Principal Valuation Considerations

The principal matters that impact on the value of the property are as follows:

4.1.1. Location and Situation

 Relatively secluded location on the outskirts of London  Convenient location for North London and Essex with good provision of car parking  Reasonable communication links to Central London

4.1.2. Building Quality and Condition

 Purpose built hotel dating back to 1970’s  Midscale hotel brand  Unattractive building which would benefit from an external upgrade / refresh  Public areas and guest bedrooms finished to a good standard following refurbishment programme in 2014  Capital investment required to refresh conference & events facilities  Building services in need of upgrade (boilers)  No short term plans to invest in the hotel while planning is being worked up for residential redevelopment

4.1.3. Accommodation

 99 ensuite guest bedrooms finished to a consistent standard and of a good size  On site complimentary car parking for approximately 70 cars  Forest Restaurant & bar providing approximately 54 and 30-35 covers respectively  4 function rooms adaptable for a variety of events and conference business

4.1.4. Business

 Corporate dominated guest segmentation  No focused sales and marketing strategy  Competition from budget hotel operators offering modern branded accommodation at lower rates  Low average room rates

4.1.5. Tenure

 Freehold interest

4.1.6. Liquidity / Prevailing Market Conditions

As discussed earlier within this report, the UK commercial property market is currently going through a period of uncertainty as a result of a mix of global and UK events and issues. These include, but are not limited to, increases to commercial stamp duty, the outcome of the EU referendum, currency fluctuations and terrorist attacks in Paris and Brussels. All of these factors will be taken into consideration by potential purchasers and we would comment that we have witnessed a number of UK hotel assets which either remain on the market or have been withdrawn from the market as vendors pricing aspirations have not been met.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

4.2. Approach To Valuations

4.2.1. Market Value – MV1

We have considered the proposed management agreement between the Borrower and Starboard Hotels, together with the amendments that have subsequently been outlined (mutual termination provisions without penalty and fixed management fee of £50,000 p.a.). We therefore approached our valuation on the assumption that the hotel can be offered with vacant possession.

Our conversations with the selling agent revealed good interest from owner operators (including PLC Board approval from Premier Inn) as a trading asset, and we have valued it accordingly.

The proposed Operator has provided a 5 year forecast that we have reviewed and considered in light of the characteristics of the property and its immediate market and competitor set. We note the capital expenditure proposal at the hotel and ‘quick fix’ measures to return the hotel to meet recent historic revenue levels under focussed hotel management. Our revenue forecasts include an allocation for a hotel operator (we assume a Base Fee of 2.5% of Revenue and Incentive Fee of 6.0% of GOP). We have also included a FF&E reserve representing 4.0% of Turnover, per annum.

We have considered the actual trading information supplied, together with current budget/forecast information. Our valuation is based on a hypothetical efficient operator’s likely trading performance at the Property. We have balanced actual operating costs with benchmark performance ratios derived from comparable trading asset that we have reviewed in the course of our professional work.

We summarise our headline forecast for the hotel as follows:

2017 2018 2019 2020 2021 Occ % 70.0% 72.0% 75.0% 75.0% 75.0% ARR (£) £57.00 £59.00 £60.50 £62.01 £63.56 RevPAR (£) £39.90 £42.48 £45.38 £46.51 £47.67 Total Revenue (£000's) £2,091,061 £2,213,432 £2,338,981 £2,397,455 £2,457,392 EBITDA (£000's) £492,756 £569,076 £662,724 £679,292 £696,274 EBITDA (% of Revenue) 23.6% 25.7% 28.3% 28.3% 28.3%

Source: Savills

Notwithstanding the relatively low RevPAR achieved at the hotel, and the limited ongoing investment in the asset, a hotel of this standard should be capable of achieving a profit conversion of between 25% - 30% after management fees and FF&E reserve.

Given the quality of the hotel, its tenure, location and potential for both enhanced revenues and for potential redevelopment (subject to planning), we have applied an exit yield of 7.25% on our 10 year DCF model, discounting annual EBITDA at 9.75%. Our selection of yields makes reference to recent comparable transactions for freehold hotels within the Greater London area, as well as the clear value upside afforded by redevelopment potential (as evidenced within the recent arm’s length marketing process).

