Market Feasibility Study for a Proposed Hotel in the City of Eloy Pinal County, Arizona

MARKET FEASIBILITY STUDY FOR A PROPOSED HOTEL IN THE CITY OF ELOY PINAL COUNTY, ARIZONA

Date of Report:

February 28, 2020

FOR

Mr. Jeff Fairman Economic Development Specialist City of Eloy 595 North C Street Eloy, AZ 85131

February 28, 2020

Mr. Jeff Fairman Economic Development Specialist City of Eloy 595 North C Street Eloy, AZ 85131

RE: Proposed Hotel City of Eloy, Pinal County, Arizona

Dear Mr. Fairman:

In fulfillment of our engagement letter, we completed our study of the market demand and economic feasibility for the proposal to develop an upper-midscale quality level limited-service hotel in the City of Eloy, Pinal County, Arizona. The study is based upon market conditions observed as of the date of our market inspection on December 4, 2019, and research conducted in December 2019 and January 2020.

The city is considering multiple sites entirely within its jurisdiction for the development of the proposed hotel, all of which are near, or along Interstate 10. The hotel would be developed by a to be determined private company.

Assumptions

The conclusions contained in this report are based upon a review of information provided by you and on-site field work in the market area, which is described in the Scope of Assignment section. As in all studies of this type, the conclusions do not take into account or make provisions for the effect of any sharp rise or decline in local or general economic conditions not presently foreseeable. The estimated results are based on competent and efficient management of the proposed hotel, as well as an aggressive marketing program. We assume the subject will hire appropriate management personnel to operate and market the hotel. We assume that the subject will operate as a branded hotel affiliated with a major national franchise. We assume the proposed hotel will open January 1, 2022. We presume no significant change in the competitive position of the hotel industry in the area from that as set forth in this report. We do not warrant that the estimates will be attained, but they have been conscientiously prepared on the basis of information obtained and our experience in the hotel industry.

It is expressly understood that the scope of this study and the report thereon do not include the possible impact of building regulations, permitting requirements, or other restrictions concerning the project, except where such matters have been brought to our attention and are set forth in this report.

Cleveland, Ohio ● 216-228-7000 www.hladvisors.com San Antonio, Texas ● 210-319-5440 Corporate Headquarters: 14805 Detroit Avenue, Suite 420, Cleveland, Ohio 44107-3921

Mr. Jeff Fairman February 28, 2020 Page 2

This report and its contents are intended solely for the information of our client for internal use relative to determining the project’s feasibility. The report should not be relied upon for any other purpose. Neither our report nor any of its contents nor any reference to Hotel & Leisure Advisors, LLC (H&LA) may be disseminated online or included or quoted in any document, offering circular, registration statement, prospectus, sales brochure, other appraisal, or other agreement without our prior written approval. Such permission will not be unreasonably withheld.

We offer additional consulting services on this proposed property as the scope of the development is finalized. We are available to prepare a full narrative appraisal report, economic impact study, or management company analysis for the proposed development upon your request. We appreciate the opportunity to be of service to the City of Eloy and look forward to working with you again.

Respectfully submitted,

Hotel & Leisure Advisors, LLC

David J. Sangree, MAI, ISHC President

Adam Zarczynski, CHIA Associate

MARKET FEASIBILITY STUDY REPORT FOR A PROPOSED HOTEL - ELOY MULTIPLE SITES ELOY, PINAL COUNTY, ARIZONA TABLE OF CONTENTS

A. INTRODUCTION Scope of the Assignment ...... A-1 Executive Summary...... A-2 Extraordinary Assumptions and Hypothetical Conditions...... A-8 Competency of the Consultants...... A-9 Standard Conditions ...... A-9

B. AREA ANALYSIS AND DESCRIPTIVE DATA Area Review ...... B-1 Neighborhood and Site Analysis ...... B-12 Description of Projected/Recommended Improvements ...... B-24 Franchise Affiliation Analysis ...... B-26 Development Costs ...... B-29

C. MARKET ANALYSIS National Lodging Overview ...... C-1 Eloy Regional Area Lodging Overview ...... C-9 Competitive Lodging Market Overview ...... C-10 Projected Market Occupancy ...... C-30 Demand Interviews ...... C-31

D. SUBJECT OCCUPANCY AND AVERAGE DAILY RATE ANALYSIS SWOT Analysis of Subject Property...... D-1 Projected Subject Occupancy ...... D-2 Estimated Average Daily Rate ...... D-6

E. FINANCIAL ANALYSIS Introduction ...... E-1 Income and Expense Analysis ...... E-3 Prospective Financial Analysis in Inflated Dollars ...... E-13 Feasibility Analysis ...... E-17

F. CERTIFICATION ...... F-1

ADDENDA Qualifications ...... Addendum I STR Report...... Addendum II Franchise Fact File ...... Addendum III City of Eloy Business License ...... Addendum IV

Proposed Hotel - Eloy, Arizona Introduction A-1

SCOPE OF THE ASSIGNMENT

Jeff Fairman with the City of Eloy retained Hotel & Leisure Advisors, LLC to estimate the potential market feasibility of the development of a hotel at one of three sites in Eloy.

We made a number of independent investigations and analyses while preparing this study, including:

 Evaluated the subject sites and their relationship to potential demand generators as well as attributes relative to the lodging competitors.

 Interviewed representatives of the chamber of commerce, assessor’s office, and city, county, and economic development officials, to collect information concerning the proposed sites and region.

 Interviewed managers or owners of existing and proposed competitive hotel properties.

 Interviewed representatives of various hotel chains to determine performance of area hotels and proposed new supply additions.

 Interviewed representatives of area attractions to determine usage and new supply additions.

 Conducted demand interviews and research with potential users of the proposed facility.

 Consulted various agencies and databases for demographic data, land use policies and trends, growth estimates, and employment data. We also relied on data retained in our office, which is updated regularly for use in all assignments.

 Completed a physical inspection of the subject properties and the area. Jeff Fairman provided the subject property data. In addition to the subject’s specific information, we considered relevant market data in determining the projections used in our cash flow analysis.

We based the financial analysis primarily upon the probable operating experience of the property relative to gross operating revenues, typical expense levels, and resultant net cash flow. We estimated operating revenues utilizing market data relative to industry standards and comparable properties in the subject area. We estimated expense levels based upon industry standards and operating histories of similar properties. We estimated the financial projections for the subject facility for 11 years, beginning January 1, 2022.

Proposed Hotel - Eloy, Arizona Introduction A-2

EXECUTIVE SUMMARY

The City of Eloy is exploring the possibility of a hotel development and have identified three potential sites on which the hotel could be developed. The three sites are each at one of the three exits on Interstate 10 that runs through Eloy (Exit 200 Sunland Gin Road, Exit 203 Toltec Highway, and Exit 208 Sunshine Boulevard). The Sunland Gin site contains approximately 631 acres, the site at the Toltec Highway exit contains 13.33 acres, and the site along Sunshine Boulevard contains more than 1,500 acres. The following map shows the three locations being considered.

Proposed Hotel - Eloy, Arizona Introduction A-3

Proposed Hotel - Eloy, Arizona Introduction A-4

The following table profiles our recommendations for a proposed limited-service hotel at one of the three sites in Eloy, Pinal County, Arizona.

Recommended Facility

Proposed Hotel - Eloy

Number of Units 80

Room Mix Units Room Breakdown % Size (S.F.) King 35 44% 300-350 Double-Queen 40 50% 300-350 Suites 5 6% 400-600

Franchise Recommendations Fairfield Inn & Suites by Marriott Comfort Inn & Suites Country Inn & Suites by Radisson

Meeting Rooms Square Feet Banquet Capacity Meeting room 750 60

Amenities Outdoor pool Fitness room Business center Complimentary breakfast Complimentary high-speed internet Complimentary parking Sundry shop Guest laundry machines Truck/bus parking Adjacent franchised restaurant Source: Hotel & Leisure Advisors

Recommendations

Following are our recommendations for the proposed development.

 We recommend the subject offer 80-guestrooms, including 40 double queen- bedded guestrooms, 35 king-bedded guestrooms, and 5 larger suites.

 We recommend the suites have an open living and bedroom area. The living area should feature a sleeper sofa and a workstation. Each guestroom should offer a mini refrigerator and microwave.

 We recommend the hotel include an outdoor pool and seating area, as well as a fitness center with cardio machines and free weights.

 We recommend the hotel offer coin-operated laundry machines for guests.

 We recommend a 750-square-foot meeting room equipped with the latest in meeting technologies, including ample power, Wi-Fi, video conferencing, and acoustical treatments.

 We recommend the hotel feature a multi-station business center.

Proposed Hotel - Eloy, Arizona Introduction A-5

 We recommend the hotel feature a lobby with seating area.

 We recommend the hotel have a breakfast area open to the lobby with a communal table as well as traditional tables.

 We recommend the hotel include a 24-hour convenience market next to the front desk that will sell snacks, beverages, and convenience items.

 We recommend the developer of the selected site also develop an adjacent franchise restaurant such as Applebee’s or Buffalo Wild Wings that will offer both a restaurant and bar. Our study does not analyze the financial performance for the proposed restaurant on the selected site.

 We recommend the hotel offer complimentary amenities such as breakfast, Wi-Fi and parking.

 We recommend the hotel offer parking for buses and semi-trucks.

 We recommend the subject try to obtain the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) certification. The LEED Green Building Rating System™ is the nationally accepted benchmark for the design, construction, and operation of high-performance green buildings. According to the USGBC, nearly 400 U.S. hotels are LEED certified worldwide, about half of which are in the United States. According to the World Green Building Trends 2016 report published by Dodge Data & Analytics, 41% of U.S. new commercial construction with green activity is planned over the next three years. The study found green buildings offer significant operational cost savings, with respondents expecting a 14% savings in operational costs over a five-year timeframe for new green buildings and 13% savings for green retrofit and renovation projects. Building owners also report that green buildings command a 7% increase in asset value over traditional buildings.

Development Budget

In the case of the subject, no formal development budget has been prepared. The subject’s development budget will heavily depend upon the hotel’s height, the type of construction materials used, the selected franchise affiliation, and the cost of the site and related site work. We estimate development costs for the proposed limited-service hotel to range from $90,000 to $125,000 per room. The development budget excludes land costs since it is not known if the developers of each site would sell a portion of their site, lease the land to a prospective developer, or develop it themselves.

Subject Hotel Projections

The following forecasts of income and expenses reflect the subject’s anticipated performance for calendar years beginning in 2022. We projected that the subject’s operations will stabilize in the third year and all income and expense items will increase thereafter at the underlying inflation rate of 2.5%. We note that departmental expense ratios are expressed as a percentage of departmental revenues. Franchise fees are expressed as a percentage of rooms revenue. All other expense ratios are expressed as a percentage of total revenues. We presented rounded figures to the nearest thousand.

Proposed Hotel - Eloy, Arizona Introduction A-6

Forecasted Financial Performance

Proposed Hotel - Eloy

2022 - First Year 2023 - First +1 2024 - First +2 2025 - First +3

Available Rooms 80 80 80 80

Occupancy 69.2% 72.1% 74.0% 74.0%

Average Rate $123.00 $127.31 $131.12 $134.40

Days Open 365 365 365 365

Occupied Room Nights 20,216 21,057 21,596 21,596

Available Room Nights 29,200 29,200 29,200 29,200 $/Occ Rm $/Occ Rm $/Occ Rm $ (000) % $/Avail Rm $ (000) % $/Avail Rm $ (000) % $/Avail Rm $/Occ Rm Night $ (000) % $/Avail Rm Night Night Night

Revenues

Rooms $2,487 98.0% $31,088 $123.02 $2,681 98.1% $33,513 $127.32 $2,832 98.1% $35,400 $131.14 $2,903 98.1% $36,288 $134.42

Other Operated Departments 25 1.0% 313 1.24 26 1.0% 325 1.23 27 0.9% 338 1.25 28 0.9% 350 1.30

Miscellaneous Income (Net) 25 1.0% 313 1.24 26 1.0% 325 1.23 27 0.9% 338 1.25 28 0.9% 350 1.30

Total Operating Revenue 2,537 100.0% 31,713 125.49 2,733 100.0% 34,163 129.79 2,886 100.0% 36,075 133.64 2,959 100.0% 36,988 137.02

Departmental Expenses Rooms 609 24.5% 7,613 30.12 639 23.8% 7,988 30.35 664 23.4% 8,300 30.75 681 23.5% 8,513 31.53

Other Operated Departments 15 60.0% 188 0.74 16 61.5% 200 0.76 16 59.3% 200 0.74 17 60.7% 213 0.79

Total Departmental Expenses 624 24.6% 7,800 30.87 655 24.0% 8,188 31.11 680 23.6% 8,500 31.49 698 23.6% 8,725 32.32

Total Departmental Profit 1,913 75.4% 23,913 94.63 2,078 76.0% 25,975 98.68 2,206 76.4% 27,575 102.15 2,261 76.4% 28,263 104.70

Undistributed Operating Expenses Administrative & General 216 8.5% 2,700 10.68 226 8.3% 2,825 10.73 234 8.1% 2,925 10.84 240 8.1% 3,000 11.11

Information & Telecom Systems 38 1.5% 475 1.88 40 1.5% 500 1.90 41 1.4% 513 1.90 42 1.4% 525 1.94

Sales and Marketing 165 6.5% 2,063 8.16 173 6.3% 2,163 8.22 179 6.2% 2,238 8.29 184 6.2% 2,300 8.52

Franchise Fees 137 5.5% 1,713 6.78 147 5.5% 1,838 6.98 156 5.5% 1,950 7.22 160 5.5% 2,000 7.41

Prop. Oper. & Maintenance 95 3.8% 1,191 4.71 120 4.4% 1,496 5.68 138 4.8% 1,725 6.39 141 4.8% 1,763 6.53

Utilities 101 4.0% 1,263 5.00 106 3.9% 1,325 5.03 110 3.8% 1,375 5.09 113 3.8% 1,413 5.23

Total Undistributed Oper. Expenses 752 29.7% 9,403 37.21 812 29.7% 10,146 38.55 858 29.7% 10,725 39.73 880 29.7% 11,000 40.75

Gross Operating Profit 1,161 45.8% 14,509 57.42 1,266 46.3% 15,829 60.14 1,348 46.7% 16,850 62.42 1,381 46.7% 17,263 63.95 Management Fees 89 3.5% 1,113 4.40 96 3.5% 1,200 4.56 101 3.5% 1,263 4.68 104 3.5% 1,300 4.82

Income Before Non-Oper. Expense 1,072 42.2% 13,397 53.01 1,170 42.8% 14,629 55.58 1,247 43.2% 15,588 57.74 1,277 43.2% 15,963 59.13

Non-Operating Expenses

Property Tax 127 5.0% 1,588 6.28 130 4.8% 1,625 6.17 133 4.6% 1,663 6.16 137 4.6% 1,713 6.34 Insurance 30 1.2% 375 1.48 31 1.1% 388 1.47 32 1.1% 400 1.48 33 1.1% 413 1.53 Reserve for Replacement 51 2.0% 638 2.52 82 3.0% 1,025 3.89 115 4.0% 1,438 5.33 118 4.0% 1,475 5.46 Total Non-Operating Expenses 208 8.2% 2,600 10.29 243 8.9% 3,038 11.54 280 9.7% 3,500 12.97 288 9.7% 3,600 13.34

EBITDA Less Reserve $864 34.0% $10,797 $ 42.73 $927 33.9% $11,591 $ 44.04 $967 33.5% $12,088 $ 44.78 $989 33.4% $12,363 $ 45.80 Source: Hotel & Leisure Advisors

Proposed Hotel - Eloy, Arizona Introduction A-7

Our analysis indicates that the development of a proposed 80-key limited-service hotel produces a positive return. The market area surrounding the subject site contains no upper-midscale limited-service hotels affiliated with a major national franchise. Currently visitors coming to Eloy are traveling to Casa Grande or Chandler to stay at the nicer limited-service hotels. We analyzed the discounted cash flow result for the hotel utilizing a 11.0% discount rate and a 9.0% terminal capitalization rate. The discounted cash flow as completed indicates a conclusion of $10,300,000 or $128,750 per available hotel room for the development. The discounted cash flow as stabilized indicates a conclusion of $10,900,000 or $136,250 per available hotel room for the development. The value conclusions are not meant to be market value because there are still many unknowns concerning the subject project, but they are presented as an analysis of value utilizing typical parameters performed in the income capitalization approach for an appraisal.

Area Review

The potential hotel sites are in Eloy, Pinal County, Arizona, within the Phoenix-Mesa- Scottsdale, AZ Metropolitan Statistical Area (MSA). The Phoenix MSA is by far the largest metropolitan area in Arizona, holding more than two thirds of the state’s population. Eloy is also within an hour’s drive of the Tucson MSA, a single-county metro area with more than one million residents.

The City of Eloy is home to a little over 18,000 residents and SkyDive Arizona, the world’s largest skydive dropzone. SkyDive Arizona hosts trainings for militaries from all over the world and also hosts international skydiving competitions. Eloy is also home to four private prisons operated by CoreCivic that house inmates from throughout the United States. Eloy is adjacent to Interstate 10, the fourth-longest interstate in the United States that runs from California to Florida. The Interstate 8 interchange is on Eloy’s western boundary and next to one of the three exits on Interstate 10 for Eloy.

Competitive Hotel Market

The proposed hotel will be the first upper-midscale quality level limited-service hotel in Eloy. The higher-quality hotels we included in the competitive set are in Casa Grande and Chandler. We analyzed a grouping of competitive hotels, including limited- and select- service hotels in Eloy, Casa Grande, and Chandler. The following table provides their operating performance.

Competitors' Operating Performance

Proposed Hotel - Eloy % % % Year Annual Supply % Change Demand % Change Occupancy ADR RevPAR Change Change Change 2013 349,305 199,215 57.0% $77.25 $44.06 2014 349,305 0.0% 210,085 5.5% 60.1% 5.5% 77.95 0.9% 46.88 6.4% 2015 349,305 0.0% 218,741 4.1% 62.6% 4.1% 81.36 4.4% 50.95 8.7% 2016 349,305 0.0% 227,720 4.1% 65.2% 4.1% 83.00 2.0% 54.11 6.2% 2017 349,305 0.0% 229,979 1.0% 65.8% 1.0% 83.28 0.3% 54.83 1.3% 2018 349,305 0.0% 235,865 2.6% 67.5% 2.6% 87.88 5.5% 59.34 8.2% Average 349,305 0.0% 220,268 3.4% 63.1% 3.4% 81.79 2.6% 51.70 6.2%

Year-to-Date through October

2018 290,928 197,093 67.7% 88.52 59.97 2019 290,438 -0.2% 194,470 -1.3% 67.0% -1.2% 91.40 3.2% 61.20 2.0% Source: STR

Proposed Hotel - Eloy, Arizona Introduction A-8

The existing competitive supply is primarily focused on commercial and leisure demand with a smaller amount of group demand. The market achieves its highest occupancy levels during Spring Training for Major League Baseball.

Total AccommodatedChart Title Demand

Commercial

39%

Group

55%

Leisure

Source: Hotel & Leisure Advisors

Subject Development Outlook

Overall, our study revealed that the proposed subject hotel development is feasible based on projected construction costs for the hotel. The subject will benefit from its location near Interstate 10, Skydive Arizona, and the CoreCivic prison complex in Eloy. Additionally, the proposed hotel will be the nicest hotel in Eloy and will be affiliated with a major national franchise. The proposed hotel is projected to earn a positive rate of return and out-penetrate the local competitive set of hotels.

In our opinion, all three of the proposed sites merit consideration for the proposed hotel. The site along Sunshine Boulevard (site #1) is very large and will take some time to fully develop with no development plan put forth as of the time of this report. The site on Sunland Gin Road (site #2) is also large and undeveloped, but the developer has laid out a plan to construct an industrial park and other complementary amenities that would benefit a hotel. The site adjacent to the under-construction Xpress Fuel (site #3) is the smallest of the three sites, but will offer an adjacent truck stop with restaurant, though we recommend an additional bar and grill restaurant be constructed.

EXTRAORDINARY ASSUMPTIONS AND HYPOTHETICAL CONDITIONS

We assume that qualified professional hospitality management with demonstrated expertise in management of hotels will operate the subject property. We assume that adequate funds will be available for upkeep and repair of the facility.

The location and amenities of the proposed hotel, and the details concerning its structure, are still in the idea stage. The financial projections shown in this report may

Proposed Hotel - Eloy, Arizona Introduction A-9 change depending upon the type of facility, amenities utilized, and site selected. As these plans are determined, they could have a material impact on this study.

We assume the development of the Nikola Motor Company and Lucid Motors factories in adjacent communities will occur on a similar scale to what is currently proposed for each factory.

We assume that other development will take place at the sites being considered to provide additional demand generators and complementary amenities such as a restaurant for the proposed hotel.

There are no other extraordinary assumptions or hypothetical conditions.

