Valuation Of: Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ

Valuation of: Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ

TABLE OF CONTENTS

Executive Summary ...... 1 Property Record ...... 3 1. Location ...... 3 2. Description & Accommodation ...... 4 3. Structural Condition and Repair ...... 6 4. Statutory Enquiries ...... 6 5. Tenure ...... 7 6. Operational Structure ...... 8 7. Local Hotel Market Analysis ...... 8 8. Business Analysis ...... 9 9. C&W Trading Projections ...... 12 10. Principal Valuation Considerations ...... 15 Appendix A: Maps and Plans ...... 18

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The hotel lies adjacent to the M4 motorway, 7.5 miles east of Swansea and 2.3 miles west of Neath.

Description The hotel comprises 91 guest bedrooms with ancillary Great Room and three meeting rooms. The Property was constructed in approximately 2003.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) forecast

Occupancy 75.53% 75.44% 74.92%

ADR £57.64 £58.87 £59.38

RevPAR £43.54 £44.41 £44.49

Total Revenue £1,609,721 £1,643,175 £1,638,345

NOI (post FF&E)* £443,883 £496,328 £358,737

Profit Margin 27.6% 30.2% 21.9%

*2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 75.00% 75.00% 75.00%

ADR £59.50 £60.69 £61.90

RevPAR £44.63 £45.52 £46.43

Total Revenue £1,641,249 £1,674,074 £1,707,556

NOI (post FF&E and £351,154 £358,177 £365,341 ground rent)

Profit Margin 21.4% 21.4% 21.4%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £3,300,000

Capitalisation Rate 10.75% Discount Rate 12.75%

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ

Gross Initial Yield 10.75%

Capital expenditure None deducted from gross valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • Good connectivity to the M4 motorway; • Good levels of hotel demand in local area, with relatively good corporate demand generators; • Strong and stable management team. • Relatively limited direct competition within the immediate locality.

Weaknesses / Risks • Peripheral location on the outskirts of Swansea; • Road noise from the M4 motorway, accentuated by lack of air conditioning in bedrooms; • Poor customer feedback for adjacent Harvester restaurant, which is sometimes associated with the hotel on web based customer reviews; • Investment appetite for Swansea is likely to be more limited than for many of the other hotels within the portfolio.

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 9 May 2019. The inspection was undertaken by Ian Thompson, MRICS.

1. Location

1.1. Location

General Swansea is located on the south coast of Wales, within Swansea Bay, which opens on to the Bristol Channel. Swansea lies approximately 40 miles west of Cardiff and 50 miles west of Newport. Bristol is approximately 80 miles to the east, accessible via the Severn Bridge. The hotel is reasonably well located within the context of the local market, lying directly adjacent to Junction 43 of the M4 motorway. Swansea town centre is located approximately 6.5 miles to the west, while the town of Neath lies approximately 2.3 miles to the east. Port Talbot is approximately six miles south east of the hotel. Surrounding land uses include the M4 motorway to the east, a David Lloyd leisure and fitness club to the south and a Harvester restaurant to the west. Swansea has a predominantly post-industrial service economy, with main employers including 3M, Bemis, 118 UK/Conduit, Admiral Group, Amazon and a number of public sector organisations including the DVLA and HMRC. Public sector employment in Swansea is significantly above average, at 11.1% of total employment compared to the average of 6.8% across Wales (ONS, 2016). According to the latest estimated in mid- 2017, Bath and North East Somerset count a resident population of 245,480. The hotel itself is located just within the border of Neath Port Talbot Council. This local authority borders Swansea and has a population of 141,600 with a profile otherwise similar to Swansea in terms of demography and employment. Swansea also has a number of tourist attractions, with 4.59 million visitors in 2016 according to the City and County of Swansea. Attractions include The Gower Peninsula, which received the European designation of Area of Natural Beauty in 1956, and numerous beaches along the coastline.

Site Boundary

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

2. Description & Accommodation

Summary The hotel comprises 91 guest bedrooms with ancillary Great Room and three meeting rooms. The Property was constructed in approximately 2003 and is arranged over ground, first and second floor. The building is of brick construction underneath a pitched tiled roof.

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

Category Unit Count

Twin 25

Double 60

Accessible 6

Total 91

There are three room types – twin, accessible and double rooms (which can accommodate up to three guests). There are 25 twin bedrooms and 60 double bedrooms. In addition, there are six accessible bedrooms which have an interconnecting door. The style of the bedrooms is Fourth Generation, having been refurbished in 2015. The bedrooms are not fitted with air conditioning units.

Food & Beverage The primary dining area is The Great Room, a seated open plan restaurant offering 60 covers. A breakfast buffet servery lies adjacent to the Great Room. The bar and lobby area extend from the Great Room adjoining the reception, and offer more casual soft seating. There is air conditioning to the ground floor public areas.

Meeting Rooms There are three meeting rooms, one of which is significantly larger with a capacity of 25 theatre style, while the smaller two each have a capacity of 12. All meeting rooms have natural light. Additional food and beverage packages are on offer alongside meeting room hire. There is air conditioning to the meeting rooms.

Car Parking There are approximately 130 car parking spaces, which are offered free of charge to guests. The car park is shared with the adjacent Harvester restaurant.

Back of House Accommodation There is appropriate storage provision and back of house accommodation. The staff room is able to accommodate eight covers.

3. Structural Condition and Repair The Property has been well maintained and was found to be in good condition. Following construction in 2003, the hotel was further extended in 2006 with the addition of 18 bedrooms. The hotel has undergone various refurbishments since construction; in 2012 The Great Room and meeting rooms received a soft refurbishment, which included new fitted carpets and painting. In 2015 the bedrooms were refurbished to Generation Four standards. This refurbishment included the redecorating of wall coverings, the replacement of desk with a moveable work surface and an iconic red chair, and the upscaling of the headboards to include charging sockets. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £28,538 £51,378

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £7,800,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings) You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Ground Conditions Potential liabilities have been identified under the relevant contaminated land legislation. We recommend further investigation prior to drawdown of the loan. For further comments please refer to the head report.

Flooding Risk

The property falls within Flood Zone 1, with a low probability of flooding.

Environmental Considerations Please refer to head report.

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

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

Business Rates

Demise Description Rateable Values Holiday Inn Express, Swansea Hotel & Premises 139,500

In Wales the Non-Domestic rating multiplier for the fiscal year 2019/2020 has been set at 52.6 pence in the pound.

5. Tenure

Title We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017 and based on this we summarise our understanding of the title below. The Property is held freehold although the proposal is to sell the freehold interest and simultaneously be granted a ground lease back. The terms of the ground lease are set out in the head report.

Overview

Type of tenure Proposed long leasehold

Title no(s) Unknown

Lease Term 125 years

Rent £74,449 pa to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%.

Any material encumbrances or unduly None other than disclosed in the draft certificate. onerous / unusual easements, restrictions, outgoings or conditions?

Any title characteristics likely to have an None. adverse impact on value, either now or over the proposed loan term?

Full details of the proposed leasehold interest are detailed in the head report.

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday inn Express brand.

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are 37 hotels and 1,540 bedrooms in the area of Swansea, all of which are located further than a mile away from the subject Property. The market is dominated by the budget segment with 577 rooms, followed by four-star hotels with 525 rooms. This compares to a national trend characterised by less than 30% of total rooms in the four-star category and approximately 25% of total rooms in the budget sector. Of this supply, over 60% is branded, with Ibis, Premier Inn, Travelodge and the subject in the budget sector.

7.2. Competitor Trading Analysis Smith Travel Research (STR) is an independent research firm that is recognised by the hotel industry as the standard source of reliable data, providing operating statistics on the local market as a whole. We have been provided STR data for the hotel and the following competitive set of hotels: • The Dragon Hotel Swansea • Mercure Swansea Hotel • Holiday Inn Express Swansea East • ibis Swansea • Premier Inn Swansea City Centre • Premier Inn Swansea North • Travelodge Swansea Central Hotel The direct competition to the subject hotel is relatively limited with few hotels located within the same locality, given the hotels out of town location. Travelodge Swansea and Ibis are most likely the most comparable in terms of their offering, but are located within Swansea town centre and therefore target a different clientele.

The table below sets out the hotels’ key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019*.

The hotel outperforms the competitive set in both occupancy and ADR and achieved an RGI of 116.2 in 2018. For the first three months of 2019, the hotel has increased its MPI and ARI rates.

7.3. Proposed Supply There are currently 11 projects in the pipeline in Swansea, all in the three and four-star segments and two unconfirmed. This would add just over 240 bedrooms to the market.

8. Business Analysis

Overview

The Holiday Inn Express is a purpose built limited service hotel, built in 2003. While the original structure remains unmodified, there have been various refurbishments since, most significantly in 2015 when the bedrooms were upgraded from Generation Two to Generation Four, in line with Holiday Inn Express brand standards. Swansea has a relatively healthy hotel market, supported both by the strong presence of business in the area and the leisure and tourism industry. Following the decline of heavy industry, Swansea has a predominantly post-industrial service economy, with main employers spread between the service, manufacturing and public sectors. Businesses with a large presence in the area include the DVLA, HMRC, Amazon, 3M and Admiral Group. Corporate business is a core component of the Swansea hotel market. In addition, Swansea has a prosperous leisure and tourism industry. Visitors are largely attracted by the surrounding natural beauty; Swansea hosts over 30 Sites of Special Scientific Interest (SSSI), while the Gower is designated an Area of Natural Beauty (AONB). The leisure and tourism segments are particularly important to the hotel industry throughout the summer months, and throughout the year on weekends, when the occupation rate of the corporate segment is significantly lower. Swansea also increasingly benefits from a strong events calendar, namely sporting and music events. The Six Nations Rugby, hosted at the Principality Stadium in Cardiff, generates consistently strong year-on-year business. Swansea, although located 40 miles west of the event, is able to successfully capitalise on the overflow of visitors to Cardiff by offering a comparatively lower rate. Swansea’s Liberty Stadium also hosts a number of events, although demand from the football club has reduced since the team was relegated from the Premier League a couple of years ago. The hotel experiences good levels of leisure occupancy predominantly through the summer months and to a lesser extent throughout the remainder of the year due to events such as those highlighted. The hotel has moved away from low-rate leisure groups, and a focus on higher rate corporate contracts including Scan Optics at 400 room nights per year (repeat business since 2003) and Sterling Services at approximately 350 room nights per year. The agreed rate with Scan Optics was previously £55 but currently stands at £65. Much of the corporate demand is transient rather than contract led. Currently the segmentation comprises around 60% corporate and 40% leisure, with corporate demand dominating on weekdays. The hotel achieved an occupancy rate of close

to 90% during July and August 2017, as Swansea acts as the gateway to the Gower peninsula. The hotel is now charging families a supplement. To summarise, the hotel has shown resilience amidst a changing corporate base, and continues to show strength in year-on-year growth on all key performance indicators. The hotel experiences varying ratios of corporate to leisure segmentation, fluctuating throughout the year as would be expected of a hotel in this location. The hotel secures a good proportion of its business from IHG and also trying to convert as much OTA business to direct. The hotel paid out around £1,500 in commission fees to booking.com last year.

