April 2, 2018 HUNTER HOTEL CONFERENCE RECAP Important disclosures can be found in Appendix

OPTIMISM ON DEMAND AND DEAL FLOW We include a recap of the Hunter hotel conference, some key takeaways, key quotes, and a short review of the last handful of Hunter hotel conferences below. For full notes, see the Appendix.

Key Takeaways  Sick of baseball – Bob Hunter said it best...Cycles don’t die of old age. In ‘14 and ‘15 we were in the 6th inning of a double header. In ‘16 we were concerned. In ‘17 we were in the 10th inning of an 18 inning game. In ‘18, we are tired of baseball analogies. We are now 96 months positive vs. 56 months prior (’02 - ’09) and 111 months prior (’92 - ’99).  RevPAR looking decent – RevPAR sounds to be tracking slightly ahead of budgets with industry participants YTD. Lapping the Inauguration/Women’s March was not as bad as feared, Feb was ok, and a March hindered by the Easter shift looks pretty decent. Most still expect a slight acceleration in RevPAR growth into 2Q tied to a more favorable calendar and some modest improvement in Corporate. The expectation looks like 2.5-3% RevPAR for 2018 with flat occupancy and rate driving growth, as better core trends offset the lapping of the hurricanes and inauguration benefit. This follows 2017 also up ~3%.  Push price please – Industry demand growth accelerated from 2% in 2016 to 3% in 2017. That is good. Industry rate growth decelerated from 3% in 2016 to 2% in 2017. That is bad. The speakers keep telling everyone to push pricing. Who is listening?  More buyers than sellers – For 2018, we are hearing of growing buyer interest in what sounds like a smaller pool of good assets for sale. This follows 2017 when buyer interest recovered/bid-ask spreads narrowed. As a reminder, 2016 the appetite for deals was “anemic” following 2014/2015 which was “on fire.”  Single assets deal volume should continue to grow – In 2017, the $24B in deal volume was down from the $29B in 2016 largely due to the Anbang/Strategic deal which added $5.5B to 2016 numbers. Single-asset transactions were up yr/yr in 2017 and the appetite for deals was healthier. For 2018, most expect single-asset deals to continue to grow.  Stable Caps – Consensus calls for stable cap rates over the next 12 months as interest rates rise, pointing to a compression of the spread/risk premium for hotels. This follows 2017 when cap rates were fairly stable yr/yr (risk premium compressed despite a rise in interest rates) and 2016 when cap rates were up ~150bps yr/yr (reflecting a growing risk premium). Average cap for 2018 looking near 8%, a 500bps premium to the 10yr. Compares to ’07 when cap rates were near 6.5%, 150bps premium to the 10yr.  Vacation days growing – Vacation days picked up in 2017 to 17.5 days per year on average, up from 16 in 2016, but still shy of peak of 20 days per year. Seeing more leisure days tacked on to corporate trips vs. week long strictly leisure vacations.  GDP should...decel in the next 2 years – GDP growth picking up and more synchronized globally than it has been in some time. 3% is a nice figure. According to the NFIB, small business optimism is at a historic high...as is uncertainty. In the U.S. consumer expenditure looks good now but should decelerate 2 years from now by 2020 (for the last 5 years, it has been supposed to decelerate “2 years from now”/must be an economist thing).  Watch those margins – Rate growth not looking so hot coupled with rising labor costs and years of cutting/eliminating inefficiencies in the cost structure...all seems to point to margin pressures for owners.  Brand Proliferation – New brand launches and brand acquisitions continue. Today there is less asking about “how many brands is too many” and more “how many will survive.” Each brand company seems to think they have the right recipe to do so.  Scale – Brand consolidation continues. Scale matters as it helps illuminate duplicative costs and benefits from combined infrastructure for sales/marketing. Better leverage with distribution/OTA’s. Lines between brand and OTA continue to blur.  Supply in check – We are hearing lending standards remain high and construction costs continue to rise, both of which are keeping supply growth in check. Supply was 1.8% in 2017 and looks like 2% in 2018 & 2019. Rooms under construction plateaued in 2016, picked back up slightly in 2017, and looks down slightly in 2018 (193k under construction in Jan 18 shy of the 111k in Dec ’07). 42 of the 60 major cities will have supply above 2% in 2018, up from 36 of the 60 in 2017.

Review of the last 5 Hunter Conferences – It has been an interesting ride over the last 5 years of Hunter Conferences.  Sweet Spot: March of 2014 Conference – It was the 6th inning of what might be a “double header” in the “sweet spot” of the cycle. We didn’t have to worry about downside until 2016/maybe 2017. Capital was more readily available and LTV was rising. Supply was just crossing 1% after 3 years of sub 1%. It was “as good as we have ever seen the lodging industry,” and the “time to push rate was now.” Airbnb was a $10B valuation...is it really worth that? Chris Nassetta of Hilton told us that things were like Goldilocks – “not too hot and not too cold.”  Extra Year: March of 2015 Conference – It was the 6th or 7th inning of a “double header” (hey we found an extra year). Inflation adjusted rate was back in line with the prior peak. It was “not a bad time to buy or sell.” We reflected on 2014, which turned out to be the year of the select serve portfolio deals. We realized there was some “millennial in us all” and fully embraced

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“brand proliferation.” We were warned that supply of Airbnb could negatively impact rate growth. Steve Joyce of Choice told us that “if we weren’t having fun now, we should get out of the industry b/c it doesn’t get better than this.”  Back to Reality: March of 2016 Conference – Following a “lofty” market in 2015 with deal flow reaching cycle highs, there was a macro repricing of cash flows. Cap rates rose 150bps as the embedded risk premium rose. Deal financing became more difficult to obtain. Yr/Yr RevPAR growth was slowing, but you “can’t grow at 7% forever.” Anbang had just come over top of Marriott for Starwood and many thought both “had room to sweeten the deal.” Stop Clicking Around from Hilton was helping to “take back what was leaking out of the business to a place that did not deserve to have it.”  Feeling Better: March of 2017 Conference – Compared to March of 2016, we were decidedly more optimistic. Hotels looked like a good deal/favorable yield vs. other real estate asset classes. Talk on cost inflation ticked up. RevPAR sounded fine against a lower bar. Cycle prognosticators seemed less opinionated as it has been “late in the cycle” for a number of years now. Supply was approaching 2% and rate was going to drive RevPAR going forward. Airbnb was worth $31B. Barry Sternlicht told us about Trump’s golf game and feelings on seeing his baby Starwood get swallowed by Marriott.  Maybe a Few More Years: March of 2018 Conference – Most are feeling better on deal flow and RevPAR vs. same time last year. Hearing more deals collapse on rising construction costs keeping supply in check. Cap rates expected to remain stable as interest rates rise. We are sick of baseball and are taking more vacations.

Key Quotes from the Conference:  Cycles don’t die of old age. – Bob Hunter  Averages don’t mean a thing. This is a street corner business. – Bob Hunter  New construction is at a reasonable level....Thank you lenders. – Bob Hunter  Good to be a seller – not a lot for sale. Buyers are back, but back cautiously. – Bob Hunter  Trend in the industry: select service is a real institutional investment class. 2011 was our first select serve. Now Mit raising core plus fund (select service) and investors are coming to the conclusion we already knew. Quality is not just RevPAR. It’s consistency in under-writeability and cash flows – Suril Shah (Starwood)  I remember a time when you could buy any Amerisuite you wanted for an 11 cap. Your pick. I’ve been in the industry too long. – Teague Hunter (Hunter)  Investors want predictability. They don’t care whether it’s full service or select service. They used to care. They don’t today. – Tyler Morse (MCR)  Replacement costs…I used to spend so much time thinking about it, and think far less about it now. It is just a function of cash flow potential of the asset. We miss so many opportunities thinking about replacement costs. – James Merkel (Rockbridge)  Following Feb/Jan, 2018 shaping up to a good year despite what you are hearing from the REITs. We feel good we’ll beat budget. – Suril Shah (Starwood)  On new development projects, clients tell us construction costs are up 25-30% since we started underwriting deals. That is killing some of these new deals and its keeping supply in check. – Lee Hunter (Hunter)  Strongest Res system in the U.S. is Marriott. Drives 65% from central Res. Hilton is 55%. Starwood and Hyatt are closer to 25%. I think that is what hurts La Quinta. – Tyler Morse (MCR)  Look at a combination of all them (cap rate, per key value, replacement cost, IRR) to assess most importantly can it get you to your risk adjusted return. There are a variety of indicators to get you there. If it was as simple as saying just look at X, we would all be out of a job. – Ben Pierson (Rockbridge)  It is not that linear. That spread between cap rates an interest rate is wide. A year ago that spread was historically wide. That narrowed in the last 12 months and should continue to. Eventually it will shrink to a historical norm. Eventually cap rates have to rise with interest rates, but it won’t be one for one. – Ben Pierson (Rockbridge)  Supply impact is everywhere. It’s in primary, secondary, tertiary, highway. Only thing keeping a lid on it is financing and construction costs. Sure there are number of people who have deals they want to do but don’t have a lender in place yet. – Jatin Desai (Peachtree)  On a national level, probably a little more inventory on the market vs. LY. Plenty of single assets. Not seeing the big portfolio deals like you saw in 2012. But the ones and twos are out there. – Sam Reynolds (Apple REIT)  Feel like the madness has to stop on development costs – Ryan Phelps (T2 Hospitality)  According to the numbers, construction costs are up 30% in the last 5 years...Seems like more to me. – Hank Staley (CBRE)  I have seen more deals collapse in the past couple years than my entire career. – Hank Staley (CBRE)  On IHG acquisition of Regent....just have to hang around the hoop and the ball will come to you eventually. Just like basketball. Have to be around the hoop. Yeah we are after scale, but we want muscle not fat. – Elie Maalouf (IHG)  30-40 brands, you start acting more like an OTA. – Pat Pacious (Choice)  We as an industry aren’t very disciplined. If you give a developer a bank loan and a brand, they will develop. Limited supply is a byproduct of high cost of construction vs. discipline on the brand front. – Elie Maalouf (IHG)  But if it grows to scale, it must have met an owner or consumer need. So I am less concerned about too many brands. I’m more concerned if we have the right brands. – Elie Maalouf (IHG)

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 On Wyndham’s acquisition of La Quinta....85% of franchisees score 4stars or above on trip advisors. Our franchisees love it. It is a great deal for shareholders. Look at how scale matters. Never been more important. Small companies can’t do it on their own. Too many duplicative costs. Combine infrastructure for sales/marketing. With the synergies, it was a great multiple. – Geoff Ballotti (Wyndham)  Industry sitting on booking infrastructure built 30-40 years ago. Are we investing enough to keep up? As owners, we need our inventory on every shelf available. Have to be where the customer is. Can’t just sit back and say our distribution system is set. Need a team to be on these changes. – Pat Pacious (Choice)  Wages have not kept up with unemployment. We think wage will catch up in the labor market. Labor participation rate has been rising – that has been surprising wages. That is not sustainable. Now that should plateau and wages should follow suit. – Aran Ryan (Tourism Economics)  NFIB small business optimism is historically high – never been a time when they are as optimistic as they are right now. Also never a time they were as uncertain as right now. – Aran Ryan (Tourism Economics)  Cycle was supposed to end two years ago. If you bought two years ago, you are in the money today. Some say we are late in the cycle b/c of the length of the last two. I am not convinced that has a bearing on this one. We are still looking to deploy capital in the space. We think it is a good time to be buying hotels properly levered. – Nolan Hetch (Square Mile)  Look at rates 1Q18 vs. 1Q17 – came in anywhere between 50-25bps depending on size of deal. The debt is so competitive. – Nolan Hetch (Square Mile)  Right now is probably the best time I remember in the past decade to be a borrower. Everything from large to small transactions. – Nolan Hetch (Square Mile)  I think as a franchisor half the day and a franchisee half the day. – Ricky Raman (PeachState)  Loose lips sink ships – Chas Henry (GF Management)  Planning a honeymoon and parents’ friends are recommending a travel agent...what’s that? – David Perrin (Hunter)  Globally seeing a broad based upturn. Not as strong as we would like. Global growth hit 3%. Strongest since 2011. For 2018, it should edge up to just over 3%. The United States is my favorite “emerging market.” – Muhtar Kent (Coca-Cola)  Millennials want it now. Want it seamless. Generally optimistic. Tech savvy. Early adopters. More in common w/ peers in other countries than their parents. – Muhtar Kent (Coca-Cola)  New role of a brand. You used to make a good product, with a good distribution system and good communication. Create positive consumer impressions. Connect at point of retail and purchase done. Today the job is to create positive consumer expressions. Consumers have to talk positive about the brand between themselves. A link between brand love and business respect. – Muhtar Kent (Coca-Cola)