COMPETENCY OF THE CONSULTANTS

Hotel & Leisure Advisors, LLC is a national hospitality consulting firm specializing in appraisals, feasibility studies, economic impact studies, and impact analyses for hotels, outdoor and indoor waterparks, resorts, ski resorts, golf courses, restaurants, conference and convention centers, and other leisure real estate. We work exclusively in the hospitality industry and concentrate our efforts on in-depth understanding of the trends and factors related to this industry. Our participation in industry associations and trade groups keeps us abreast of developments affecting our clients and gives us access to rich sources of data. We follow news and transactions occurring in the hospitality industry on a daily basis. The consultants have performed more than 3,000 hotel studies since 1987 at various firms. Mr. David J. Sangree, MAI, CPA, ISHC has written articles about hotels, resorts, and waterparks for Hotel Management, Lodging Hospitality, World Waterpark Magazine, Midwest Real Estate News, Aquatics Magazine, Hotel Online, and Cornell Hotel and Restaurant Administration Quarterly and is a national expert on these types of properties. He has appeared on Good Morning America and CNBC concerning shows on resorts and waterparks. We maintain databases and files concerning various types of hospitality properties. Therefore, we possess the knowledge and experience to conduct the inspection, analysis, and reasoning necessary to estimate the feasibility of the subject.

STANDARD CONDITIONS

The following Standard Conditions apply to real estate consulting engagements and appraisals by Hotel & Leisure Advisors, LLC (H&LA). Extraordinary Assumptions are added as required.

1. The report is to be used in whole and not in part. The report, engagement letter and these standard conditions constitute the entire understanding and agreement between the parties with respect to the subject matter hereof and supersedes any and all prior or current agreements or understandings between the parties, whether in writing or orally. The report and engagement letter may not be amended except in writing signed by the parties hereto. These standard conditions shall survive the completion of the assignment.

2. Publication of the report or engagement letter without the prior written consent of H&LA is prohibited unless otherwise stated in the letter of engagement. Neither the report nor engagement letter may be used by any person other than the party

Proposed Hotel - Eloy, Arizona Introduction A-10

to whom they are addressed nor may they be used for purposes other than that for which they were prepared. Neither the engagement letter, nor the report, nor their contents, nor any reference to the appraisers or H&LA or any reference to the Appraisal Institute, International Society of Hospitality Consultants, American Institute of Certified Public Accountants, or the American Institute of Architects, (or the MAI, ISHC, CPA or AIA designations) may be included or quoted in any offering circular or registration statement, prospectus, sales brochure, other appraisal, loan, or other agreement or document without H&LA’s prior written permission, in its sole discretion. Moreover, “H&LA” is a registered trademark of Hotel & Leisure Advisors, LLC. The client agrees that in event of a breach of this Section 2, in addition to any other rights and remedies of H&LA, and hereby consents to injunctive relief.

3. No responsibility is assumed for the legal description or any matters which are legal in nature. Title to the property is assumed to be good and marketable and the property is assumed to be free and clear of all liens unless otherwise stated. No survey of the property was performed. Sketches, maps, photos, or other graphic aids included in the reports are intended to assist the reader in ready identification and visualization of the property and are not intended for technical purposes.

4. The information contained in the assignment is based upon data gathered from sources the consultant or appraiser assumes to be reliable and accurate. Some of this information may have been provided by the owner of the property. Neither the consultants nor H&LA shall be responsible for the accuracy or completeness of such information including the correctness of public records or filings, estimates, opinions, dimensions, sketches, exhibits, and other factual matters.

5. The report may contain prospective financial information, estimates, or opinions that represent the consultants’ or appraisers’ view of reasonable expectations at a particular point in time. Such information, estimates, or opinions are not offered as predictions or as assurances that a particular level of income or profit will be achieved, that events will occur, or that a particular price will be offered or accepted. Actual results achieved during the period covered by H&LA’s prospective financial analyses will vary from those described in the report, and the variations may be material. The financial projections stated in the report and any opinions of value are as of the date stated in the report. Changes since that date in external and market factors or in the property itself can significantly affect property value or performance.

6. H&LA has not considered the presence of potentially hazardous materials and contaminants such as asbestos, urea formaldehyde foam insulation, toxic waste, PCBs, pesticides, mold, lead-based paints, or other materials. The appraisers and consultants are not qualified to detect or report on hazardous material contamination and H&LA urges the client to retain an expert in this field if desired.

7. Unless noted, H&LA assumes there are no encroachments, zoning violations, or building violations encumbering the subject property. It is assumed that the property will not be operated in violation of any applicable government regulations, zoning, codes, ordinances, or statutes. No responsibility is assumed

Proposed Hotel - Eloy, Arizona Introduction A-11

for architectural design and building codes. The analysis and concept drawings included in the report are not intended for technical purposes.

8. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless specified otherwise.

9. Real estate consulting engagements and appraisal assignments are accepted with the understanding that there is no obligation to furnish services after completion of the original assignment. We are not required to give testimony or attendance in court by reason of this analysis without previous arrangements, and the client will be obligated to pay in advance for the standard per diem fees and travel costs.

10. No significant change is assumed in the supply and demand patterns indicated in the report. The appraisal or consulting engagement assumes market conditions as observed as of the current date of the market research stated in the letter of transmittal. These market conditions are believed to be correct; however, H&LA or the consultants assume no liability should market conditions materially change because of unusual or unforeseen circumstances.

11. The quality of a lodging facility or other leisure property’s management has a direct effect on the property’s economic viability. It should be specifically noted by any prospective reader that the engagement assumes that the property will be competently managed, leased, and maintained by financially sound owners over the expected period of ownership. H&LA is not responsible for future marketing efforts and other management or ownership actions upon which actual results will depend.

12. The forecast of income and expenses are not predictions of the future. Rather, they are the consultants’ best estimates of current market thinking on future income and expenses. We do not warrant that the estimates will be obtained, but that they have been prepared in a conscientious manner on the basis of information obtained during the course of this study.

13. The subject property is valued assuming all items of furniture, fixtures, equipment, working capital, and inventory are in place. Should items essential in the operation of the hotel prove to be missing, we reserve the right to amend the opinion of value expressed in an appraisal report.

14. H&LA does not, as part of this consulting report or appraisal, perform an audit, review, or examination (as defined by the American Institute of Certified Public Accountants) of any of the historical or prospective financial information used and therefore, does not express any opinion with regard to it.

15. The consulting engagement or appraisal report has been prepared in accordance with the Uniform Standards of Professional Appraisal Practice and the Code of Ethics of the Appraisal Institute. No other code, ordinance, rule or regulation of any kind or nature whatsoever shall apply.

16. It is agreed that the maximum damages recoverable from H&LA or its affiliates or their respective employees relative to this engagement shall be the amount of the money actually collected by H&LA or its affiliates for work performed pursuant to

Proposed Hotel - Eloy, Arizona Introduction A-12

the engagement letter. The client acknowledges that H&LA cannot and does not guarantee and makes no representations as to the success of the project. H&LA shall not be liable for any incidental, breach of warranty, consequential or punitive damages, expenses, costs or losses whatsoever directly or indirectly arising out of the services performed hereunder (including negligence and/or gross negligence). In addition, there is no accountability or liability to any third party.

17. The client hereby releases and discharges H&LA, its directors, officers, and employees, from and against any and all claims and demands of any nature or kind whatsoever arising as a result of the design, development, operations, and performance of the proposed or existing project. The client furthermore agrees to indemnify, defend and hold harmless H&LA and its directors, officers and employees, from any and all claims of any nature whatsoever, including attorney fees, expenses and costs.

18. The report does not address the project’s compliance with the federal statute commonly known as the Americans with Disabilities Act as well as regulations and accessibility guidelines promulgated thereunder.

19. The provisions of the report, the engagement letter and these standard conditions shall be severable, and if a court of competent jurisdiction holds any provisions of the report, engagement letter and these standard conditions invalid, illegal or unenforceable, the remaining provisions shall nevertheless remain in full force and effect as written.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-1

AREA REVIEW

The feasibility of a hotel project is influenced in a general manner by the economic, political, physical, and social characteristics of its surrounding area. The potential hotel sites are in the City of Eloy, Pinal County, Arizona, within the Phoenix-Mesa-Scottsdale, AZ Metropolitan Statistical Area (MSA). An MSA consists of at least one urbanized area of 50,000 or more people plus adjacent areas with a high degree of social and economic integration with the core. According to the U.S. Census Bureau, the Phoenix-Mesa- Scottsdale MSA consists of Maricopa and Pinal counties. Throughout this section, this statistical area will be referred to simply as the Phoenix MSA.

The following map shows the location of the subject sites relative to both the Phoenix MSA and the Tucson MSA, which borders Pinal County to the south.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-2

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-3

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-4

The Phoenix MSA is by far the largest metropolitan area in Arizona with a population of more than 4.5 million, with more than two thirds of the state’s population within a one hour drive from the City of Eloy. Eloy is also within a short drive of the Tucson MSA, a single-county metro area with more than one million residents.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-5

According to The Appraisal of Real Estate, 14th Edition, published by the Appraisal Institute, all real estate markets are influenced by the attitudes, motivations, and interactions of buyers and sellers of real property, which in turn are subject to various social, economic, governmental, and environmental forces. Analysis of these forces is performed by investigating specific factors pertaining to each. With a hospitality property, particular emphasis is placed on trends affecting visitation to the area.

Social Forces

In performing a market area analysis, it is necessary to identify relevant social characteristics and influences. Those characteristics that influence property values most in a community tend to overlap. Price levels in the subject market in relation to prices in competing areas reflect the overall desirability of the subject market area. Relevant demographic characteristics include population density, employment categories, age levels, household size, and employment status. This section of the report will present demographics and income figures for Eloy, Pinal County, the Phoenix MSA, and the state of Arizona based on official Census findings and estimates and projections from the Environmental Systems Research Institute (ESRI).

Population Trends: The following table presents population growth trends for the subject area.

Population Growth Trends

Eloy, Arizona

2000 2010 2019 2024 %Change %Change %Change Area Census Census Est. Proj. 2000-10 2010-19 2019-24 Eloy 10,298 16,707 18,186 19,684 62.2% 8.9% 8.2% Pinal County 179,727 375,770 444,999 491,961 109.1% 18.4% 10.6% Phoenix MSA 3,251,876 4,192,887 4,885,176 5,298,576 28.9% 16.5% 8.5% Arizona 5,130,632 6,392,017 7,234,773 7,743,965 24.6% 13.2% 7.0% Sources: U.S. Census Bureau, ESRI

While less than 10% of the MSA’s population lives in Pinal County, the county has seen exceptionally strong growth over the past two decades. At all geographic levels, the subject area is projected to continue growing over the next few years. By 2024, the population of Pinal County is forecasted to top 490,000, with nearly 20,000 residents in the city of Eloy alone.

Households: Household consumption plays a critical role in the economic outlook of a region. A household is broadly defined as one or more person(s) living in a housing unit. Households consist of married couples, and male and female householders. The following table presents household growth trends for the subject area.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-6

Household Growth Trends

Eloy, Arizona

2000 2010 2019 2024 %Change %Change %Change Area Census Census Est. Proj. 2000-10 2010-19 2019-24 Eloy 2,486 3,008 3,639 4,176 21.0% 21.0% 14.8% Pinal County 61,364 125,590 149,739 166,116 104.7% 19.2% 10.9% Phoenix MSA 1,194,250 1,537,173 1,776,484 1,923,505 28.7% 15.6% 8.3% Arizona 1,901,327 2,380,990 2,680,557 2,867,574 25.2% 12.6% 7.0% Sources: U.S. Census Bureau, ESRI

Once again, these numbers indicate an area of strong and continued growth. Pinal County has seen a sharper rise in household counts since 2000 than the MSA or state, and this is projected to remain the case heading into the future.

Recreation and Regional Attractions: Recreational facilities and regional attractions enhance an area’s quality of life. These activities also have a significant economic impact on an area by increasing the demand for services and retail trade created by visitors. Tourists in turn tend to generate lodging demand on weekends, holidays and summer months, offsetting commercial visitations during weaker periods. The following table lists major attractions in the area.

Major Tourist Attractions

Central Arizona

Attraction Location SkyDive Arizona Eloy, AZ Robson Ranch Golf Club Eloy, AZ Picacho Peak State Park Pinal County, AZ Casa Grande Ruins National Monument Coolidge, AZ Pinal County Historical Museum Florence, AZ The Museum of Casa Grande Casa Grande, AZ Harrah's Ak-Chin Hotel & Casino Maricopa, AZ Biosphere 2 Oracle, AZ Saguaro National Park Saguaro NP, AZ Downtown Tucson (multiple attractions) Tucson, AZ Downtown Phoenix (multiple attractions) Phoenix, AZ

Source: Hotel & Leisure Advisors

The most prominent leisure attraction in Eloy is SkyDive Arizona, which offers tandem skydiving, solo skydiving training, indoor simulated skydiving, and space for private parties and corporate events. The area’s clear desert climate allows for an average of over 340 jumping days per year. This, combined with its proximity to Interstate 10 and the major cities of Phoenix and Tucson, have made Eloy one of the top skydiving destinations in the world. Other points of interest in Pinal County include the Casa Grande Ruins, Casa Grande Mountain Park, Robson Ranch Golf Club, Picacho Peak State Park, Harrah’s Ak-Chin Casino, and the Pinal County Historical Museum.

To the south, visitors can enjoy hiking, camping, and sightseeing at Saguaro National Park, which receives over 900,000 recreation visits each year according to the National Park Service. Major attractions in greater Tucson include the Arizona-Sonora Desert Museum, Sabino Canyon Recreation Area, Mission San Xavier del Bac, and the Pima Air &

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Space Museum. Top attractions in the greater Phoenix area include the Phoenix Zoo, Phoenix Art Museum, Desert Botanical Garden, and the Musical Instrument Museum. Phoenix is one of only 12 cities nationwide to be represented in each of the four major sports leagues, and the area also hosts Cactus League Spring Training each spring at various facilities throughout the metro area.

The following table shows the estimated driving distance from the subject sites to prominent attractions in the surrounding area.

Estimated Driving Distance from Subject Sites

Miles

Sky Dive Arizona <5.0 CoreCivic Correctional Centers <10.0 Picacho Peak State Park 10-20 Sawtooth Airfield 10-20 The Museum of Casa Grande 10-20 Casa Grande Ruins National Monument 10-20 Pinal County Historical Museum 20-30 Pinal Airpark 25-35 Ironwood Forest National Monument 30-40 Harrah's Ak-Chin Hotel & Casino 30-40 Saguaro National Park 40-50 Downtown Tucson 50-60 Tucson International Airport 50-60 Phoenix Sky Harbor International Airport 60-70 Downtown Phoenix 60-70 Source: DeLorme Street Atlas USA

Economic Forces

Economic considerations relate to the financial capacity of a market area’s occupants and their ability to purchase goods and services. Among the economic factors that can be considered in this type of analysis are median household income levels, per capita income, income distribution for households, unemployment levels, and the amount and type of economic development in a given area.

Income: The economic vitality of an area is an important consideration in forecasting the demand and potential income for commercial real estate. The following table lists median household income estimates for the subject area.

Median Household Income Estimates

Eloy, Arizona 2019 2024 %Change Area Est. Proj. 2019-24 Eloy $34,671 $40,519 16.9% Pinal County $53,856 $59,787 11.0% Phoenix MSA $62,609 $72,137 15.2% Arizona $57,771 $65,648 13.6% Sources: U.S. Census Bureau, ESRI

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While the median household income in the Phoenix MSA is above the state level, households in Eloy and Pinal County tend to have lower annual earnings. As an additional point of comparison, the median household income for the United States as a whole was estimated at $60,548 for 2019. At all geographic levels, the subject area is projected to see healthy income growth over the next few years.

Cost of Living: According to the C2ER (formerly ACCRA) Cost of Living Index, the cost of living in the Phoenix and Tucson MSA’s are below average compared to other major metro areas in the United States. For first-quarter 2019, the Tucson MSA had a cost of living index of 96.7, while the Phoenix MSA had a cost of living index of 97.4. As an index score of 100 represents the national average, MSAs with a cost of living index below 100 are considered to have a lower cost of living while those with an index score above 100 are considered to have a higher cost of living.

The following table compares the cost of living in the Phoenix MSA to that of other major metro areas in the United States. As shown, the cost of living in the nearby Tucson MSA is just slightly below that of the Phoenix MSA.

Cost of Living Comparison

Metro Area Cost of Living Index

St. Louis MO-IL 85.9 San Antonio-New Braunfels TX 87.2 Tampa-St. Petersburg-Clearwater FL 89.7 Orlando-Kissimmee-Sanford FL 90.9 Houston-The Woodlands-Sugar Land TX 95.4 Tucson AZ 96.7 Phoenix-Mesa-Scottsdale AZ 97.4 Charlotte-Concord-Gastonia NC-SC 98.2 Detroit-Dearborn-Livonia MI 98.5 Atlanta-Sandy Springs-Roswell GA 102.3 Minneapolis-St. Paul-Bloomington MN-WI 106.3 Dallas-Plano-Irving TX 106.7 Denver-Aurora-Lakewood CO 111.1 Philadelphia PA 111.1 Baltimore-Columbia-Towson MD 113.2 Miami-Miami Beach-Kendall FL 115.7 Chicago-Naperville-Arlington Heights IL 120.0 Portland-Vancouver-Hillsboro OR-WA 134.2 San Diego-Carlsbad CA 143.8 Los Angeles-Long Beach-Glendale CA 148.3 Boston MA 153.5 Washington-Arlington-Alexandria DC-VA-MD-WV 158.4 Seattle-Bellevue-Everett WA 159.4 New York-Jersey City-White Plains NY-NJ (Brooklyn) 186.4 San Francisco-Redwood City-South San Francisco CA 200.1 New York-Jersey City-White Plains NY-NJ (Manhattan) 238.4 Source: C2ER, Cost of Living Index 1st Quarter 2019

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Industries and Employment

Information on the size of a region’s labor force and the relative trends in employment and unemployment are key local economic indicators.

Unemployment Rates: The widely cited unemployment rate provides a good measure of the relative utilization of labor in a region. These measures are “residency-based,” providing current information on the labor force status of the residents of a county or region. The following table presents unemployment rates for the subject area. Figures for Eloy are not included here because the Bureau of Labor Statistics does not track unemployment in communities of fewer than 25,000 residents.

Historical Unemployment Rates

2014 2015 2016 2017 2018

Pinal County 7.0% 6.3% 5.6% 5.0% 5.0% Phoenix MSA 5.9% 5.2% 4.7% 4.3% 4.2% Arizona 6.8% 6.1% 5.4% 4.9% 4.8% United States 6.2% 5.3% 4.9% 4.4% 3.9% Source: U.S. Department of Labor, Bureau of Labor Statistics

Pinal County tends to experience slightly higher levels of unemployment than the MSA and state; however, the county’s annual unemployment rate held steady at 5.0% in 2017 and 2018. The Bureau of Labor Statistics also tracks unemployment on a monthly basis. Preliminary figures for October 2019 indicate an unemployment rate of 4.5% in Pinal County, 3.7% in the Phoenix MSA, and 4.3% in the state of Arizona.

Employment by Industry: The distribution of employment helps determine the economic character of an area. The following table shows the three largest industrial sectors in terms of the estimated number of persons employed in 2019 for each geographic area.

Largest Industrial Sectors, 2019

Eloy, Arizona

Largest industrial sector 2nd largest industrial sector 3rd largest industrial sector

% of % of % of Industry Industry Industry employees employees employees

Health Care/ 21.2 Accommodation/ Eloy % Educational Services 15.5% 12.8% Social Assistance Food Services

Health Care/ Pinal County Retail Trade 13.5% 13.2% Educational Services 11.6% Social Assistance

Health Care/ Phoenix MSA Retail Trade 13.1% Educational Services 12.0% 11.4% Social Assistance

Health Care/ Arizona Retail Trade 13.6% 12.2% Educational Services 11.6% Social Assistance Source: ESRI

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The leading sector in Pinal County is Retail Trade, followed closely by Health Care/Social Services. Employment in the Accommodation/Food Services sector is a reliable indicator of the importance of travel and tourism to a local economy. In 2019, this sector accounted for an estimated 12.8% of the overall employment in Eloy, 10.2% in Pinal County, 10.8% in the Phoenix MSA, and 11.1% in Arizona.

The next table shows the total annual employment in Pinal County and the state of Arizona for the years 2014 through 2018, plus the latest monthly numbers for 2019 as compared to the same period in 2018.

Total Employment, 2014-2018

Pinal County % Change Arizona % Change

2014 142,996 — 2,889,380 — 2015 147,286 3.0% 2,974,540 2.9% 2016 154,832 5.1% 3,066,011 3.1% 2017 163,135 5.4% 3,165,127 3.2% 2018 169,264 3.8% 3,273,550 3.4% October 2018 173,208 3,321,446 October 2019, Preliminary 179,885 3.9% 3,444,680 3.7% Source: U.S. Department of Labor, Bureau of Labor Statistics

Total employment in Pinal County increased steadily over the five-year period presented, leading to a net gain of more than 26,000 jobs. By October 2019, the county’s total employment had risen by 3.9% compared to October 2018, which was above the rate of growth reported at the state level.