Trading Performance The income and expense statements, illustrated in the table on the following page, were provided by Atlas Hotels. The statements show the subject's operating history for the years ended December 2016-2018, forecast for 2019 including 2 months actuals and trading projections for 2020, which includes the proposed ground rent.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ

9. C&W Trading Projections

Trading Projections The following chart depicts our summary profit and loss projections showing the hotels income and expenses for the five years commencing May 2019. The statements are expressed in inflated terms for each year.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ

Commentary on C&W Projections The hotel is a stabilised business with occupancy levels extremely consistent ranging between 74-77% with the full year forecast for 2019 showing a similar level. We have adopted an occupancy of 75% in each year of our projections. The hotel achieved an ADR of £58.87 in 2018, similar to the previous year, although management are forecasting a 1% increase in the current year to £59.38. For the purpose of our assessment we have adopted a year one ADR of £59.50 to reflect our starting date of May 2019. We have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. There is limited other revenue generated from the hotel with rooms revenue accounting for around 90% of the total. Accordingly, we have adopted a similar business mix within our projections and similar levels of food and beverage and other revenue to that currently being achieved. The format of the accounts is not strictly in accordance with the Uniform System of Accounts for the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being allocated to individual departments given the nature of the operation. As a result, it is more difficult to undertake full benchmarking of the departmental expenses. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management we have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis. We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £425,603, which compares to the forecast for the current year of £433,186. The hotel is forecast to achieve a net operating profit margin of 26.4% for the current year compared to 30.2% last year. Our projected net operating profit margin is 25.9%. After the deduction of the proposed ground rent of £74,449 per annum our adjusted net operating profit is £351,154, which is equivalent to a profit margin of 21.4%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ

10. Principal Valuation Considerations

Location / Situation and Competition The Property is well located. The M4 motorway lies adjacent to the hotel, providing excellent accessibility to the east and west. In addition, the A465, a main artery running north east to Merthyr Tydfil and central Wales, lies just a few hundred metres from the hotel entrance. Associated road noise is mitigated by a raised land bank to the north of the Property and vegetation to the east, ensuring that the proximity to the roads is of benefit rather than detriment to the business.

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

Tenure The hotel will be held on long lease for a term of 125 years with a buy back option at year 60 for £1. There is limited comparable evidence of the sale of long leasehold as the structure is relatively new within the hotel market. We would however expect there to be a narrower pool of purchasers for the leasehold interest compared to the freehold interest, which will result in the interest achieving a softer yield. We consider the yield gap between a freehold interest and a ground lease interest will be influenced by a number of factors including location, quality of the asset and rent cover. The yield gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as the hotel will lose some of its appeal and economies of being operated as part of a larger platform. The proposed rent payable will be £74,449 per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI. We consider the proposed rent to fall within an acceptable range of NOI based on other transactions that have occurred in the market providing sufficient rent cover in the short term. Business & Income Security The hotel is a stable business and well established in its local market being one of the strongest performing hotels. The hotel has produced relatively consistent levels of revenue and net operating profit with the profit margin being achieved good. Whilst the profitability of the hotel has been good there is potential for the current margins to be eroded by the proposed ground rent in the event that earnings do not keep pace with RPI.

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

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 6-9 months Market Value?

Purchaser demand is likely to be Good

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ

The market for hotels held on long ground leases such as that proposed has been largely untested to date. Whilst this will result in a greater level of uncertainty in terms of purchaser appetite and saleability, we are of the opinion that there would be fewer purchaser in the market than for the equivalent freehold interest.

10.1. Market Value

Value Conclusion In assessing the value of the hotel we have adopted a discounted cash flow (DCF) based on our trading projections and rationale as set out above. In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of Holiday Inn Express hotels that have occurred generally as set out in our head report together with other hotels in the surrounding area. There has been limited sales of hotels held on ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9.5%. Unfortunately, there have been no recent single asset transactions to have traded in Swansea or indeed Cardiff. We consider that the hotel would achieve similar yields to the Holiday Inn Express hotels referenced in the head report of Tamworth and Ramsgate, which sold for between £35,000 per key and £62,000 per key. The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9%. Having regard to the comments above and the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 8.25%. We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold interest having regard to the location of the hotel and the level of rent payable as detailed in the head report. Based on these factors, we have adopted a capitalisation rate of 10.75%. We have adopted a discount rate of 12.75%. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate. In summary, in arriving at our opinion of value we have adopted the following:

Market Value

Gross Initial Yield 10.75%

Capitalisation Rate 10.75%

Discount Rate 12.75%

Market Value £3,300,000

Capital value Per Bedroom £36,264

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £180,000 per annum.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ

10.3. Market Value with Vacant Possession For the purpose of our valuation with vacant possession we have adopted our trading assessment as set out above. In arriving at our opinion of value on this basis, we have adopted our Market Value.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ

APPENDIX A: MAPS AND PLANS

Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ

This plan is published for convenience of identification. Any site boundaries shown are indicative only and should be checked against Title Deeds. Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ

Shelter

M M 4 4 Mast

D r a in

0m 25m 50m 75m

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

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Valuation of: Holiday Inn Express, Frankland Road, Blagrove, Swindon, SN5 8UD

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

TABLE OF CONTENTS

Executive Summary ...... 3 Property Record ...... 5 1. Location ...... 5 2. Description & Accommodation ...... 6 3. Structural Condition and Repair ...... 8 4. Statutory Enquiries ...... 9 5. Tenure ...... 9 6. Operational Structure ...... 10 7. Local Hotel Market Analysis ...... 10 8. Business Analysis ...... 11 9. C&W Trading Projections ...... 14 10. Principal Valuation Considerations ...... 17 Appendix A: Maps and Plans ...... 20

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The hotel is well located within close proximity to the M4, allowing excellent accessibility. Swindon town centre is approximately four miles north of the Property.

Description The hotel comprises 121 bedrooms with Great Room and four meeting rooms.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) forecast

Occupancy 76.32% 79.20% 80.12%

ADR £62.66 £61.55 £63.82

RevPAR £47.82 £48.75 £51.14

Total Revenue £2,457,880 £2,500,688 £2,625,387

NOI (post FF&E)* £868,941 £874,612 £785,047

Profit Margin 35.4% 35.0% 29.9%

*2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 80.00% 80.00% 80.00%

ADR £64.00 £65.28 £66.59

RevPAR £51.20 £52.22 £53.27

Total Revenue £2,630,748 £2,683,363 £2,737,030

NOI (post FF&E and £720,965 £735,384 £750,092 ground rent)

Profit Margin 27.4% 27.4% 27.4%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £7,000,000

Capitalisation Rate 10.25% Discount Rate 12.25%

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

Gross Initial Yield 10.25%

Capital expenditure None deducted from gross valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • Accessible location adjacent to the M4; • Strong hotel demand in local area.

Weaknesses / Risks • Located outside of the town centre, some distance from Swindon train station. • Large telegraph mast located on site.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 9 May 2019. The inspection was undertaken by Ian Thompson.

1. Location

1.1. Location

General The Holiday Inn Express Swindon West is located on the north side of junction 15 of the M4 motorway, approximately four miles to the west of Swindon town centre. According to the latest estimated in mid- 2017, Swindon count a resident population of 220,363 (ONS,2017). Major businesses in Swindon include Honda, Dolby Labs and Zurich, while Nationwide, W H Smith and Intel are amongst those with headquarters in the town. The hotel has excellent visibility from the motorway in both directions. Access is via the A3102 Great Western Way. Vehicular traffic leaving the motorway cannot turn right towards the hotel and so must travel 100 metres east along the A3102 before doubling back at the roundabout junction of the A3102 and the B534 Whitehill Way. There are a number of occupiers clustered around the motorway junction, including Johnson Matthey Fuel Cells, a Volkswagen dealership, Hilton Hotel and Arval UK. Just to the north is Windmill Hill Business Park, where there is a variety of tenant occupiers. We consider the location to be good and although it is not in the town centre, this is probably an advantage given that Swindon does not have a particularly attractive central area.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

Site Boundary

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

2. Description & Accommodation

Summary The hotel comprises 121 bedrooms with Great Room and four meeting rooms. The Property was constructed in approximately 2001 and comprises ground and three upper floors of brick construction underneath a pitched tiled roof. The fenestration comprises UPVC framed double glazed units.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

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

Category Unit Count

Twin 27

Double 88

Accessible 6

Total 121

There are three room types, namely twin, accessible and double rooms. All rooms were refurbished from mid-2016 until around October 2016, to fourth generation, the current brand standard. As such, they present well. Typical room facilities include tea and coffee making facilities, land line telephone, desk, flat screen TV, internet access and bathroom. All guest bedrooms are served by air conditioning.