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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Full Conference Notes Bob Hunter

 Speaker – Bob Hunter (Chair Emeritus, Hunter Hotel Investment Conference)

Key Quotes  Cycles don’t die of old age. – Bob Hunter  Averages don’t mean a thing. This is a street corner business. – Bob Hunter  New construction is at a reasonable level....Thank you lenders. – Bob Hunter  Good to be a seller – not a lot for sale. Buyers are back, but back cautiously. – Bob Hunter

Full Notes  Been a wonderful 30 years; we have the highest ratio of owners of all hotel conferences  Had 93 attend at the first conference and “we have come a long way.” It takes a village. Now have 127 speakers, 1,000+ attendees  Interesting combination of Wall Street and Main Street. Varying opinions and insights. No one has answers – just opinions.  1/3rd of attendees are new. 2/3rds are return attendees.  56% of owners plan to develop a hotel in 2018. Last year that was 60%. 3 years ago that was 61%.  91% of owners will do financing activating. 92% last year. 3 years ago 85%.  Travel is expected to be up 5% in 2018. Kids would rather travel than buy stuff.  Trump is business friendly. Stock market way up even with recent adjustments. In 2009, Dow was 6,500. Now we are 4x that.  New construction is at a reasonable level. Thank you to the lenders for keeping it reasonable.  Rates – they were going to raise a quarter point. 3, maybe 4 raises this year.  We see cautiousness and confidence – that is a wonderful combination.  Good to be a seller – not a lot for sale. Buyers are back, but back cautiously. Cap rate in select service 9.2% (range 4-13%). We are a street corner business. Averages don’t mean a thing. Don’t listen to averages, listen to your street corners.  Cycles don’t die of old age.

State of the Industry Panel

 Moderator – Teague Hunter  Speakers – Mit Shah (Noble), James Merkel (Rockbridge), Tyler Morse (CEO MCR), Suril Shah (Managing Director Starwood)

Key Quotes  Trend in the industry: select service is a real institutional investment class. 2011 was our first select serve. Now Mit raising core plus fund (select service) and investors are coming to the conclusion we already knew. Quality is not just RevPAR. It’s consistency in under-writeability and cash flows – Suril Shah (Starwood)  I remember a time when you could buy any Amerisuite you wanted for an 11 cap. Your pick. I’ve been in the industry too long. – Teague Hunter (Hunter)  Investors want predictability. They don’t care whether it’s full service or select service. They used to care. They don’t today. – Tyler Morse (MCR)  Replacement costs…I used to spend so much time thinking about it, and think far less about it now. It is just a function of cash flow potential of the asset. We miss so many opportunities thinking about replacement costs. – James Merkel (Rockbridge)  Following Feb/Jan, 2018 shaping up to a good year despite what you are hearing from the REITs. We feel good we’ll beat budget. – Suril Shah (Starwood)  Strongest Res system in the U.S. is Marriott. Drives 65% from central Res. Hilton is 55%. Starwood and Hyatt are closer to 25%. I think that is what hurts La Quinta. – Tyler Morse (MCR)

Full Notes  TH – Give us a quick overview o JM – We just raised a ~$400M fund. In ‘15 and ‘16 did 12 deals. In ‘17 did 5 deals. Delivered $600M of renovation work in ‘17. Closed new fund at tail end of 2017. Trying to find the right projects. Probably 40 hotels in the fund. o TM – Completing $300M fund raise. 14 investments in ‘17. Expect that slightly higher in ‘18. Think there is enough inventory. Hard to find deals right now b/c refinance market is so white hot. Sellers refi instead of sell – biggest challenge we see right now. But we are getting cheap debt. o MS – We have 2 year funds. Always fundraising. Putting out $200-300M per year in development/redevelopment. Been coming here 25 years. Raising a core plus fund. If you can buy 7-8 cap and finance at 4 and 1:1 leverage the returns look

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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good. We were oversubscribed, pension plans, endowments. LY we were net seller by significant margin. Always hopeful. Lack of product to buy. We would all like to be net acquirers. But maybe this is a good time to be a net seller b/c tough to find good stuff to buy. Still feel like 2-3% RevPAR growth. Wages could pressure margin. o SS – Just did our 11th fund. $7.5B of global equity capital. Lot of capital to deploy. Strategy is looking for opportunities returns. Look up and down the chain scale. Trend in this industry – select service is a real institutional investment class. 2011 was our first select serve. Now Mit raising core plus fund (select service) and investors are coming to the conclusion we know. Quality is not just RevPAR. It’s consistency in under-writeability and of cash flows. Seeing 7 caps for select serves. Used to be 10/11. Don’t think that comes back. People more educated now. Acquiring at 10s and made significant wealth. Good for our industry. o TH – I remember you could buy any Amerisuite you wanted for an 11 cap. Your pick. I’ve been in the industry too long.  TH – Opinion on full vs. limited? o MS – Readily acknowledged that suburban full service has a structural problem. Urban markets where the labor works, it is still a business that is worthwhile. 25 years of history. Since 2008, we just focus on select service b/c it’s more predictable. Can better predict operating model. A 20% hit to RevPAR, in the upscale lodging segment, it has trended well above, but just say 2%. Buy in 2007 hold for 10 years, sustain the 20% shock, and still have a net 12% IRR on 5.5% cost of capital. That is simple. Develop, redevelop, and acquire stuff that we hold for 10 years. o TM – Replacement costs. $100k per key for select service used to be a big number. We looked at a hotel in downtown SF, and we passed. In 2007 it was $150k per key. Now feels like $200k per key. Just built a Residence Inn in Florida for $185k per key. o MS – Fully loaded. RevPAR will be $125. $125 RevPAR is a $200k hotel. $150 is probably $275k. o TM – You can buy suburban full service for $25-50k per key. They’re giving them away. o JM – Investors want predictability. They don’t care whether it’s full service or select service. They used to care. They don’t today. Doesn’t mean not good opportunities in Full service. In full service, we’ve taken older product you can buy at discount and fix to be competitive with a new product. o SS – We acquired suburban Marriott full service in Louisville. You guys did a fantastic job. o JM – We are leveraging our competency to do stuff like that. Replacement costs – used to spend so much time thinking about it, and think far less about it now. It is just a function of cash flow potential of the asset. We miss so many opportunities thinking about replacement costs. It is a growth business. There are cycles. But if well capitalized, you hit your 12% return. Lot of well-known investors are at the top of the list with 12 over the long-term.  TH – Concerned about the cycle? o SS – Thought you were going to say inning. In this business you can only look out 24 months. I would have been wrong in ‘14, ‘15, ‘16, and ‘17. I think fundamentals are good. Following Feb/Jan ‘18 shaping up to a good year despite what you are hearing from the REITs. We feel good we’ll beat budget. And budget is healthy growth vs. ‘17. In ‘17 we missed budget. o SS – Nervous about $7.5B to spend. 96 months into cycle. Find differentiated ways. Developed 1 in house we think we can deploy capital behind. We will probably spend couple billion developing 1 Hotel in next 5 years. We’re in Manhattan, Brooklyn, South Beach, and by end of 2018 West Hollywood.  TH – Yotel – $250M invested there. Do you really believe in brand? o SS – Look for differentiating factor. I think a lot of the brands feel the same. One is a very differentiated brand. Resonating with a wide variety of people. We like Yotel – it is different.  TH – Mit Shah – Chairman of La Quinta – comments on brand? o MS – Hard for brands that don’t have scale to create loyalty and drive customers to direct channels. Tech piece is hard. How do you lower distribution costs for franchisees and enhance loyalty. M&A will continue to happen. Look at Regent, a brand someone forgot about. Amount of interest is interesting. It essentially creates a midscale REIT, which has not existed. That’s unique. All under $100 RevPAR. Cash flow story. o SS – I think it is a brilliant strategy. o MS – It is brilliant if it proves out that thesis. For everyone that owns $85 RevPAR assets, now there is a business that can be an aggregator of those assets. I think that is interesting. It is a cash flow theme. When Summit went public, they got no credit until they got the cash flow story. Now Summit gets a premium EBITDA multiple more than Host and Park. Great proxy – Public market is valuing select service REITs at higher multiple than all lodging REITS. o SS – Summit got there by demonstrating consistency of cash flow. o MS – I don’t even think about innings. This is an industry that has black swan events. Never supply led. It just exacerbates the impact of demand shock. The biggest thing is not just wage inflation, it is finding people in general. The amount of hotels who have had to go to contract labor is concerning. That is real margin erosion that takes place. Interest rate risk there but if you are prudently leveraged, you are fine.  TH – I’m fascinated to see how the publicly traded REIT in the $85 space o SS – I think multiple is low. Will hit numbers. Then multiple will be high.

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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o TM – Look at Extended Stay America. Didn’t work. Trades at a low multiple. Banks and Wall St have institutional bias toward high RevPAR. Not sure that’s going away. It has gotten better. I hope it works out. o MS – It’s really more about the shareholder. I’m fine. o TM – In a down cycle, they will trade at a premium. Strongest Res system in the U.S. is Marriott. Drives 65% from central Res. Hilton is 55%. Starwood and Hyatt are closer to 25%. I think that is what hurts La Quinta. o JM – What I love about this conversation. Suril doing one at high end and then also Yotel. You can create value where the customer has demand. Midscale. Can do at luxury. We try to not be biased either way. Where is the opportunity? Where is the market for the product? And how do we create value for investors?  TH – We have some visibility into extended stay model. Take your ego off the table and the product makes a ton of money o SS – There is an institutional mindset that likes a higher quality RevPAR/asset. I think that gap is shrinking massively. Look at the multiple on Summit.  TH – What gets you excited? o TM – Marriott, Hilton, Wyndham, Choice are intellectual property. Gets a premium b/c it is a higher end brand.  TH – JFK airport? o TM – TWA Hotel. 515 keys, $300M project. A year from opening. $20M per month in construction. 650 union guys every day. Going independent. Not flagging b/c have demand from airport. Don’t need to fly flag. Some very smart people said that is a very bad decision so time will tell. 7 retailers, 8 restaurants. 6 bars. Trying to take a page out of Yotel book. Sell the room twice per day. Target occupancy of 200%. Yotel at Heathrow runs 250% occupancy. Tricky part is getting computer system. Most of industry is geared towards one night and can’t process day stays.  TH – What makes you excited? o JM – I’m hearing it’s hard to do deals. It’s always hard to do deals. Lot of fear of peak. Lot of smart people who don’t want to do a lot at the top. Usually not enough at the bottom and too much at the top. So we are just trying to pick our spots. We are going to do 10-15 deals per year. Try to do the ones that work for our investors. Always looking for value add. Looking for redevelopment work. Trying to be patient and pick our spots. Not trying to worry about where the market is. Picking our deals one by one. o TM – Thrilled at ALIS – a lot of prognosticators said 2015/2016 was a mini recession – so we can be done with innings. Demand growth has been anemic since 2010. Taken 8 years for fed to raise rates. That has given runway in economy. If they keep raising, what happens to cap rates? Look at ‘06 and ‘07. Risk free was 5% then, didn’t have to leave home to make 5%. People were buying hotels for at 150bps spread. People needed to put capital to work. Spreads will narrow. o SS – Spreads are tightening in debt market. Rates increased. Hotel cap rates haven’t moved. 100bps in last 12 months and cap haven’t moved. o TH – B/c lack of product on the market, cap rates are compressing, paying a little more today. o SS – We only talk about net cap rates because spent so much money renovating assets. Go from green package to the blue package. We don’t look at the PIP. We just look at the net cap rate. Putting millions in. I’m making the same amount as the year before. Doesn’t feel like a fair deal. Do not print that please. o MS – Use “Marwood” weight to do things transformational for the industry around revenues. New commission rates. We are all concerned on Google. All concerned on Airbnb phenomena. Brand CEOs say loyalty/owning the customer most important thing. Now introducing prepay options. Go to a scenario that when they book, through any channel, they are paying for it. Book through proprietary channel, maybe use for a credit for future booking. Customers start using proprietary channels b/c they won’t get the credit. We can talk about amenities and this and that. To really change the landscape the opportunity is really there to change. The risk and concern – we don’t move fast enough. Need to take advantage of the demand we have right now. Encourage the brands that set a level platform. Then think about more data and robotics. All these other things. At the end we’re still lucratively profitable. We are talking 7-8. Not talking multifamily at 5. We have some brands that have real scale. They can change the model. o TM – I always use the example. The airline industry in the U.S. does $200B. $65B is “other”. Not airfare – baggage, peanuts, credit card. We have captured the customer, but hotel industry thinks it’s ridiculous to charge along way for additional services (cancelation, parking, resort fees). Just competing head to head on a number on the OTAs is a race to the bottom. Need to differentiate the product. Say what you want about Spirit. It’s very profitable. You make not like it but it works. Hotel industry needs to not just compete itself into the ground.  TH – What have you learned, where in 10 years for Noble? o MS – Always thinking about peer groups and learning. Never be smartest person in the room. Getting feedback from other owners of Hawks. All come from different backgrounds. Noble in 10 years: always think about succession planning. Player development on sports side. That’s a primary reasonability of any leader. Like for our team to get better and better. We have been together 17 years. In next 10, we’re an outcome of our ability to never be smartest in the room and go find smarter people.