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

4.2.2. Market Value – MV2

You have also asked us to consider the special assumption of the property as a fully equipped operational entity having regard to trading potential, but subject to the following special assumptions:

 The business is open  The accounts and records of trade would not be available to, or relied upon by a prospective purchaser  The trade inventory remains in place; and  The required licences, contracts, consents, certificates and permits remain in place (as applicable)

We have discounted the Market Value by 5.0% to reflect the loss of accounts and record of trade. This is a modest reduction and reflects the quality of the asset, the simplicity of the hotel operations and the strong underlying value of the property for alternative use (residential redevelopment).

4.2.3. Market Value – MV3

You have also asked us to consider the special assumption of the property as a fully equipped operational entity having regard to trading potential, but subject to the following special assumptions:

 The business is closed  The accounts and records of trade would not be available to, or relied upon by a prospective purchaser  The trade inventory has been depleted or removed; and  The required licences, contracts, consents, certificates and permits are lost, breached or in jeopardy (as applicable)  Fully vacant possession is available

We have discounted the Market Value by 7.5% to reflect the closed business, the lack of record of trade and licenses etc, and made a further capital deduction of £990,000 to represent opening costs and replacement of any missing / damaged inventory.

4.2.4. Market Value – MV4

You have also asked us to consider the special assumption of the property as a fully equipped operational entity having regard to trading potential, but subject to the following special assumptions:

 The business is closed  The accounts and records of trade would not be available to, or relied upon by a prospective purchaser  The trade inventory has been depleted or removed; and  The required licences, contracts, consents, certificates and permits are lost, breached or in jeopardy (as applicable)  Fully vacant possession is available  A 180 day marketing period inn which to sell the property

We have discounted the Market Value by 10.0% to reflect the restricted marketing period (benchmarked against the actual marketing period evidenced by the recent marketing exercise) as well as the lack of record of trade and premises license, and made a further capital deduction of £990,000 to represent opening costs and replacement of any missing / damaged inventory.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

4.3. Valuations

4.3.1. Market Value – MV1

 As at the date of our report, but the condition of the Property as at 20 June 2016  Subject to the information available to us as described within this report  Freehold interest subject to a Management Agreement to Starboard Hotels Ltd  99 Bedroom 3 star Hotel with restaurant, bar, meeting facilities  Assuming a fully equipped operational trading entity, having regard to the historic and future trading potential of the Hotel in its current condition with all fixtures and fittings available for trading

 £8,400,000 (EIGHT MILLION FOUR HUNDRED THOUSAND POUNDS)

We consider that a period of up to 9 months is a reasonable period within which to negotiate completion of a sale by private treaty of the property at the level of our valuation, taking into account the nature of the property and the state of the market.

This valuation is based on a capitalisation rate of 7.25% (on year 10 income) and an annual discount rate of 9.75%. Our Valuation is stated net of purchaser’s costs. In addition, it reflects £84,848 per bedroom overall.

4.3.2. Market Value – MV2

 The business is open  The accounts and records of trade would not be available to, or relied upon by a prospective purchaser  The trade inventory remains in place; and  The required licences, contracts, consents, certificates and permits remain in place (as applicable)  £7,980,000 (SEVEN MILLION NINE HUNDRED THOUSAND POUNDS)

4.3.3. Market Value – MV3

 The business is closed  The accounts and records of trade would not be available to, or relied upon by a prospective purchaser  The trade inventory has been depleted or removed; and  The required licences, contracts, consents, certificates and permits are lost, breached or in jeopardy (as applicable)  Fully vacant possession is available  £6,780,000 (SIX MILLION SEVEN HUNDRED AND EIGHTY THOUSAND POUNDS)