Major Employers: The demand for hotels is closely tied to the types of businesses in an area, their economic strengths, and their growth potential. The largest employers in the area are listed in the following table.

Leading Employers in Eloy, Arizona

Firm/Organization #Employees Industry Description

CoreCivic (4 sites) 1,583 Private prison operation Eloy Elementary School District 150 Public schools City of Eloy 118 City government Travel Centers of America 110 Travel center Schuff Steel 107 Steel fabrication Republic Plastics 102 Plastic fabrication Santa Cruz Valley Union High School District 80 Public schools Otto Plastics Arizona, LLC 70 Industrial equipment supplier Iron Skillet Restaurant 56 Restaurant Pilot Travel Center 47 Travel center SkyDive Arizona 40 Skydiving instruction HASA of Arizona 37 Chemicals plant San Juan Pools 28 Fiberglass pool manufacturing Townley Manufacturing 25 Plastic products manufacturing Sources: Arizona Commerce Authority, City of Eloy, ReferenceUSA

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The largest employer in Eloy is CoreCivic, which operates four private prisons in the city: the Eloy Detention Center, La Palma Correctional Center, Red Rock Correctional Center, and Saguaro Correctional Center. The next map illustrates the location of the potential hotel sites in relation to leading employers in the surrounding area.

New Developments: The following bullets describe recent developments that will influence travel, employment, and the general economy in the area.

 In September 2019, the Arizona Department of Transportation completed a major project on Interstate 10, expanding it to three lanes in both directions between Tucson and Casa Grande. This $72 million project included straightening the interstate between Eloy and Picacho Peak and creating a new interchange at State Route 87. The Department has also announced plans to widen the 23-mile portion of Interstate 10 between Chandler and Casa Grande. This next major phase could be completed by the mid-2020s provided that the necessary funding is secured.

 A new Xpress Fuel truck stop is now under construction along Interstate 10 in Eloy, at the northeast corner of Toltec Road and Houser Road. The truck stop will offer a restaurant, convenience store, truck wash, and 24 gas and diesel pumps. Scheduled to open in 2020, the Xpress Fuel truck stop will create more than 50 new local jobs.

 A massive theme park called Dreamport Villages has been proposed for a 1,500- acre site near Interstates 8 and 10 in Casa Grande, Arizona, about two miles

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northwest of Eloy. This $4 billion attraction was originally set to include a waterpark, wildlife park, extreme sports park, retail, and hotels. However, this project has been stalled for three years, and it is currently unclear when or if it will be completed.

 California-based Lucid Motors recently broke ground on a $700 million electric vehicle plant in Casa Grande, Arizona. The first phase of this project, representing an investment of more than $300 million, is scheduled for completion in late 2020. The company plans to produce luxury electric sedans priced at more than $100,000, and the Casa Grande plant is anticipated to create up to 4,800 direct and indirect jobs over the next decade.

 A new motor sports facility called Attesa is now under development in Casa Grande. Attesa will feature a members-only racetrack, and a luxury club with a swimming pool, spa, fitness center, lounge, and locker room. A separate track will be used for vehicle development and testing, as well as racing events. Future phases of this project are expected to create residential and industrial districts, a private air strip, and a multi-use area suitable for large concerts.

 Phoenix-based Nikola Motor Company has announced plans for a $1 billion electric truck factory bordering Eloy in Coolidge, Arizona, less than four miles north of Eloy. The company plans to start fleet testing in 2021 and begin commercial production by 2023, eventually employing about 2,000 workers.

 A 100-megawatt solar project is planned for a site in Eloy, just to the northwest of the forthcoming Nikola plant. This 1,027-acre project will provide renewable energy to several large public and private customers, including Albertsons, Walmart, CMC Steel Arizona, and the cities of Chandler, Mesa, and Phoenix.

Governmental Forces

Governmental considerations relate to the laws, regulations, and property taxes that affect properties in the market area and the administration and enforcement of these constraints such as zoning laws, building codes, and housing and sanitary codes. The property tax burden associated with the benefits provided and the taxes charged for similar benefits in other areas are considered. The enforcement of applicable codes, regulations, and restrictions should be equitable and effective. Governmental characteristics that should be considered in the analysis of a market area include property tax burden relative to services provided, special assessments, zoning and building codes, quality of public services, and environmental regulations. Some of these factors are discussed in the zoning and real estate tax sections later in this report.

Environmental Forces

Environmental influences consist of any natural or man-made features that are contained in or affect the market area and its location. These include a building’s type and size, topographical features such as terrain and vegetation, changes in property use and land use patterns, and the adequacy of public utilities.

Highway Transportation: Highway accessibility is a primary consideration in planning an area’s future growth and development. The main highway in Eloy is Interstate 10,

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-13 which provides direct access to greater Phoenix to the northwest and to greater Tucson to the southeast. Interstate 10 connects with east/west Interstate 8 near Eloy, which runs westward all the way to San Diego. In Eloy, State Route 87 is the main route northward from Interstate 10 to the city’s four correctional centers.

There are three important transportation projects currently in the design stage that will impact the City of Eloy. The first is a widening project of Interstate 10 to six lanes from Chandler to Casa Grande. The second project is a new interstate known as Interstate 11 that is just south of Eloy and will run from Mexico to Canada. The third project is a North- South Freeway that will connect the easternmost portion of the Phoenix MSA with Eloy.

All of three of the potential hotel sites are just off Interstate 10 in Eloy. The following table presents traffic volume statistics on the interstate from the segments closest to the proposed sites.

Annual Average Daily Traffic Volume

Eloy, Arizona Interstate 10 from Sunland Gin Rd from Toltec Hwy to from Sunshine Blvd to to Toltec Hwy Sunshine Blvd State Route 87 2016 44,680 35,405 41,998 2017 44,161 45,103 44,970 2018 42,688 42,907 45,914 Source: Arizona Department of Transportation

Air Transportation: The closest airports offering scheduled passenger service are Phoenix Sky Harbor International and Tucson International, which are about 60 miles from Eloy and the Phoenix Mesa Gateway Airport, which is approximately 40 miles north of Eloy. Phoenix Sky Harbor International is served by 20 commercial carriers and averages more than 21 million passenger enplanements each year, making it the 13th busiest airport in the nation. Phoenix-Mesa Gateway Airport is a smaller airport home to three commercial carriers with the largest being Allegiant Air. Phoenix is a focus city for Allegiant Air. Tucson International is served by eight airlines. The following tables present historical passenger activity at these three airports.

Airport Passenger Volume

Phoenix Sky Harbor International Airport

Passenger %Change Enplanements

2014 20,344,867 — 2015 21,351,504 4.9% 2016 20,896,265 -2.1% 2017 21,185,458 1.4% 2018 21,622,580 2.1% Source: Federal Aviation Administration

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Airport Passenger Volume

Phoenix-Mesa Gateway Airport

Passenger %Change Enplanements

2014 669,807 — 2015 666,187 -0.5% 2016 705,731 5.9% 2017 704,247 -0.2% 2018 778,972 10.6% Source: Federal Aviation Administration

Airport Passenger Volume

Tucson International Airport

Passenger %Change Enplanements

2014 1,597,247 — 2015 1,549,253 -3.0% 2016 1,594,594 2.9% 2017 1,669,928 4.7% 2018 1,753,227 5.0% Source: Federal Aviation Administration

Outlook

Our review of recent trends in population, income, and employment data indicates a positive outlook for the subject area. Pinal County has seen significant population growth over the past two decades, with further growth and development expected over the next several years. Located along Interstate 10, the proposed hotel sites are well-positioned within the regional transportation infrastructure, making them easy to reach from surrounding markets. These factors point to sustained economic growth within the region and should benefit the subject property by ensuring high levels of demand heading into the future.

NEIGHBORHOOD AND SITE ANALYSIS

We have analyzed the three potential hotel sites identified by the City of Eloy. Each of these three locations has advantages, disadvantages, and unique attributes, which should be considered by a potential developer in their analysis of whether to construct a new hotel in Eloy. A major consideration in any proposed hotel development is the cost and availability of a site for the proposed hotel. In the case of the three identified sites, all are owned by private developers who have expressed interest in having a hotel developed on their site but have not provided land costs to us.

In 2017 the United States Government passed “The Tax Cuts and Jobs Act”, which led to a new federal incentive known as opportunity zones. These opportunity zones were established to encourage economic development as well as job creation. These zones provide sizeable savings in capital gains realized by new development. Portions of each of the three subject sites are in Eloy’s Federal Opportunity Zone. Following is a map of

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-15

Eloy’s opportunity zones, which are shown in green, and the location of each proposed site.

The neighborhood surrounding a lodging facility impacts a hotel’s status, image, class, style of operation, and sometimes its ability to attract and properly serve a particular market segment. The potential hotel sites are off Interstate 10 in Eloy, surrounded by travel centers, retail, restaurants, and open land.

Aerial Photograph: The following map presents an aerial view of the three potential sites along Interstate 10.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-14

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-15

The next map shows the location of the subject sites relative to Phoenix, Tucson, and major highways in the surrounding area.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-16

Flood Zone Determinations: According to FEMA definitions, the term 100-year floodplain indicates an area in which there is a 1% or greater annual probability of a flood occurring; the term 500-year floodplain indicates an area with a 0.2% or greater annual probability of flooding.

The most common flood zone definitions are as follows:

ZONE A An area inundated by 100-year flooding

ZONE B An area inundated by 500-year flooding; an area inundated by 100-year flooding with average depths of less than one foot or with drainage areas less than one square mile; or an area protected by levees from 100-year flooding

ZONE C An area that is determined to be outside the 100- and 500-year floodplains

ZONE D An area of undetermined but possible flood hazards

ZONE X An area within a 500-year floodplain; an area within the 100-year floodplain with average depths of less than one foot or width drainage areas less than one square mile and areas protected by levees from 100- year flood

The maps on the following pages presents the FEMA flood zone determinations for the three potential hotel sites. The sites are on three separately numbered flood map panels – 04021C1956F (Site 1), 04021C1570F (Site 2), and 04021C1590F (Site 3) – all of which are dated May 16, 2019. As the maps indicate, Site 1 is in a Zone A area and Sites 2 and 3 are in Zone X areas.

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Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-19

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Following is our profile of each of the three sites.

Site #1 (Sunshine Boulevard Site)

The site at the Sunshine Boulevard exit on Interstate 10 is the largest of the three sites with more than 1,500 acres. The site is in a largely undeveloped area just south of the Flying J Travel Center. The site is currently being farmed and no formal development plan has been prepared for the site and its future components.

Advantages

 This is the closest site to downtown Eloy. The site is on the opposite side of Interstate 10 and downtown Eloy but is a five-minute drive. For guests who prefer to be closer to town, this would be the most convenient site.

 The site offers more than 1,500 acres, which creates a number of possibilities for future development at the site.

 The site is closest to the new Nikola Motor Company factory, which will be approximately four miles north of Eloy’s I-10 and Sunshine Boulevard exit.

 This site is the closest of the three sites to Picacho Peak State Park approximately 12 miles southeast on I-10, which achieved 121,000 visits in fiscal year 2019.

Disadvantages

 With the exception of the travel center adjacent to the site, the rest of the immediate area is all farmland. Additional development would be required to make this site not feel isolated.

 This site is approximately 15 minutes by car from the new Lucid Motors factory being built in Casa Grande to the west.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-21

Site #2 (Sunland Gin Road Site)

The site along Sunland Gin Road is a 631-acre site adjacent to and north of Interstate 10, a Petro Stopping Center, and a truck wash. The developer for this site intends to create a large commercial/industrial development anchored by the Interstate 10/8 Business Park. Other components of the development will include retail, restaurants, and other commercial uses including a hotel or hotels.

Advantages

 The developer of this site is actively planning an industrial park with other commercial uses and has sufficient land to attract several new demand generators for a hotel.

 The developers’ site plan includes multiple restaurants, which would benefit the hotel by providing guests with new options.

 This site is the closest site to Casa Grande and the new Lucid Motors factory. This will become one of the largest demand generators in the area when it is developed.

 This site is at the first east bound exit off Interstate 10 in Eloy. This could benefit the hotel when there is overflow demand in the Phoenix area during times such as Spring Training and other events.

Disadvantages

 The site is currently undeveloped and is near many of the existing economy hotels in Eloy, including the former Quality Inn that is now converting to Days Inn and the former Rodeway Inn that is converting to an OYO. The developer has plans to vastly improve the site with a variety of industrial and commercial uses; however, prospective hotel guests may have a negative perception due to the existing lower quality hotels nearby.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-22

 The site is the furthest of the three from Skydive Arizona, which is currently the largest demand generator in Eloy. However, currently most visitors to the skydiving center are staying in Casa Grande, Chandler, and Tucson in some cases.

Site #3 (Xpress Fuel Site)

The 13.33-acre Xpress Fuel site is the most “shovel ready” site of the three potential sites being considered for the hotel. Currently there is an Xpress Fuel truck stop under construction on the site that will also include a restaurant, convenience store, truck wash, and tire and lube facility. The truck stop is expected to open in 2020.

Advantages

 This site requires the least amount of site work and development could begin quickly at this site.

 There are existing food options near the site including a McDonald’s and Carl’s Jr with a new restaurant also proposed for the truck stop.

 This site is the closest of the three sites to Skydive Arizona.

 This site will have an existing demand generator for the hotel with the truck stop and travel center.

Disadvantages

 Similar to the Sunland Gin Road site, there are currently several economy hotels near the site including an America’s Best Value Inn and an OYO, which are lower quality and could impact guests’ perception of the area.

 This site is the smallest of the three sites with only 13.33 acres, which limits the complementary amenities and businesses that can be developed around the hotel.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-23

Sunland Gin Road (site #2) is also large and undeveloped, but the developer has laid out a plan to construct an industrial park and other complementary amenities that would benefit a hotel. The site adjacent to the under-construction Xpress Fuel (site #3) is the smallest of the three sites, but will offer an adjacent truck stop with restaurant, though we recommend an additional bar and grill restaurant be constructed.

Zoning: We assumed the subject site’s zoning will permit development of the hotel at any of the three sites as well as complementary businesses, such as offices, industrial, retail, and dining.

Site Conditions: We were not provided with engineering or environmental studies for the proposed sites. H&LA has not performed engineering studies or test borings and makes no conclusion as to the condition of the foundation or the soil and subsoil conditions.

Utilities: All necessary utilities and services are assumed available to the subject sites.

Deed Restrictions/Easements: We assume that the standard utility easements from the local electrical, telephone and gas companies will encumber the subject property. These easements are considered typical for the operation of commercial property and are not detrimental. No other easements were made known to the appraiser, and none are assumed to exist.

Property Taxes: The three sites consist of multiple parcels throughout the City of Eloy. Commercial property in Pinal County is assessed at 18% of theoretical market value. Personal Property is determined based on the original cost and the year it was acquired. The assessors then classify the type of equipment and deduct depreciation. Real property is adjusted electronically each year based on market conditions and is re-assessed every four years. The assessors utilize a cost approach, which they adjust for market conditions. Property owners have the right to file an appeal and request the assessor value the property using the income approach.

To derive a reasonable property tax estimate for the subject, we analyzed the assessed values for comparable hotels in the area of the subject, which is shown in the following table. Comparable Assessments Rooms Assessment Per Room

Comparables 2019 - Baymont Casa Grande 63 $401,095 $6,367 2019 - Holiday Inn Casa Grande 176 $1,521,209 $8,643 2019 - Quality Inn Casa Grande 81 $345,184 $4,262 Source: Hotel & Leisure Advisors and County Assessor

Assessments average $6,424 per room. The current assessments of the subject sites are inconsequential since the subject will be reassessed if a hotel is constructed.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-24

DESCRIPTION OF PROJECTED/RECOMMENDED IMPROVEMENTS

General: We analyzed the proposed development and reviewed the preliminary development plans. The following describes the proposed development.

The client is exploring the feasibility of a hotel development in Eloy at one of the three sites identified in this section of the report. Each of the sites contains sufficient land to develop a hotel and complementary amenities. We project the proposed property will open by January 1, 2022.

In our opinion, the brand with which the hotel is affiliated is very important. Eloy currently offers several branded hotels in the economy segment but does not offer any midscale or upscale lodging options for visitors.

We performed our study utilizing an assumption that the subject would develop a 80- room limited-service upper-midscale quality hotel. As will be discussed under the franchise affiliation section, in our opinion the subject should operate as a branded hotel. The following table indicates our recommendations for the hotel.

Recommended Facility

Proposed Hotel - Eloy

Number of Units 80

Room Mix Units Room Breakdown % Size (S.F.) King 35 44% 300-350 Double-Queen 40 50% 300-350 Suites 5 6% 400-600

Franchise Recommendations Fairfield Inn & Suites by Marriott Comfort Inn & Suites Country Inn & Suites by Radisson

Meeting Rooms Square Feet Banquet Capacity Meeting room 750 60

We recommend the subject offer a sufficient number of amenities to create a desirable lodging option for prospective guests. The following bullets highlight our recommendations for the proposed hotel.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-25

 We recommend the subject offer 80-guestrooms, including 40 double queen- bedded guestrooms, 35 king-bedded guestrooms, and 5 larger suites.

 We recommend the suites have an open living and bedroom area. The living area should feature a sleeper sofa and a workstation. Each guestroom should offer a mini refrigerator and microwave.

 We recommend the hotel include an outdoor pool and seating area, as well as a fitness center with cardio machines and free weights.

 We recommend the hotel offer coin-operated laundry machines for guests.

 We recommend a 750-square-foot meeting room equipped with the latest in meeting technologies, including ample power, Wi-Fi, video conferencing, and acoustical treatments.

 We recommend the hotel feature a multi-station business center.

 We recommend the hotel feature a lobby with seating area.

 We recommend the hotel have a breakfast area open to the lobby with a communal table as well as traditional tables.

 We recommend the hotel include a 24-hour convenience market next to the front desk that will sell snacks, beverages, and convenience items.

 We recommend the hotel offer complimentary amenities such as breakfast, Wi-Fi and parking.