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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Buying & Selling Hotels in an Active Market

 Moderator – Lee Hunter (Hunter)  Speakers – Ben Pierson (Rockbridge), Jatin Desai (Peachtree), Guy Crawford (Lightstone), Craig Nussbaum (Waramaug)

Key Quotes  On new development projects, clients tell us construction costs are up 25-30% since we started underwriting deals. That is killing some of these new deals and its keeping supply in check. – Lee Hunter (Hunter)  Look at a combination of all them to assess most importantly can it get you to your risk adjusted return. There are a variety of indicators to get you there. If it was as simple as saying just look at X, we would all be out of a job. – Ben Pierson (Rockbridge)  It is not that linear. That spread between cap rates an interest rate is wide. A year ago that spread was historically wide. That narrowed in the last 12 months and should continue to. Eventually it will shrink to a historical norm. Eventually cap rates have to rise with interest rates, but it won’t be one for one. – Ben Pierson (Rockbridge)  Supply impact is everywhere. It’s in primary, secondary, tertiary, highway. Only thing keeping a lid on it is financing and construction costs. Sure there are number of people who have deals they want to do but don’t have a lender in place yet. – Jatin Desai (Peachtree)  2018 will show more activity for sure. More buying. More selling. Just more activity - Craig Nussbaum (Waramaug)

Full Notes  GC – We invest in all types of real estate. Just finished Moxy Times Square – 612 key. 20k ft F&B. Rooftop has 3 bars, mini golf course, and carousel. Views of empire state building. Building 3 other hotels, condos, some multifamily in Manhattan. Project in LA for mixed use 800 keys.  CN – Have 40 properties. Select serve. Actively buying and selling.  LH – 24% of attendees said strictly buying assets today...only 4% said strictly selling assets today. We can connect dots...that is going to push values up. Lot of interest on the acquisition side and limited product to be had. What are you buying? o CN – Have shifted to both primary and secondary. Select serve primarily. New supply in secondary has led us to shift a bit more towards primary. o JD – Looking for select serve. Secondary and Tertiary markets. Depends how you define Primary I guess. o BP – We do select and full serve. We like a leaner operating model of a leaner full serve. From a labor model, thoughtful about full serve. From a market standpoint, does it have a reason to be there? We care about supply, but we are focused on demand. If we like a market, we realize we may not be the only one who likes that market. Make sure it can absorb that supply over time – like Nashville. As long as multiple demand generators and the right asset in the right market, we’ll do it.  LH – You are getting info all the time. How do you determine what to focus on? o JD – If we don’t like the city, we don’t look. Our average hold is 32 months. Quick turns. We are basis buyers. Cap rates aren’t that meaningful to us. If something is trading at 230k per door and nothing in the market fetches over 180k that’s a pretty simple decision. o CN – How many years left on a certain flag? Don’t want to be the last one holding it. Replacement cost is a big one. If we find out broker looking above replacement cost, it won’t make it into my pipeline. o GC – More recently we think demand growth slows. So we are always looking for a value creation story. Where we think we can come in to create something. Not banking on markets to make the investment work. o BP – We look at, is there some operational leverage or a renovation. Value add. So then we are ok holding it for our roughly 10 year life. If we know a deal is going to get a ton of attention and we can’t create value on it, we don’t bother.  LH – So value add...value add...value add...no one is buying on a nice 8% cap, clipping coupons, cash flow...you are all looking to come in and do something to the asset/improve operations. o BP – Our capital is looking for certain returns. For REIT’s that works. For us, ultimately we are looking for a 10 unlevered to create the returns we need for our investors. Sometimes per key looks nice, but cap rate is off. So we just focus on buying cash flow that meets our return threshold. o GC – We are right there as well 10 unlevered. 14 levered. o JD – We use about 65% levered. 5 years ago it was 20-22% levered. Today closer to 17% levered as yields have changed. o BP – Everyone loves a 20%, but not all 20’s are created equal from a risk stand point  LH – Do cap rates matter? Or are you focused on getting in at a basis? o CN – It is a piece of the equation but not the whole story. It’s the cap, it’s the price per key, the IRR. Have to look at it all. o GC – We have two REITs completely dedicated to select service. Put out 6-7% dividend. In order to achieve that we have to hit 10% cash on cash out of the gate. So yield in that case is critical. o JD – For us cap rates are pretty meaningless. Sure it is something to benchmark against. But last year we probably average a 6% cap. Lowest was a 4% cap. But when look per key, it was a great value and we knew it was being mismanaged. There is a lot of that. So we focus more on basis.  LH – If you are looking at deal, what you look at?

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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o BP – Look at a combination of all them to assess most importantly can it get you to your risk adjusted return. There are a variety of indicators to get you there. If it was as simple as saying just look at X, we would all be out of a job. Basis matters and look at the cash flows and say, does that get us to our 10% unlevered. If I can at some point sell that for a 8% cap, there is value to be had there. What cash flow can it generate when fixed right? What does it cost me to get it there? o CN – A lot is science/math. But we have done deals, that when you look at cap rate, per key, whatever, but ultimately it is just a deal by deal basis.  LH – Let’s talk about financing? Rates going up and the spreads are narrowing. o BP – The financing markets are pretty liquid. We don’t do CMBS for a variety of reasons. We believe in direct relationships with lenders, borrowers, etc. We have seen folks tie up assets and when values are the right time to sell, but it will hurt down the road when want to sell. o LH – CMBS debt sounds great if a long term holder of the asset. Pretty good loan to value and rates. But if you want to sell 4 or 5 years into a 10 year loan, you cannot do that. Have to defease the loan. $10M loan. $12M asset. Loan balance is $5M o CN – We do CMBS with friends and family deals when we know we are holding for a long time. o JD – We don’t typically do CMBS. Work more with regional banks both for development and acquisition. A year ago getting rates at 4.25-4.5% on 55 touching 70%. Today the deals are the same leverage points but at 5.15-5.25% fixed as the curve as moved on rate hikes. Still decent debt. On the CMBS side. The spreads have tightened. Definitely more competitive. Not out there as much as it was 2-3 years ago. On the bridge side, compressed spreads a bit.  LH – So if debt is now above 5%, what has changed? When rates change, cap rates change or returns change? o CN – Once close the CMBS loan. You are kicked off to a servicer. It is an institutional servicer scrutinizing the loan doc. It is more difficult. o GC – We have a facility. 4.7% for 60% for our REITs. We like that b/c it is flexible. We can resize each assets or shifts things around. Done some CBMS in the past.  LH – Let’s talk about PIPs? Get the PIP up front. Price it out up front. Take all those question marks off the table. o BP – You can’t buy someone else’s deferred maintenance. We like to capitalize it up front. Don’t want to have to find a bucket of money for PIP in year 2 or 3. We prefer to get it right up front. o CN – We are going to stick with what price we think the PIP will be. o JD – Probably done 45 PIPs. The one thing you can scrutinize is the line items. For carpet, are you including an interior designer fee? Some sellers can negotiate PIPs. o BP – We will underwrite renovation impact to revenue. Goes back to cash flow and basis. Also have to think how the PIP is going to impact rate. What is guest facing that will lead to better ADR. o GC – If you are not generating incremental NOI, you are compressing yield. If you buy 100k per key, and do 20k PIP, if your NOI doesn’t go up you are losing yield.  LH – What are we selling right now? o BP – Everything is for sale. As those funds roll, 7-10 years, you have a natural cycle of create value, reap cash flow, and then harvest. Some deals where we created value and we are really happy, we get a lot of calls on it, so we may trade it or refinance and hold and live off the cash flow. Debt markets are so good, you can get cash out. o CN – For most part, what we sell is driven by fund life. o GC – Have a 10 year life. Sold and bought $100M worth of hotels in 2017. If value created, we will sell and move into something that has more upside. o BP – Going to see opportunities to buy those assets that are already developed. Buying opptys may look different now vs. yield/already in place cash flows. To buy new nice assets, taking construction risk off the table. Start to see more of that product come up for sale.  LH – End of the fund life. Do you get more aggressive at end of the life or will you exceed? o JD – We will exceed. We have been the beneficiary of buying some of those. Sellers exiting funds often get more aggressive. Depending on whether they promote or not.  LH – Talk more on yield targets? o BP – We are looking for that spread between cash on cash return say 10% and cap rate is 8%. We are hoping to get 15% of the total return from cash flows coming out so that all the return isn’t resting on the exit.  LH – Impact of supply? o JD – Supply impact is everywhere. It’s in primary, secondary, tertiary, highway. Only thing keeping a lid on it is financing and construction costs. Sure there are number of people who have deals they want to do but don’t have a lender in place yet. We have 12 new developments right now, and each has their own challenge. o JD – Go back to 90s, paying 30k per door for Hampton. Late 90’s you were 50-60k per door. 2009 you were 100k per door. Now you are 150k per door. So the increases have been consistent, in 5 years it will be 200k per door. If you have the longevity to hold through it you will be fine. o BP – Construction costs continue to go up and up. Constrained labor pool, those are going up. Those 2 natural forces have constrained supply. The question do you believe in that market and that asset long term. Do you have the capital to weather the storm?