Food & Beverage The primary dining area is The Great Room, a large open plan restaurant offering 70 covers. A breakfast buffet servery lies adjacent to the Great Room. The bar and lobby area extend from the Great Room to reception and offer more casual soft seating. The Great Room is relatively large for a Holiday Inn Express and we are advised that the hotel has a strong food & beverage business, with a 70% midweek capture rate. This success is likely due to the out of town location of the hotel, with limited alternative dining choices for guests.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

Meeting Rooms There are four meeting rooms, all of which are located on the ground floor and benefit from natural light. We are advised by the General Manager that the day delegate rate for these rooms is approximately £200, which does not include any food or beverages. This can be added at the extra expense of £7 per person.

Car Parking There are approximately 100 car parking spaces, which are offered free of charge to guests. The hotel has a longstanding agreement with the neighbouring Volkswagen Garage, who hire approximately 5-10 car parking spaces from the hotel.

Back of House Accommodation There is appropriate storage and back of house accommodation. The staff room is able to accommodate 6-8 covers.

3. Structural Condition and Repair The Property has been well maintained and was found to be in good condition. There have been no additions to the structure since construction. The hotel has undergone numerous refurbishments since opening. In 2006 The Great Room and public areas received a soft refurbishment and remain in good condition. The bedrooms were refurbished from a Generation Two to Generation Four standard at the end of 2016. This refurbishment most notably included the redecorating of wall coverings, the replacement of the desk with a moveable work surface and an iconic red chair, and the upscaling of the headboards to include charging sockets. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £18,004 £39,754

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £10,300,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings) You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Ground Conditions Please refer to head report.

Flooding Risk

The property falls within Flood Zone 1, with a low probability of flooding.

Environmental Considerations Please refer to head report.

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

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

Business Rates

Demise Description Rateable Values Holiday inn Express, Hotel & Premises £108,360 Swindon

In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 50.4 pence.

5. Tenure

Title We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017 and based on this we summarise our understanding of the title below. The Property is held freehold (Title Number: WT195205) although the proposal is to sell the freehold interest and simultaneously be granted a ground lease back. The terms of the ground lease are set out in the head report.

Overview

Type of tenure Proposed long leasehold

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

Overview

Title no(s) Unknown

Lease Term 125 years

Rent £131,192 pa to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%.

Any material encumbrances or unduly None other than disclosed in the draft certificate. onerous / unusual easements, restrictions, outgoings or conditions?

Any title characteristics likely to have an None. adverse impact on value, either now or over the proposed loan term?

Full details of the proposed leasehold interest are detailed in the head report.

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday inn Express brand.

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are 56 hotels and 2,545 rooms in Swindon, two of which, a Doubletree and a Premier Inn, are located less than a mile from the subject Property. The market is dominated by the three-star segment with 970 rooms, followed by budget and four-star hotels. This compares to a national trend characterised by less than 30% of total rooms in the four-star category and approximately 25% of total rooms in the budget sector. Of this pipeline, over 75% is branded, with Holiday Inn Express, Travelodge and Premier Inn accounting for most of the budget sector.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

7.2. Competitor Trading Analysis Smith Travel Research (STR) is an independent research firm that is recognised by the hotel industry as the standard source of reliable data, providing operating statistics on the local market as a whole. We have been provided STR data for the hotel and the following competitive set of hotels: • Village Hotel Swindon • Campanile Swindon • Holiday Inn Swindon • DoubleTree By Hilton Hotel Swindon • Holiday Inn Express Swindon West • Holiday Inn Express Swindon City Centre • Travelodge Swindon Central Hotel • Jurys Inn Swindon The Premier Inn Swindon West and DoubleTree by Hilton are located within close proximity. The Campanile Swindon is located in the town centre while the Holiday Inn Swindon is similarly located on the fringes of the town centre, albeit not within such close proximity to the M4. The table below sets out the hotels’ key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019*.

The hotel has performed lower than that within the competitors set in terms of ADR, however, has outperformed with regards to occupancy levels and achieved an RGI of 103.7 in 2018. For the first three months of 2019, the hotel has increased its MPI and ARI has rates.

7.3. Proposed Supply There are 12 projects in the pipeline in Swindon, five of which are currently in construction and due to open in 2019. The ibis Budget Swindon will comprise 73 rooms and is due to open in 2019, approximately three miles from the subject, and an independent budget hotel of 180 rooms, North star Oasis Leisure, is in its final planning and should be located by the ibis Budget.

8. Business Analysis

Overview

Holiday Inn Express Swindon is a purpose built limited service hotel constructed in 2001. The original structure remains unchanged, although the hotel benefited from refurbishment of the public areas in 2006 and of the bedrooms in late 2016. This refurbishment upgraded the rooms from Generation two to Generation four standard, such that it complies with the latest Holiday Inn Express brand standards. Swindon benefits from its location at the nexus between Reading, Bristol, London and Cardiff. The construction of the M4 in the 1970s brought with it significant interest from businesses looking

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

to capitalise on the strategic location. Honda, Dolby Labs and Zurich all have a presence in the area, while Nationwide, W H Smith and Intel are amongst those with headquarters in the town. The strong presence of businesses in the area coupled with the location, particularly in relation to a number of regional airports, drives strong demand for hotels. Moreover, the location of the hotel on the edge of the town acts as a further benefit, allowing ease of access by car. Swindon does not have a particularly strong leisure business, and correspondingly the hotel largely focusses on the corporate sector. However, the location of the hotel on the periphery of Swindon allows the hotel to attract guests visiting neighbouring attractions, such as Bath Christmas Market approximately 40 miles to the south west. The summer months are more heavily represented by this leisure business that uses Swindon as a base, while the remainder of the year is dominated by the corporate segment. The hotel holds a healthy variety of corporate contracts and is not over reliant on any one contract. Main accounts that provide more than 200 room nights per year include UK training venue provider Develop and Nationwide. The corporate rate for key clients like Nationwide is around £70 - £75. On Tuesday and Wednesday nights, the rate can increase to as much as £140. BP had previously taken around 150 room nights per year, but this contract has been lost due to relocation. This demonstrates spreading of risk by hotel management, mitigating against the fragility that would otherwise ensue following the loss of large business accounts. The corporate / leisure split is around 65% in favour of corporate. Approximately 35% of bookings are made through Online Travel Agencies (OTAs). ADR growth has in part been aided by the extensive soft refurbishment in 2016. As a result, the occupancy rate has remained static, although demand appears to be on an upward trajectory. The balance achieved between corporate and leisure occupancy mitigates against seasonality, although Q1 remains the weakest across all segments. May and June tend to be the busiest months, even though the corporate segmentation starts to decrease, leading into the summer months. Significant annual events which draw custom to the locality include the Fairford Air Festival and the Bath Christmas Market. In terms of setting the rate, hotel management tend to be about £10 lower than the Holiday Inn at Junction 15. The hotel tends to generate around 30 to 35 covers per night within the Great room, mostly used by their corporate guests with a meal allowance.

Trading Performance

The income and expense statements, illustrated in the table on the following page, were provided by Atlas Hotels. The statements show the subject's operating history for the years ended December 2016-2018, forecast for 2019 including 2 months actuals and trading projections for 2020, which includes the proposed ground rent.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Frankland Road, Blagrove, Swindon, SN5 8UD

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

9. C&W Trading Projections

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express, Frankland Road, Blagrove, Swindon, SN5 8UD

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

Commentary on C&W Projections The hotel is a stabilised business with occupancy levels extremely consistent ranging between 75-80% with the full year forecast for 2019 showing a similar level. We have adopted an occupancy of 80% in each year of our projections. The hotel achieved an ADR of £61.55 in 2018, similar to the previous year, although management are forecasting a 4% increase in the current year to £63.82. For the purpose of our assessment we have adopted a year one ADR of £64 to reflect our starting date of May 2019. We have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. There is limited other revenue generated from the hotel with rooms revenue accounting for around 86% of the total. Accordingly, we have adopted a similar business mix within our projections and similar levels of food and beverage and other revenue to that currently being achieved. The format of the accounts is not strictly in accordance with the Uniform System of Accounts for the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being allocated to individual departments given the nature of the operation. As a result, it is more difficult to undertake full benchmarking of the departmental expenses. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management we have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis. We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £852,157, which compares to the forecast for the current year of £916,238. The hotel is forecast to achieve a net operating profit margin of 34.9% for the current year compared to 35.0% last year. Our projected net operating profit margin is 32.4%. After the deduction of the proposed ground rent of £131,192 per annum our adjusted net operating profit is £720,965, which is equivalent to a profit margin of 27.4%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

10. Principal Valuation Considerations

Location / Situation and Competition The hotel is well located within close proximity to the M4, allowing excellent accessibility. Swindon town centre is easily accessible by car approximately four miles north of the Property. While a town centre location would allow for improved rail connectivity and proximity to business and amenities, the location of the hotel benefits from the unparalleled access to the M4 and associated business. From an investment perspective Swindon would be viewed as a secondary hotel market.

Building Design / Condition / Suitability The hotel is in good condition having been well maintained over the years and recently refurbished. The design of the building is functional and fit for purpose.

The proposed rent payable will be £131,192 per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI. We consider the proposed rent to fall within an acceptable range of NOI based on other transactions that have occurred in the market providing sufficient rent cover in the short term.

Business & Income Security The hotel is a stable business and well established in its local market being one of the strongest performing hotels. The hotel has produced relatively consistent levels of revenue and net operating profit with the profit margin being achieved good. Whilst the profitability of the hotel has been good there is potential for the current margins to be eroded by the proposed ground rent in the event that earnings do not keep pace with RPI.

Asset Management Opportunities There is limited scope for additional growth through specific asset management. The hotel is essentially at a stabilised trading position.

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 6-9 months Market Value?