 We recommend the hotel offer parking for buses and semi-trucks.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-26

FRANCHISE AFFILIATION ANALYSIS

Hotel Chain Scales

Chain scale segments are a method by which branded hotels are grouped based on the actual average room rates. Independent hotels, regardless of their average room rates, are included as a separate chain-scale category. Brands’ placement in the scales is reviewed yearly. Following is STR’s most recent chain scale listing:

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-27

STR 2019 Chain Scales Luxury Upper Upscale Upscale Upper Midscale Midscale Economy

21c Museum Hotel Ace Hotel AC Hotels by Marriott Aqua Hotels & Resorts 3 Palms Affordable Suites of America AKA Affinia Hotel Allegro Ayres A Victory America's Best Inn Aman Alila aloft Hotel Barcelo AmericInn Americas Best Value Inn Andaz Autograph Collection Alt Hotel Best Western Plus Aristos Hotel AmeriVu Inn & Suites Banyan Tree Bridgestreet Accommodations Apa Hotel Boarders Inn & Suites Baymont Budget Host Belmond Hotels Camino Real Ascend Collection Boulders Inn & Suites Best Western Budget Suites of America Capella Canopy by Hilton Aston Hotel Canalta Hotels BlueBay Budgetel COMO Club Quarters Atton Centerstone Hotels Cabot Lodge City Express Junior Conrad Curio Collection Be Live Chase Suites Canadas Best Value Inn Country Hearth Inn & Suites Destination Hotels Delta Hotel Best Western Premier City Express Candlewood Suites Crossland Economy Studios Dorchester Collection Dolce Hotels & Resorts BW Premier Collection City Express Plus Catalonia Days Inn Doyle Collection Dream Hotels Cambria Hotel & Suites Clarion City Express Suites Downtowner Inn Dreams Resorts & Spas Embassy Suites Canad Inn Cobblestone ClubHouse Econo Lodge Edition Fireside Inn & Suites Citadines Comfort Inn Crystal Inn Extended Stay America Elegant Gaylord citizenM Comfort Suites Delfin Hotel E-Z 8 Fairmont Hard Rock Club Med Country Inn & Suites FairBridge Inn Family Inn Firmdale Hilton Coast Hotels Canada Doubletree Club Fiesta Good Nite Inn Four Seasons Hilton Grand Vacations Coast Hotels USA Drury Inn Fiesta Inn Great Western Grand Bahia Pincipe Hotel Indigo Courtyard Drury Inn & Suites Gamma by Fiesta Inn GreenTree Inn Grand Hyatt Hotel Nikko Crowne Plaza Drury Plaza Hotel GuestHouse Inn Home Inn & Suites Hyatt Zilara Hyatt Dazzler Drury Suites Hawthorn Suites by Wyndham Home-Towne Suites Hyatt Ziva Hyatt Centric Decameron Exe Hotel Hoteles Vista Howard Johnson Iberostar Grand Hyatt Regency Disney Hotels Fairfield Inn & Suites ibis InTown Suites InterContinental Instinct Hotels DoubleTree GrandStay Hotels ibis Styles Howard Johnson JW Marriott Joie De Vivre dusitD2 Hampton InnSuites Hotel Jameson Inn Kempinski Kimpton Hotels Eaton Holiday Inn La Quinta Inn & Suites Key West Inn Langham Le Meridien element Holiday Inn Express Lakeview Knights Inn Loews Live Aqua Eurostarts Hotel Holiday Inn Select Loyalty Inn Lite Hotels Lotte Hotel Magnolia EVEN Hotels Home2 Suites Maeva Master Hosts Inns Luxury Bahia Principe Margaritaville Fiesta Americana Hotel Des Gouverneurs MainStay Suites Masters Inn Luxury Collection Marriott Four Points by Sheraton IFA Oak Tree Inn Microtel Inn & Suites Mandarin Oriental Marriott Conference Center Graduate Hotel Inns North Palace Inn Motel 6 ME Memories Grand America Isle of Capri Quality Inn National 9 Inns Mokara Millennium Great Wolf Lodge Lexington Hotels Ramada One Hoteles Montage New Otani H10 Mama Shelter Real de Minas Passport Inn Nobu Hotels NH Collection Hampshire Mercure Red Lion Inn & Suites Pear Tree Inn NOW Resorts & Spas Omni Hilton Garden Inn Monte Carlo Inn Rode Inn Red Carpet Inn One & One Outrigger Resorts Homewood Suites MOXY Sandman Red Roof Inn Palace Resort Pan Pacific Hotel RL My Place Settle Inn Rodeway Inn Pradisus Pestana Hyatt House OHANA Sleep Inn Savannah Suites Park Hyatt Pullman Hyatt Place Oxford Suites Sol Scottish Inn Prestige Hotels & Resorts Quinta Real Iberostar Hotels & Resorts Park Inn SureStay Plus Select Inn Regent Radisson Blu Innside by Melia Phoenix Inn SureStay Signature Collection Studio 6 Ritz-Carlton Radisson RED Jolly Princess Tru by Hilton Suburban Extended Stay RockResorts Red Carnation Larkspur Landing Quality Uptown Suites Sundowner Rosewood Renaissance Legacy Vacation Club Real Inn Vagabond Inn Super 8 Royalton Royal Hideaway Mantra Red Lion Hotel Vista SureStay Hotel by BW Secrets Resports & Spas Sheraton Hotel Melia Rodd Hotel Wingate by Wyndham Travelodge Shangri-La Silver Cloud Miyako Shilo Inn WoodSpring Suites Sixty Hotels St. Giles Hotel NH Sonesta ES Suites Sofitel Starhotels Nova Hotels TownePlace Suites St Regis Sunscape Resorts & Spas Novotel Trademark Hotel Collection Taj Swissotel NYLO Hotel Tryp by Wyndham The Peninsula Time Hotels Occidental Van der Valk The Unbound Collection Tribute Portfolio Palladium Hotel Wyndham Garden Hotel Thompson Hotels Warwick Hotel Prince Hotel Yotel Trump Hotel Collection Westin Radisson Valencia Group Wyndham Grand Hotels Residence Inn Viceroy RIU Hotel W Hotel Room Mate Waldorf Astoria Sandals Zoetry Wellness & Spa Sandman Signature Sawridge Shell Vacations Club Sonesta Hotel SpringHill Suites Staybridge Suites Stoney Creek SuperClubs Tapestry Collection Travel Inn Vacation Condos by Outrigger Westmark Wyndham Wyndham Vacation Resort

Source: STR & Hotel & Leisure Advisors

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-28

Approximately 70% of all lodging facilities in the United States are affiliated with a hotel brand, which helps to provide a level of recognition for the traveling public. Brands often target different market segments – some target the hip and trendy, while others target business clientele, or extended-stay guests – and are segmented by their service level.

The subject hotel could affiliate with a national hotel franchise and receive the benefits of this affiliation. In some cases, however, the costs of affiliating with a national franchise can exceed the additional value created. As the subject will be in Eloy, which currently lacks a well-known upper-midscale hotel franchise, we recommend it affiliate with a strong national brand that will allow it to attract overnight travelers currently staying in Casa Grande.

We analyzed potential upper-midscale limited-service hotels with which the subject could affiliate:

Comfort Inn & Suites is the flagship upper-midscale brand for Choice Hotels. In 2018, Choice announced a rebranding of the Comfort brand featuring a new prototype as well as a new logo. The Comfort brand umbrella includes the Comfort Inn, Comfort Inn & Suites, and the Comfort Suites. According to a study conducted by Millward Brown in 2016, the Comfort brand has a 99% brand awareness. According to STR, the brand has achieved four consecutive years of RevPAR Index growth. Brand standards for the Comfort Inn include either a fitness center or swimming pool, optional business center, optional meeting room, and an optional marketplace. According to the Comfort development website, there are 1,892 hotels open or under development in the United States currently. This total includes the Comfort Inn, Comfort Inn & Suites, and Comfort Suites. The brand’s 2019 franchise disclosure document showed the Comfort brand achieved an average occupancy of 64.9% with an ADR of $96.32 in calendar year 2018. The brand charges a royalty fee of 6% of gross rooms revenue and a system fee of 3.5% of gross rooms revenue.

Country Inn & Suites, owned by Radisson Hotel Group, is an upper-midscale brand that provides a caring, consistent, and comfortable hospitality experience with a touch of home. Hotels feature a swimming pool, complimentary breakfast, Read It & Return It Lending Library, free Wi-Fi, fitness center, and business center. At the end of 2018, the brand had 537 hotels open or under development in the United States with a total of 42,871 rooms. The brand achieved an overall occupancy of 66% and an ADR of $96.08 as of December 2018. The brand charges a franchise royalty fee of 5% of gross room revenue and marketing fee of 2.5% of gross rooms revenue.

Fairfield Inn & Suites is an upper-midscale brand within the Marriott International family of hotels. According to the brand’s 2019 franchise disclosure document, there were 940 Fairfield Inn & Suites in the United States and Canada at year-end 2018. The brand began in Hume, Virginia at a ranch that was purchased by J.W. and Alice Marriott. In 2017, Marriott announced a new brand design for the Fairfield brand, which included a farmhouse table in the lobby, pictures from the original Fairfield Farm location in the lobby and guestrooms, and a history wall at each property that displays the brands early roots. According to Marriott, the new prototype was designed to bring the property online efficiently. Of the 773 properties that participated with STR, the average occupancy was 71.4% with an ADR of $114.60 in calendar year 2018. The brand charges a franchise royalty fee of 5.5% of gross room sales and a program services contribution fee of 3.85% of gross room sales.

Proposed Hotel - Eloy, Arizona Area Analysis and Descriptive Data B-29

The brands charge a franchise fee of between 5% and 6% of rooms revenue in addition to marketing and reservation fees ranging from 2.5% to 3.85% of rooms revenue. With each of these franchise options, the hotel would have access to a national reservation system and loyalty program.

We recommend that the developers hire a competent hotel management company to operate the subject property as a franchise hotel. We are available to analyze and help you select an appropriate hotel management company.

DEVELOPMENT COSTS

The following table outlines the development costs averages for different segments of new hotel development. The wide range of costs depends upon the quality of property and the extent of the amenities; the property’s location; labor costs; construction material and energy prices; financing costs; and amount of entrepreneurial profit.

U.S. Hotel Development Costs Per Room - HVS 2018-19

Pre-Opening & Building & Site Working Land Improvements Soft Costs FF&E Capital Developer Fee Total Budget/Economy Hotels Average $10,535 $59,726 $10,694 $10,024 $3,604 $5,823 $100,404 % of Total 10% 66% 11% 10% 2% 2%

Limited-Service Hotels Average $14,634 $95,491 $12,224 $15,122 $4,780 $6,660 $148,911 % of Total 10% 67% 8% 10% 3% 2%

Note: % of Total is calculated based on the total sample of all budgets.

Source: HVS International

The brands we analyzed estimate the following development costs, according to their franchise development documents.

Brand Development Budget Analysis

Furniture and Fixtures Per Number of Units Total Total Per Unit Unit

Brand Parent Company Low High Low High Low High Low High Fairfield Inn / & Suites - Small Marriott International 80 110 11,100 14,600 8,148,390 17,071,410 101,855 155,195 Fairfield Inn / & Suites - Large Marriott International 120 150 10,900 13,800 11,243,090 21,615,010 93,692 144,100 Comfort Inn & Suites Choice Hotels 86 86 5,525 7,475 4,718,883 8,618,273 54,871 100,212 Country Inn & Suites Radisson Hotel Group 83 83 1,807 12,048 1,922,958 9,584,520 23,168 115,476 Average (excluding land costs) 92 107 7,333 11,981 6,508,330 14,222,303 68,397 128,746 Source: Hotel & Leisure Advisors and Franchise Disclosure Documents

The subject’s development budget will heavily depend upon the hotel’s height, the type of construction materials used, the selected franchise affiliation, and the amount of site work needed. We estimate development costs for the proposed limited-service hotel to range from $90,000 to $125,000 per room. The development budget excludes land costs since it is not known if the developers of each site would sell a portion of their site, lease the land to a prospective developer, or develop it themselves.

Proposed Hotel - Eloy, Arizona Market Analysis C-1

NATIONAL LODGING MARKET OVERVIEW

We thoroughly analyze trends and statistics within the national lodging market, using our research and that of nationally recognized hospitality data providers. Our analysis focuses on the overall operating performance of the U.S. hotel industry, primarily regarding occupancy, average daily rate (ADR), and revenue per available room (RevPAR). In addition, we consider new supply additions; travel forecasts; performance projections; and hotel sales values. Information in the following overview is the most recent available.

Operating Performance Forecasts

The U.S. hotel industry registered its tenth year in a row of revenue per available room growth in 2019, but at 0.9% year over year, it is the lowest growth rate since the recovery began in 2010, according to STR. The other two key statistics, occupancy and average daily rate, were flat at 66.1% and up 1%, respectively. ADR and RevPAR values were each the highest STR has ever benchmarked. The industry also set records for supply and demand, with more than 1.9 billion room nights available and about 1.3 billion room nights sold. Both supply and demand increased about 2% during 2019 compared to 2018.

Overall U.S. Lodging Performance

Occupancy % Change ADR % Change RevPAR % Change 2015 65.5% 1.7% $120.01 4.5% $78.63 8.1% 2016 65.4% -0.2% $124.13 3.4% $81.15 3.2% 2017 65.9% 0.8% $126.72 2.1% $83.57 3.0% 2018 66.2% 0.5% $129.83 2.4% $85.96 2.9% 2019 66.1% -0.2% $131.21 1.0% $86.76 0.9% Source: STR

The U.S. hotel industry is projected to report a slowdown in performance growth despite another year of gains, according to forecasts from STR, CBRE Hotels, and PricewaterhouseCoopers (PwC). Cautious optimism among hoteliers along with political and economic uncertainties has led forecasters to scale back earlier projections for overall performance growth through 2020. Occupancy, which has enjoyed a 10-year period of uninterrupted growth, is the only key metric projected to decline. The following table shows newly released projections for 2020.

2020 Industry Forecasts

STR CBRE PwC 2020 2020 2020 Supply 2.0% 1.9% 2.0% Demand 1.5% 1.1% 1.9% Occupancy -0.4% -0.8% -0.1% ADR 0.9% 2.0% 0.7% RevPAR 0.5% 1.2% 0.5% Source: STR/CBRE/PWC

Proposed Hotel - Eloy, Arizona Market Analysis C-2

Performance by Demand Segment

According to the 2019 TRENDS in the Hotel Industry report from CBRE Hotels, transient business dominates segmentation across all property types (except convention hotels), followed by group/contract business. Contract demand makes up a very small portion of demand and was included in the group segment since those rooms are usually booked by the group sales team.

Hotel Customer Segmentation

100 94 90 90 Transient Group/Con tr act

80 77 77 70 (%) 59 60 50 50 45 39 40 30 20 21 20 10 Segmentation Segmentation 10 6 0

Source: CBRE 2019 Trends in the Hotel Industry

Comparing 2019’s data to 2018, nearly every property type experienced flat to small occupancy gains ranging from 0.2% to 1.0%. Only resorts experienced a slight decline in occupancy (-0.8%) in 2018. Overall, ADR and RevPAR performance increased across the segments, with the exception of full-service properties, which saw a -1.1% drop in ADR and a -0.8% drop in RevPAR. Convention and suites with F&B properties saw the largest gains in ADR (3.5% and 3.5%, respectively) and in RevPAR (4.6% and 3.5%, respectively).

Performance Data by Property Type Full Suite w/o All Hotels Limited Suite Convention Resort Service Service w/F&B F&B Occupancy 76.0% 76.2% 72.6% 78.3% 80.2% 75.8% 73.1% ADR $179.48 $183.62 $116.31 $167.57 $138.36 $203.80 $257.16 RevPAR $136.40 $139.92 $84.44 $131.21 $110.96 $154.48 $187.98 Source: CBRE 2019 Trends in the Hotel Industry

Proposed Hotel - Eloy, Arizona Market Analysis C-3

Meetings Forecasts

In its 2020 Global Meetings and Events Forecast, American Express reports that another year of strong and steady growth awaits the meetings and events industry in North America. Among the survey’s findings:

 Internal team and training meetings will continue as the top category in the U.S.; however, the proportion is projected to dip to 25% of the meetings volume, down 5% from last year’s forecast.

 Planners in North America are predicting growth across all meeting parameters: number of meetings, attendees, days, and cost per attendee. They look forward to making use of new technologies, from back-end systems that make bookings easier to client-facing software that enhances the onsite experiences.

 Activity levels are expected to grow between 1.7% to 2.5% across North America, with U.S. respondents predicting the largest increase to be in product launches, at 3.3%. In Canada, the largest increase is expected in incentives and special events (2.2%).

 The largest increase in predicted number of attendees is 3.1% in the U.S. for client and customer advisory board meetings. Respondents in Canada expect their biggest increase in number of attendees to be product launches, with 2.3% more attendees.

 Meeting length is expected to be similar to previous years, with no real expectations of growth in any categories other than a 1.8% increase in length for incentives in the U.S. and a 1.8% increase in client and customer advisory board meetings in Canada.

 Attendee costs are expected to remain stable in 2020 with low or no growth. U.S. respondents predict that that the highest amount per attendee will be at incentives ($685 per person per day), while in Canada, the highest expected spend is at product launches ($795 per person per day).

 Both U.S. and Canadian respondents expect to spend the least at internal and team meetings, at $539 and $606 per person per day, respectively.

 Daily hotel rates are expected to be up significantly in the U.S., by 4.3% over 2019, while Canadian respondents predict a more modest 1.4% increase. When combined with an expected 3.2% rise in group air rates in North America, rising travel and lodging costs may put pressure on professionals to cut costs in other areas.

 Overall meetings budgets in North America are expected to rise only moderately in 2020 – by 1.8% in the U.S. and just 0.7% in Canada.

Proposed Hotel - Eloy, Arizona Market Analysis C-4

According to a recent STR DestinationMAP, Chicago and Orlando (67%) and Washington DC (66%) are the top North American markets in meeting planners’ consideration set. Rounding out the top five are San Diego (64%) and Las Vegas (62%). Following are key findings from the survey:

 Corporate planners (40%) make up the largest employer type among meeting planner segments followed in almost equal proportions by associations (29%) and third-party planners (31%).

 A safe environment and a clean/attractive site were the top considerations for selecting a meeting site, followed by ease of access and value.

 Convention center considerations, such as adequate seating, reasonable rental rates, helpful staff, and adequate hotel rooms nearby, are important to a large majority of meeting planners.

 Those in the large meetings segment ranked adequate hotel rooms nearby and attractive conference hotels higher in importance than did their smaller meeting counterparts.

Cvent’s most recent ranking of the top 50 U.S. meeting destinations has several of the same players. The lists were compiled according to meeting and event booking activity through its Cvent Supplier Network. Its top 10 list includes Orlando, Las Vegas, Chicago, San Diego, Atlanta, Dallas, Nashville, New York City, Washington DC, and San Francisco.

New Supply

With demand at an all-time high, the potential for oversupply of rooms is a concern; however, current projections point to continued absorption of new supply and steady occupancy rates. Lodging Econometrics reported that new hotel openings will continue to accelerate through 2021.

Hotel Openings 2016-2021 Number of Industry Year Rooms Growth Rate 2016 99,881 2.0% 2017 117,736 2.2% 2018 112,050 2.0% 2019 (Forecast) 119,727 2.2% 2020 (Forecast) 129,531 2.3% 2021 (Forecast) 139,793 2.5% Source: Lodging Econometrics

According to STR, the U.S. hotel pipeline reached a high of 206,000 rooms in construction as of July 2019, which is the highest it has reached in a decade. Overall, 695,000 rooms were in the pipeline with the majority in final planning.

By class, STR reports that 79% of rooms in the active pipeline are in the midscale to upscale class. The chart below shows total U.S. rooms pipeline by parent company. As of Q2 2019, Marriott International, Hilton, and Intercontinental Hotels Group combined made up approximately 75% of the pipeline.

Proposed Hotel - Eloy, Arizona Market Analysis C-5

2019 Total U.S. Rooms Pipeline by Parent Company

6% 3% 7% Marriott Hilton

IHG 32% 10% Choice Wyndham Hyatt

16% Other

26%

Source: STR

Travel Forecasts

In its Global Business Travel Forecast 2019, American Express Global Business Travel forecasts strong demand across the travel sector, including air and ground transportation and hotel stays, with higher fares and increased bookings. The association noted that spending on business travel has risen between 3% and 5% a year from 2012 to 2016. Business travel spending totaled $1.3 trillion globally in 2017, up 5.8% from 2016 levels, and is predicted to rise to $1.7 trillion by 2022. Despite the optimism, rising interest rates, talks of trade wars, and projected increases in oil and gas prices are among the risks that could impact corporate travel forecasts.

The U.S. Department of Commerce (DOC) Office of Travel & Tourism Industries’ published forecast in 2018 projects international travel to the United States will grow steadily through 2023. For 2019, it predicts a 3.2% growth rate in total arrivals and a volume record of 83.9 million visitors. Five countries are expected to account for 64% of the projected growth from 2018 through 2023: Canada (26%), Mexico (24%), United Kingdom (5%), China (5%), and Japan (4%).

The United States leads the world in both international visitors and global tourism receipts (exports). In 2018, U.S. travel exports totaled $256 billion according to the U.S. Travel Association.

Facilities and Amenities

The American Hotel & Lodging Association’s 2018 Lodging Survey of more than 8,000 hotels underscores how hotels advance, accommodate, and innovate the guest experience. Hotels are focusing on welcoming accommodations, increased mobile

Proposed Hotel - Eloy, Arizona Market Analysis C-6 compatibility, and more flexible dining options in an effort to deliver seamless transitions between their guests’ everyday lives and their lives on the road. Key findings:

 31% of hotels offer food alternatives like grab-and-go markets and pantries  40% of properties offer mobile apps that connect guests to hotel services  80% of all mid-price and higher segment properties use mobile device check-in  17% of hotels use mobile devices as room keys  25% of hotels offer guests a chance to donate to or support charitable causes  97% of branded hotels offer linen and towel reuse programs  66% of hotels report some type of water savings program

Hotel Sales & Investment

In its 2019 Hotel Investment Outlook, real estate services company JLL reported hotel deal volumes of $36.5 billion in North America in 2018, up 29.4% from 2017 transactions totaling $28.2 billion. Hotel investment liquidity in 2018 was bolstered by a healthy economy, which fueled growing traveler volumes.

Recent years have been marked by an increase in buying activity from private equity and institutional investors. This reflects a growing trend of hotels being purchased by investors with portfolios involving multiple asset classes as opposed to specialist hotel investors. In the past five years, JLL reported approximately 70% of hotel transactions worldwide were purchased by generalist investors, up from 62% in 2014.

In 2019, JLL expects private equity investors will continue to drive hotel deals, given the substantial amount of capital available and the pressure to deploy it at scale. In addition, institutional investors have been increasingly active in acquiring hotel properties, more than doubling market share since 2014. In the United States, hotel real estate investment trusts (REITS) are expected to remain active as high-quality assets come to market.

While banks still account for most real estate lending, JLL notes that a strong flow of debt funds have entered the market in recent years. The strategy, which allows investors to achieve risk-adjusted returns, has become more attractive as interest rates rise and property yields come under pressure.

A notable number of hotel mergers and acquisitions took place in 2018. According to JLL, there were 13 merger and acquisition transactions relating either to global brands or publicly traded companies in 2018, compared to seven such transactions in 2017. JLL predicts acquisitions will continue in 2019, as top brands still only account for approximately one third of all hotel rooms worldwide.

A report by PwC conveys cautious optimism regarding hotel investments. In its Emerging Trends in Real Estate 2019 report, PwC says hotels appear to be holding their own with investors, both from a return-on-investment perspective as well as a development perspective. Continued operating performance strength by hotel owners is expected through 2019 as increases in room rates continue to become a bigger driver of RevPAR growth, providing a better flow-through to the bottom line. According to the report, hotel investors indicated that group demand had finally gained strength and was exceeding prior expectations. Commercial transient demand continued to increase as well, albeit at a slower pace than in the prior year.