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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o GC – We have an asset we bought for 90k per key and its yield 17% on a key. They are coming in at 130k per key, and they are yield 5-6%. o CN – The first thing I do when looking at an asset is pull it up on Google Maps and look what land is available and what flags are around it. Assess the future of that market. o BP – I am not concerned on supply, but thoughtful about it. Some markets have more than others. If you are in the right asset/competitive position, in the long run you’ll be ok. Look at Denver, Austin, Nashville. As supply grows, demand grows. That’s always a debate. But we believe you can be in high supply markets and be fine if you are thoughtful about the asset. o LH – On new development projects, clients tell us construction costs are up 25-30% since we started underwriting deals? That is killing some of these new deals and its keeping supply in check.  LH – What will 18/19 look like when we are sitting here from a year now? o CN – More active than 2017 for sure. More buying and selling. o GC – We are exiting more but also looking to buy. So more activity. o JD – In ‘17 we did 30 debt deals and 8 transactions. So a lot more debt than equity. Think ‘18 is more of the same for us and that has showed up in the first quarter. We will probably buy 7-8 hotels this year and sell a dozen. o BP – We have been focused on big renovation projects in 2017. In 2018, we probably will do 12-13 deals. Some pick up this year. Should be a net acquirer.  LH – Where are rates headed? If they do go to 7%, what happens to returns/cap rates? o BP – Fed said 3 more this year, 3 or so next year. People forget we bought so many caps for our loans. Got first payment in the last 3 months and been spending on that for 10 years. Been a wildly low interest rate environment for a long time. o JD – If rates are going to 7%, GDP is going up, if GDP going up RevPAR going up. If that all happens our cap rates should widen a bit. Slightly wider cap rates against higher cash flows means higher valuations. o GC – We ran the sensitivity on something similar. What the breakeven on the levered IRR would be. Increase in borrowing costs and sell it for a higher cap rate. We kind of netted it out to a 100bps increase in rates should lead to a 50bps increase in cap rates. o BP – It is not that linear. That spread between cap rates an interest rate is wide. A year ago that spread was historically wide. That narrowed in the last 12 months and should continue to. Eventually it will shrink to a historical norm. Eventually cap rates have to rise with interest rates, but it won’t be one for one. Hotel Values in a Changing Market

 Moderator – Danny Givertz (Hunter)  Speakers – Hank Staley (CBRE), Ryan Phelps (T2 Hospitality), Janet Snyder (HVS), Sam Reynolds (Apple REIT)

Key Quotes  On a national level, probably a little more inventory on the market vs. LY. Plenty of single assets. Not seeing the big portfolio deals like you saw in 2012. But the ones and twos are out there. – Sam Reynolds (Apple REIT)  Feel like the madness has to stop on development costs. On that front, we’re feeling hopeful that costs will start to level out if not go down a little. – Ryan Phelps (T2 Hospitality)  According to the numbers, construction costs are up 30% in the last 5 years....Seems like more to me. – Hank Staley (CBRE)  I have seen more deals collapse in the past couple years than my entire career. – Hank Staley (CBRE)

Full Notes  DG – Supply/quality assets for value? How does inventory today compare to LY? o SR – On a national level, probably a little more inventory on the market vs. LY. Plenty of single assets. Not seeing the big portfolio deals like you saw in 2012. But the ones and twos are out there. o RP – On the west coast, supply is very limited. When we see a deal, we ring the bell in the office. There are a lot of off market transactions that are occurring, very California specific. Seeing some transaction on smaller assets occur. The spread is still wide and potentially getting wider. For us it’s hard for want to go out and put something on the market.  DG – Cap rates, where are they today? Where are they going? o HS – Not a significant change. A lot of things impact cap rates – two biggest factors are underlying growth and interest rates which have opposite impacts on cap rates. Very little variation cap rates in last 7-8 years. For all asset types, projecting cap rates up 35bps by 2020 that corresponds with int. rate increase of 100bps. So just barely. o SR – From a national perspective will see modest increase. o RP – On the west coast, it’s very tight. Looking at 6-6.5% and not embarrassed to say that. Profile of the buyer has to be an aspirational buyer. Seeing people stay firm on their underwriting parameters. Cap rates in aspirational markets are confidently near 6-6.5%. Near an all-time high on NOI, metrics are in an unprecedented territory. Some hotels are going for $500 a key in suburban markets.  DG – Cap rates in secondary/tertiary markets?

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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o HS – A relatively new Hampton Inn in Jacksonville FL probably talking 8-8.25% range. Weaker brands in limited service getting a higher rate. Full service probably 20bps less. SE region quite a bit away from 6-6.5%.  DG – Interest rates increasing – How much does that have on underwriting? o SR – Not putting a lot of debt on deals. for us it hasn’t been so much of an impact compared to competitors o HS – Without a question having an impact. Few years ago new Hampton Inn recently opened: $20-25k room/land cost, 5 story building, came in at $181k/room. There aren’t many markets where you can get that, we needed ~$150ADR to make it worth it. We’ve seen more deals collapse in the past couple years than my entire career. Curious to know after people make non-refundable deposit, what % of deals go through?  DG – What stages did those deals collapse in? o HS – Turner is a great construction costs index. According to them, over last 5 years construction costs up 28%. Seems like more in my opinion o What kind of ADR on indigo to breakeven on 191 key? Need $160 ADR if talking occupancy above 70%  DG – Interest rates on financing construction? o RP – we’ve been wearing a developer hat the last 6-7 years. Specifically to development financing – it’s all about the relationship with local/super regional banks. In our experience you’ll be able to find it. Pricing is going up, can be full recourse on your construction loans – makes for a challenging environment when you add increasing construction costs. 3,000 room supply in a market, probably fair to say half of those don’t get done.  DG – Construction costs – Prices have gone up astronomically. Buy vs. build? o HS – It’s not that simple. A reason you might want to buy an existing hotel vs. construction is an operating history and most importantly not taking development risk. With boutiques have seen a lot of changes in what hotels look like/what hotel experience looks like. If you want to be in the hotel business, it’s because you’ll go through the difficulty to build it. o RP – Opened 8 in last 24 months with 6 under construction. Reason we’ve been building so much – spread between cost to build and cost of buying. Sold hotel in ’16 that built for a lot less in ’14. Much harder to do now  Cap rates in major markets – is Apple moving into secondary markets/college towns? o SR – focused more on major markets than in the past but still very happy operating in those markets  Valuation of boutique hotels vs. branded select service? o JS – Lenders understanding and willing to do more deals. In the past they were scared of not being associated with a flag. Not as high of rate ceiling with soft brands. Opportunity to have slightly lower cap rates.  Is Airbnb totally factored into valuations at this point? o SR – Not sure it’s directly correlated to cap rates but certainly a function of supply. Difficulty with Airbnb shown in CBRE presentation – 2017 supply growth 1.8%, but when you add Airbnb inventory it goes to 4.1%. Airbnb runs 50% occ-company wide. The question is: How many of those room nights would have been demand if it weren’t Airbnb? Some wouldn’t take a trip w/o it but we don’t’ really know. What we do know is that % used to be much greater than it is. When Airbnb first came out we wrote it off to SF and NY. It’s real supply, but look at industry wide occ at record highs. Maybe suggests industry demand is greater than it really seems. Don’t know answer yet but clearly a factor o RP – Hotels in Anaheim have restrictions on hotels/homes as Airbnb – will be interesting to see restrictions o SR – Miami good example – started collecting taxes, Airbnb mostly accepting of that. NYC – always been illegal but never enforced it. Now they are collecting.  DG – Impact of owner PIP requirements on values and getting deals done? Do you need a PIP in hand? o SR – Have 240 hotels, in house capex team that does 30+ PIPs a year. Don’t need one to make an estimation. For the purpose of getting offers out it certainly impacts the deal. Directly subtract the value o DG – Number from seller is always substantially less than from the buyer – usually ends up somewhere in between. From a brokerage standpoint it has huge effect on transaction getting done. Seller feels they deserve dollars, buyer feels seller needs to help cover cost of renovation. Have seen 3 deals in last 12 months destroyed b/c of PIPs o JS – Delta b/w reality and what someone tells you  On a new property – realistic number to set aside for replacement on a 3-4 year old asset? o RP – Rough avg. about 5% a year if preparing for 7 year renovation. Won’t spend much first few years. Cash flow is king, feel like ramping and getting CF now and worrying about renovation later. Tends to be 3-4% reserve (bad planning). o HS – ISHC have done a study every 5 years since 2000. o RP – Looking across portfolio, if under $100 RevPAR its 5%  Where are we at the net cycle? Cap rates going up? o RP – Always the baseball analogy. Guess we’re in a double header. The days of DD RevPAR growth are gone. If projecting 2-3% RevPAR growth in markets we’re in, costs are going up. Think if we took vote of hands it is mitigated growth, not the same hope for the future as 5 years ago. Conservative in underwriting. Bumping up cap rates 50-100bps. o SR – Feeling a little more optimistic. Tax situation boosted everyone’s expectations for the year. Tracking wage expense across all markets as it will impact the bottom line. Feel good about the make-up of the year.  Development costs? o RP – Feel like the madness has to stop on development costs. On that front, we’re feeling hopeful that costs will start

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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to level out if not go down a little.  When negotiating new contracts with brands, are you able to negotiate more time? o SR – All depends on the deal. Very rarely have those conversations. o RP – From an investor standpoint you want to push the PIP out. We’ve pushed certain parts out (ex: 2 years relief on bathrooms and renovate everything else). Brands willing to work with you on parts of it but not all of it.  Impact of new supply on underwriting? o SR – Absolutely have to account for it. In some corners you already see RevPAR impact. Have to anticipate some downside. o HS – Substantially impacting hotel values. Start with pipeline, sometimes call the brand to verify what we see in that pipeline is correct. Is there something I need to be aware of that’s not in that pipeline? In studies now we include Airbnb impact and show inventory, rates, how it’s changed over the years.  Is 2018 a buyer’s market, seller’s market, both? o SR – Look at run over last 10 years and wonder when the cycle will end. A lot of portfolio deals on the market. Pent up demand for nice urban primary hotels. Not as much in secondary/tertiary markets. Might be time if you’re a seller for a portfolio or primary deals. o RP – We’re really a family office. 20 hotels including pipeline. Don’t have preconceived plans to sell hotels. Use “opportunistic” and sell when we feel the time is right. Do all of market deals. Received calls – lot of money out there wanting to buy our hotels. Certainly a seller’s market today. o HS – Would say seller’s market if had to go one way. Material impact from tax law putting a lot of money in pockets. Lot of profitable corporations needing to spend money.

Data Geeks

 Speakers – Jan Freitag (STR), Mark Woodworth (CBRE)

Jan Freitag (STR)

 Airbnb o Boutique is where you list a room on Airbnb. My whole hotel is boutique. Then brands like Kimpton...all brands are boutique. Then all the owners are going to realize the commission structure is very different/more favorable. Airbnb will become a better millennial OTA. This is more of a risk to Expedia and Booking vs. Brands, who didn’t mention it.  TTM Feb – 1.9% supply, 2.9% demand, 1% Occ (record high), 2% ADR (record high), 3.1% RevPAR (record high)

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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o TTM RevPAR 3.1% o TTM RevPAR ex-FL and TX 2.8% o TTM FL 7.4%, TX 5.8%  Sept 2017 most active natural disaster month on record according to ACE  96 months positive vs. 56 months in prior (’02 - ’09) and 111 months prior (’92 - ’99)  Construction pipeline leveling off below prior peak (193k in Jan vs. 211k in Dec ’07)  Number of rooms in construction starts to decline in 2018  Limited service name of the game – 70% of construction in Midscale, Upper midscale, Upscale  Estimates – 2018 – 2% supply, 2.3% demand, 0.3% Occ, 2.4% ADR, 2.7% RevPAR Mark Woodworth (CBRE)

 The economy: o Economic expansion accelerating with consumer and small business confidence higher o Healthy labor market with inflation and wage growth picking up o Tax effect has yet to be picked up and can accelerate growth o Focus on two things that could end the current cycle: overbuilding and asset price bubbles o Economic perspective likely decelerates by 2020 o International inbound travel has been increasing vs. decreasing volumes we hear about o Travel demand from STR coupled with Airbnb demand has accelerated  What could end the current cycle? – 1) overbuilding and 2) asset price bubble  Pipeline: o 36 of 60 cities had supply growth above 2% o For 2018, that goes to 42 cities above 2% o Normally, more rooms added, more pressure on ability to raise rate o Late 2016 plateaued on construction, back up to 193k (slightly below 2016 levels) o Rooms in final planning and under construction picked up a little in 2017 o Construction costs going up o Looked at average time to complete branded project , we have seen construction time lengthening out o The planning fallacy –Normally budgeted at 5 quarters but hits a ~2 quarter delay vs. budget on average