Purchaser demand is likely to be Good

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

The market for hotels held on long ground leases such as that proposed has been largely untested to date. Whilst this will result in a greater level of uncertainty in terms of purchaser appetite and saleability, we are of the opinion that there would be fewer purchasers in the market than for the equivalent freehold interest.

10.1. Market Value

Value Conclusion In assessing the value of the hotel, we have adopted a discounted cash flow (DCF) based on our trading projections and rationale as set out above. In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of Holiday Inn Express hotels that have occurred generally as set out in our head report together with other hotels in the surrounding area. There has been limited sales of hotels held on ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9.5%. Unfortunately, there have been no recent single asset transactions to have traded in Swindon or the M4 corridor. The Hilton which is located opposite the subject hotel last sold in January 2015 at £11.25million or £65,000 per bedroom. We would anticipate that trading performance of this hotel has now improved and that if the Hilton sold today, it would be sold at a higher price per bedroom. The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9%. Having regard to the comments above and the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 8.25%. We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold interest having regard to the location of the hotel and the level of rent payable as detailed in the head report. Based on these factors, we have adopted a capitalisation rate of 10.25%. We have adopted a discount rate of 12.25%. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate. In summary, in arriving at our opinion of value we have adopted the following:

Market Value

Gross Initial Yield 10.25%

Capitalisation Rate 10.25%

Discount Rate 12.25%

Market Value £7,000,000

Capital value Per Bedroom £57,851

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £360,000 per annum.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Frankland Road, Valuation Date: 1 May 2019 Blagrove, Swindon, SN5 8UD

APPENDIX A: MAPS AND PLANS

Holiday Inn Express, Frankland Road, Blagrove, Swindon, SN5 8UD

This plan is published for convenience of identification. Any site boundaries shown are indicative only and should be checked against Title Deeds. Holiday Inn Express, Frankland Road, Blagrove, Swindon, SN5 8UD

Blagrove

She

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El Sub Sta

Hotel

0m 25m 50m 75m FF

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

About Cushman & Wakefield

Valuation of: Holiday Inn Express, Blackbrook Business Park, Blackbrook Park Ave, Taunton TA1 2PX

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

TABLE OF CONTENTS

Executive Summary ...... 1 Property Record ...... 3 1. Location ...... 3 2. Description & Accommodation ...... 4 3. Structural Condition and Repair ...... 6 4. Statutory Enquiries ...... 7 5. Tenure and Management ...... 7 6. Operational Structure ...... 8 7. Local Hotel Market Analysis ...... 8 8. Business Analysis ...... 9 9. C&W Trading Projections ...... 12 10. Principal Valuation Considerations ...... 15 Appendix A: Maps and Plans ...... 18

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The hotel is well located, situated at junction 25 of the M5 on the Blackbrook Business Park. The hotel is approximately 1.5 miles away from Taunton Railway Station and the town centre.

Description The hotel comprises 92 guest bedrooms with ancillary Great Room and three meeting rooms. The property was constructed in 1998.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) forecast

Occupancy 77.81% 79.10% 80.64%

ADR £71.73 £70.14 £70.75

RevPAR £55.81 £55.48 £57.06

Total Revenue £2,112,577 £2,114,799 £2,114,790

NOI (post FF&E)* £694,246 £671,252 £590,683

Profit Margin 32.9% 31.7% 27.9%

*2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 80.00% 80.00% 80.00%

ADR £71.50 £72.93 £74.39

RevPAR £57.20 £58.34 £59.51

Total Revenue £2,119,076 £2,161,458 £2,204,687

NOI (post FF&E and £555,109 £566,211 £577,535 ground rent)

Profit Margin 26.2% 26.2% 26.2%

Market Value and Yields

Valuation Date 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

Market Value £5,400,000

Capitalisation Rate 10.25% Discount Rate 12.25%

Gross Initial Yield 10.25%

Capital expenditure None deducted from gross valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • Well located; • Strong hotel demand in local area.

Weaknesses / Risks • Hotel older than several competitors; • New Holiday Inn Express proposed for Bridgewater.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 8 May 2019. The inspection was undertaken by Ian Thompson.

1. Location

1.1. Location

General The hotel is well located, situated at junction 25 of the M5 on the Blackbrook Business Park. The hotel is approximately 1.5 miles away from Taunton Railway Station and the town centre. The town has over 1,000 years of religious and military history and is now undergoing a regeneration project. It has various transport links which support its central role in economy and commerce and the 2001 consensus showed a population of 61,400. According to the latest estimated in mid- 2017, Taunton Dean count a resident population of 117,423. Taunton is the site of Musgrove Park Hospital and Somerset County Cricket Club's County Ground and is home to 40 Commando, Royal Marines. Central Taunton is part of the annual West Country Carnival circuit. It hosts the Taunton flower show, which has been held in Vivary Park since 1866. Taunton Deane had a low unemployment rate of 4.1% compared with the national average of 5.0% in 2005. Taunton is home to the United Kingdom Hydrographic Office (UKHO) which is an organisation within the Ministry of Defence responsible for providing navigational and other hydrographic information for national, civil and defence requirements. The UKHO is located on Admiralty Way and has a workforce of approximately 1,100 staff. At the start of the Second World War chart printing moved to Taunton but the main office did not move until 1968. Taunton is also home to one of the head offices of Debenhams, Western Provident Association, Viridor and CANDAC. Moreover, the town is home to a Defra regional office at Quantock House on Paul St, the Charity Commission for England and Wales, General Electric and Screwfix. The first ever store of the multinational clothing retailer New Look opened in Taunton in 1969.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

Site Boundary

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

2. Description & Accommodation

Summary The hotel comprises 92 guest bedrooms with ancillary Great Room and three meeting rooms. The property was constructed in approximately 1998 and comprises ground and three upper floors of brick construction underneath a pitched tiled roof. The fenestration comprises Upvc framed double glazed units.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

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

Category Unit Count

Twin 16

Double 56

Standard Double 14

Accessible 6

Total 92

There are four room types, namely twin, accessible, double and family rooms (which can accommodate up to six guests). There are 16 twin bedrooms, while the double rooms have 15 with just a double bed and 52 with a double bed and sofa (three persons). In addition, there are six accessible bedrooms. The style of the bedrooms is second generation and present well if not beginning to look slightly dated. All guest bedrooms are air conditioned. There are three double bedrooms with sofa bed which the hotel do not openly advertise but tend to be booked by repeat guests who are aware that the hotel has these rooms in their inventory.

Food & Beverage The Great Room extends through most of the ground floor entrance area and provides covers for 50 guests.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

Meeting Rooms There are three meeting rooms which can accommodate 71 delegates in total. The largest room, the Monmouth Suite, can accommodate 45 delegates theatre style.

Car Parking There are approximately 102 Car parking spaces, which are offered free of charge to guests, although some of the local offices do rent spaces from the hotel.

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

3. Structural Condition and Repair The property has been well maintained, benefitting from a full-time in house maintenance member of staff, and was found to be in good condition. In 2007 the ground floor public areas underwent a full and extensive refurbishment. All the bedrooms were refurbished in 2008, including new carpets, beds and bedding. In 2012 the case goods in the bedrooms were updated and the televisions were upgraded to 32” flat screen LED TV’s in 2013. The most recent refurbishment was around 4 years ago to include bedroom carpets, curtains and wall coverings. The Great room has not been refurbished in recent years but it still presents well. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £63,273 £24,825

We understand that all beds and mattresses have recently been changed with door locks also to be updated.

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £7,900,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings)

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Ground Conditions Please refer to head report.

Flooding Risk The Property is situated in a low risk flood zone.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject property is determined by Taunton Deane Planning Authority. We are not aware of any outstanding or unimplemented planning applications.

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

Business Rates

Demise Description Rateable Values Holiday Inn Express, Hotel & Premises £192,000 Taunton

In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 50.4 pence.

5. Tenure and Management

Title We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017 and based on this we summarise our understanding of the title below. The Property is held freehold although the proposal is to sell the freehold interest (Title Number: ST191837) and simultaneously be granted a ground lease back. The terms of the ground lease are set out in the head report.

Overview

Type of tenure Proposed long leasehold

Title no(s) Unknown

Lease Term 125 years

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

Overview

Rent £100,688 pa to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%.

Any material encumbrances or unduly None other than disclosed in the draft certificate. onerous / unusual easements, restrictions, outgoings or conditions?

Any title characteristics likely to have an None adverse impact on value, either now or over the proposed loan term?

Full details of the proposed leasehold interest are detailed in the head report.

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday Inn Express brand.

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are 23 hotels and 782 rooms in Taunton. Four of which are located less than a mile away from the subject Property. More than half Taunton’s room supply is in the budget segment (392 rooms), followed by three and four-star hotels. This compares to a national trend characterised by less than 30% of total rooms in the four star category and approximately 25% of total rooms in the budget sector. Of this supply, over 60% is branded, with Holiday Inn Express, Days Inn, Travelodge and Premier Inn in the budget sector.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

We have been provided STR data for the hotel and the following competitive set of hotels: • Holiday Inn Taunton M5 Junction 25 • Premier Inn Taunton East • Holiday Inn Express Taunton M5 Junction • Travelodge Taunton Hotel • Travelodge Bridgwater M5 Hotel • Premier Inn Taunton Central North • Days Inn Taunton Deane • Premier Inn Taunton Ruishton M5 • Travelodge Wellington Somerset The competition to the subject hotel is relatively strong with three Premier Inns (Ruishton, Taunton Central and East), Travelodge Taunton and Holiday Inn all in close proximity. All hotels compete for the price sensitive business and leisure segments. The Holiday Inn is a full service hotel but sits adjacent to the subject hotel and so the two are in direct competition, although anecdotally the Express performs better in some areas. The table below sets out the hotels’ key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019*.

The hotel outperforms the competitive set in both occupancy and ADR and achieved an RGI of 121 in 2018. For the first three months of 2019, the hotel has increased its MPI and ARI rates.