Proposed Hotel - Eloy, Arizona Market Analysis C-7

We also analyzed historical sales activity for hotel transactions as recorded by STR. The following table shows 2018 statistics from STR’s 2019 Hotel Transaction Almanac.

U.S. Hotel Transaction Growth

$300,000 $256,000 800 $250,000 $238,000 700 $250,000 $218,000 $202,000 700

600 $200,000 600 566 500 $150,000 448 400

356 300 $100,000 200 $50,000 100 $0 0 2014 2015 2016 2017 2018

Average Selling Price Per Room Number of Transactions

According to STR, 2018 was one of the best years in recent history for hotel transactions. The total number of transactions rose 25% from 2017, and transaction volume increased by nearly 50% to over $29.5 billion. STR reported that the drop-off in price per key in 2017 was mainly due to a large number of portfolio sales – many of which included lower-tier properties – rather than an indication of decreasing hotel value. The healthy rebound in 2018 was highlighted by five properties that sold at over $1 million per room.

Financial Performance

We analyzed financial statistics published in STR’s Host Almanac 2019, derived from multiple STR data sources that include year-end 2018 income and expense statements of more than 15,000 hotels. This information is used in the financial section of this report. The following charts present selected financial data for full-service and limited-service hotels for the past five years.

Proposed Hotel - Eloy, Arizona Market Analysis C-8

Revenue Per Occupied Room Night

2014-2018

350 316 296 300 302 300 278

250

200

134 150 117 119 123

RevPOR ($) RevPOR 106 100

0 2014 2015 2016 2017 2018

Full Ser vi ce Limited Service

Source: STR Host Almanac 2019

Revenue per occupied room (RevPOR) is much higher for full-service hotels, given their higher rates and strong reliance on food and beverage. However, while full-service hotels generate higher RevPOR, they lag their limited-service counterparts in both gross operating profit and NOI ratios due to the higher expenses these properties incur to deliver the expected level of service.

NOI 2014-2018

45 39 40 39 40 38 38

28 28 30 27 27 27

NOI (%) 15

0 2014 2015 2016 2017 2018

Full -Service NOI Limited-Servi ce NOI

Note: NOI is defined as "Amount Available for Debt Service and Other Fixed Charges," which is equivalent to "Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)."

Source: STR Host Almanac 2019

Proposed Hotel - Eloy, Arizona Market Analysis C-9

Regional Hotel Overview

STR also tracks key performance metrics by region. The following table shows the performance of U.S. hotels by region for 2016-19, based on statistics from STR’s Hotel Review.

U.S. Hotel Performance by Regions Occupancy ADR RevPAR 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 New England 64.1% 64.6% 65.9% 65.0% $151.20 $154.39 $157.96 $159.91 $96.96 $99.72 $104.16 $104.00 Middle Atlantic 67.2% 68.4% 69.8% 69.1% $163.54 $162.05 $166.18 $166.33 $109.91 $110.77 $116.00 $114.91 South Atlantic 67.1% 67.9% 67.9% 67.6% $119.92 $123.57 $126.45 $128.40 $80.45 $83.88 $85.88 $86.81 East North Central 61.0% 61.3% 61.6% 61.2% $108.32 $109.90 $112.44 $112.69 $66.12 $67.37 $69.30 $68.96 East South Central 61.3% 61.5% 62.0% 62.6% $94.88 $98.23 $100.79 $103.45 $58.15 $60.46 $62.45 $64.71 West North Central 59.0% 58.0% 58.0% 58.5% $96.10 $97.70 $99.00 $99.26 $56.71 $56.65 $57.38 $58.02 West South Central 61.4% 62.5% 62.7% 62.7% $98.73 $100.36 $102.53 $101.88 $60.57 $62.69 $64.29 $63.92 Mountain 65.3% 65.9% 66.2% 66.9% $114.36 $118.02 $119.06 $122.23 $74.63 $77.81 $78.88 $81.76 Pacific 73.8% 73.8% 73.8% 73.7% $158.63 $162.89 $168.55 $171.42 $116.99 $120.25 $124.45 $126.36 Total U.S. 65.4% 65.9% 66.2% 66.1% $124.13 $126.77 $129.97 $131.21 $81.15 $83.53 $85.96 $86.76

Source: STR Hotel Review

Mirroring the national data, most regions experienced flat or improving occupancy. All regions achieved ADR growth between 2016 and 2019. In 2019, the Pacific (which includes Arizona) led all regions in occupancy, RevPAR, and ADR.

ELOY REGIONAL LODGING OVERVIEW

Phoenix is the nearest major hotel market to Eloy. Tucson is another major hotel market nearly equidistant to the City of Eloy; however, it is a smaller overall market as defined by STR. The Phoenix hotel market as defined by STR includes hotels in Casa Grande and Eloy. The Phoenix market has seen improvement in occupancy, ADR, and RevPAR in each year since 2015 indicating strong growth in the market. The Phoenix market has outperformed the overall Arizona hotel market in all three metrics from 2017 through 2019. Of the top 25 hotel markets in the United States defined by STR, the Phoenix hotel market had the highest year-over-year RevPAR growth in the United States in 2019. The Phoenix market includes 583 hotels with 68,533 available guestrooms, according to STR as of November 2019.

Phoenix Market Operating Performance

Year OCC % Chg ADR % Chg RevPAR % Chg 2015 65.7% $120.82 $79.43 2016 67.1% 2.1% $122.93 1.7% $82.53 3.9% 2017 67.7% 0.9% $126.87 3.2% $85.87 4.0% 2018 69.7% 3.0% $129.78 2.3% $90.42 5.3% 2019 70.7% 1.4% $133.36 2.8% $94.23 4.2%

Overall Arizona Lodging Annual Operating Performance 2017 66.2% $118.83 $78.70 2018 67.8% 2.4% $121.46 2.2% $82.30 4.6% 2019 68.8% 1.5% $124.53 2.5% $85.65 4.1% Source: STR

Proposed Hotel - Eloy, Arizona Market Analysis C-10

New Supply

There have been minimal supply additions to the hotel market in Pinal County since 2011. A list of recent openings, expansions, and proposed hotels are shown in the table below.

Recent and Under Construction Supply Additions

Pinal County, AZ Name of Establishment City & State Open Date Rooms

Holiday Inn Express & Suites Casa Grande Casa Grande, AZ Jan 2011 77

Harrah's Ak-Chin Casino Resort Expansion Maricopa, AZ Nov 2018 229

Best Western Plus Casa Grande Casa Grande, AZ Q3 2020 68

La Quinta Inn Maricopa Maricopa, AZ Q4 2020 89

Attesa Hotel Casa Grande, AZ Proposed 300

Windmill Winery Boutique Hotel Florence, AZ Proposed 25

Ironwood District Hotel San Tan Valley, AZ Proposed 125 Phoenix Mart Hotel Casa Grande, AZ Proposed 300 Source: STR

New construction is concentrated most heavily in Casa Grande and the southern suburbs of Phoenix. We acknowledge that many of the proposed projects are in the early stages or have not yet been financed and may not be constructed. There are no hotels currently proposed or under construction in Eloy.

COMPETITIVE LODGING MARKET OVERVIEW

We analyzed the supply and demand factors for the subject’s competitive market. The subject is projected to open in 2022. Both supply and demand conditions are likely to change beyond our analysis period; therefore, projecting market conditions further into the future becomes highly speculative. The projections are for calendar years. Our projections analyze currently known supply and demand changes in the market and forecast a stabilized level of performance for both the market and the subject property.

Existing Competitive Supply: We identified a competitive hotel supply with a total of 955 guestrooms in nine existing lodging facilities. We analyzed the competitiveness of each hotel selected for the competitive set. In our opinion, each of the hotels is to some degree competitive with the proposed subject, and we utilized 100% of the available guestrooms in our analysis. In determining the competitive supply, we considered the proposed subject’s segmentation and sources of business. The subject will be an interstate hotel affiliated with an upper-midscale franchise affiliation. In this section, we analyze the local hotel supply of limited-service hotels in Eloy, Casa Grande, and Chandler. Although the hotels in Chandler are approximately 40 miles from Eloy, each of these hotels is along Interstate 10 and are among the closest hotels affiliated with a major national franchise. Marana, a northern suburb of Tucson is home to several hotels that are also affiliated with a major national franchise. Based on our interviews with competitive hotels in the market, representatives from existing demand generators, and research of the lodging market, it was determined Chandler is a more competitive market for the hotels in this area and therefore no hotels from this area were included in the competitive set. We excluded from the competitive set many of the older hotels that exist in Eloy either due to their condition or lack of participation with STR. The following tables list pertinent information about each of the competitive properties.

Proposed Hotel - Eloy, Arizona Market Analysis C-11

Survey of Competitors Hotel # of Food and Property Location Opened Pool Meeting Published # Rooms Beverage Space SF Room Rates

1 La Quinta Inns & Suites Phoenix Chandler Phoenix, AZ 117 Jun-98 Outdoor Comp. Bkfst. 350 $80 - $251 2 Holiday Inn Express & Suites Phoenix Chandler Ahwatukee Phoenix, AZ 125 Oct-98 Outdoor Comp. Bkfst. 840 $65 - $173 3 Holiday Inn Express & Suites Casa Grande Casa Grande, AZ 77 Jan-11 Outdoor Comp. Bkfst. 300 $123 - $210 4 Baymont Casa Grande Casa Grande, AZ 63 Feb-99 Outdoor Comp. Bkfst. - $64 - $141 5 Holiday Inn Casa Grande Casa Grande, AZ 176 Nov-87 Outdoor Restaurant 5,796 $88 - $163 6 MainStay Suites Extended Stay Hotel Casa Grande Casa Grande, AZ 70 Nov-06 Outdoor Comp. Bkfst. - $75 - $127 7 Motel 6 Casa Grande - Eloy Eloy, AZ 97 Mar-87 Outdoor None - $57 - $85 8 Comfort Inn Chandler Phoenix South Chandler, AZ 129 Feb-98 Outdoor Comp. Bkfst. 625 $83 - $171 9 Hampton Inn by Hilton Phoenix/Chandler Chandler, AZ 101 May-97 Outdoor Comp. Bkfst. 450 $91 - $211 Total 955 Source: Hotel & Leisure Advisors

Competitive Supply Performance Indicators

2019 Market Segmentation 2019 Estimated Performance

Hotel Overall Property Commercial Group Leisure Occupancy ADR RevPAR # Penetration Rate

1 La Quinta Inns & Suites Phoenix Chandler 60% 5% 35% 80 - 90% $80 - $90 $70 - $80 127% 2 Holiday Inn Express & Suites Phoenix Chandler Ahwatukee 70% 5% 25% 60 - 70% $80 - $90 $60 - $70 103% 3 Holiday Inn Express & Suites Casa Grande 65% 5% 30% 70 - 80% $120 - $130 $90 - $100 117% 4 Baymont Casa Grande 45% 5% 50% 60 - 70% $70 - $80 $40 - $50 92% 5 Holiday Inn Casa Grande 60% 15% 25% 60 - 70% $100 - $110 $60 - $70 94% 6 MainStay Suites Extended Stay Hotel Casa Grande 40% 0% 60% 60 - 70% $60 - $70 $30 - $40 91% 7 Motel 6 Casa Grande - Eloy 10% 0% 90% 50 - 60% $40 - $50 $20 - $30 85% 8 Comfort Inn Chandler Phoenix South 50% 5% 45% 60 - 70% $80 - $90 $50 - $60 91% 9 Hampton Inn by Hilton Phoenix/Chandler 70% 5% 25% 60 - 70% $100 - $110 $60 - $70 97% Average 55% 6% 39% 67% $90.74 $60.52

Source: Hotel & Leisure Advisors

Proposed Hotel - Eloy, Arizona Market Analysis C-12

Map of Competitive Hotels

Proposed Hotel - Eloy, Arizona Market Analysis C-13

Competitive Property #1

La Quinta Inns & Suites Phoenix Chandler

Location Phoenix, AZ Pool Outdoor # of Rooms 117 Food and Beverage Comp. Bkfst. Opened Jun-98 Meeting Space SF 350 Published Room Rates $80 - $251 2019 Estimated Performance Occupancy 80 - 90% Market Segmentation ADR $80 - $90 Commercial 60% RevPAR $70 - $80 Group 5% Overall Penetration Rate 127% Leisure 35%

Source: Hotel & Leisure Advisors

The 117-room La Quinta Inns & Suites Phoenix Chandler is adjacent to Interstate 10 and approximately 13 miles southeast of Phoenix Sky Harbor International Airport. The hotel is adjacent to the Holiday Inn Express Phoenix Chandler. The hotel last underwent a renovation in 2017. The hotel offers complimentary breakfast, outdoor pool, fitness center, truck parking, guest laundry facility, sundry shop, and a business center.

Proposed Hotel - Eloy, Arizona Market Analysis C-14

Competitive Property #2

Holiday Inn Express & Suites Phoenix Chandler Ahwatukee

Location Phoenix, AZ Pool Outdoor # of Rooms 125 Food and Beverage Comp. Bkfst. Opened Oct-98 Meeting Space SF 840 Published Room Rates $65 - $173 2019 Estimated Performance Occupancy 60 - 70% Market Segmentation ADR $80 - $90 Commercial 70% RevPAR $60 - $70 Group 5% Overall Penetration Rate 103% Leisure 25%

Source: Hotel & Leisure Advisors

The 125-room Holiday Inn Express & Suites Phoenix Chandler Ahwatukee is adjacent to Interstate 10 and the La Quinta Inn & Suites by Wyndham Phoenix Chandler. The hotel is managed by El Paso-based Esperando Developments. The hotel is less than a half mile from Thistle Landing Office Park, which includes a call center for Fiserv and Dish Network. The hotel offers complimentary breakfast, outdoor pool and whirlpool, fitness center, business center, and a microwave and mini refrigerator in every guestroom.

Proposed Hotel - Eloy, Arizona Market Analysis C-15

Competitive Property #3

Holiday Inn Express & Suites Casa Grande

Location Casa Grande, AZ Pool Outdoor # of Rooms 77 Food and Beverage Comp. Bkfst. Opened Jan-11 Meeting Space SF 300 Published Room Rates $123 - $210 2019 Estimated Performance Occupancy 70 - 80% Market Segmentation ADR $120 - $130 Commercial 65% RevPAR $90 - $100 Group 5% Overall Penetration Rate 117% Leisure 30%

Source: Hotel & Leisure Advisors

The 101-room Holiday Inn Express & Suites Casa Grande is off Florence Boulevard and is behind an IHOP and Golden Corral restaurant. This hotel is the newest hotel in the competitive set and achieves the highest rate of any hotel in the competitive set. The hotel offers a small executive boardroom that can seat up to ten people. The hotel offers a newly updated fitness center, outdoor pool and whirlpool, business center, complimentary breakfast, and a microwave and mini refrigerator in every guestroom.

Proposed Hotel - Eloy, Arizona Market Analysis C-16

Competitive Property #4

Baymont Casa Grande

Location Casa Grande, AZ Pool Outdoor # of Rooms 63 Food and Beverage Comp. Bkfst. Opened Feb-99 Meeting Space SF - Published Room Rates $64 - $141 2019 Estimated Performance Occupancy 60 - 70% Market Segmentation ADR $70 - $80 Commercial 45% RevPAR $40 - $50 Group 5% Overall Penetration Rate 92% Leisure 50%

Source: Hotel & Leisure Advisors

The 63-room Baymont Casa Grande is approximately half a mile west of Interstate 10. This hotel is the closest hotel to the interstate in Casa Grande. The hotel is next to the Siegel Suites and across from a Chevron, car wash, Little Caesars pizzeria, and Boston’s Restaurant and Sports Bar. The hotel previously operated as a Comfort Inn before being converted to a Baymont in 2018. The hotel offers an outdoor pool, complimentary breakfast, fitness center, business center, guest laundry machines, vending machines, and barbeque grills.

Proposed Hotel - Eloy, Arizona Market Analysis C-17

Competitive Property #5

Holiday Inn Casa Grande

Location Casa Grande, AZ Pool Outdoor # of Rooms 176 Food and Beverage Restaurant Opened Nov-87 Meeting Space SF 5,796 Published Room Rates $88 - $163 2019 Estimated Performance Occupancy 60 - 70% Market Segmentation ADR $100 - $110 Commercial 60% RevPAR $60 - $70 Group 15% Overall Penetration Rate 94% Leisure 25%

Source: Hotel & Leisure Advisors

The 176-room Holiday Inn Casa Grande is off Florence Boulevard in Casa Grande. Hotel INNvestment Group of Irvine, California is the manager of the hotel. This hotel is the largest hotel in the competitive set and also offers the most meeting space. The hotel benefits from stronger group demand than other area hotels due to its available meeting and event space. The hotel receives demand from visitors of Skydive Arizona who come for tournaments and for military trainings. The hotel offers a two-meal restaurant, Cabo’s Restaurant & Lounge, which serves breakfast and dinner. The hotel is the number one ranked hotel on TripAdvisor in Casa Grande. The hotel offers a business center, fitness center, outdoor pool and whirlpool, vending machines, guest laundry machines, complimentary breakfast for kids eleven and under, and truck parking.

Proposed Hotel - Eloy, Arizona Market Analysis C-18

Competitive Property #6

MainStay Suites Extended Stay Hotel Casa Grande

Location Casa Grande, AZ Pool Outdoor # of Rooms 70 Food and Beverage Comp. Bkfst. Opened Nov-06 Meeting Space SF - Published Room Rates $75 - $127 2019 Estimated Performance Occupancy 60 - 70% Market Segmentation ADR $60 - $70 Commercial 40% RevPAR $30 - $40 Group 0% Overall Penetration Rate 91% Leisure 60%

Source: Hotel & Leisure Advisors

The 70-room MainStay Suites Extended Stay Hotel Casa Grande is approximately one mile from Interstate 10 near the Banner Casa Grande Medical Center. Management for the hotel indicated the hospital provides some demand for the hotel. The hotel receives demand from construction crews doing work in the area and also receives business from travelers off Interstate 10. Although the hotel is an extended-stay property, management indicated they have a lot of transient business as well. Each suite at the hotel offers a living area and kitchenette that includes a refrigerator and freezer, microwave, stovetop, and dishwasher. The hotel offers complimentary breakfast, Wi-Fi, business center, guest laundry machines, sundry shop, and a fitness center.

Proposed Hotel - Eloy, Arizona Market Analysis C-19

Competitive Property #7

Motel 6 Casa Grande - Eloy

Location Eloy, AZ Pool Outdoor # of Rooms 97 Food and Beverage None Opened Mar-87 Meeting Space SF - Published Room Rates $57 - $85 2019 Estimated Performance Occupancy 50 - 60% Market Segmentation ADR $40 - $50 Commercial 10% RevPAR $20 - $30 Group 0% Overall Penetration Rate 85% Leisure 90%

Source: Hotel & Leisure Advisors

The 97-room Motel 6 Casa Grande - Eloy is just off Exit 200 on Interstate 10 in Eloy. Management for the hotel stated that although there is a truck stop just across from the hotel, they do not capture a lot of trucking business as the truck stop offers complimentary showers for everyone who purchases fuel. Management also mentioned the hotel receives the majority of its demand in the leisure segment and captures limited commercial demand from construction workers coming to the area. The hotel offers pet- friendly accommodations as well as complimentary coffee, mini refrigerator in each guestroom, an outdoor pool, and guest laundry machines.

Proposed Hotel - Eloy, Arizona Market Analysis C-20

Competitive Property #8

Comfort Inn Chandler Phoenix South

Location Chandler, AZ Pool Outdoor # of Rooms 129 Food and Beverage Comp. Bkfst. Opened Feb-98 Meeting Space SF 625 Published Room Rates $83 - $171 2019 Estimated Performance Occupancy 60 - 70% Market Segmentation ADR $80 - $90 Commercial 50% RevPAR $50 - $60 Group 5% Overall Penetration Rate 91% Leisure 45%

Source: Hotel & Leisure Advisors

The 129-room Comfort Inn Chandler Phoenix South is along Interstate 10 across from an industrial park. The industrial park is home to several smaller facilities and across the street is a major Bashas Distribution Center. In 2019, California-based Marin Management took over management of the hotel. The hotel is scheduled to undergo a renovation; however, the schedule is not yet known for when it will take place. The hotel offers complimentary breakfast, fitness center, outdoor pool, bus and truck parking, and a microwave and mini refrigerator in each guestroom.

Proposed Hotel - Eloy, Arizona Market Analysis C-21

Competitive Property #9

Hampton Inn by Hilton Phoenix/Chandler

Location Chandler, AZ Pool Outdoor # of Rooms 101 Food and Beverage Comp. Bkfst. Opened May-97 Meeting Space SF 450 Published Room Rates $91 - $211 2019 Estimated Performance Occupancy 60 - 70% Market Segmentation ADR $100 - $110 Commercial 70% RevPAR $60 - $70 Group 5% Overall Penetration Rate 97% Leisure 25% Source: Hotel & Leisure Advisors

The 101-room Hampton Inn by Hilton Phoenix/Chandler is just off Interstate 10 in Chandler, approximately 45 miles north of Eloy. The hotel is surrounded by a Denny’s, Copper Still Moonshine Grill, Rudy’s Country Store and Bar-B-Q, and a Homewood Suites. The hotel is near a number of industrial facilities that provide some of the hotel’s commercial demand. The hotel is managed by Aimbridge Hospitality. The hotel underwent a renovation in 2019 that included all guestrooms with new furniture, lighting, and carpeting. The exterior of the hotel was updated with fresh paint, and the parking lot was re-paved. The hotel offers complimentary breakfast, Wi-Fi, outdoor pool, fitness center, and a business center.