4.3.4. Market Value – MV4

 The business is closed  The accounts and records of trade would not be available to, or relied upon by a prospective purchaser  The trade inventory has been depleted or removed; and  The required licences, contracts, consents, certificates and permits are lost, breached or in jeopardy (as applicable)  Fully vacant possession is available  A 180 day marketing period inn which to sell the property  £6,570,000 (SIX MILLION FIVE HUNDRED AND SEVENTY THOUSAND POUNDS)

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

4.4. Indication Of Reinstatement Cost

You have sought from us an indication for insurance purposes of the current reinstatement cost of the property in its present form. This we are pleased to provide below but it is given solely as a guide as a formal estimate for insurance purposes can only be given by a quantity surveyor or other person with sufficient current experience of replacement costs. We confirm that the property has not been inspected by such a person, and therefore the cost estimate below is provided without liability.

On this basis, therefore, we would estimate the reinstatement cost on a day-one basis as follows:

Reinstatement Costs

Building Reinstatement Cost £8,910,000

Demolition and Site Clearance Costs £623,700

Fees @ 15% £1,336,500

Total Estimate Reinstatement Cost (Exc VAT) £10,870,200

Say £10,900,000

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

5. Loan Security

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

5.1. Suitability As Loan Security

5.1.1. Lender’s Responsibility

It is usual for a valuer to be asked to express an opinion as to the suitability of a property as security for a loan, debenture or mortgage. However, it is a matter for the lender to assess the risks involved and make its own assessment in fixing the terms of the loan, such as the percentage of value to be advanced, the provision for repayment of the capital, and the interest rate.

In this report we refer to all matters that are within our knowledge and which may assist you in your assessment of the risk.

5.1.2. SWOT Analysis

Strengths Opportunities

. Freehold tenure . Alternative brand more suited to hotel e.g. Mercure, Accor . Public areas and guest bedrooms finished to a good standard . Gain market share from competitors . Good size bedrooms . Focused sales and marketing strategy . Function rooms adaptable for a variety of events and conference . Improvement in service levels business . Refurbishment of the conference & events space . Ample on site complimentary car parking . Refurbishment of ensuite bathrooms . Midscale branded operation . Add to bedroom inventory . Obtain planning permission for residential development

Weaknesses Threats

. Dated appearance of building in need of an upgrade / refresh . Competition from budget hotels . Relatively secluded location on the outskirts of London . Aggressive rate strategies by competitors . Capital investment required to refresh conference & events . New supply and/or refurbishment of existing competition facilities . Deterioration of the product through lack of capex . Recent lack of focus and dedication to sales and marketing . Planning permission for residential redevelopment is refused strategy . Economic uncertainty leading to renewed pressure on demand . Recent management, payroll and ownership turbulence . Brexit reduces hotel and investment demand . Low average room rates . Superficial refurbishment in 2014 which didn’t fully address hotel services infrastructure

5.1.3. Suitability as Security

In conclusion, most of the market and property specific risks in this instance are capable of identification and measurement and/or may be considered acceptable in the context of the property sector.

We would comment that we have considered each of the principal risks associated with this property within the context of the wider investment market and that they are reflected in our valuation calculations and reported figures as appropriate.

Overall, we consider that the property provides good security for a loan secured upon it, which reflects the nature of the property, our reported opinions of value and the risks involved.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

6. General Assumptions & Conditions to Valuations

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

6.1. General Assumptions and Conditions

6.1.1. General Assumptions

1. Unless otherwise stated in this report, our valuation has been carried out on the basis of the following General Assumptions. If any of them are subsequently found not to be valid, we may wish to review our valuation, as there may be an impact on it.

2. That the property is not subject to any unusual or especially onerous restrictions, encumbrances or outgoings contained in the Freehold Title. Should there be any mortgages or charges, we have assumed that the property would be sold free of them. We have not inspected the Title Deeds or Land Registry Certificate.

3. That we have been supplied with all information likely to have an effect on the value of the property, and that the information supplied to us and summarised in this report is both complete and correct.

4. That the building has been constructed and is used in accordance with all statutory and bye-law requirements, and that there are no breaches of planning control. Likewise, that any future construction or use will be lawful (other than those points referred to above).