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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o Adding around 10,000 rooms in the trailing twelve months which is well below the prior peak of near 13,000 rooms  Summary thoughts o 1) Fundamentals remain attractive across the vast majority of markets o 2) Growing levels of disposable income and wealth continue to drive increases in travel away from home o 3) Moderating supply growth will support high occupancy levels and may finally help to leverage ADR increases over the next 2-3 years o 4) Above long run avg. occupancy leads to revenue growth. Increasing labor costs will pressure performance. Profit growth will be durable, but not great. o 5) Sharing economy will become more of a factor for traditional hotels o 6) Outlook for lodging in most domestic markets remains favorable

President’s Panel

 Moderator – Jeff Higley (HNN)  Speakers – Geoff Ballotti (Wyndham), Ross Bierkan (RLJ), Elie Maalouf (IHG), Pat Pacious (Choice)

Key Quotes  On IHG acquisition of Regent....just have to hang around the hoop and the ball will come to you eventually. Just like basketball. Have to be around the hoop. Yeah we are after scale, but we want muscle not fat. – Elie Maalouf (IHG)  30-40 brands, you start acting more like an OTA. – Pat Pacious (Choice)  We as an industry aren’t very disciplined. If you give a developer a bank loan and a brand, they will develop. Limited supply is a byproduct of high cost of construction vs. discipline on the brand front. – Elie Maalouf (IHG)  But if it grows to scale, it must have met an owner or consumer need. So I am less concerned about too many brands. I’m more concerned if we have the right brands. – Elie Maalouf (IHG)  On Wyndham’s acquisition of La Quinta....85% of franchisees score 4stars or above on trip advisors. Our franchisees love it. It is a great deal for shareholders. Look at how scale matters. Never been more important. Small companies can’t do it on their own. Too many duplicative costs. Combine infrastructure for sales/marketing. With the synergies, it was a great multiple. – Geoff Ballotti (Wyndham)  Industry sitting on booking infrastructure built 30-40 years ago. Are we investing enough to keep up? As owners, we need our inventory on every shelf available. Have to be where the customer is. Can’t just sit back and say our distribution system is set. Need a team to be on these changes. – Pat Pacious (Choice)

Full Notes  What’s Wyndham all about? Why is La Quinta worth $2B? o GB - Excited about acquiring La Quinta. Our 21st brand. We operate 9,100 hotels. o GB – 85% of franchisees score 4stars or above on trip advisors. Our franchisees love it. It is a great deal for shareholders. Look at how scale matters. Never been more important. Small companies can’t do it on their own. Too many duplicative costs. Combine infrastructure for sales/marketing. With the synergies, it was a great multiple.  What does IHG stand for now? How is Avid? o EM – Scale. We crossed over 1M rooms open or in the pipeline. In 100 countries. 5,000 hotels with 4,000 N. Am hotels. You don’t want fat. You want muscle. You can get big with size. Yeah we are after scale, but we want muscle not fat. In mainstream limited service, we have the skills to launch our own products. 75 hotels signed for Avid. Should follow success of Holiday Inn Express. We would like something above or below Intercontinental. So we picked up Regent. Our approach is to develop limited service, but happy to buy luxury. Regent – just have to hang around the hoop and the ball will come to you eventually. Just like basketball. Have to be around the hoop.  You just bought WoodSpring to add to extended stay portfolio? Talk about the transaction environment? Why WoodSpring? o PP – Choice has been around for a while. We were the first to go asset light. Make sure your owners are making money. 12 well segmented brands. In 48 countries. We look for brands that can scale and owners want to build. That gives owners and shareholders a good investment profile. Cambria has great momentum. 120 open/in the pipe. See upscale segment as big growth. Launched a soft brand – Ascend. First to do that. Opened 50 last year, will do another 50 next year. First to do online booking. First for mobile app. First to migrate all hotels to the cloud. In WoodSpring we saw opportunity. Extended stay had fastest growing RevPAR LY. 20% in units and 20% in RevPAR. It is currently 240 hotels. We think we can grow it significantly on our platform. In the Choice family, it will juice the returns for the owners and improve distribution.  How many brands is too many? o PP – Some point of diminishing returns. Look at a market and say what % of the market is in the brand family. We are sitting at 12 brands today. We don’t see market saturation. 30-40 brands, you start acting more like an OTA. Also focus, brands fall in the pecking order. Need to keep the brands relevant for the guests.  Creating a brand organically like Avid or buying a brand like Regent? Can you get too big?

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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o EM – Need resources to keep each brand different, unique, and meaningful. I’m not a lifer in hotels. Every single panel – are there too many brands? That question comes up. The people who decide whether it’s successful or not are the people here. It may have too many brands that aren’t successful. But if it grows to scale, it must have met an owner or consumer need. So I am less concerned about too many brands. I’m more concerned if we have the right brands. o GB – As long as brands continue to stay relevant. Owners paying us for most distribution at lowest cost. We can help negotiate lower costs from 3rd party suppliers. Both La Quinta and American Inn – we were in midscale place. But wanted Upper midscale space. We say no to plenty of brands we think will trip over our stuff. It is a street corner business. Both La Quinta and American Inn really excite us. Less than a 3rd of market tracks are penetrated. o DM – I have a perspective similar to many owners. On one hand, I consider hotels as one of the most under-demolished asset classes out there. Introduction of fresh ideas/assets makes sense. We see a family of brands only delivering so much contribution and think it gets diluted. When brands reach for their handle using owners money for aspiration design that doesn’t have an ROI. New brands are a good idea, but need to have respect and thoughtfulness. We as an industry aren’t very disciplined. If you give a developer a bank loan and a brand, they will develop. Limited supply is a byproduct of high cost of construction vs. discipline on the brand front.  193k rooms under construction. 96 consecutive months of growth. How long can this last? Storm clouds? o EM – Just spent this morning with owner association board. Forward looking indicators/macro is good. We need to watch consumer data. Credit card debt growing. Some delinquency. Over-levered consumers can be a problem. Businesses are not over-levered. o PP – Look at the 70’s, 90s, early 2000’s. Lenders are stronger on covenants and not letting it get out of control. There are 10k baby boomers retiring every day. Spending on travel.  Talking international inbound traffic with Wash DC. Is that something we should be worried about? o GB – We are losing share. We were on a great 10 year run after 9/11 of increasing inbound share. 14% share we reached. Last 2 years we lost share. In 2016 we lost a point of share. Declined another 100bps in 2017. Not on a great path now. Could drop below double digit share. Arnie probably will talk about it. We have a visit U.S. travel coalition. Getting in front of the administrations and telling them we are losing/not winning. Think that is a message that would resonate with the President. The U.S. is the best country to visit. We should be talking to our Congress men and women about how important brand U.S. is. Thank goodness domestic travel has been strong to help offset international. Advocacy has never mattered more.  RevPAR been 2% for a while – how do you see that transpire? o DM – In our markets we see 2-3%. 2% is necessary to keep up with costs. We’d like to see more, but grateful. Ross Bierken said 3% needed to keep margins flat.  Guest experience – how important to an owner is the guest experience? o DM – That was the driver of us developing muscle in the F&B area. We are more active on the full service basis. Commodity travel days are over. Now experience is in. We think about how to be unique.  Direct? Distribution? Where we going? o GB – Share of occupancy coming through our loyalty programs with a guest whom stays longer & spends more in the hotel. o PP – We look at our strategy on a weekly basis. Changes rapidly. Industry sitting on booking infrastructure built 30-40 years ago. Velocity of data transfer increasing. Are we investing enough to keep up? As owners, we need our inventory on every shelf available. Have to be where the customer is. Can’t just sit back and say our distribution system is set. Google has a book now button. That changes. They shifted to a mobile platform. That shifted everything. Need a team to be on these changes.  Where does Airbnb fit in? Now allowing hotels to be listed? o PP – They started with “unlodged” people (who wouldn’t stay in a hotel). Now have people who want 7 days of experience. They are into providing certainty that I have Wi-Fi, parking, someone to meet me, something to eat. They aren’t exactly hotel bookings. Grown to 4M now. But hotel still record occupancy. Been a wakeup call to the industry. Lesson for all of us to learn. Not large threat but take lessons from. o EM – Got to 4M figure. Hit some road blocks. Now facing regulations. Same things we deal with (taxes, labor, safety, etc.). Sharing economy should share the same rules of the road. We have to think, where are they going next? There is another act. This is not the final act. They are not really invested all the way through. They are not making agreements with owners. We have to make sure we remain a differentiated experience. Give customer what they want. Invest together with owners in the right thing. We all noticed they are adding hotels. o DM – Make sure held to same standard. Better consider in your supply analysis impact of Airbnb.  30 seconds – One major takeaway? o PP – Return on investment – we are long term investors. Owners sign long-term contracts. Not just next week or next month. Where do you want to be in 10 years? Associate yourself with someone focused on long-term. o EM – We talked about moderate topline costs. Now a game of inches/fractions. Using tools we bring forward for management and direct booking. Expedia thinks member rates are making an impact. We agree. o GB – Bob said it best. Great time to be in the industry. Things are changing. Never been a more important time for advocacy. o DM – Rising costs keep me up at night. People costs going up. Take care of your people. Have to provide fulfilling jobs with

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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those attributes you will keep your good people. Hiring, training, and cycling is the real cost. The Economist

 Speaker – Aran Ryan (Tourism Economics)

Key Quotes  Wages have not kept up with unemployment. We think wage will catch up in the labor market. Labor participation rate has been rising – that has been surprising wages. That is not sustainable. Now that should plateau and wages should follow suit. – Aran Ryan (Tourism Economics)  NFIB small business optimism is historically high – never been a time when they are as optimistic as they are right now. – Aran Ryan (Tourism Economics)