Proposed Hotel - Eloy, Arizona Market Analysis C-22

Historical Lodging Demand: The following table provides occupancy, ADR, and RevPAR for the defined competitive set for the past six years based upon information obtained from STR.

Competitors' Operating Performance

Proposed Hotel - Eloy % % % Year Annual Supply % Change Demand % Change Occupancy ADR RevPAR Change Change Change

2013 349,305 199,215 57.0% $77.25 $44.06 2014 349,305 0.0% 210,085 5.5% 60.1% 5.5% 77.95 0.9% 46.88 6.4% 2015 349,305 0.0% 218,741 4.1% 62.6% 4.1% 81.36 4.4% 50.95 8.7% 2016 349,305 0.0% 227,720 4.1% 65.2% 4.1% 83.00 2.0% 54.11 6.2% 2017 349,305 0.0% 229,979 1.0% 65.8% 1.0% 83.28 0.3% 54.83 1.3% 2018 349,305 0.0% 235,865 2.6% 67.5% 2.6% 87.88 5.5% 59.34 8.2% Average 349,305 0.0% 220,268 3.4% 63.1% 3.4% 81.79 2.6% 51.70 6.2%

Year-to-Date through October 2018 290,928 197,093 67.7% 88.52 59.97 2019 290,438 -0.2% 194,470 -1.3% 67.0% -1.2% 91.40 3.2% 61.20 2.0%

Source: STR

 The market has not recorded any new hotel openings since 2013.

 Overall demand has increased annually since 2013. Occupancy for the market has benefitted from no new supply additions to the competitive set during this period. Year-to-date demand through October showed a slight decline of -1.3%.

 The ADR of the competitive set experienced an average yearly increase of 2.6% throughout the six-year historical period. Similar to occupancy, ADR has grown each year since 2013. Year-to-date ADR through October is up 3.2% from 2018.

 During the same period, RevPAR experienced an average yearly increase of 6.2%, and has improved year-to-date due to the increase in ADR.

We analyzed the seasonality of the competitive set, including the performance by day. The following graphs indicate the performance as shown in the STR report for fiscal year 2019. Monthly Occupancy

100 89 88 90

74 80 70 71 68 70 63 61 57 57 60 53 53 50 40 Occupancy % Occupancy 30 20 10 0 Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Source: STR

Proposed Hotel - Eloy, Arizona Market Analysis C-23

Weekly Occupancy

80 71 71 69 68 68 70 66 60 56 50 40

Occupancy % Occupancy 30 20 10 0 Sun Mon Tue Wed Thu Fri Sat

Source: STR Monthly ADR

140 128 117 120 100 94 93

87 83 80 82 74 74 80 70 69

ADR ADR ($) 40

0 Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Source: STR

Proposed Hotel - Eloy, Arizona Market Analysis C-24

Weekly ADR

94 92 92 92 91 91 90 90 90

86 85

ADR ADR ($) 84

80 Sun Mon Tue Wed Thu Fri Sat

Source: STR

The competitive set of properties achieved its highest occupancy levels on Tuesdays and Wednesdays and its weakest occupancy level on Sundays. The competitive properties achieved their highest ADR on Fridays and Saturdays. The market benefits in February and March from the Phoenix hosting the Cactus League, one of Major League Baseball’s two Spring Training leagues. The strongest ADR month is March, while the weakest is August.

Proposed Hotel Development: Discussions with local municipal officials, real estate brokers, and hotel operators, and a review of published data revealed several proposals for hotels in the market as described below. We note that these projects profiled are all throughout Pinal County and may not be directly competitive with a proposed hotel in this area; however, we have included them to highlight the development happening in Pinal County.

 A groundbreaking was held in July 2019 for a new 68-room Best Western Plus hotel in Casa Grande. The hotel will feature complimentary breakfast, fitness center, outdoor pool, bar, and a small meeting room. The hotel is currently under construction and is projected to open in late 2020.

 An 89-room La Quinta Inn is currently under construction in Maricopa, 40 miles from Eloy. The hotel, which will be the first in Maricopa, is part of a larger mixed- use development known as Copper Sky. The development is proposed to feature 620 multifamily housing units, 53,000 square feet of retail space, and an assisted living facility in addition to the hotel. The developer intends for the hotel to be operational by November 2020.

 A 2,500-acre development known as Attesa has been proposed in Casa Grande. Attesa brands itself as “the ulitimate motorsports lifestyle community” that will offer a racetrack for club members, a testing circuit, and a high-performance driving school. Other elements of the development include retail, industrial and commercial districts, multiple restaurants, and a 300-room hotel with a convention center. A timeline for the proposed hotel is not currently known.

Proposed Hotel - Eloy, Arizona Market Analysis C-25

 Fortis Development is planning a new mixed-use development known as The Ironwood District in San Tan Valley, approximately 40 miles north of Eloy. The project will feature a variety of components, including apartments, a senior living complex, retail, and single-family housing along with a limited-service hotel. No brand or timeline for construction has been announced for the hotel.

 A new global product marketplace known as PhoenixMart is proposed in Casa Grande. The project would feature more than 1,800 showroom suites. There is a large resort-style hotel also proposed as part of the project. The sizing for the hotel has not been announced. The project has encountered several delays and at this time, there is no construction schedule for the hotel.

 Windmill Winery, a wine and wedding venue in Florence announced an expansion at their property to include a 25-room boutique hotel. A timeline for the construction of the boutique hotel has not yet been announced.

The following table indicates the proposed increase in hotel room supply that we incorporated into our analysis. We included only the proposed subject and the under construction Best Western Plus in Casa Grande. The other projects are either in the planning stages or are not in a location that will be competitive with the proposed hotel.

Additions to Supply

Forecasted (Calendar Year)

2020 2021 2022 2023 2024 2025 Historical Existing Rooms 955 955 955 955 955 955 Proposed Hotel - Eloy - - 80 80 80 80 Best Western Plus Casa Grande 17 68 68 68 68 68

Total New Rooms 17 68 148 148 148 148 Total Supply 972 1,023 1,103 1,103 1,103 1,103 Total Room Nights Available 354,780 373,395 402,595 402,595 402,595 402,595 Percent Change - 5.2% 7.8% 0.0% 0.0% 0.0% Source: Hotel & Leisure Advisors

Area Demand Analysis

Estimates of demand for lodging facilities within the market area included analysis of the following factors.

1. Identification of the appropriate demand segments for the competitive set

2. The characteristics of each demand segment, including the need for quality lodging accommodations

3. The overall contribution of room nights generated by each demand segment, as well as the growth potential of each demand segment

4. The strength and attractiveness of the market area’s business environment with regard to the economy, educated labor force, leisure attractions, and quality of life

5. Historical and anticipated trends in employment distribution and growth

Proposed Hotel - Eloy, Arizona Market Analysis C-26

6. Interviews with representatives of competitive hotels and various hotel chains to determine performance of area hotels and proposed new supply additions

7. Interviews with representatives of chamber of commerce, city officials, county officials, economic development officials and others

A thorough analysis of key economic and demographic indicators, annual historical growth by demand segment for the competitive market, and the anticipated impact of future development on lodging demand allow us to estimate future lodging demand generated by the primary demand segments. We analyzed induced demand separately.

Market Demand Segmentation: The market for transient accommodations relates to a wide range of travelers within a market area. For the purposes of the demand analysis, we subdivided the overall market into segments based on the type or nature of travel. The following table indicates the segments that exist in the competitive set of hotels.

Total Accommodated Demand Output

2019 Room Segment Nights Percent

Commercial 127,937 55% Group 13,872 6% Leisure 90,705 39% Total Accommodated Demand Output 232,514

Market Occupancy 66.7% Market ADR $90.74 Source: Hotel & Leisure Advisors

The previous table and the table on page C-30 indicate our estimates of total accommodated demand utilizing our hotel supply and demand model. We obtained individual occupancy, ADR, and market mix figures from the competitors to determine the historical performance figures. Our historical performance figures may differ from those presented on page C-22, which presents data directly from the STR report. The slight differences are due to differences in accounting for out-of-order rooms, complimentary rooms, etc.

Commercial Demand consists of general transient overnight travel created by businesses and governmental institutions in the area. The business traveler tends to be less price- sensitive than the leisure traveler and is more likely to utilize a hotel’s food and beverage facilities. Commercial demand is typically strongest on Sunday through Thursday nights. This demand segment consists of people visiting area companies, transportation workers, government-related travelers, and those travelers who are relocating to the area.

SkyDive Arizona is the largest source of hotel room demand in Eloy along with the four- prison complex operated by CoreCivic. In the commercial segment, SkyDive Arizona hosts trainings for the United States military as well as foreign militaries, which is a large portion of their business. There are several industrial businesses in Eloy including Republic Plastics, Schuff Steel Company, San Juans Pools, Bayer Monsanto, and Empire Machining. Casa Grande is home to several businesses as well including a Walmart

Proposed Hotel - Eloy, Arizona Market Analysis C-27 distribution center, Hexcel Corporation, National Vitamin Company, Frito-Lay, Inc., Abbott Laboratories, and Franklin Foods.

There are two major projects currently planned near Eloy that are projected to bring thousands of new jobs to the area. Phoenix-based Nikola Motor Company, a maker of electric and hydrogen-powered semi-trucks, all-terrain vehicles and jet skis purchased approximately 400 acres of land in 2018, adjacent to the City of Eloy. Nikola expects to create approximately 2,000 new jobs by 2024. In December 2019, Lucid Motors held a groundbreaking for their new electric vehicle manufacturing facility in Casa Grande. The company plans to build their Casa Grande manufacturing facility in phases with production expected to begin in late 2020. The company projects they will have approximately 4,800 employees by 2029.

The commercial segment equaled approximately 55% of room night demand in 2019. Commercial demand trends tend to reflect trends in employment. Total employment in Pinal County has grown in each year since 2014 and that trend is expected to continue with the addition of two major employers. We project commercial growth due to an improvement in the economy and the addition of the Nikola Motor Company and Lucid Motors factories.

Group Demand includes those who book a minimum of 10 occupied rooms on a single night. Conventions, association and corporate meetings, training seminars, SMERF (social, military, educational, religious, and fraternal) groups, and sports teams booking in a room block all generate group demand. Groups typically utilize meeting space in the market’s hotels as well as larger convention centers and event centers within the area.

Group demand in the competitive set is strongest at the Holiday Inn Casa Grande, which has the most meeting space of any of the hotels in the competitive set and hosts a number of events that take place in the area. Other hotels within the market attract group demand utilizing their respective meeting spaces. There are several meeting and event venues in Casa Grande including The Property Conference Center, Holiday Inn Casa Grande, Francisco Grande Hotel and Golf Resort, Mission Royale Golf Club, and the Pinal Fairgrounds and Event Center; however, there is no convention center in the area. The following table indicates the meeting spaces per available room of the competitive hotels.

Meeting Space to Rooms Ratio

Meeting Meeting Space Per Available Property # Rooms Space SF Room Subject 750 80 9.4 La Quinta Inns & Suites Phoenix Chandler 350 117 3.0 Holiday Inn Express & Suites Phoenix Chandler Ahwatukee 840 125 6.7 Holiday Inn Express & Suites Casa Grande 300 77 - Baymont Casa Grande - 63 - Holiday Inn Casa Grande 5,796 176 32.9 MainStay Suites Extended Stay Hotel Casa Grande - 70 - Motel 6 Casa Grande - Eloy - 97 - Comfort Inn Chandler Phoenix South 625 129 4.8 Hampton Inn by Hilton Phoenix/Chandler 450 101 4.5 Source: Hotel & Leisure Advisors

Proposed Hotel - Eloy, Arizona Market Analysis C-28

The group segment equaled approximately 6% of room night demand in 2019. Both the subject and the proposed Best Western Plus Casa Grande will offer modest meeting space. We project a slight increase in group demand for the competitive set based upon historical trends in the group market.

Leisure Demand consists of individuals and families visiting the area or passing through en route to other destinations. Leisure demand is strongest Friday and Saturday nights and during school holiday periods. Leisure demand comes from recreational skydivers, visitors coming to Spring Training, and travelers from the interstate. While the leisure segment often is comprised of more rate-sensitive travelers, the segment is willing to pay higher rates during peak demand periods. The following table presents the primary leisure attractions in the area.

Major Tourist Attractions

Central Arizona

Source: Hotel & Leisure Advisors

The leisure segment equaled approximately 39% of room night demand in 2019. Leisure demand in the market peaks during February and March when the Cactus League takes place throughout the Phoenix MSA. Since 1996, the City of Florence has hosted a major four-day country music festival in April known as Country Thunder. The attendance for the event in 2019 was 140,000. The 2020 lineup features major acts such as Dustin Lynch, Luke Combs, Kane Brown, Eric Church, and Chris Janson. We project increases in demand in this segment of the existing competitive set. We project additional growth from the opening of the subject, which will offer the nicest hotel in Eloy and will be close to Interstate 10.

The following table indicates the historical growth achieved by each of the segments over the past two years and the consultant’s long-term projection for the subject’s market area.

Proposed Hotel - Eloy, Arizona Market Analysis C-29

Accommodated Demand Growth Rates

Historical Forecasted 2018 2019 2020 2021 2022 2023 2024 2025 Commercial 3.4% -0.4% 2.0% 4.5% 4.0% 3.0% 1.5% 0.0% Group 5.5% -2.3% 0.5% 0.5% 0.5% 0.5% 0.0% 0.0% Leisure 1.0% -2.0% 1.5% 1.5% 2.0% 2.0% 1.5% 0.0% Weighted Average 2.6% -1.2% 1.7% 3.1% 3.0% 2.5% 1.4% 0.0% Source: Hotel & Leisure Advisors

Induced Demand: Induced demand is the incremental demand stimulated by the introduction of new supply, in excess of demand changes caused by external economic conditions. In other words, the introduction of a new hotel in a market can increase demand due to additional supply on sold-out nights, or due to the specific facilities or marketing efforts of a property. We considered the influence of induced demand as it relates to the opening of the subject and the other room additions.

By analyzing the current number of fill nights, we estimated the induced demand that would be created by having additional hotel rooms in the market. We project that the market will receive a percentage of induced demand when the existing hotels currently fill up, displacing demand to surrounding markets.

Historically, the area hotels report approximately 50-100 fill nights annually, primarily between January and April when the area offers a favorable climate and hosts one of the two Spring Training leagues for Major League Baseball.

We projected induced demand from the opening of the new hotel rooms between 2020 and 2020 as shown in the following tables.

Induced Demand

Fill # Induced Total Induced Demand (Calendar Year) Days Rooms Demand 2020 2021 2022 2023 2024 2025 Proposed Hotel - Eloy 85 80 6,800 - - 6,800 - - - Best Western Plus Casa Grande 90 68 6,120 1,530 4,590 - - - -

Total 148 12,920 1,530 4,590 6,800 0 0 0 Source: Hotel & Leisure Advisors

Induced Demand

Segmentation by Property Commercial Group Leisure

Proposed Hotel - Eloy 55% 5% 40% Best Western Plus Casa Grande 65% 5% 30% Annual Demand by Segment Commercial Group Leisure Total

2020 995 77 459 1,530 2021 2,984 230 1,377 4,590 2022 3,740 340 2,720 6,800 2023 0 0 0 0 2024 0 0 0 0 Source: Hotel & Leisure Advisors

Proposed Hotel - Eloy, Arizona Market Analysis C-30

We project approximately 85 fill nights for subject and 90 fill nights for the Best Western Plus Casa Grande due to its smaller room count. The induced demand will come from filling during Spring Training and the winter tourist season. For the subject hotel, we applied the majority of the induced demand to the commercial segment.

PROJECTED MARKET OCCUPANCY

The relationship between the estimated room night demand and guestroom supply provides a basis for forecasts of area-wide occupancy. We applied the growth rates and induced demand to the base year room night demand for each segment to arrive at a forecast of area-wide annual lodging demand. We then divided the projected room night demand by the projected annual supply (incorporating supply additions) to derive the area-wide occupancy levels. Our projections are for calendar years. The following table displays the projected supply, demand, and occupancy levels.

Market Demand and Occupancy Analysis

Historical Forecasted

Accommodated Demand 2017 2018 2019 2020 2021 2022 2023 2024 2025 Commercial 124,207 128,491 127,937 130,496 136,368 141,823 146,078 148,269 148,269 Group 13,462 14,203 13,872 13,941 14,011 14,081 14,151 14,151 14,151 Leisure 91,603 92,532 90,705 92,066 93,447 95,316 97,222 98,680 98,680 Total 229,272 235,226 232,514 236,503 243,826 251,220 257,451 261,100 261,100

Induced Demand Commercial 995 3,978 7,718 7,718 7,718 7,718 Group 77 306 646 646 646 646 Leisure 459 1,836 4,556 4,556 4,556 4,556 Total 1,530 6,120 12,920 12,920 12,920 12,920

Total Market Demand Commercial 124,207 128,491 127,937 131,491 140,346 149,541 153,796 155,987 155,987 Group 13,462 14,203 13,872 14,018 14,317 14,727 14,797 14,797 14,797 Leisure 91,603 92,532 90,705 92,525 95,283 99,872 101,778 103,236 103,236 Total Room Night Demand 229,272 235,226 232,514 238,033 249,946 264,140 270,371 274,020 274,020 Total Room Demand Growth 2.6% -1.2% 2.4% 5.0% 5.7% 2.4% 1.3% 0.0% Total Room Nights Available 348,575 348,575 348,575 354,780 373,395 402,595 402,595 402,595 402,595 Total Room Supply Growth 0.0% 0.0% 1.8% 5.2% 7.8% 0.0% 0.0% 0.0% Adjusted Market Occupancy 65.8% 67.5% 66.7% 67.1% 66.9% 65.6% 67.2% 68.1% 68.1% Source: Hotel & Leisure Advisors

 We project market occupancy to increase in 2020 due to the limited new supply and the construction of the Lucid Motors factory, which will bring in a number of construction workers and others affiliated with the project.

 We project declines in occupancy in 2021 and 2022 due to the opening of the Best Western Plus Casa Grande and the proposed subject.

 With the strong projected commercial demand growth due to the addition of two major factories, we project occupancy levels will stabilize at a level slightly above what has historically been achieved.

Proposed Hotel - Eloy, Arizona Market Analysis C-31

DEMAND INTERVIEWS

We conducted interviews to determine the demand for a limited-service hotel in Eloy. We interviewed representatives from SkyDive Arizona and CoreCivic, the operator of four private prisons in Eloy. The following summarize their responses.

SkyDive Arizona is a major skydiving facility in Eloy that attracts jumpers from all around the world. The facility attracts more than 25,000 room nights annually just in guests coming for military training. SkyDive Arizona hosted the FAI Parachuting World Cup in October 2019, which brought in jumpers and spectators from more than 20 countries for more than a week. A representative for Skydive Arizona stated many of the guests coming to their facility are currently staying at the Holiday Inn Casa Grande. This hotel also offered a special rate for the world cup this past October. The representative also mentioned that there are three categories of military stays: one week, two to three weeks, and one month or longer. The needs for each military guest varies; however, the representative believes many guests would choose to stay in a nice hotel in Eloy, depending on the rate, since it would be more convenient than the existing hotels in Casa Grande or Chandler. During their busiest civilian year, which occurred in the 1990’s, there were more than 170,000 total skydives that took place at Skydive Arizona. This accounts for jumpers who made multiple jumps. The representative estimates they have approximately 50,000 people per year that come to skydive. While the civilian business has not reached the same levels it did during the peak years, the military business and group business has grown in recent years.

CoreCivic, the second largest private prison operator in the United States, operates four correctional facilities in Eloy. The four prison complex consists of: Red Rock Correctional Center, Saguaro Correctional Center, Eloy Detention Center, and La Palma Correctional Center. The combined population for the four prisons is over 8,000. Both the Eloy Detention Center and La Palma Correctional Center currently have a contract with the U.S. Immigration and Customs Enforcement (ICE), while the Red Rock Correctional Center houses inmates from across Arizona, and Saguaro Correctional Center has inmates from Hawaii, Nevada, and Kansas. The representative for the prisons stated the contracts are awarded on a multi-year basis and the prisons have a mix of inmates serving short and long sentences. The representative stated that inmates housed at Saguaro receive the highest visitation with Nevada being one of the biggest sources of visitors to the area. The representative estimated that 80% of visitors from Nevada stay overnight with a lesser amount of overnight stays coming from the other three prisons. The representative mentioned that the majority of visitors stay in the area for one to two nights and they currently stay predominantly in Casa Grande and Chandler. The representative stated that affordability is an important consideration for many of these visitors and a nicer limited-service option would be appealing to most people. In addition to those coming to visit friends and relatives, there are also representatives from CoreCivic who come to visit the area and stay overnight. The representative stated that having meeting space would be a nice amenity for the proposed hotel as they sometimes host meetings when there are representatives from out of town.