5. That the property is not adversely affected, nor is likely to become adversely affected, by any highway, town planning or other schemes or proposals, and that there are no matters adversely affecting value that might be revealed by a local search, replies to usual enquiries, or by any statutory notice (other than those points referred to above).

6. That the building is structurally sound, and that there are no structural, latent or other material defects, including rot and inherently dangerous or unsuitable materials or techniques, whether in parts of the building we have inspected or not, that would cause us to make allowance by way of capital repair (other than those points referred to above). Our inspection of the property and this report do not constitute a building survey.

7. That the property is connected, or capable of being connected without undue expense, to the public services of gas, electricity, water, telephones and sewerage.

8. That in the construction or alteration of the building no use was made of any deleterious or hazardous materials or techniques, such as high alumina cement, calcium chloride additives, woodwool slabs used as permanent shuttering and the like (other than those points referred to above). We have not carried out any investigations into these matters.

9. That the property has not suffered any land contamination in the past, nor is it likely to become so contaminated in the foreseeable future. We have not carried out any soil tests or made any other investigations in this respect, and we cannot assess the likelihood of any such contamination.

10. That the property does not suffer from any risk of flooding. We have not carried out any investigation into this matter.

11. That the property either complies with the Disability Discrimination Acts and all other Acts relating to occupation, or if there is any such non-compliance, it is not of a substantive nature.

12. That the property does not suffer from any ill effects of Radon Gas, high voltage electrical supply apparatus and other environmental detriment.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

13. That the tenant is capable of meeting its obligations, and that there are no arrears of rent or undisclosed breaches of covenant.

14. That there are no adverse site or soil conditions, that the property is not adversely affected by the Town and Country Planning (Assessment of Environmental Effects) Regulations 1988, that the ground does not contain any archaeological remains, nor that there is any other matter that would cause us to make any allowance for exceptional delay or site or construction costs in our valuation.

6.1.2. General Conditions

Our valuation has been carried out on the basis of the following general conditions:

1. We have made no allowance for any Capital Gains Tax or other taxation liability that might arise upon a sale of the property.

2. Our valuation is exclusive of VAT (if applicable).

3. No allowance has been made for any expenses of realisation.

4. Excluded from our valuation is any additional value attributable to goodwill, or to fixtures and fittings which are only of value in situ to the present occupier.

5. Energy Performance Certificates (EPCs) are required for the sale, letting, construction or alteration of all residential buildings on non-domestic residential buildings over 538 sq ft (50 sq m) in England and Wales and on all buildings in Scotland. The effect of EPCs on value is as yet unknown, given that the market has yet to respond to their introduction. Therefore, we have not considered the property’s EPC rating in forming our opinion of value. However, should this position alter, we reserve the right to reconsider our opinion of value.

6. We have not taken account of any possible effect that the appointment of either an Administrative Receiver or a Law of Property Act Receiver might have on the perception of the property in the market and its subsequent valuation, or the ability of such a Receiver to realise the value of the property in either of these scenarios.

7. No allowance has been made for rights, obligations or liabilities arising under the Defective Premises Act 1972, and it has been assumed that all fixed plant and machinery and the installation thereof complies with the relevant UK and EU legislation.

8. Our valuation is based on market evidence which has come into our possession from numerous sources. That from other agents and valuers is given in good faith but without liability. It is often provided in verbal form. Some comes from databases such as the Land Registry or computer databases to which Savills subscribes. In all cases, other than where we have had a direct involvement with the transactions, we are unable to warrant that the information on which we have relied is correct although we believe it to be so.

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Appendices

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Best Western Plus Epping Forest, 30 Oak Hill, Walthamstow, IG8 9NY

Gi Giles Furze MRICS Tim Stoyle MRICS Director Director – Head of Hotel Valuation

+44 (0) 20 7409 8138 +44 (0) 20 7409 8842 +44 (0) 7870 555 941 +44 (0) 7870 555 749 [email protected] [email protected]

Metro Bank CRMsavills.co.uk Ref: COML100103063 November 2016 55