Full Notes  Where is the economy going? Give as much clarity on that and what the implications are for lodging industry.  1) Economy stronger: o Global GDP is accelerating – Back to 2011 levels. Synchronized upturn. Developed and developing markets. Global GDP should be 3.2% in ‘18 vs. 3% in ‘17. U.S. following similar trajectory for different reasons. o Two pieces of upside – tax reform and recent spending bill. These 2 bills help the U.S. in 2018. o 2015 growth almost entirely consumer business. Business investment and export hurt. 2017 began to see balance of consumer spending and investment/experience. In 2018, consumer remains strong/business investment and experience step up. o ‘17 marked the return of capital investment. o Leading indicators – can’t just look at where we have been. Fed survey of capital expenditures – expectations for capital investment is spiking right now. This is good for predicting non-res fixed investment. o Consumer confidence and sentiment near record highs – have to go back to the 90s for these levels. o Unemployment near 4%. But wages have not performed as well as we would have hoped. Wages have not kept up with the low unemployment. We think wage will catch up in the labor market. Labor participation rate has been rising – that has been surprising wages. That is not sustainable. Now that should plateau and wages should follow suit.  2) What could go wrong? o NFIB small business optimism is historically high – never been a time when they are as optimistic as they are right now. o Small business owners are historically under-trained as well. How can both be true? Isn’t that how all of us feel. Very optimistic and a little worried/uncertain too. o 1) Bad policy – economic policy uncertainty. This administration has varying policy. A tug of war – tax cuts, govt. spending bills, infrastructure. But on bad side – political uncertainty and trade protection and immigration reform. o Labor force participation and productivity increases – that is pillar of growth. Immigration could limit labor force growth. o Trade wars – there is no wining. Maybe on a micro level, but not on a macro level. If U.S. dismantles NAFTA it would reduce U.S. GDP by 50bps. o 2) Fed’s balancing act of rates – raised today. We expect 4 increases this year. Consensus is 3-4 raises. First you get inflation beginning to emerge, and Fed tries to get in front of that. Happening at the wrong time, because tax reform act is raising the deficit. Short-term interest rates rise b/c of inflation and pressure on long-term govt. bonds. So whole yield curve could rise. It’s a concern. We think the Fed plotting reasonable course not too hawkish. o 3) Wages must increase – for 3% real consumer spending, real disposable income must increase, but has only been growing by closer to 2%. That gap is bad. o Top 40% of income earners increased savings. Bottom 60% decreased saving in 2016. o 4) Financial market stress – stock market loses 10% quickly. Similar to interest rate risk. Could be downstream effect. 10% stock drop probably shaves 50bps off GDP growth.  3) Room demand – where does it come from: o Supply near 2%, behaving quite well vs. 90’s and early 2000’s. Closer to 3-4%. o Some markets (Nashville 13%, NY, 10%, Denver 10%, Dallas & Seattle 8%) – in most major market, supply growth trend is tapering down vs. growing – that is good. o Demand for lodging has been setting new norms – booking more than ever before. Behavior changing o 2010/11 room demand should outpace GDP. But it was 6 consecutive years outpacing. o 15 closer to GDP at 2.5%. 17 hurricane displaced demand. o Now we think room demand tracks close to GDP o New demand: international markets, Groups, Vacation starved Americans, Seasoned travelers o The data is wrong = the U.S. overseas travel to the U.S. was up 4% o Declines from the Mid-E and Mexico, speaks to attractiveness of U.S. o Dollar weakened which helped o U.S. failed to use 660M vacation days

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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o Average 20 days per year, fell to 16 days, but coming back up to 17.5. I’m too busy is the answer. Not enough money o Fewer long full week trips and more partial trips o Seasoned travelers – 25-34 are spending 20% more than LT avg. 55 and over near 30% o 55 and over went from 3% in 2000 to 45% most recently  4 keys: o Improved economy boosts demand o Risks are real but low probability – watch for policy missteps, wage stagnation, interest rates o Supply increase presents challenge to rate o Demand will match supply

Equity and Hotel Deals

 Moderator – Michael Murphy – First Fidelity  Speakers – Nolan Hetch (Square Mile), Dana Tsakanikas (Stonehill), Larry Wright (Wright Investments)

Key Quotes  Cycle was supposed to end two years ago. If you bought two years ago, you are in the money today. Some say we are late in the cycle b/c of the length of the last two. I am not convinced that has a bearing on this one. We are still looking to deploy capital in the space. We think it is a good time to be buying hotels properly levered. – Nolan Hetch (Square Mile)  Look at rates 1Q17 vs. 1Q18 – came in anywhere between 50-25bps depending on size of deal. The debt is so competitive. – Nolan Hetch (Square Mile)  Right now is probably the best time I remember in the past decade to be a borrower. Everything from large to small transactions. – Nolan Hetch (Square Mile)

Full Notes  MM – How much money are you working with? o NH – Cycle was supposed to end two years ago. If you bought two years ago, you are in the money today. Some say we are late in the cycle b/c of the length of the last two. I am not convinced that has a bearing on this one. We are still looking to deploy capital in the space. We think it is a good time to be buying hotels properly levered. Very bullish on what really drives hotel demand. Fundamentals are great. Growth looks strong. Supply under 2%. All time occupancy levels. Actively seeking. Limited assets out there. Digging harder than we have in last decade. o DT – Have $200M. Finished raised a year ago. Deployed $115M so far. So have plenty of powder for acquisitions/JV. Our sweet spot is select service. Nothing too glamourous. o LW – We expect to buy about 10 hotels. Usually use private equity/family office/high net worth. We put up 10-25% of the total equity. We are an owner/operator. Managed/owned 185 hotels. We are now more focused on creating value vs. buying it. Working on lifestyle properties. Working on an 80k per key renovation and 130k per key renovation. We typically managed what we put capital into. For new development, it’s a long lead time. I am a location snob. Looking for barriers to new supply.  MM – Do a project from ground up? o DT – Doing a lot of ground up. Not afraid of construction but it has to be well-located. 50% of what we are doing is ground up or renovation/repositioning. o LW – Have debt funds doing construction that needs financing (non-recourse). Construction lenders capping out at 50-55% LTC. If we can gap from 50 to 70-75% and get paid double digit returns for that capital, we like to play there vs. taking less dollar construction risk. Will buy an asset and do heavy renovation.  MM – What do you prefer? o DT – There are opportunities in any market. Looking for people that know the market, see the opportunity, can clearly articulate it and have been there for 25 years. We like secondary/tertiary markets. We like sponsors with a few hotels under their belt. Property value is created through operations. Keep management capabilities separate. Peachtree owns/only operates for their own account. There is perception of conflict but nothing there. o NH – We have no internal management capabilities, but we are fully engaged in managing our managers.  MM – Prefer brand or large independent manager? o NH – Partners on both sides. Not allergic to buying branded assets. o DT – We align our interests so the people managing our assets have a financial stake in them. Debt level on last dozen deals around 60%. We like it fixed vs. floated.  MM – Look forward at raising interest rates – float correlated to RevPAR? o DT – Look at the future and fix it for as long as you can looking ahead.

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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o NH – Typically 65% borrowers. Tempting to take 70% debt right now. Look at rates 1Q17 vs. 1Q18 – came in anywhere between 50-25bps depending on size of deal. The debt is so competitive. Floating rate borrowers for max flexibility. Borrow from same 3-4 lenders we have relationships with b/c typically have complex plan out of the “vanilla” hotel buy.  MM – Why independent a big part of your firm? o NH – The brands are less valuable in some markets. Independents we think can run higher rates than the brands. Lot of talk the brands give you support in a downturn. Loved Courtyards, Hamptons, Hilton Gardens, but also think in an up market the independents can drive rate. Customer base out there (general business travelers) looking for a unique lodging experience.  MM – Looking at de-branding hotels? o NH – Bought Hyatt in Newport, RI. Newport is a collection in independent hotels. Converted into an independent. People like getting married at an independent hotel. In certain markets it makes sense. o LW – Buying two historical assets, definitely de-flagging one to make a lifestyle hotel, tearing apart the other to turn into either an independent or soft brand. Everybody behaves the same if you are tech driven and like a social space. If you target the millennial too hard to can alienate other people. o DT – Google needs to figure out the reservation system. The reason independents are doing well now is because you can create a great website and drive traffic to your website.  MM – Find headwind when trying to finance for independents? o DT – It’s gotten a little easier but is still a headwind. You need strong relationships with local/regional banks. o NH – Think of our lender as part of the partnership. Trying to create an independent property with “A+” real estate while navigating the supply coming into Austin. o LW – Location is very important. Needs to be a market like Boston, Manhattan, or Charleston.  MM – As interest rates go up/spread compress, what’s the implication on your activity in the next 12 months? o NH – So much debt capital has been raised. Rates will stay low. The money has been raised and has to get out. Less transactions so the money is spread out among fewer competitors. Right now is probably the best time I remember in the past decade to be a borrower. Everything from large to small transactions. Optimistic on a strong lending environment. o DT – Scale matters in getting rates. We’re getting 4ish on a very complex asset. We’re gonna always test the market with multiple lenders. Today is still an amazing time to borrow money in the history of debt financing. It’s not gonna get cheaper

Bharat Shah Leadership Speaker Series – Arne Sorenson

 Moderator – Mit Shah (Noble Investment Group)  Speaker – Arne Sorenson (Marriott)

Key Quotes  Bill is a “founder” of the company. Dramatically grew it. His impact profound. I’m the guy who follows him. Can’t be him. Do the best to maintain the culture that has taken us this far. At all costs try to not screw it up.- Arne Sorenson  So I started that in Oct ‘98. Inauspiciously, my first day as CFO was the 3Q98 release. I never even listened to an earnings call at that point. Mike Stein, our prior CFO, in the room and says, “Want to intro new CFO Arne Sorenson.” Mike Stein, stands up and walks out.....All unfamiliar to me. We lost 10% of our value that day. We had company in the markets (Russian ruble). It was not a call you leave the room and say,” man that went well.” – Arne Sorenson

Full Notes  Tell me about your migration? o It is an old story. My people came from Norway. Scandinavians migrated together towards the Midwest. We had Norwegian meal. Cod that is cured in wine. It is awful. No one in the old country eats it b/c it is so awful. o My great grandmother born on a farm 1851. I went back with my family a decade ago. Walk into a radio shack. I’m looking for the farm Lia. Go up the road 10 miles. 3rd bridge. Go up the hill. You’ll see the farm. Not a palatial spread. 15 acres. Knock on the door and in 15 min we are having coffee.  Luther College played quite a role. Talk a little about that. Frame that community? o We have 100s of schools like that. Started often by churches. To train teachers and preachers. Both of my grandfather’s went here. My dad, brother, and I went there. My son graduated last year. It is a little less focused on preachers and is a classic liberal arts school. Great place to grow up.  Father born 1927. In 1945, Japan surrenders. Your dad is in Japan. Comes back to the U.S. Walk us through the journey? o My dad was 17 years old in the military. Was in Japan just for a year. Fell in love w/ the place. Came back went to college. Became a Lutheran preacher. Met my mother/got married. Spent 13 years in Japan. My dad born in Wisconsin. My mother Nebraska. To go from the Midwest to Japan in the early 50s was stunning. We went back and forth by ship. There was no live communication. We have a letter per week sent from my parents back to my grandparents. We left there when I was 7. So I have some Japanese memories, but my memories were the same as any 7 year old. Was not having a deep cultural conversation as a 7 year old. Remember fun times.