Proposed Hotel - Eloy, Arizona Subject Occupancy and Average Daily Rate Analysis D-1

SWOT ANALYSIS OF SUBJECT

We assessed the projected competitive position of the subject property compared to the defined competitive lodging supply in the following SWOT analysis.

Strengths

 The proposed hotel would offer the nicest lodging option in Eloy and would be well-positioned to compete with some of the higher quality lodging options in Casa Grande.

 The proposed hotel will be affiliated with a major national franchise, which will provide them the benefits of having access to their international reservation systems and loyalty programs.

 The property will offer a small meeting room, which will allow them to host groups and smaller events.

 The subject will be the newest hotel within the competitive set. Currently the Holiday Inn Express & Suites in Casa Grande is the newest hotel having opened in 2011; however, it will be more than ten years old by the projected opening date for the subject hotel.

 We recommend a franchised restaurant be developed adjacent to the proposed hotel. This will provide guests the sense of a full-service hotel, while not having the overhead costs associated with a full-service hotel.

 The subject will offer convenient access to Interstate 10, which will be popular with both leisure travelers and corporate travelers doing work in the surrounding area.

Weaknesses

 Although Eloy has several commercial demand generators, outside of the CoreCivic prisons and SkyDive Arizona, the other businesses are not major demand sources. The proposed hotel will benefit from the development of the Nikola Motor Company and Lucid Motors factories currently under construction.

 The neighborhood surrounding the subject sites lacks multiple tourist attractions and some of the nearby structures appear dated. There are also vast amounts of vacant land surrounding two of the sites. With the development of the subject, improvements will need to occur in the area.

 There is no major convention center in Pinal County. Many of the larger events take place at the Pinal County fairgrounds, Holiday Inn Casa Grande, Francisco Grande Hotel and Golf Resort, and The Property Conference Center. There is limited overflow of group demand coming to the Eloy area.

Proposed Hotel - Eloy, Arizona Subject Occupancy and Average Daily Rate Analysis D-2

Opportunities

 The subject hotel could look to partner with SkyDive Arizona to be the host hotel for tournaments and other events hosted at the facility. The hotel could work to create “stay and play” packages that would allow visitors the opportunity to go skydiving or use of the indoor facility. Additionally, SkyDive Arizona generates over 25,000 room nights per year from military trainings that could be a major source of demand for the proposed hotel.

 Nikola Motor Company and Lucid Motors are each planning to develop a factory in Pinal County that could create as many as 7,000 new jobs. These two additions will provide the two largest commercial demand generators in the area and with the subject hotel’s proposed franchise affiliation, it could attract many brand loyal travelers.

 None of the existing hotels in Casa Grande have Interstate 10 frontage, which could provide the subject hotel an opportunity to capture more interstate travelers.

Threats

 There are two larger hotels proposed as part of larger developments in Casa Grande. Both the Attesa hotel and the Phoenix Mart hotel are proposed to offer more than 300 rooms. While neither of these projects have a construction timeline, any additions of this size would be a major change in the local hotel market. Both projects are still preliminary and may not ultimately be developed.

PROJECTED SUBJECT OCCUPANCY

Using a fair market share and penetration analysis, we estimated the subject’s ability to capture future market area demand. Fair market share is the percentage of rooms that a property contributes to the total supply of guestrooms in the defined competitive market area. Penetration rate is the percentage of a property’s fair share of demand accommodated by that property. Penetration rates in excess of 100% indicate that a hotel possesses competitive advantages, while penetration rates below 100% reflect competitive weaknesses.

In determining the subject’s penetration rates, we also analyzed the projected occupancy levels of each of the properties in the competitive set, which allows us to compare the subject’s performance in context with its competitive set. The following table presents the historical penetration rates for the competitive supply, followed by the subject penetration rates.

Proposed Hotel - Eloy, Arizona Subject Occupancy and Average Daily Rate Analysis D-3

Historical and Forecasted Penetration Rates Commercial Group Leisure

Competitors - 2019

La Quinta Inns & Suites Phoenix Chandler 139% 107% 114% Holiday Inn Express & Suites Phoenix Chandler Ahwatukee 131% 86% 66% Holiday Inn Express & Suites Casa Grande 138% 98% 90% Baymont Casa Grande 75% 77% 118% Holiday Inn Casa Grande 103% 237% 60% MainStay Suites Extended Stay Hotel Casa Grande 66% 0% 141% Motel 6 Casa Grande - Eloy 16% 0% 197% Comfort Inn Chandler Phoenix South 83% 77% 105% Hampton Inn by Hilton Phoenix/Chandler 124% 82% 62%

Forecasted Subject 2022 106% 78% 110% 2023 108% 80% 112% 2024 109% 81% 114% 2025 109% 81% 114% 2026 109% 81% 114% Source: Hotel & Leisure Advisors

Commercial Demand Penetration: Based upon the existing commercial demand generators in Eloy and the development of the Nikola Motor Company and Lucid Motors factories, we project the subject hotel will achieve a penetration rate above fair share in this segment in the first year of operation and beyond.

Group Demand Penetration: We recommend the subject offer a 750-square-foot meeting room to host meetings and smaller events. We project a below fair share penetration rate in the group segment due to the property’s limited meeting space and projected commercial and leisure focus.

Leisure Demand Penetration: With the subject’s location near Interstate 10 and its location in Eloy, which is home to one of the largest skydiving facilities in the United States, we project the subject will penetrate this segment above fair share.

The following table presents the estimated demand penetration rates and occupancy for the subject hotel for the projection period.

Proposed Hotel - Eloy, Arizona Subject Occupancy and Average Daily Rate Analysis D-4

Demand Penetration Rates and Occupancy

Proposed Hotel - Eloy

2022 2023 2024 2025 2026

Room Nights by Segment Commercial 11,445 11,975 12,250 12,250 12,250 Group 846 870 881 881 881 Leisure 7,925 8,211 8,465 8,465 8,465 Total 20,216 21,057 21,596 21,596 21,596

Percentage of Room Nights by Segment Commercial 56.6% 56.9% 56.7% 56.7% 56.7% Group 4.2% 4.1% 4.1% 4.1% 4.1% Leisure 39.2% 39.0% 39.2% 39.2% 39.2% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Subject Available Rooms per Day 80 80 80 80 80 Subject Available Rooms per Year 29,200 29,200 29,200 29,200 29,200

Subject Property Projections Subject Occupancy 69.2% 72.1% 74.0% 74.0% 74.0% Market Share 7.7% 7.8% 7.9% 7.9% 7.9% Fair Share 7.3% 7.3% 7.3% 7.3% 7.3% Penetration 105.5% 107.4% 108.7% 108.7% 108.7%

Market Occupancy 65.6% 67.2% 68.1% 68.1% 68.1% Source: Hotel & Leisure Advisors

In a stabilized year of operation, we project the subject to achieve an occupancy level of 74.0%, which results in an overall penetration rate of 108.7%. The subject should outperform the market despite its low group demand due to its location near Interstate 10, projected franchise affiliation, and the demand generators in Eloy and the neighboring municipalities. We project the market segmentation for the subject hotel to be predominantly commercial with lesser amounts of leisure and group. The stabilized occupancy reflects the anticipated results of the property over its remaining economic life, given all changes in the life cycle of the hotel. Thus, the stabilized occupancy excludes from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusually high or low occupancies. Although the subject property may operate at occupancies above this stabilized level, we believe it equally possible for shifts in the local economy and changes in the market’s demand patterns to force the occupancy below this selected point of stability.

Daily Analysis

The following table indicates our projections by day, which shows the property will achieve stronger occupancy levels on weekends.

Proposed Hotel - Eloy, Arizona Subject Occupancy and Average Daily Rate Analysis D-5

Stabilized Day of Week Occupancy

90%

80%

70%

80%

78%

77% 77%

60%

75%

74% 50% 70% 40% 61% 30% 20% 10%

Source:Hotel & Leisure Advisors

Weekends will be busy due to the hotel’s location near Interstate 10 and its location near Skydive Arizona. During weekdays the subject will attract guests from nearby commercial demand generators. The subject will attract some group and Spring Training leisure demand as well on weekdays.

Monthly Analysis

The following chart indicates our projections of occupancy by month in a stabilized year of operation. We project higher occupancy levels in the winter.

Proposed Hotel - Eloy, Arizona Subject Occupancy and Average Daily Rate Analysis D-6

Stabilized Year Projections

100 90 90

90 80 79 76 77 80 70 68 67 65 65 70 62 60 50 40

Occupancy % Occupancy 30 20 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: Hotel & Leisure Advisors

ESTIMATED AVERAGE DAILY RATE

The estimates of future ADR for the subject hotel are based on the following factors:

- Historical ADRs achieved by the competitors

- The discounting practices of these hotels

- The projected demand segmentation of the subject

- The appropriate rate positioning of similarly operated properties relative to other hotels

- Estimated economic inflation rate of 2.5% per year

We analyzed the historical ADR for the competitive set and individual competitors within the market. Between 2017 and 2019, the ADR among the competitive supply increased by a compounded annual rate of 4.4% to 90.74 in 2019.

The competitive supply has a wide range in ADRs as shown in the following table.

Proposed Hotel - Eloy, Arizona Subject Occupancy and Average Daily Rate Analysis D-7

Competitive Hotels Average Daily Rate Analysis

2019 Estimated Performance La Quinta Inns & Suites Phoenix Chandler $80 - $90 Holiday Inn Express & Suites Phoenix Chandler Ahwatukee $80 - $90 Holiday Inn Express & Suites Casa Grande $120 - $130 Baymont Casa Grande $70 - $80 Holiday Inn Casa Grande $100 - $110 MainStay Suites Extended Stay Hotel Casa Grande $60 - $70 Motel 6 Casa Grande - Eloy $40 - $50 Comfort Inn Chandler Phoenix South $80 - $90 Hampton Inn by Hilton Phoenix/Chandler $100 - $110 Weighted Average $90.74 Source: Hotel & Leisure Advisors

Rack Rates: We recommend that the subject promote a range of rack rates. We project higher rack rates, particularly on weekends, during Spring Training, and weekdays during school breaks. We project that the subject will offer lower rates during slower business periods.

We projected recommended rack rates considering the projected brand affiliation, newly constructed condition, location, and competitive rate structuring at nearby hotels. We recommend the following room rate structure, in 2022 dollars, for the proposed subject hotel.

Recommended Rack Rates Proposed Hotel - Eloy Room Type Rate Double Queen $99 - $199 King $99 - $199 Suites $149 - $249 Source: Hotel & Leisure Advisors

Analysis of Subject Average Daily Rate

We projected the ADR at the subject property by comparing historical ADRs of the competitive properties and considering potential future rate increases. The following table illustrates occupancy and ADRs by market segment in first-year dollars.

Proposed Hotel - Eloy, Arizona Subject Occupancy and Average Daily Rate Analysis D-8

Average Daily Rate Analysis

First Year - 2022

Commercial

% of total rooms 56.6% Average daily rate $120.00 Room nights 11,445 Total revenue $1,373,402

Group

% of total rooms 4.2% Average daily rate $100.00 Room nights 846 Total revenue $84,594

Leisure

% of total rooms 39.2% Average daily rate $130.00 Room nights 7,925 Total revenue $1,030,258

Annual Combined Occupancy 69.2% Total room nights 20,216 Total rooms revenue $2,488,253 Average daily rate $123 RevPAR $85 Note: Totals may not add due to rounding Source: Hotel & Leisure Advisors

We project the subject will offer discounts in the group and commercial segments to attract travelers during the off-peak season when leisure travelers are less common. The leisure segment should achieve the highest rate since it includes the winter and school holidays.

After discounting and promotions, the rate structure should enable the hotel to achieve an estimated ADR of $123 in 2022 dollars. We increased the ADR projection by above inflation in the first two years to account for introductory specials. Future projections increase at the rate of inflation of 2.5% throughout the projection period.

The following table demonstrates the projected occupancy and ADR for the market and the subject for calendar year projections.

Proposed Hotel - Eloy, Arizona Subject Occupancy and Average Daily Rate Analysis D-9

Estimated Average Daily Rate, Occupancy, and RevPAR

Market and Subject Competitive Set of Hotels Subject Property

ADR Growth RevPAR ADR Growth ADR RevPAR Year Occupancy ADR RevPAR Occupancy ADR RevPAR Rate Growth Rate Rate Penetration Growth Rate

2017 65.8% $83.28 $54.78 2018 67.5% $87.88 5.5% $59.30 8.3% 2019 66.7% $90.74 3.2% $60.52 2.1% 2020 67.1% $93.00 2.5% $62.40 3.1% 2021 66.9% $95.33 2.5% $63.81 2.3% 2022 65.6% $97.71 2.5% $64.11 0.5% 69.2% $123.00 125.9% $85.16 2023 67.2% $100.15 2.5% $67.26 4.9% 72.1% $127.31 3.5% 127.1% $91.80 7.8% 2024 68.1% $102.65 2.5% $69.87 3.9% 74.0% $131.12 3.0% 127.7% $96.98 5.6% 2025 68.1% $105.22 2.5% $71.62 2.5% 74.0% $134.40 2.5% 127.7% $99.40 2.5% 2026 68.1% $107.85 2.5% $73.41 2.5% 74.0% $137.76 2.5% 127.7% $101.89 2.5% 2027 68.1% $110.55 2.5% $75.24 2.5% 74.0% $141.21 2.5% 127.7% $104.43 2.5% Source: Hotel & Leisure Advisors

Our estimates of revenues, as outlined in this section of the report, are predicated on the following assumptions:

 The subject hotel will be professionally managed and maintained

 The subject will be effectively promoted with a well-targeted marketing program throughout the analysis period

 The subject hotel will be affiliated with a national hotel franchise

 A continued program of periodic replacement of FF&E will continue throughout the analysis period

Proposed Hotel - Eloy, Arizona Financial Analysis E-1

INTRODUCTION

To estimate the statement of annual operating results of the subject property, we analyzed the subject’s proposed project scope and characteristics. We identified operating statements of comparable properties and reviewed industry standards for comparable properties in forecasting the financial performance of the subject.

The general steps include the following:

 Estimate the potential gross revenues for the subject property based upon an examination of the prior operating history of the subject property (if available), operating history of comparable properties in the subject market area and on a national basis, and an analysis of industry trends.

 Analyze departmental, undistributed, and non-operating expenses, and project appropriate amounts in each category.

 Project the resultant net income/EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) over an appropriate holding period.

All amounts have been rounded to the nearest $1,000, and account classifications generally conform to the definitions prescribed by the American Hotel and Lodging Association in the Uniform System of Accounts for the Lodging Industry, 11th Edition.

The prospective financial analysis is based on the results of operations of comparable facilities, industry standards, and projections regarding the future environment in which the hotel will operate. This includes the assumption that the property will be competently and professionally operated, advertised and promoted.

The industry standards utilized for this analysis are from the HOST Study 2019, published by STR, and TRENDS in the Hotel Industry 2019, published by CBRE. We utilized industry standards for limited-service interstate hotels from the HOST Study and limited-service hotels under 100 rooms from TRENDS. In addition, we utilized and analyzed actual financial results from our database of limited-service hotels in the United States. The data presented is an average of the statements in order to protect the confidentiality of this financial information. H&LA has signed agreements that contractually prohibit our release of the identity of the presented statements to third parties.

The following statements present comparable hotel operating results and industry standards of comparable properties.

Proposed Hotel - Eloy, Arizona Financial Analysis E-2

Comparable Financial Statements and Industry Standards

Comparable 1 Comparable 2 HOST Report 2019 CBRE Trends 2019

Limited-Service Hotel Limited-Service Hotel Limited-Service Interstate Hotels Limited-Service Hotels Under 100 Rooms

Available Rooms 68 81 97 77 Occupancy 61.5% 69.1% 71.4% 72.2% Average Rate $100.75 $113.55 $94.31 $112.70 Days Open 365 365 365 365 Occupied Room Nights 15,264 20,442 25,279 20,292 Available Room Nights 24,820 29,565 35,405 28,105

$ % $/Avail Rm $/Occ Rm $ % $/Avail Rm $/Occ Rm $ % $/Avail Rm $/Occ Rm $ % $/Avail Rm $/Occ Rm Night Night Night Night

Revenues

Rooms $1,538,544 97.5% $22,626 $100.80 $2,321,174 98.6% $28,656 $113.55 $2,355,839 98.2% $24,287 $93.19 $2,286,669 98.2% $29,697 $112.69 Other Operated Departments - - - - 32,238 1.4% 398 1.58 21,340 0.9% 220 0.84 24,101 1.0% 313 1.19 Miscellaneous Income (Net) 39,271 2.5% 578 2.57 - - - - 21,146 0.9% 218 0.84 17,556 0.8% 228 0.87 Total Operating Revenue 1,577,815 100.0% 23,203 103.37 2,353,412 100.0% 29,054 115.13 2,398,325 100.0% 24,725 94.87 2,328,326 100.0% 30,238 114.74

Departmental Expenses

Rooms 472,924 30.7% 6,955 30.98 620,517 26.7% 7,661 30.36 630,597 26.8% 6,501 24.95 620,158 27.1% 8,054 30.56 Other Operated Departments - - - - 26,189 81.2% 323 1.28 16,781 78.6% 173 0.66 15,323 63.6% 199 0.76 Total Departmental Expenses 472,924 30.0% 6,955 30.98 646,706 27.5% 7,984 31.64 647,378 27.0% 6,674 25.61 635,481 27.3% 8,253 31.32 Total Departmental Profit 1,104,891 70.0% 16,248 72.39 1,706,706 72.5% 21,070 83.49 1,750,947 73.0% 18,051 69.26 1,692,845 72.7% 21,985 83.43

Undistributed Operating Expenses

Administrative & General 143,043 9.1% 2,104 9.37 221,420 9.4% 2,734 10.83 233,091 9.7% 2,403 9.22 232,001 10.0% 3,013 11.43 Information & Telecom Systems 980 0.1% 14 0.06 - - - - 34,144 1.4% 352 1.35 42,273 1.8% 549 2.08 Sales and Marketing 51,633 3.3% 759 3.38 202,512 8.6% 2,500 9.91 115,721 4.8% 1,193 4.58 267,498 11.5% 3,474 13.18 Franchise Fees 175,575 11.4% 2,582 11.50 139,270 6.0% 1,719 6.81 166,549 7.1% 1,717 6.59 - - - - Prop. Oper. & Maintenance 106,811 6.8% 1,571 7.00 130,115 5.5% 1,606 6.37 124,936 5.2% 1,288 4.94 106,799 4.6% 1,387 5.26 Utilities 83,842 5.3% 1,233 5.49 118,844 5.0% 1,467 5.81 105,633 4.4% 1,089 4.18 89,705 3.9% 1,165 4.42

Total Undistributed Oper. Expenses 561,884 35.6% 8,263 36.81 812,161 34.5% 10,027 39.73 780,074 32.5% 8,042 30.86 738,276 31.7% 9,588 36.38

Gross Operating Profit 543,007 34.4% 7,985 35.57 894,545 38.0% 11,044 43.76 970,873 40.5% 10,009 38.41 954,569 41.0% 12,397 47.04 Management Fees - - - - 70,601 3.0% 872 3.45 84,584 3.5% 872 3.35 80,773 3.5% 1,049 3.98

Income Before Non-Oper. Expense 543,007 34.4% 7,985 35.57 823,944 35.0% 10,172 40.31 886,289 37.0% 9,137 35.06 873,796 37.5% 11,348 43.06

Non-Operating Expenses

Property Tax 58,149 3.7% 855 3.81 194,483 8.3% 2,401 9.51 104,663 4.4% 1,079 4.14 80,850 3.5% 1,050 3.98 Insurance 27,194 1.7% 400 1.78 28,421 1.2% 351 1.39 33,562 1.4% 346 1.33 23,716 1.0% 308 1.17 Total Non-Operating Expenses 85,343 5.4% 1,255 5.59 222,904 9.5% 2,752 10.90 138,225 5.8% 1,425 5.47 106,337 4.6% 1,381 5.24 EBITDA Less Reserve $457,664 29.0% $6,730 $ 29.98 $601,040 25.5% $7,420 $ 29.40 $748,064 31.2% $7,712 $ 29.59 $767,459 33.0% $9,967 $ 37.82 Source: Hotel & Leisure Advisors, HOST Study, and CBRE Trends

Proposed Hotel - Eloy, Arizona Financial Analysis E-3

Fixed and Variable Component Analysis

In forecasting revenues and expenses for a lodging facility, we utilized a fixed and variable component model. The model is based on the premise that hotel revenues and expenses have a component that is fixed and another component that varies directly with occupancy and facility utilization. Therefore, a projection is estimated by taking a known level of revenue or expense and calculating the fixed component as well as the variable portion. The fixed component is then held at a constant level, while the variable portion is adjusted for the percentage change between the projected occupancy and facility utilization, which produces the projected level of revenue or expense.