7.3. Proposed Supply There is currently one three-star hotel in the pipeline in Taunton, the Great Western House which will comprise 15 rooms and is due to open in 2019. A new Holiday Inn Express has recently opened at Bridgewater which has been constructed to full modern specification.

8. Business Analysis

Overview The Holiday Inn Express Taunton opened in November 1998. The hotel primarily benefits from corporate guests, but this is balanced during the summer by leisure guests (mainly UK), providing stable occupancy 7 days a week. Outside of the summer this drops significantly. Hotel management try not to be to be orientated towards corporate guests as the transient leisure market, particularly during the summer is more profitable. The challenge is that the hotel needs this corporate business more during the winter months. The hotel also picks up business in the summer from Somerset Cricket Club.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

Western Power are the largest corporate based in Taunton, covering South Wales, Avon, Somerset, Devon and Cornwall. They have historically produced around 3,000 to 4,000 room nights annually at a rate of £83, although volume is down at the moment as there has been a reduction in project related demand. Connells Estate Agents were another significant producer with a nearby training centre and produced around 700 room nights per year at a rate of £100. This contract has however ended. Other large organisation key accounts include Somerset College and the Ministry of Defence. The remaining key accounts are made up of smaller local companies. It is fair to say that nearly all the hotels corporate accounts are currently down in terms of volume, but this has allowed the hotel to accommodate a higher proportion of transient leisure guests, which during the summer often produces stronger rooms revenue. In terms of the OTA’s, the majority of this business is generated by booking.com, having increased by 8% this year. The hotel offers free breakfast, in line with the service provisions of the brand. However, it benefits from sharing a site with a Harvester, which provides lunch and dinner. A new F&B menu was launched in April 2017 which is helping the hotel to generate around 20 covers per night/30 covers at weekends. The food offer is mainly aimed at offering a guest service than as a source of revenue. The hotel loses a large number of guests to the Harvester restaurant. There are three meeting rooms which are mainly used by the TCC speed awareness course which take the rooms for five days per week on average. The smaller meeting room is less well used with more guests now choosing to hold meetings within the great room. There is therefore potential to bring this meeting room into the great room to expand the capacity as the great room is currently limited in size. Hotel management tend to greet guests at breakfast which allows them to seat them more efficiently in order to optimise the space. The car park is free for hotel guests, although some income is generated from leasing out some spaces to nearby offices, with the hotel receiving approximately £1,000 per month.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Park, Blackbrook Park Ave, Taunton Valuation Date: 1 May 2019 TA1 2PX

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

9. C&W Trading Projections

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Park, Blackbrook Park Ave, Taunton Valuation Date: 1 May 2019 TA1 2PX

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

Commentary on C&W Projections The hotel is a stabilised business with occupancy levels extremely consistent ranging between 77-80% with the full year forecast for 2019 showing a similar level. We have adopted an occupancy of 80% in each year of our projections. The hotel achieved an ADR of £70.14 in 2018, slightly lower than that of the previous year, although management are forecasting a 1% increase in the current year to £70.75. For the purpose of our assessment we have adopted a year one ADR of £71.50 to reflect our starting date of May 2019. We have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. There is limited other revenue generated from the hotel with rooms revenue accounting for around 90% of the total. Accordingly, we have adopted a similar business mix within our projections and similar levels of food and beverage and other revenue to that currently being achieved. The format of the accounts is not strictly in accordance with the Uniform System of Accounts for the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being allocated to individual departments given the nature of the operation. As a result, it is more difficult to undertake full benchmarking of the departmental expenses. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management we have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis. We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £655,797, which compares to the forecast for the current year of £691,371. The hotel is forecast to achieve a net operating profit margin of 32.7% for the current year compared to 31.7% last year. Our projected net operating profit margin is 30.9%. After the deduction of the proposed ground rent of £100,688 per annum our adjusted net operating profit is £555,109, which is equivalent to a profit margin of 26.2%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

10. Principal Valuation Considerations

Location / Situation and Competition The hotel is well located just off the M5 motorway with several corporate occupiers within the immediate vicinity of the hotel.

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

Tenure The hotel will be held on long lease for a term of 125 years with a buy back option at year 60 for £1. There is limited comparable evidence of the sale of long leasehold as the structure is relatively new within the hotel market. We would however expect there to be a narrower pool of purchasers for the leasehold interest compared to the freehold interest, which will result in the interest achieving a softer yield. We consider the yield gap between a freehold interest and a ground lease interest will be influenced by a number of factors including location, quality of the asset and rent cover. The yield gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as the hotel will lose some of its appeal and economies of being operated as part of a larger platform. The proposed rent payable will be £100,688 per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI. We consider the proposed rent to fall within an acceptable range of NOI based on other transactions that have occurred in the market providing sufficient rent cover in the short term. Business Management Opportunities The hotel is a stable business and well established in its local market being one of the strongest performing hotels. The hotel has produced relatively consistent levels of revenue and net operating profit with the profit margin being achieved good. Whilst the profitability of the hotel has been good there is potential for the current margins to be eroded by the proposed ground rent in the event that earnings do not keep pace with RPI.

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

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 6 to 9 months Market Value?

Purchaser demand is likely to be Good

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

10.1. Market Value

Value Conclusion In assessing the value of the hotel we have adopted a discounted cash flow (DCF) based on our trading projections and rationale as set out above. In arriving at our choice of capitalisation rate, we have had regard to the comparable evidence of Holiday Inn Express hotels that have occurred generally as set out in our head report together with other hotels in the surrounding area. There has been limited sales of hotels held on ground leases and therefore we have made an appropriate adjustment to reflect the leasehold interest. The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9.5%. Unfortunately, there have been no recent single asset transactions to have traded in Taunton or within the general M5 corridor. The latest hotels to be sold include the two Mercure hotels in Exeter city centre which were sold by Lone Star to LRC in early 2018. The closest hotel to have sold more recently is the Hampton by Hilton at Bristol airport which sold in January 2019 for £24.4million which equated to £121,000 per bedroom. We consider this to be a better location than the subject in terms of having a more captive demand base. We consider that the hotel would achieve a softer yield than those hotels located in prime locations such as Edinburgh and Manchester but a stronger yield than those in weaker locations such as Leigh. The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9%. Having regard to the comments above and the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 8%. We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold interest having regard to the location of the hotel and the level of rent payable as detailed in the head report. Based on these factors, we have adopted a capitalisation rate of 10.25%. We have adopted a discount rate of 12.25%. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate. In summary, in arriving at our opinion of value we have adopted the following:

Market Value

Gross Initial Yield 10.25%

Capitalisation Rate 10.25%

Discount Rate 12.25%

Market Value £5,400,000

Capital value Per Bedroom £58,696 per bedroom

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £280,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Blackbrook Business Valuation Date: 1 May 2019 Park, Blackbrook Park Ave, Taunton TA1 2PX

APPENDIX A: MAPS AND PLANS

Holiday Inn Express, Blackbrook Business Park, Blackbrook Park Ave, Taunton TA1 2PX

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Deane Gate Lodge

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Hotel

PH Pond

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LB 1 Goodwood House 0m 25m 50m 75m

About Cushman & Wakefield

Valuation of: Holiday Inn Express Warwick, Stratford Road, Warwick, CV34 6TW

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

TABLE OF CONTENTS

Executive Summary ...... 1 Property Record ...... 3 1. Location ...... 3 2. Description & Accommodation ...... 4 3. Structural Condition and Repair ...... 6 4. Statutory Enquiries ...... 6 5. Tenure ...... 7 6. Operational Structure ...... 7 7. Local Hotel Market Analysis ...... 8 8. Business Analysis ...... 9 9. C&W Trading Projections ...... 12 10. Principal Valuation Considerations ...... 15 Appendix A: Maps and Plans ...... 18

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

EXECUTIVE SUMMARY

This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report.

Property Summary

Location The hotel is located on Stratford Road, next to Junction 15 of the M40 motorway to the south of Warwick, in the County of Warwickshire. The town of Warwick is approximately 33 miles south of Birmingham, 40 miles west of Northampton and 21 miles north of Banbury.

Description The Property was constructed in around 1997 and is arranged over ground and two upper floors with brick elevations, and some set beneath a pitched tiled roof.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

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

Occupancy 78.13% 80.04% 81.58%

ADR £65.45 £61.83 £65.25

RevPAR £51.14 £49.49 £53.23

Total Revenue £2,843,521 £2,744,383 £2,962,750

NOI (Post FF&E) * £1,145,796 £1,031,012 £970,360

Profit Margin 40.3% 37.6% 32.8%

* Please note 2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 81.00% 81.00% 81.00%

ADR £65.00 £66.30 £67.63

RevPAR £52.65 £53.70 £54.78

Total Revenue £2,927,381 £2,985,928 £3,045,647

NOI (Post FF&E and £875,094 £892,596 £910,448 ground rent)

Profit Margin 29.9% 29.9% 29.9%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £9,700,000

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

Capitalisation Rate 9.00% Discount Rate 11.00%

Gross Initial Yield 9.00%

Capital expenditure None deducted from gross valuation

Loan security We consider the Property represents adequate security against a loan over the proposed period.

Liquidity Reasonable subject to the comments in the property record and the head report.

Key Investment / Market Considerations for Loan Security

Strengths / Opportunities • The location of the hotel close to the M40; • The hotel is in good condition; • There are numerous leisure demand drivers in the area.

Weaknesses / Risks • Visibility of the hotel from the M40 is poor; • Corporate business is dwindling in the area; • Food and beverage is a struggle for the hotel.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 9 May 2019. The inspection was undertaken by Nick Maltby MRICS.