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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 Comfort food? o Give me some sushi.  Growing up in Japan, you come back to the U.S. Your father was a Lutheran minister. Growing up in Minnesota? o Moved back to St. Paul Minnesota. Luther Seminary. My dad was a world executive, overseeing missions etc. He was traveling and bringing people in from around the world all the time. Small Midwest experience, but it had a global favor to it. I remember being 9, listening to political or church issues in the rest of the world. It gave me curiosity.  So did you voluntarily or involuntarily bring yourself to Beirut? o In 1979, my dad had been in Sicily the winter before and came back and said, “Some people are getting together in Beirut, I think you should go.” I was 17. Can you imagine if I told my kids, you should go to a war zone? I first flew to Europe, and took a flight from Athens to Beirut. Classic chaotic arrival. People all over the airport, fighting to find bags. 7 check points controlled by a different militia on way from city. Med on Left. Mountains on the right. For 5 miles there were piles of trash 6 stories high. The country had been at war for 6-7 years. Every building showed signs of war. It was as jarring experience as you can imagine. Totally different place w/ different circumstances. These people who had lived through this still had a zest for life, optimism on the future, incredible hospitality.  Decision to be a litigator and how you learned from that? o Went to law school thinking it was great training and maybe I could have more than one career, but didn’t have a deep sense of what to do. Graduated 1983, big firms were hiring hand over first. Lived in LA and NY, but ended up settling down and becoming a travel lawyer.  Now you find yourself with a big company with a new plan? o This is important to structure of the hotel business. Before ‘91 (first gulf war/also a financial recession) Japanese real estate investors pulled out of acquiring in the U.S. It all created a tough environment for Marriott. We previously built hotels on balance sheet and sold them off while maintaining management contracts. o Had way too much debt and exactly the wrong type – short term callable debt. Suddenly in a recessionary environment, Marriott had too much debt and RE on the balance sheet, and the stock price in today’s terms was $0.20. Mr. Marriott famously wandered the halls asking if we could make payroll. Steve Bollenbach after restructuring Trump organization. Marriott reached out and said be CEO we could use your help. Classic Steve. He comes in. He was a brilliant deal maker. Wasn’t very interested in execution. Someone else can deal with that. His simple idea: let’s leave owned hotels/hotels under construction and debt with Marriott. Let’s spin off the brands, franchise, foodservice timeshare, management business into Marriott International. o I worked for that company as Marriott International. Company left behind is Host. The day the deal announced company was sued a dozen times. Merrill Lynch was key advisor. Merrill fired Marriott. Bond committee: If you continue to perpetuate this fraud on Marriott’s debtholders, we will never use your desk to trade bonds again. Merrill fired us on the cover of the wall street journal for a transaction that was unfair. That’s my intro to the company. Got to know Mr. Marriott well. He is a classic listening leader. He would call his in-house council, Steve Bollenbach back. He would ask, what happened today, what are we going to do? Where is this going? Through that we developed a relationship.  Mr. Marriott characterized the situation as the most difficult he’s ever faced: Takeaways from the Jury trial? o It was a 3 week trial in federal court in Baltimore. Crusty old judge. Put Bill Marriott on the stand. It was a simple case on one level. Folks who had bought bonds issued by Marriott said transaction not fair. Bonds had a contract and its crystal clear it did not prevent us. Jury has to see heart/motive. They are going to try and understand. That’s why you go through all these witnesses. Try to structure fair. Bonds paid off. No economic loss. Telling a story. We all want to understand the story, so that’s what we tried to do.  Bill Marriott, deep rooted family. For Bill and his father. In 1964, the succession. He was 34. Didn’t know if Bill had enough experience. Having you as someone to call every night. He felt incredibly loyal. You get a call from Bill? o Bill says, come out and join the Marriott team. I was an evening call. I say I would be happy to come out but not as a lawyer. He said ok. I said ok I’ll come. I was an idiot. I did not say “what’s the job?” or ask any basic questions. I had been practicing law for 12 years. Was in the half family litigation. Internal family battle. Was in a 3 month trial. 3rd month when he called. There is great legal work. Great fees. High profile trial, but worthless. Accomplishing nothing watching a family self-destruct. I’m doing good work but why not do something different. o I was in law department for 8 weeks then worked in M&A. First deal was Renaissance. Perfect way to learn the hotel business. What’s the brand, what’s the staffing model? What would we do with that brand? What’s the financial model/how do we pay for it? What does it mean for our growth strategy? Did that for a couple years. Jim Sullivan running development and he was a fabulous teacher. Looked at Intercontinental and Westin. Didn’t do that time, but found a way to get Westin later.  Next call you got from Mr. Marriott was a bit different? o I’m traveling in Japan. Mr. Marriott wants to see you at his house Saturday. Unusual request. My wife says I hope you’re not getting fired. Go Sat morning. He explained Mike Stein was leaving and wanted me to be CFO. Until that conversation, the idea of being CFO never crossed my mind. Not something I pined for. I said you’re crazy. I’m a lawyer not an accountant. He said: that’s fine you have a great team.

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

Cleveland Research April 2, 2018 Page 19

o So I started that in Oct ‘98. Inauspiciously, my first day as CFO was the 3Q98 release. I never even listened to an earnings call at that point. Mike Stein in the room. Want to intro new CFO Sorenson. Mike Stein, stands up and walks out. For earnings calls, there is a routine to this. There are prepared comments and people ask questions. All unfamiliar to me. We lost 10% of our value that day. We had company in the markets (Russian ruble). It was not a call you leave the room and say, man that went well.  Journey from there? o Just id a call in Feb of 2018...It was my 78th straight earnings call. The correct response is get a life – how many can you do. I was CFO 10-12 years. Had boo-boo times in the late 90s. Get to 2001, terrorist events profound. 3Q 2001, RevPAR down 10%. That’s the base environment when 9/11 happened. Go through another recession. Chance to work with industry icon – Bill Marriott through the process. Be involved with a company growing and personally growing. Enjoyed every day.  Bills succession. Bill has publicly said, much like his father, he had hoped his children would succeed him. So many family businesses exist in our industry. Their name is on the door. Bill took over for his father. What I found interesting in talking to him and seeing how this unfolded.  He ultimately came back to trust between the two of you. Had to do what was best for his kids and the company. Intentionally made you president of Europe. In his words – here is a guy to be litigator. Litigators don’t always have DNA as great leaders. He wanted to test that thesis. He has publicly said your background with your parents, having this ability to know and embrace other cultures/people gave you the uniqueness to think about this global business. Started with $85M of revenue. When he transitioned in 2012 it had $11B of revenue.  How did you think through that moment in time? There was only 2 CEOs. Now only 3 CEOs for a 90 year company. o 3rd CEO. People say that over and over again. Sounds like a huge deal. Never been a big deal for me. It has been a gradual process. I’m CEO because Bill turned 80 and need a new CEO. Part because not his son. Part because I was there and had been working together for 20 years. 6 years prior I had been publicly identified as a successor. There was a precise day when it was announced. But it was just the way the relationship evolved. The European thing. Go learn about operations. Even after the formal transition, he is chairman and very active in the business. He is a mentor and partner to me today. o Never think I’ll be the next Bill Marriott. That’s foolish. Bill is a “founder” of the company. Dramatically grew it. His impact profound. I’m the guy who follows him. Can’t be him. Do the best to maintain the culture that has taken us this far. At all costs try to not screw it up.  Marwood? o Remember I was in M&A. We didn’t buy Westin. Starwood did. Putting together Westin and Sheraton. As they are creating principal competitors, is this something we should be interested in? Was never for sale. Question on value and strategy. Early 2015 Starwood puts itself up for sale. That by itself is the biggest factor. If a co doesn’t put itself up for sale, no matter how much you want to buy it, it will be a difficult thing to accomplish. o I talk to Barry. Are you looking at it? Should we do this? We both say it’s damn expensive. Not sure it makes sense to jump in. We sort of say let’s not do it, and communicate it to the board in May. o By October board meeting, we decide maybe we should jump in. Stocks have moved/economics got better. In those 4-5 months, we spent time negotiating with and watching technology disruptors in our industry. Almost go dark on Expedia platform b/c of those negotiations. I visited Google, FB, Alibaba. All this is churning and it is becoming apparent, being bigger is an advantage and economics are better. o I put a call in to chairman of Starwood on Friday afternoon. I think we are interested. Bruce Duncan quiet. I say “Bruce you should ask me, why should you believe me?” He said ok that’s a good question. I gave him the answer. I outlined valuation/structure. Silence. I said “Don’t feel like you have to answer now. Get with bankers and lawyers and figure it out.” o Next morning, he says “lets go.” I think Hyatt was within moments of binding that deal if we waited another week. o We have next board meeting. Board says “Wait a minute you said you weren’t interested in this. What’s the story?” o Was together with Mr. Marriott. I say - Don’t say anything b/c you don’t know enough to react. Let us do the work this week and sit with you in person and explain why we should move on it. o Happened a few days later. He says “this is compelling, let’s do it.”  Having a love and support of those around us is really the most important thing. The professional journey you’ve had really represents that when you believe in people, good things happen.

Young Hoteliers Seize the Future

 Moderator – David Perrin (Hunter)  Speakers – Ricky Raman (PeachState Hospitality), Caroline Karlberg (Legacy Ventures), Alex Moeckel (IHG), Chas Henry (GF Management)

Key Quotes  I think as a franchisor half the day and a franchisee half the day. – Ricky Raman (PeachState)  Loose lips sink ships – Chas Henry (GF Management)

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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 Planning a honeymoon and parents’ friends are recommending a travel agent...what’s that? – David Perrin (Hunter)  I am getting an MBA in diaper changing, so now it is all about direct flights and suites. – Alex Moeckel (IHG)

Full Notes  RR – My time at Marriott was invaluable in giving me a global perspective and preparing me to get back into the family business of owning/running hotels. I think as a franchisor half the day and a franchisee half the day. Working on MBA along with my day job in the family business now. Take what I learn on Monday and put it to work on Tuesday.  AM – My mentor sold Holiday Inn’s. Interesting being at IHG now, it comes full circle. I had the pleasure of working at the Four Seasons Maui – no idea why I left. That gave me a sense for operations/guest interactions. Eventually moved over to the finance side. Graduated in ’08 which was an interesting time, was fortunate to land an opportunity at Easdil. My time there was almost like an accelerated MBA.  CK – After some time at Goldman, I did some soul searching and realized Wall St. was not for me. I went back to school for my masters in hospitality. My first two years at PKF was a continuation of my hospitality education. Legacy ventures was one of my first clients at PKF. Did not apply – just got a call one day and here I am.  CH – It’s hotels, it’s not rocket science. My first two years with GF was just an educational experience. Still learning each day.  DP – At IHG, they have to hire MBA’s to pick the new soap.  AM – What I like at IHG is ability to grow within. Most on the development team are internal hires. I got flat out lucky to get a position at IHG. The message there is persistence. Not taking no for an answer.  RP – For us, we try to apply what would we want to experience in a hotel and make that happen in the product we create.  CK – So often, I get roped into the discussion b/c they want to “get a millennial’s perspective.” So yes, I think what would I want in a hotel/how do we meet that need.  CH – Most of the new brands (Moxy, Even, etc.) and the demographic they are targeting, you have to remember not every brand is right for every market. Who is not a millennial these days – who doesn’t want connectivity or a good experience? A business traveler today wants what millennials want.  AM – What’s relevant for a specific traveler in a specific location. Don’t want to develop a fad, want to develop something that will last. Working with the first and second generation of owners is a privilege. Learn so much with our franchisees. Understanding what they want to do / their vision for the investment. They won’t continue to do business with you if they are not making money.  Any mistakes? How did you course correct? o CH – Loose lips sink ships. We have had some deals blown up with information getting out that should not have. o RR – Ask the question. Don’t just work hard, work smart. Asking more questions to the people who have the answers. o CH – Ask for the business. How can we work together? Don’t be timid. Early on, I think I was too timid. o RR – You miss 100% of the shots you don’t take. o DP – It’s a small industry. Be in it for the long haul.  How do you travel personally? o AM – I am currently getting an MBA in diaper changing. Our flight patterns have changed as our hotel preference has changed. I am looking for suite product. Need a one bedroom suite with a kid. It used to just be find the best luxury hotel I can afford. Always book direct. o RR – As I book, if I have the experience in mind, I may sacrifice sq. ft for the location. I am also a big believer in booking direct given my background at Marriott. Like to book on a moment’s notice. o CK – I always book direct b/c I feel I owe it to the property. I use Trip Advisor to look at pictures/reviews. o DP – I’m planning a honeymoon. All my friends’ parents gave us their travel agent. What’s that? I want to be in control. Don’t want a travel agent that is going to steer me here or there. o RR – There is a huge proliferation of travel bloggers. No longer need to play the guessing game. o CH – Use Trip Advisor for everything, but always book direct. My girlfriend and I went to Paris. This is my millennial kicking in – I read where the hotel was located in the area, perfect walking distance. No rigorous schedule and allows us to experience the city in a flexible manner. Doing your own research is half the fun.  Airbnb a threat? o CH – Used to be more of a threat. NY and SF hurt by it. Miami Beach same thing. Now that regulators and tax and legislation is catching up it is curtailing it to an extent. Always going to have adversaries to lodging industry. Consistency of experience is important. I think full service hotels in large gateway cities could be disrupted a bit. o RR – Not a threat. If I am a business traveler, a hotel can give me a better experience. Personally, maybe alternative accommodation is better for a leisure trip o DP – A threat in Austin, yes. In smaller markets that are corporate driven, no.