The following table indicates the expense categories that can be projected utilizing the fixed and variable component model. The first two columns represent the typical range of fixed versus variable while the third column represents the figure selected for this project.

Range of Fixed and Variable Ratios Typical Typical This Percent Percent Project Index of Fixed Variable % Fixed Variability

Departmental Expenses Rooms 40 - 60% 40 - 60% 45% Rooms Revenue Other Operated Departments 40 - 60% 40 - 60% 45% Occupancy

Undistributed Operating Expenses

Administrative & General 40 - 60% 40 - 60% 50% Occupancy Information & Telecom Systems 60 - 80% 20 - 40% 50% Occupancy Sales and Marketing 40 - 60% 40 - 60% 50% Occupancy Franchise Fees 0% 100% 0% Total Revenue Prop. Oper. & Maintenance 40 - 60% 40 - 60% 50% Occupancy Utilities 40 - 60% 40 - 60% 50% Occupancy Management Fees 0% 100% 0% Total Revenue

Non-Operating Expenses Property Tax 100% 0% 100% Occupancy Insurance 100% 0% 100% Occupancy Reserve for Replacement 0% 100% 0% Total Revenue Source: Hotel & Leisure Advisors

INCOME AND EXPENSE ANALYSIS

The following items outline the revenues and expenses calculations.

Rooms Revenue: We calculated rooms department revenue by estimating annual occupancy and ADR per occupied room. Our estimates of occupancy and ADR, and the rationale supporting these estimates, are presented in the Subject Occupancy and Average Daily Rate Analysis section of this report. The following table indicates the projected occupancy levels and ADR for the subject property.

Proposed Hotel - Eloy, Arizona Financial Analysis E-4

Forecasted Rooms Revenue

First Year - 2023 2024 2025 2026 2027 2022 Number of rooms 80 80 80 80 80 80 Occupancy 69.2% 72.1% 74.0% 74.0% 74.0% 74.0% Average rate $123.00 $127.31 $131.12 $134.40 $137.76 $141.21 RevPAR $85.16 $91.80 $96.98 $99.40 $101.89 $104.43 Rooms occupied 20,216 21,057 21,596 21,596 21,596 21,596 Rooms revenue $2,486,568 $2,680,661 $2,831,757 $2,902,551 $2,975,115 $3,049,493 Source: Hotel & Leisure Advisors

Other Operated Departments Revenue: This revenue line item consists of revenues from other operated departments, which include the sundry shop and guest laundry. The following table outlines our analysis of the subject’s other operated department revenues.

Other Operated Departments Revenue

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel - - - - Comparable 2 - Limited-Service Hotel $32,238 1.4% $398 $1.58 HOST Report 2019 - Limited-Service Interstate Hotels $21,340 0.9% $220 $0.84 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $24,101 1.0% $313 $1.19 Average $25,893 1.1% $310 $1.20

H&LA Forecasted First Year $25,000 1.0% $313 $1.24 H&LA Stabilized Year 3 $27,000 0.9% $338 $1.25 Source: Hotel & Leisure Advisors

Our projection for this department is within the range of the comparables and industry standards.

Miscellaneous Income (net): This line item includes all income (net) associated with third-party-operated commissions, attrition fees, cancellation fees, cash discounts earned from suppliers, gains/losses from foreign currency exchange for guests, interest income, in-room safe rentals, and any other miscellaneous income generated by the hotel. The following table outlines our analysis of the subject’s miscellaneous income.

Proposed Hotel - Eloy, Arizona Financial Analysis E-5

Miscellaneous Income (Net)

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables Comparable 1 - Limited-Service Hotel $39,271 2.5% $578 $2.57 Comparable 2 - Limited-Service Hotel - - - - HOST Report 2019 - Limited-Service Interstate Hotels $21,146 0.9% $218 $0.84 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $17,556 0.8% $228 $0.87 Average $25,991 1.4% $341 $1.42

H&LA Forecasted First Year $25,000 1.0% $313 $1.24 H&LA Stabilized Year 3 $27,000 0.9% $338 $1.25 Source: Hotel & Leisure Advisors

Our projection for this department is within the range of the industry standards and the comparables on a per-available-room and per-occupied-room basis.

Total Operating Revenue: The following table shows our total revenue projections for the subject, comparables, and industry standards.

Total Operating Revenue $/Occ Rm Amount $/Avail Rm Night

Comparables

Comparable 1 - Limited-Service Hotel $1,577,815 $23,203 $103.37 Comparable 2 - Limited-Service Hotel $2,353,412 $29,054 $115.13 HOST Report 2019 - Limited-Service Interstate Hotels $2,398,325 $24,725 $94.87 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $2,328,326 $30,238 $114.74 Average $2,164,470 $26,805 $107.03

H&LA Forecasted First Year $2,537,000 $31,713 $125.49 H&LA Stabilized Year 3 $2,886,000 $36,075 $133.64 Source: Hotel & Leisure Advisors

Departmental Expenses

Departmental expenses are costs borne by the individual departments of a hotel and can be segmented separately.

Rooms Expenses: These expenses include items such as salaries and wages, employee benefits, other payroll-related expenses, contracted and outsourced labor, travel agent commissions, guest transportation, laundry and dry cleaning, linens, guest supplies, reservation booking fees and uniforms. Additionally, expenses related to the rooms department that include licenses and permits, entertainment, equipment rental, operating supplies, training and postage are allocated to this departmental expense.

Salaries, wages, and employee benefits account for a substantial portion of this category. Although payroll varies somewhat with occupancy (because management can schedule housekeepers, bell staff, and other hourly staff to work when demand requires), a higher

Proposed Hotel - Eloy, Arizona Financial Analysis E-6 percentage of the department’s expenses are considered fixed because a hotel still has to maintain staffing in all areas at all times. As a result, salaries, wages, and employee benefits are only moderately sensitive to changes in occupancy. For the purposes of our model, we considered that 45% of the expenses are fixed. Commissions represent remuneration to various booking agents including travel agents for booking rooms. Because these fees are based on a percentage of the rooms revenue, they are highly dependent on occupancy and ADR. The following table outlines our analysis of the subject’s room department expenses.

Rooms Expense

% of Rm $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel $472,924 30.7% $6,955 $30.98 Comparable 2 - Limited-Service Hotel $620,517 26.7% $7,661 $30.36 HOST Report 2019 - Limited-Service Interstate Hotels $630,597 26.8% $6,501 $24.95 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $620,158 27.1% $8,054 $30.56 Average $586,049 27.8% $7,293 $29.21

H&LA Forecasted First Year $609,000 24.5% $7,613 $30.12 H&LA Stabilized Year 3 $664,000 23.4% $8,300 $30.75 Source: Hotel & Leisure Advisors

We estimate the rooms expense ratio within the range of the comparables on a per- occupied-room basis.

Other Operated Departments Expenses: These expenses reflect the cost of providing the sundry shop and other departmental expenses including salaries and wages for any departmental employees. The following table outlines our analysis of the subject’s other operated department expenses.

Other Operated Departments Expense

% of Dept $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel - - - - Comparable 2 - Limited-Service Hotel $26,189 81.2% $323 $1.28 HOST Report 2019 - Limited-Service Interstate Hotels $16,781 78.6% $173 $0.66 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $15,323 63.6% $199 $0.76 Average $19,431 74.5% $232 $0.90

H&LA Forecasted First Year $15,000 60.0% $188 $0.74 H&LA Stabilized Year 3 $16,000 59.3% $200 $0.74 Source: Hotel & Leisure Advisors

We project other operated departments expenses to equal 60.0% of departmental revenue in the first year of the projection.

Undistributed Operating Expenses

Proposed Hotel - Eloy, Arizona Financial Analysis E-7

Undistributed operating expenses are costs borne by the entire operation and are not attributable to any one specific department or profit center.

Administrative and General Expenses: This department represents expenses related to the management and administration of the property. It includes salaries and wages, employee benefits, cost of accounting and legal fees, credit card commissions, bank charges, donations, travel and entertainment, security, human resources and administrative-related operating supplies. Most administrative and general expenses are relatively fixed, although there are variable components such as bonuses provided to management. The following table outlines our analysis of the subject’s administrative and general department expenses.

Administrative & General Expense

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel $143,043 9.1% $2,104 $9.37 Comparable 2 - Limited-Service Hotel $221,420 9.4% $2,734 $10.83 HOST Report 2019 - Limited-Service Interstate Hotels $233,091 9.7% $2,403 $9.22 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $232,001 10.0% $3,013 $11.43 Average $207,389 9.5% $2,563 $10.21

H&LA Forecasted First Year $216,000 8.5% $2,700 $10.68 H&LA Stabilized Year 3 $234,000 8.1% $2,925 $10.84 Source: Hotel & Leisure Advisors

We estimated this expense to be within the range of the industry standards and the comparables as a percentage of total revenue.

Information and Telecommunications System Expenses: These expenses include phone, Internet, and other telecommunication and technology systems. Most hotels did not segment out this line item prior to 2015 as the expenses were included in multiple alternate departments.

Information & Telecom Systems Expense

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel $980 0.1% $14 $0.06 Comparable 2 - Limited-Service Hotel - - - - HOST Report 2019 - Limited-Service Interstate Hotels $34,144 1.4% $352 $1.35 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $42,273 1.8% $549 $2.08 Average $25,799 1.1% $305 $1.17

H&LA Forecasted First Year $38,000 1.5% $475 $1.88 H&LA Stabilized Year 3 $41,000 1.4% $513 $1.90 Source: Hotel & Leisure Advisors

Proposed Hotel - Eloy, Arizona Financial Analysis E-8

We estimated this expense to be within the range of the industry standards on a per- available-room basis and per-occupied-room basis.

Sales and Marketing Expenses: These expenses include items related to advertising and promotion required to obtain and retain customers. Expenses include salaries and wages, employee benefits, subscriptions, operating supplies, postage, telephone, trade shows, and travel and entertainment. The department includes the costs of advertising, and miscellaneous sales and marketing expenses, including those related to the franchise affiliation. Royalty fees are shown separately under franchise fees. The following table outlines our analysis of the subject’s marketing expenses.

Sales and Marketing Expense

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables Comparable 1 - Limited-Service Hotel $51,633 3.3% $759 $3.38 Comparable 2 - Limited-Service Hotel $202,512 8.6% $2,500 $9.91 HOST Report 2019 - Limited-Service Interstate Hotels $115,721 4.8% $1,193 $4.58 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $267,498 11.5% $3,474 $13.18 Average $159,341 7.0% $1,982 $7.76

H&LA Forecasted First Year $165,000 6.5% $2,063 $8.16 H&LA Stabilized Year 3 $179,000 6.2% $2,238 $8.29 Source: Hotel & Leisure Advisors

Note that the CBRE Trends reports include Franchise Fees in this category and are not directly comparable with our estimate. We estimated this expense to be within the range of comparables as a percentage of total revenue and on a per-occupied-room basis. We project a relatively high amount of marketing expense, which will be required to generate the level of revenues shown in this report. Our projection assumes the subject will have a separate franchise fee.

Our first-year marketing expense does not include preopening marketing, which we assume would be included within the development budget.

Franchise Fee: Franchise fees are paid to franchise companies for the ability to utilize their name, systems and various programs. Typical franchise expenses range from 4% to 6% of rooms revenue. The following table outlines our analysis of the franchise fee.

Proposed Hotel - Eloy, Arizona Financial Analysis E-9

Franchise Fees Expense

% of Rms $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel $175,575 11.4% $2,582 $11.50 Comparable 2 - Limited-Service Hotel $139,270 6.0% $1,719 $6.81 HOST Report 2019 - Limited-Service Interstate Hotels $166,549 7.1% $1,717 $6.59 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms - - - - Average $160,465 8.2% $2,006 $8.30

H&LA Forecasted First Year $137,000 5.5% $1,713 $6.78 H&LA Stabilized Year 3 $156,000 5.5% $1,950 $7.22 Source: Hotel & Leisure Advisors

The franchise royalty fee for the three brands we recommended range from 5% to 6% of gross room revenue. We have utilized a franchise fee expense of 5.5% for the proposed hotel.

Property Operation and Maintenance Expenses: These expenses include salaries and wages, employee benefits, supplies, outside contractors, painting and decorating, carpentry, garbage removal, engineering supplies, uniforms, and other costs associated with maintaining the physical structure. A majority of these expenses are fixed since they are required to maintain the building. The following table outlines our analysis of the subject’s maintenance expenses.

Prop. Oper. & Maintenance Expense

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel $106,811 6.8% $1,571 $7.00 Comparable 2 - Limited-Service Hotel $130,115 5.5% $1,606 $6.37 HOST Report 2019 - Limited-Service Interstate Hotels $124,936 5.2% $1,288 $4.94 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $106,799 4.6% $1,387 $5.26 Average $117,165 5.5% $1,463 $5.89

H&LA Forecasted First Year $95,250 3.8% $1,191 $4.71 H&LA Stabilized Year 3 $138,000 4.8% $1,725 $6.39 Source: Hotel & Leisure Advisors

We estimated this expense to be within the range of the industry standards as a percentage of total revenue.

Utilities Expenses: These represent expenditures for electricity, heating, fuel, water, waste removal, and related operating supplies. A large portion of a lodging facility's energy consumption is relatively fixed. All public areas must be continually lit and climate-controlled regardless of occupancy. The following table outlines our analysis of the subject’s energy expenses.

Proposed Hotel - Eloy, Arizona Financial Analysis E-10

Utilities Expense

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel $83,842 5.3% $1,233 $5.49 Comparable 2 - Limited-Service Hotel $118,844 5.0% $1,467 $5.81 HOST Report 2019 - Limited-Service Interstate Hotels $105,633 4.4% $1,089 $4.18 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $89,705 3.9% $1,165 $4.42 Average $99,506 4.7% $1,239 $4.98

H&LA Forecasted First Year $101,000 4.0% $1,263 $5.00 H&LA Stabilized Year 3 $110,000 3.8% $1,375 $5.09 Source: Hotel & Leisure Advisors

We estimated this expense to be within the range of comparables on a per-available- room basis. Our estimate does not incorporate potential energy savings that a LEED certification may provide.

Management Fee: Our projection of the subject hotel’s income and expenses assumes competent management by a professional company with fees structured at market rates. Although some companies provide their own management for hotels, they typically will charge the property for management services. Management fees typically range between 2% to 4% of total revenue for full-service hotels and 3% to 5% for limited-service hotels. The following table outlines our analysis of the subject’s management fee expenses.

Management Fees

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel - - - - Comparable 2 - Limited-Service Hotel $70,601 3.0% $872 $3.45 HOST Report 2019 - Limited-Service Interstate Hotels $84,584 3.5% $872 $3.35 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $80,773 3.5% $1,049 $3.98 Average $78,653 3.3% $931 $3.59

H&LA Forecasted First Year $89,000 3.5% $1,113 $4.40 H&LA Stabilized Year 3 $101,000 3.5% $1,263 $4.68 Source: Hotel & Leisure Advisors

We estimate this expense to be 3.5% of total revenue throughout the analysis period based upon current industry standards.

Income Before Non-Operating Expenses: The following table shows income before non-operating expenses of the subject and comparable properties.

Proposed Hotel - Eloy, Arizona Financial Analysis E-11

Income Before Non-Operating Expenses

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables Comparable 1 - Limited-Service Hotel $543,007 34.4% $7,985 $35.57 Comparable 2 - Limited-Service Hotel $823,944 35.0% $10,172 $40.31 HOST Report 2019 - Limited-Service Interstate Hotels $886,289 37.0% $9,137 $35.06 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $873,796 37.5% $11,348 $43.06 Average $781,759 36.0% $9,661 $38.50

H&LA Forecasted First Year $1,071,750 42.2% $13,397 $53.01 H&LA Stabilized Year 3 $1,247,000 43.2% $15,588 $57.74 Source: Hotel & Leisure Advisors

Non-Operating Expenses

Non-operating expenses include any expenses that relate to the ownership of the hotel, including property taxes, buildings and contents insurance, reserve for replacement, and any applicable land, building, or equipment rental.

Real Estate and Personal Property Taxes: These taxes are comprised of real estate and personal property taxes. Our study assumes that the subject property will pay real estate taxes to Pinal County. We estimated real estate taxes of 5% of total revenue since details concerning the project have not been identified to establish a property assessment. We acknowledge that this calculation will change depending upon how the governmental authorities assess the project. The following table indicates our real estate tax projections.

Property Tax Expense

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables

Comparable 1 - Limited-Service Hotel $58,149 3.7% $855 $3.81 Comparable 2 - Limited-Service Hotel $194,483 8.3% $2,401 $9.51 HOST Report 2019 - Limited-Service Interstate Hotels $104,663 4.4% $1,079 $4.14 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $80,850 3.5% $1,050 $3.98 Average $109,536 4.9% $1,346 $5.36

H&LA Forecasted First Year $127,000 5.0% $1,588 $6.28 H&LA Stabilized Year 3 $133,000 4.6% $1,663 $6.16 Source: Hotel & Leisure Advisors

Our estimate of property taxes does not include any potential savings that may come in the form of a property tax abatement.

Building and Property Insurance: The insurance expense category includes the cost of insuring the building and its contents against damage or destruction. The insurance expense includes property and liability insurance. Over the past several years insurance

Proposed Hotel - Eloy, Arizona Financial Analysis E-12 costs for hotels have fluctuated dramatically depending upon claims and natural disasters. The following table outlines our analysis of the subject’s insurance expenses.

Insurance Expense

% of Total $/Occ Rm Amount $/Avail Rm Revenue Night

Comparables Comparable 1 - Limited-Service Hotel $27,194 1.7% $400 $1.78 Comparable 2 - Limited-Service Hotel $28,421 1.2% $351 $1.39 HOST Report 2019 - Limited-Service Interstate Hotels $33,562 1.4% $346 $1.33 CBRE Trends 2019 - Limited-Service Hotels Under 100 Rooms $23,716 1.0% $308 $1.17 Average $28,223 1.3% $351 $1.42

H&LA Forecasted First Year $30,000 1.2% $375 $1.48 H&LA Stabilized Year 3 $32,000 1.1% $400 $1.48 Source: Hotel & Leisure Advisors

We estimated this expense to be within the range of comparables as a percentage of total revenue and on a per-available-room basis.

Reserve for Replacement: Furniture, fixtures, and equipment (FF&E) are essential to the operation of a lodging facility, and their quality often influences the class of a property. Included in this category are all non-real estate items that are normally capitalized, not expensed. Most hotels account for replacement of FF&E by establishing a fund commonly referred to as a reserve for replacement, which is generally funded from a hotel's cash flow. In theory, a sufficient amount of money is available to replace FF&E at the end of its useful life. A recent study by the International Society of Hospitality Consultants indicated that the traditional 3% reserve is lower than what most hotels they surveyed actually spent over historical periods. The survey indicated that the expense should be between 4% and 5% of total revenues. We estimated this reserve to equal 2.0% of total sales in the first year of operation, increasing to 3.0% in the second year, and 4.0% in year three and beyond. The 4.0% replacement reserve is in keeping with industry guidelines for a hotel the subject’s size and volume of operation.

Inflation: The assumed 2.5% per annum rate of inflation for the analysis is derived by a review of historical increase to the Consumer Price Index (CPI) and various inflation forecasts by the Federal Reserve Bank, Livingston Survey, and U.S. Congressional Budget Office. The following table presents a historical analysis of the Consumer Price Index.

Proposed Hotel - Eloy, Arizona Financial Analysis E-13

U.S. Consumer Price Index

Year CPI % Change 2000 172.200 2001 177.100 2.85% 2002 179.900 1.58% 2003 184.000 2.28% 2004 188.900 2.66% 2005 195.300 3.39% 2006 201.600 3.23% 2007 207.300 2.83% 2008 215.303 3.86% 2009 214.537 -0.36% 2010 218.056 1.64% 2011 224.939 3.16% 2012 229.594 2.07% 2013 232.957 1.46% 2014 236.736 1.62% 2015 237.017 0.12% 2016 240.007 1.26% 2017 245.120 2.13% 2018 251.107 2.44% 2019 255.657 1.81% Average 2.11% Source: US Bureau of Labor Statistics

The table shows an average growth rate of 2.11% since 2000. However, based upon our review of various economic forecasts, we project a 2.5% per annum rate of inflation is realistic. To the extent that actual rates differ from this percentage, the estimates would have to be adjusted. All revenue and expense items were first calculated in 2022 dollars. A 2.5% growth rate was applied to all revenue and expenses with the exception of ADR which has been increased by a higher rate in the first two years of the analysis.

PROSPECTIVE FINANCIAL ANALYSIS IN INFLATED DOLLARS

The following forecasts of income and expenses reflect the subject’s anticipated performance for calendar years beginning 2022. We project that the subject’s operations will stabilize in the third year, and all income and expense items will increase thereafter at the underlying inflation rate of 2.5%. We note that departmental expense ratios are expressed as a percentage of departmental revenues. Franchise fees are expressed as a percentage of rooms revenue. All other expense ratios are expressed as a percentage of total revenues. We presented rounded figures to the nearest thousand.

Proposed Hotel - Eloy, Arizona Financial Analysis E-14