1. Location

1.1. Location

General The hotel is located on Stratford Road, next to Junction 15 of the M40 motorway to the south of Warwick, in the County of Warwickshire. The town of Warwick is approximately 33 miles south of Birmingham, 40 miles west of Northampton and 21 miles north of Banbury. The hotel is accessed from Stratford Road, this links directly to Junction 15 of the M40. The M40 runs north and becomes the M42 just south of Birmingham, it runs south to meet the M4 and the M25. The hotel is therefore well placed to take advantage of the national motorway network. The nearest railway stations are Warwick and Warwick Parkway. Warwick and Warwick Parkway stations are served by Chiltern Railways, London Midland and CrossCountry. Trains travel north to Birmingham Snow Hill and South to London Marylebone. The nearest airport to the hotel is Birmingham Airport via the M40 and M42 and has a journey time of approximately 25 minutes by car. The hotel receives some business from here. The hotel is in an advantageous position for the international tourist market. The hotel is close by to Warwick Castle and Stratford Upon Avon. The hotel is also reasonably near to Birmingham NEC. When there is a major event, such as Crufts at the NEC, the hotel receives some overflow.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

Site Boundary

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

2. Description & Accommodation

Summary The hotel comprises 138 guest bedrooms with ancillary Great Room and one meeting room. The Property was constructed in approximately 1997 and comprises ground and two upper floors of brick construction set beneath a pitched tiled roof. The fenestration comprises UPVC framed double glazed units.

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

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

Category Unit Count

Twin 37

Double 92

Accessible 9

Total 138

There are three room types, namely twin, accessible and double rooms (which can accommodate up to three guests). Whilst offering a different configuration the bedrooms are all decorated to the same standard. The rooms are fitted and finished in line with the Holiday Inn Express Generation Four standard and present well. All guest bedrooms have comfort cooling.

Food & Beverage The Great Room extends through most of the ground floor entrance area accessed from the reception lobby. The Great Room incorporates a bar with sofa seating for around 20 adjoining the reception area, beyond which is the restaurant area providing seating for circa 55 with the buffet breakfast area located off the restaurant.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

Meeting Room There is one meeting room on the ground floor with a capacity for 30.

Car Parking There are 150 spaces. These are charged to guests at £3.50 per 24 hours.

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

3. Structural Condition and Repair The Property has been well maintained and was found to be in good condition. The most recent refurbishment to the hotel was in 2016 when the guest bedrooms were refurbished to Holiday Inn Express Generation Four brand standards. This included the soft furnishings within the rooms but not the case goods or the bathrooms. Following the refurbishment, the bedroom accommodation is well presented for the standard of hotel. The Great Room has not been refurbished in recent years, but the hotel is on the short list for this to occur. The Property has been well maintained and was found to be in good condition. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £17,537 £35,013

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £11,800,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable to conservation area status or listed building status (or similar – for example proximity to listed buildings) You should not rely on this guide for any purpose before it has been confirmed by a formal assessment carried out by a building surveyor or other person with sufficient current experience of replacement costs.

4. Statutory Enquiries We have been provided with an Argyll Environmental report dated 29 May 2019, which we have had regard to in undertaking our valuation.

Ground Conditions Please refer to the head report.

Flooding Risk The property is located in Flood Zone 1.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

Environmental Considerations Please refer to the head report.

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

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

Business Rates

Demise Description Rateable Values Holiday Inn Express, Hotel & Premises £244,000 Warwick

In England the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 for England has been set at 50.4 pence.

5. Tenure

Title We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017 and based on this we summarise our understanding of the title below. The Property is held freehold (Title no WK326146) although the proposal is to sell the freehold interest and simultaneously be granted a ground lease back. The terms of the ground lease are set out in the head report.

Overview

Type of tenure Proposed long leasehold

Title no(s) Unknown

Lease Term 125 years

Rent £154,652 pa to be reviewed annually in line with the RPI subject to a cap and collar of 0% and 5%.

Any material encumbrances or unduly None other than disclosed in the draft certificate. onerous / unusual easements, restrictions, outgoings or conditions?

Any title characteristics likely to have an None. adverse impact on value, either now or over the proposed loan term?

Full details of the proposed leasehold interest are detailed in the head report.

6. Operational Structure Please refer to the head report for operational structure, franchise agreement and information relating to the IHG/Holiday inn Express brand.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

7. Local Hotel Market Analysis

7.1. Existing Market Supply According to AM:PM Hotels, there are 37 hotels and 2,012 rooms within a five-mile radius from the subject Property, two being less than a mile away. This market is dominated by the three- star segment (864 rooms), followed by four-star and budget hotels. This compares to a national trend characterised by less than 30% of total rooms in the four-star category and approximately 25% of total rooms in the budget sector. Of this supply, approximately 40% is branded, with Holiday Inn Express, Premier Inn and Travelodge in the budget sector.

7.2. Competitor Trading Analysis Smith Travel Research (STR) is an independent research firm that is recognised by the hotel industry as the standard source of reliable data, providing operating statistics on the local market as a whole. We have been provided STR data for the hotel and the following competitive set of hotels: • Holiday Inn Leamington Spa Warwick • Travelodge The Regent Hotel Leamington Spa • Holiday Inn Express Warwick Stratford Upon Avon • Hilton Warwick Stratford Upon Avon Hotel • Ramada Warwick Kenilworth • Days Inn Warwick North • Days Inn Warwick South M40 • Premier Inn Warwick The competition to the subject hotel is relatively strong with the above all in reasonably close proximity. The above hotels represent budget to upscale brands. The table below sets out the hotels’ key performance indicators compared to the above competitive set for the full years 2017 and 2018 and YTD March 2019*.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

2017 and 2018 show that the subject hotel was trading at a higher occupancy than the competitive set, achieving an MPI of 109.7 in 2018 and up to 120 for the first months to March 2019. The subject hotel has consistently traded at a lower ADR than the competitive set and the gap in rates has increased from 2017 to 2018 as well as for Q1 2019 where the hotel’s ARI was down to 86.5. This could potentially be due to hotels in the set having higher rates because more upscale. Overall, occupancy and ADR combined show the hotel’s performance to be above the competitive set. 2018 has had the lowest RGI at 101.7, picking up to 104.1 for the first quarter of 2019.

7.3. Proposed Supply There are currently six projects in the pipeline in this market, two of which are confirmed expansions and renovations, adding only 5 rooms to the market in the next few years.

8. Business Analysis

Overview The Holiday Inn Express Warwick has experienced a decline in rooms trading over the past year. The hotel has a business mix of 80% corporate to 20% leisure during Monday to Thursday. The weekends are almost entirely leisure. There has been a continued drop of corporate demand in the area, which is detrimental to the subject hotel which, as mentioned relies heavily on the corporate market. Management informed that corporate contracts have become smaller, such as Jaguar Land Rover, and some companies have relocated due to Brexit. Despite the slowing down of corporate, Jaguar Land Rover are the largest contracted client with a possibility of 500 room nights for 2019. They are on an agreed negotiated rate of £72. IBM and Cap Gemini were once providing upwards of 7-800 room nights per year, but have now dropped considerably. Other current contracts include West Mercier Police on an agreed rate of £78, Calor Gas and Talent, both on an agreed rate of £75. In addition to attempting to sign up new corporates, management have adapted their original strategy to concentrate on the leisure market, and specifically leisure groups. Inevitably, the replacement of corporate clients who will pay higher rates, with leisure groups which pay the lowest rates, has led to a decline in the ADR. The hotel is well placed for the leisure attractions in the area, such as Warwick Castle and Stratford Upon Avon, the NEC and Warwick races The number of bookings made through OTA’s has decreased to around 40% compared to a few years ago when 70% was coming through these channels. 60% is now originating from direct channels. Food and beverage has been a struggle for management. The snack menu has been a bit hit and miss. The difficulty however is not necessarily demand for F&B, but the hotel struggles to recruit. The hotel is popular with ad hoc business meetings providing revenue from teas and coffees, however, the number of covers for lunch has declined, with the hotel averaging only four or five covers a day now, compared with a few years ago when 30 covers were not uncommon. There is an average spend of £8 on dinner. The number of covers varies, but most corporates tend to eat at the hotel. The hotel has one conference room which is generally used. The room is charged out at £225 for a full day including tea and coffee and parking, there is an additional charge for a conference lunch. There is one regular user of the room and plenty of last-minute bookings.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

The hotel has 150 car parking spaces and charges these out at £3.50 per 24 hours. The spaces are shared with the Harvester restaurant.

Historic Trading Performance The income and expense statements, illustrated in the table on the following page, were provided by Atlas Hotels. The statements show the subject's operating history for the years ended December 2016-2018, forecast for 2019 including 2 months actuals and trading projections for 2020, which include the proposed ground rent.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express Warwick, Stratford Road, Warwick, CV34 6TW

Data Type Actual Actual Actual Forecast Forecast Period Ending December December December March December Year 2016 2017 2018 2019 (2+10) 2020

No of Bedrooms: 138 138 138 138 138 Occupancy rate 78.26% 78.13% 80.04% 81.58% 81.58% Average Room Rate 63.98 65.45 61.83 65.25 67.20 Revenue Per Available Room (RevPAR) 50.07 51.14 49.49 53.23 54.82 Number of Days Open 365 365 365 365 365 Available Rooms 50,370 50,370 50,370 50,370 50,370 Occupied Rooms 39,421 39,353 40,316 41,092 41,092

TOTAL SALES 2,774,118 % POR PAR 2,843,521 % POR PAR 2,744,383 % POR PAR 2,962,750 % POR PAR 3,059,993 % POR PAR

BEDROOMS Room Sales 2,529,088 91.2% 64.16 18,327 2,575,756 90.6% 65.45 18,665 2,492,856 90.8% 61.83 18,064 2,681,083 90.5% 65.25 19,428 2,769,082 90.5% 67.39 20,066 Room Expenses 937,374 37.1% 23.78 6,793 951,255 36.9% 24.17 6,893 1,016,951 40.8% 25.22 7,369 1,054,972 39.3% 25.67 7,645 1,079,019 39.0% 26.26 7,819 Departmental Profit 1,591,714 62.9% 40.38 11,534 1,624,501 63.1% 41.28 11,772 1,475,905 59.2% 36.61 10,695 1,626,111 60.7% 39.57 11,783 1,690,062 61.0% 41.13 12,247