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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Keynote Address: Leonard Brody (Clarity Digital)

Full Notes  The important question: How is this cycle different than anything before?  The great re-write: All started around ’09 – A lot of drivers changing around us that crystallized into one big bang which we call the “great re-write”. We are re-writing the world from the ground up. Pressing the reset button on operating system of our world.  Post-innovation era: Would argue that since ’09 we are living in post-innovation era. Concept of innovation slightly outdated and no longer helps us. 15 years ago innovation was tied to 1) discussions around tech and 2) discussions around business models. Now we are living in largest stage of human behavioral shift in history.  Entrepreneurship: Grew up in a family that owned hotels and started working at a young age bussing tables. Career began realizing hustle came from desire to do anything at any time that other people didn’t want to do. Worked for a live sport & entertainment business and became chief digital officer (mostly in the hospitality business). By the time I left we had 160 hotels, most were flagged but some we managed. Involved in back stages of thinking “what do hotel brands look like?” Spent the last 20 years in the hotel business. We re-wrote the entertainment business and the human being.  Re-writing the human being: Almost 90% of change experienced in the world today is human driven. Has the change been for the good? Life expectancy now is 2.5x what it was in 1900 (85 years vs. 42 years), also height (avg. 3-4 inches taller). Reality is we are physically different beings. Less poverty, more access to democracy, higher literacy. We are substantially better off.  Two claims people always make: o 1) We’re living in moment of mass scale human death. Since 1400, we are in the time of lowest human-caused death, and the number one killer by a factor of 1,000 is cardiovascular disease o 2) Technology – A person living in the western world today works roughly half the hours of a person in 1900  We built the problem: We are living in largest area of mass institutional shift in history of species. Govt., religion, hotels, you name it, are built on premises that are fundamentally changing. We are living in a disconnect between the people we have become, the tech and tools available, and the failure of our institutions to keep pace with that.  Inversion: The institutions we follow are based on power hierarchy. The reason the internet mattered in 1996: was the first time we owned our own communication at mass scale on a global level. Pre-1996, mass communication was controlled. Everyone now has the ability to speak at a global, consistent, cost effective scale. Consumer companies are now inverted. Examples: United lost $1B in market cap after last year’s incident. FB dropped $50B market cap in 7 days last week. That is what inversion looks like.  Changing behavior: Your behavior has changed more since the rise of the consumer internet than in any other moment historically. Many of you find that hard to digest. The avg. North American spends 2/3rds of the working day and 63% of time with friends and family in virtual identity, not physical one.  Why you should care: You do things in your virtual reality you would never do in your physical world.  Trust: You’d think trust is a very physical thing. Avg. internet user 4 times more trusting in virtual identity than physical one. Don’t know why. In the next two years, hotels have to focus a lot more on catering. When you speak about a guest, you have to speak about that guest in both their iterations. Virtual self is part of a hotel stay.  Marriage: At year end 2017, 66% of all marriages originated online. Divorce rate of people who met online is 15-20% lower than people who met in person. 3.2B children will be born from online originated marriages. Fundamental shift in parenthood.  How we re-wrote the human being: Tupac Shakur hologram performed live on stage interacting with the crowd. Michael Jackson hologram performed a song he had never performed live. Deep impact for hospitality difference – Studies show people would pay the same to see a hologram as the real person.  Hotelier focus in the next 3-4 years: A giant white space will be filled. Typically have a property/commercial owner and residential owner zoned where short term rentals are legal. In the next 2-3 years you will see smart hotel brands create micro- hotels that are fully serviced as hotels in a residential environment (not Airbnb, REITs and large hotels)  “Resi-mercial”: Go to a residential owner and have a hotel spread out around every neighborhood in the city where you could never justify having a full hotel. Early companies in the space like Sonder doing $100M in revenue. Hoteliers in the traditional commercial space will want to work and co-work inside the hotels. People will want to have comfortable interesting environments to freelance and work in those buildings. The “resi-mercial” will grow very quickly. If you’re a VC like me, you’re looking for the next 15 Sonder’s that will be billion dollar companies in the next 3-5 years.  Hospitality is entertainment: Hospitality and hotels are the entertainment business. Hotels were always about beds/showers/lobby  migrated to experience/local  think we’ll move to concept of programmable space: hotels of any size (no matter service, food, guests) will start to see themselves in the entertainment side of the house. Both physical changes and shift in how staff sees themselves. Content has to move from being marketers to being story tellers.  Loyalty: Think owners will get a lot more sophisticated. How you help hotels pull themselves off of OTAs. Going back to the era of triple A’s and affinity clubs. People will create paid-for programs making corporate rates with deep focused demographic information. A way of mass marketing loyalty we haven’t seen in 50 years. You have to cater to technical beings walking into your hotels. Simple things like a water fountain.  Voice: Hoteliers will fundamentally shift. Amazon/Google home is the fastest growing consumer technical product in history.  Artificial intelligence: You will hear a lot about AI over next few years. AI is not new. It literally means “you will get to the

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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point one day that computers can think.” Where we are now is the machine learning phase. Machines can now take volumes of data. We are 6-7 years away from being in a state of no longer being the predominant species on the planet. Two reasons it has happened – we now have 1) cheap computing power to make it work, and 2) data: 90% of the data humans have ever created has been created in the past 24 months.  Artificial intelligence for hotels: o 1) Guest profile intelligence (GPI) – Hotels haven’t done nearly enough. Guest profiling is a sophisticated business that will make the difference. They should know a ton about me and they don’t. o 2) Content intelligence (CGI) – have to become very sophisticated at pointing content to guests who want it at an early phase in their life cycle of decision making. Most will be driven by machines telling you what content needs to be placed real time into ad or media channels o 3) Correlation – most should be involved with companies that have correlation efforts. Everyone has the same data. Such as what time guests are checking in. Need to make changes live time based on correlations nobody else is realizing  Closing thoughts: The thriving companies are focused on being right on the front lines about things putting them out of work. You are equals with the people that end to disrupt you. Need to be testing on a consistent basis. Never be saying no. When new opportunity comes, focus on the 15% of customers who want to test things.  Rule of 10: Make sure 10% of your time, capex, energy, resources is spent focused on testing. Be asking “what is the 10%”? Muhtar Kent (Coca-Cola Chairman of the Board)

Key Quotes  Globally seeing a broad based upturn. Not as strong as we would like. Global growth hit 3%. Strongest since 2011. For 2018, it should edge up to just over 3%. The United States is my favorite “emerging market.” – Muhtar Kent (Coca-Cola)  Millennials want it now. Want it seamless. Generally optimistic. Tech savvy. Early adopters. More in common w/ peers in other countries than their parents. – Muhtar Kent (Coca-Cola)  New role of a brand. You used to make a good product, with a good distribution system and good communication. Create positive consumer impressions. Connect at point of retail and purchase done. Today the job is to create positive consumer expressions. Consumers have to talk positive about the brand between themselves. A link between brand love and business respect. – Muhtar Kent (Coca-Cola)  Households consume 26 beverages per day. We are only 2 of those. Have a lot of room for growth. – Muhtar Kent (Coca-Cola)

Full Notes  Atlanta is never content or complacent. Always striving to get better. An enduring travel hub. Makes it the perfect place to gather.  Today I would like to give you some insight into our business and the trends we are noticing right now  I started in 1978, 40 years ago. A sign on Peachtree Road. An electronic billboard that counts the population. It read 660k when I joined now it has 6.6 million.  Our brands touch every nation (207 nations) except for 2 – Cuba and N. Korea  For the first century, we were a 1 brand/1 product business. Now have 500 brands. 21 of which are $1B plus brands.  We visit 27M retailers with a fleet of trucks that are more than UPS and FedEx trucks combined.  Goal is to have Coca-Cola always in an arms’ reach. That is driven by consumer marketing and an amazing distribution system.  In focus: Aging global population, rise of youth consumers, shifting econ centers globally, resource scarcity (water, energy, time)  Consumers more empowered than ever with a global middle class  800M new global middle class created in the decade  Mobile communication give consumers a larger voice than ever before  More intense focus on health/wellness  Urbanization – growing by leaps and bounds. Potent drivers of civilization and disruption  Around the world, I find that city mayors and governors are doing a good job. Making decisions that benefit constituents.  Bring the mayors into the room, CEO’s in the room. And let’s see if we can get something done. Write down commitments and don’t start a new white page until we finish this page. We were like minded and action oriented. So we complain, but some leaders are dynamic and effective.  Hyper connectivity – technology adoption accelerating. 600M tweets sent today, up from zero 12 years ago.  Disruptors – mobile web. Internet of things. Experts expect a trillion devices to be connected by 2025.  Rising millennial group – in America, 2 years ago became largest cohort topping the baby boomers. They want it now. Want it seamless. Generally optimistic. Tech savvy. Early adopters. More in common w/ peers in other countries than their parents. They want businesses to have a positive impact in the world. Employees want to have a purpose. More than half want that purpose to improve society/the world. Help the planet. Don’t want to be talked to. They want to engage with brands and have a dialogue.  New role of a brand – Used to make a good product, with a good distribution system and good communication. Create positive consumer impressions. Connect at point of retail and purchase done. Today the job is to create positive consumer expressions.

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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Consumers have to talk positive about the brand between themselves. A link between brand love and business respect.  Stakeholders – At Coca-Cola we know we need thriving/growing communities to have a thriving/growing business. We focus on building long term value creation for not just shareholders but for a host of stakeholders.  Women are pillars of our communities and make 55-60% of purchasing decisions for our brands. We set out to create a more even playing field for women in our common. Rose from teens to 40% now for senior executives. Set out to empower 5M women entrepreneurs in this decade. We have 2 years to complete. We will reach that number.  Water – We became water neutral in 2015. Improving people’s respect for that scarce resource.  Well-being of business, communities, families. Improving availability of medicine. We now have more low-calorie beverages to combat obesity. 40% of our 4,000 products are low or no sugar.  Share a coke – Replaces our brand name with names of individuals. Consumers demanding a shift from mass marketing to mass customization. Fans/consumers can create their own mixes – freestyle. 130 beverages in a single machine.  Households consume 26 beverages per day. We are only 2 of those now. Have a lot of room for growth.  Globally seeing a broad based upturn. Not as strong as we would like. Global growth hit 3%. Strongest since 2011. For 2018, it should edge up to just over 3%. The United States is my favorite “emerging market.”  Free money spoils parts of the algebra equation. Haven’t had a period where int rates were this low for this long since WWII.  US tax reform is helping spur economic growth. Quarter by quarter getting better.

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316

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Appendix

Companies Mentioned in the Report: Hilton Worldwide Holdings Inc. (HLT: $78.76 – BUY) Marriott International Inc. (MAR: $135.98 – NEUTRAL) Hyatt Hotels Corporation (H: $76.27 – NEUTRAL)

Cleveland Research Company - Ratings Distribution Rating Percent Buy 22% Neutral 77% Underperform 1%

Disclosures Buy: The stock’s return is expected to exceed the market due to superior fundamentals and positive catalysts. Underperform: The stock’s total return is expected to underperform the market due to weak fundamentals and a lack of catalysts. Neutral: The stock is expected to be in line with the market due to full valuation and/or a lack of catalysts. Valuation and Risk: Price targets are established under various valuation methods including P/E, P/S, EV/EBITDA on financial estimates based on forward earnings. Price targets are not established for every stock. The price target’s effectiveness may be affected by various outside factors. Risk assessments can be found in the most recent research on these stocks. Other Disclosures: We, Vince Ciepiel & Henry Gerlach, certify that the views expressed in the research report(s) accurately reflect our personal views about the subject security(s). Further, we certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report(s). The analysts responsible for the preparation of this report have no ownership stake in this company. Cleveland Research Company provides no investment banking services of any type on this or any company. Proprietary research and Information contained herein which forms the basis for findings or opinions expressed by Cleveland Research Company may be used by Cleveland Research for other purposes in the course of compensated consulting and other services rendered to third parties. The information transmitted is intended only for the person or entity to which it is addressed. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. Member FINRA/SIPC

VINCE CIEPIEL, CFA HENRY GERLACH, CPA MATT VARABKANICH [email protected] [email protected] [email protected] (216) 649-7253 (216) 649-7206 (216) 649-7316