FOOD & BEVERAGE Food & Beverage Sales 121,860 4.4% 3.09 883 148,356 5.2% 3.77 1,075 138,608 5.1% 3.44 1,004 156,200 5.3% 3.80 1,132 161,327 5.3% 3.93 1,169 Other Income / Room Hire 23,690 0.9% 0.60 172 20,408 0.7% 0.52 148 22,233 0.8% 0.55 161 18,468 0.6% 0.45 134 19,074 0.6% 0.46 138 Food & Beverage Cost 45,288 31.1% 1.15 328 50,283 29.8% 1.28 364 54,249 33.7% 1.35 393 49,598 28.4% 1.21 359 50,728 28.1% 1.23 368 Departmental Profit 100,262 68.9% 2.54 727 118,482 70.2% 3.01 859 106,591 66.3% 2.64 772 125,070 71.6% 3.04 906 129,672 71.9% 3.16 940

CAR PARK Car Park Revenue 72,254 2.6% 1.83 524 78,760 2.8% 2.00 571 77,638 2.8% 1.93 563 90,676 3.1% 2.21 657 93,652 3.1% 2.28 679 Car Park Expenses 54 0.1% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 Departmental Profit 72,200 99.9% 1.83 523 78,760 100.0% 2.00 571 77,638 100.0% 1.93 563 90,676 100.0% 2.21 657 93,652 100.0% 2.28 679

TELEPHONE Telephone Revenue 3,105 0.1% 0.08 23 2,872 0.1% 0.07 21 3,024 0.1% 0.07 22 3,526 0.1% 0.09 26 3,642 0.1% 0.09 26 Telephone Expenses 12,751 410.6% 0.32 92 14,955 520.7% 0.38 108 13,595 449.6% 0.34 99 13,887 393.8% 0.34 101 14,203 390.0% 0.35 103 Departmental Profit (9,646) (310.6%) -0.24 70 (12,083) (420.7%) -0.31 88 (10,571) (349.6%) -0.26 77 (10,361) (293.8%) -0.25 75 (10,561) (290.0%) -0.26 77

MISCELLANEOUS Miscellaneous Revenue 24,121 0.9% 0.61 175 17,369 0.6% 0.44 126 10,025 0.4% 0.25 73 12,797 0.4% 0.31 93 13,217 0.4% 0.32 96 Miscellaneous Expenses 17,991 74.6% 0.46 130 9,434 54.3% 0.24 68 7,493 74.7% 0.19 54 (6,203) (48.5%) -0.15 45 (6,344) (48.0%) -0.15 46 Departmental Profit 6,130 25.4% 0.16 44 7,936 45.7% 0.20 58 2,531 25.3% 0.06 18 19,000 148.5% 0.46 138 19,562 148.0% 0.48 142

GROSS OPERATING INCOME 1,760,660 63.5% 44.66 12,758 1,817,595 63.9% 46.19 13,171 1,652,095 60.2% 40.98 11,972 1,850,497 62.5% 45.03 13,409 1,922,387 62.8% 46.78 13,930

LESS EXPENDITURE Administrative & General 74,367 2.7% 1.89 539 69,252 2.4% 1.76 502 65,024 2.4% 1.61 471 70,570 2.4% 1.72 511 71,981 2.4% 1.75 522 Sales & Marketing 75,616 2.7% 1.92 548 79,456 2.8% 2.02 576 50,794 1.9% 1.26 368 75,727 2.6% 1.84 549 83,072 2.7% 2.02 602 Repairs & Maintenance 83,329 3.0% 2.11 604 76,363 2.7% 1.94 553 87,723 3.2% 2.18 636 99,844 3.4% 2.43 724 102,120 3.3% 2.49 740 Energy Costs 86,080 3.1% 2.18 624 83,787 2.9% 2.13 607 93,858 3.4% 2.33 680 102,374 3.5% 2.49 742 104,708 3.4% 2.55 759 TOTAL UNDISTRIBUTED COSTS 319,392 11.5% 8.10 2,314 308,858 10.9% 7.85 2,238 297,399 10.8% 7.38 2,155 348,515 11.8% 8.48 2,525 361,881 11.8% 8.81 2,622

GROSS OPERATING PROFIT 1,441,268 52.0% 36.56 10,444 1,508,737 53.1% 38.34 10,933 1,354,695 49.4% 33.60 9,817 1,501,982 50.7% 36.55 10,884 1,560,506 51.0% 37.98 11,308

LESS FIXED COSTS Property Tax 106,640 3.8% 2.71 773 114,371 4.0% 2.91 829 119,438 4.4% 2.96 865 123,223 4.2% 3.00 893 123,223 4.0% 3.00 893 Franchise Royalty Fees 101,164 3.6% 2.57 733 103,030 3.6% 2.62 747 99,714 3.6% 2.47 723 107,244 3.6% 2.61 777 110,763 3.6% 2.70 803 Employee Bonus Provision 7,582 0.3% 0.19 55 3,364 0.1% 0.09 24 636 0.0% 0.02 5 7,942 0.3% 0.19 58 8,260 0.3% 0.20 60 TOTAL FIXED COSTS 270,868 9.8% 6.87 1,963 277,635 9.8% 7.05 2,012 274,676 10.0% 6.81 1,990 297,663 10.0% 7.24 2,157 303,445 9.9% 7.38 2,199

EBITDA (Pre FF&E Reserve) 1,170,400 42.2% 29.69 8,481 1,231,102 43.3% 31.28 8,921 1,080,020 39.4% 26.79 7,826 1,204,319 40.6% 29.31 8,727 1,257,060 41.1% 30.59 9,109

FF&E RESERVE 83,224 3.0% 2.11 603 85,306 3.0% 2.17 618 49,008 1.8% 1.22 355 79,307 2.7% 1.93 575 91,800 3.0% 2.23 665

NET OPERATING INCOME (Post FF&E Reserve) 1,087,176 39.2% 27.58 7,878 1,145,796 40.3% 29.12 8,303 1,031,012 37.6% 25.57 7,471 1,125,012 38.0% 27.38 8,152 1,165,260 38.1% 28.36 8,444

Proposed Ground Rent - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 154,652 5.2% 3.76 1,121 159,291 5.2% 3.88 1,154

NET OPERATING INCOME (Post Ground Rent) 1,087,176 39.2% 27.58 7,878 1,145,796 40.3% 29.12 8,303 1,031,012 37.6% 25.57 7,471 970,360 32.8% 23.61 7,032 1,005,969 32.9% 24.48 7,290

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

9. C&W Trading Projections The following chart depicts our summary profit and loss projections showing the hotels income and expenses for the five years commencing May 2019. The statements are expressed in inflated terms for each year.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express Warwick, Stratford Road, Warwick, CV34 6TW

1 2 3 4 5 Data Type Projected Projected Projected Projected Projected Period Ending April April April April April Year 2020 2021 2022 2023 2024 No of Bedrooms: 138 138 138 138 138 Occupancy Rate 81.00% 81.00% 81.00% 81.00% 81.00% Average Room Rate 65.00 66.30 67.63 68.98 70.36 Revenue Per Available Room (RevPAR) 52.65 53.70 54.78 55.87 56.99 Days Open 365 365 365 365 365 Available Rooms 50,370 50,370 50,370 50,370 50,370 Occupied Rooms 40,800 40,800 40,800 40,800 40,800 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 2,927,381 % POR PAR 2,985,928 % POR PAR 3,045,647 % POR PAR 3,106,560 % POR PAR 3,168,691 % POR PAR

BEDROOMS Room Sales 2,651,981 90.6% 65.00 19,217 2,705,020 90.6% 66.30 19,602 2,759,121 90.6% 67.63 19,994 2,814,303 90.6% 68.98 20,393 2,870,589 90.6% 70.36 20,801 Room Expenses 1,050,000 39.6% 25.74 7,609 1,071,000 39.6% 26.25 7,761 1,092,420 39.6% 26.78 7,916 1,114,268 39.6% 27.31 8,074 1,136,554 39.6% 27.86 8,236 Departmental Profit 1,601,981 60.4% 39.26 11,609 1,634,020 60.4% 40.05 11,841 1,666,701 60.4% 40.85 12,078 1,700,035 60.4% 41.67 12,319 1,734,035 60.4% 42.50 12,565

FOOD & BEVERAGE Food & Beverage Sales 150,000 5.1% 3.68 1,087 153,000 5.1% 3.75 1,109 156,060 5.1% 3.83 1,131 159,181 5.1% 3.90 1,153 162,365 5.1% 3.98 1,177 Other Income / Room Hire 18,500 0.6% 0.45 134 18,870 0.6% 0.46 137 19,247 0.6% 0.47 139 19,632 0.6% 0.48 142 20,025 0.6% 0.49 145 Food & Beverage Cost 49,500 29.4% 1.21 359 50,490 29.4% 1.24 366 51,500 29.4% 1.26 373 52,530 29.4% 1.29 381 53,580 29.4% 1.31 388 Departmental Profit 119,000 70.6% 2.92 862 121,380 70.6% 2.92 862 123,808 70.6% 3.03 897 126,284 70.6% 3.10 915 128,809 70.6% 3.16 933

CAR PARK Car Park Revenue 90,600 3.1% 2.22 657 92,412 3.1% 2.27 670 94,260 3.1% 2.31 683 96,145 3.1% 2.36 697 98,068 3.1% 2.40 711 Car Park Expenses - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - Departmental Profit 90,600 100.0% 2.22 657 92,412 100.0% 2.27 - 94,260 100.0% 2.31 - 96,145 100.0% 2.36 - 98,068 100.0% 2.40 - TELEPHONE Telephone Revenue 3,500 0.1% 0.09 25 3,570 0.1% 0.09 26 3,641 0.1% 0.09 26 3,714 0.1% 0.09 27 3,789 0.1% 0.09 27 Telephone Expenses 13,900 397.1% 0.34 101 14,178 397.1% 0.35 103 14,462 397.1% 0.35 105 14,751 397.1% 0.36 107 15,046 397.1% 0.37 109 Departmental Profit (10,400) (297.1%) (0.25) (75) (10,608) (297.1%) (0.26) (77) (10,820) (297.1%) (0.27) (78) (11,037) (297.1%) (0.27) (80) (11,257) (297.1%) (0.28) (82)

MISCELLANEOUS Miscellaneous Revenue 12,800 0.4% 0.31 93 13,056 0.4% 0.32 95 13,317 0.4% 0.33 97 13,583 0.4% 0.33 98 13,855 0.4% 0.34 100 Miscellaneous Expenses (6,200) (48.4%) (0.15) (45) (6,324) (48.4%) (0.16) (46) (6,450) (48.4%) (0.16) (47) (6,579) (48.4%) (0.16) (48) (6,711) (48.4%) (0.16) (49) Departmental Profit 19,000 148.4% 0.47 138 19,380 148.4% 0.48 140 19,768 148.4% 0.48 143 20,163 148.4% 0.49 146 20,566 148.4% 0.50 149

GROSS OPERATING INCOME 1,820,181 62.2% 44.61 13,190 1,856,584 62.2% 45.50 13,454 1,893,716 62.2% 46.41 13,723 1,931,590 62.2% 47.34 13,997 1,970,222 62.2% 48.29 14,277

LESS EXPENDITURE Administrative & General 70,500 2.4% 1.73 511 71,910 2.4% 1.76 521 73,348 2.4% 1.80 532 74,815 2.4% 1.83 542 76,311 2.4% 1.87 553 Sales & Marketing 14,637 0.5% 0.36 106 14,930 0.5% 0.37 108 15,228 0.5% 0.37 110 15,533 0.5% 0.38 113 15,843 0.5% 0.39 115 Repairs & Maintenance 99,800 3.4% 2.45 723 101,796 3.4% 2.50 738 103,832 3.4% 2.54 752 105,909 3.4% 2.60 767 108,027 3.4% 2.65 783 Energy Costs 102,300 3.5% 2.51 741 104,346 3.5% 2.56 756 106,433 3.5% 2.61 771 108,562 3.5% 2.66 787 110,733 3.5% 2.71 802 TOTAL UNDISTRIBUTED COSTS 287,237 9.8% 7.04 2,081 292,982 9.8% 7.18 2,123 298,841 9.8% 7.32 2,166 304,818 9.8% 7.47 2,209 310,914 9.8% 7.62 2,253

GROSS OPERATING PROFIT 1,532,944 52.4% 37.57 11,108 1,563,602 52.4% 38.32 11,330 1,594,875 52.4% 39.09 11,557 1,626,772 52.4% 39.87 11,788 1,659,307 52.4% 40.67 12,024

LESS FIXED COSTS Property Tax 123,000 4.2% 3.01 891 125,460 4.2% 3.08 909 127,969 4.2% 3.14 927 130,529 4.2% 3.20 946 133,139 4.2% 3.26 965 Management Base Fee 58,548 2.0% 1.44 424 59,719 2.0% 1.46 433 60,913 2.0% 1.49 441 62,131 2.0% 1.52 450 63,374 2.0% 1.55 459 Franchise Royalty Fees 146,369 5.0% 3.59 1,061 149,296 5.0% 3.66 1,082 152,282 5.0% 3.73 1,103 155,328 5.0% 3.81 1,126 158,435 5.0% 3.88 1,148 Franchise Marketing Fees 79,559 3.0% 1.95 577 81,151 3.0% 1.99 588 82,774 3.0% 2.03 600 84,429 3.0% 2.07 612 86,118 3.0% 2.11 624 Employee Bonus Provision 7,900 0.3% 0.19 57 8,058 0.3% 0.20 58 8,219 0.3% 0.20 60 8,384 0.3% 0.21 61 8,551 0.3% 0.21 62 TOTAL FIXED COSTS 415,376 14.2% 10.18 3,010 423,684 14.2% 10.38 3,070 432,157 14.2% 10.59 3,132 440,800 14.2% 10.80 3,194 449,616 14.2% 11.02 3,258

EBITDA (Pre FF&E Reserve) 1,117,568 38.2% 27.39 8,098 1,139,919 38.2% 27.94 8,260 1,162,717 38.2% 28.50 8,425 1,185,972 38.2% 29.07 8,594 1,209,691 38.2% 29.65 8,766

FF&E RESERVE 87,821 3.0% 2.15 636 89,578 3.0% 2.20 649 91,369 3.0% 2.24 662 93,197 3.0% 2.28 675 95,061 3.0% 2.33 689

NET OPERATING INCOME (Post FF&E Reserve) 1,029,746 35.2% 25.24 7,462 1,050,341 35.2% 25.74 7,611 1,071,348 35.2% 26.26 7,763 1,092,775 35.2% 26.78 7,919 1,114,630 35.2% 27.32 8,077

Proposed Ground Rent 154,652 10.1% 3.79 1,121 157,745 10.1% 3.87 1,143 160,900 10.1% 3.94 1,166 164,118 10.1% 4.02 1,189 167,400 10.1% 4.10 1,213

NET OPERATING INCOME (Post Ground Rent) 875,094 29.9% 21.45 6,341 892,596 29.9% 21.88 6,468 910,448 29.9% 22.32 6,597 928,657 29.9% 22.76 6,729 947,230 29.9% 23.22 6,864

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

Commentary on C&W Projections The hotel has experienced increasing occupancy over the course of the last few years. Occupancy increased from 78.13% in 2017 to 80.04% in 2018, with the full year forecast for 2019 showing an occupancy of 81.58%. We have adopted an occupancy of 81% in each year of our projections. The hotel achieved an ADR of £61.83 in 2018, £3.62 weaker than the previous year. the reason for this is the amount of group business that the hotel accepted during 2018. Management are forecasting an approximate £3.42 increase in the current year to £65.25 with a drive to reduce the amount of group business. For the purpose of our assessment we have adopted a year one ADR of £65.00 to reflect our starting date of May 2019. We have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. There is limited other revenue generated from the hotel with rooms revenue accounting for around 91% of the total. Accordingly, we have adopted a similar business mix within our projections and similar levels of food and beverage and other revenue to that currently being achieved. The format of the accounts is not strictly in accordance with the Uniform System of Accounts for the Lodging Industry with all payroll costs shown within the rooms expenses as opposed to being allocated to individual departments given the nature of the operation. As a result, it is more difficult to undertake full benchmarking of the departmental expenses. The departmental expenses have however been relatively consistent as a percentage of departmental revenue and on a Per Occupied Room (POR) basis and therefore we have had regard to the actual expenses within our projections. The miscellaneous expenses actually show a negative figure being the forecast cost savings being implemented by management we have adopted these savings within our assessment. The undistributed costs do not appear unreasonable based on other limited service hotels in the market taking into account they do not include payroll costs. As a result, we have had regard to current levels in preparing our assessment. The majority of the sales and marketing expenses relate to the franchise sales and marketing fees, which we have shown as a separate line item. We have allowed for increased sales and marketing expenses to reflect that the hotel will be operated individually. Property tax has regard to the hotels current rating assessment. The accounts provided by management show the insurance charges within the administration and general expenses. We have adopted the same approach for ease. We have deducted franchise fees equivalent to a royalty fee of 5% of rooms revenue and a sales and marketing of 3% of rooms revenue, which we consider would be the likely level paying assuming the hotel was sold on an individual basis. We have deducted an amount of 2% of total revenue to provide the services provided centrally by management such as sales and marketing and revenue management as opposed to making a separate allocation to each department as these costs would need to be provided whether through another management company or at hotel level. We have deducted an amount for an FF&E reserve equivalent to 3% of total revenue in each year of our projection period. Our resultant net operating profit post FF&E reserve is £1,029,746, which compares to the forecast for the current year of £1,125,012. The hotel is forecast to achieve a net operating profit margin of 38.0% for the current year compared to 37.6% last year. Our projected net operating profit margin is 29.9%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

After the deduction of the proposed ground rent of £154,652 per annum our adjusted net operating profit is £875,094 which is equivalent to a profit margin of 29.9%.

10. Principal Valuation Considerations

Location / Situation and Competition The Property is well located to take advantage of the good transport connections that the M40 provides, and also for the leisure demand drivers that are in the area. From an investment perspective, Warwick would be seen as a secondary hotel market.

Building Design / Condition / Suitability The hotel is of modern functional design and is in good condition having been well maintained over the years.

Tenure The hotel is held Freehold. The hotel will be held on long lease for a term of 125 years with a buy back option at year 60 for £1. There is limited comparable evidence of the sale of long leasehold as the structure is relatively new within the hotel market. We would however expect there to be a narrower pool of purchasers for the leasehold interest compared to the freehold interest, which will result in the interest achieving a softer yield. We consider the yield gap between a freehold interest and a ground lease interest will be influenced by a number of factors including location, quality of the asset and rent cover. The yield gap will also be influenced by whether the hotel is sold as part of the existing portfolio or as a single asset. We consider that there is likely to be a wider yield gap if sold as a single asset as the hotel will lose some of its appeal and economies of being operated as part of a larger platform. The proposed rent payable will be £154,652 per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15% of the 2018 NOI. We consider the proposed rent to fall within an acceptable range of NOI based on other transactions that have occurred in the market providing sufficient rent cover in the short term.

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

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 6 to 9 months. Market Value?

Purchaser demand is likely to be Good.

10.1. Market Value

Address Transaction Details

Holiday Inn Express Tamworth • Sold February 2017 • £7,500,000 • £62,500 per bedroom The 120-bed Holiday Inn Express Tamworth opened in 2009 and is held on a 125-year lease commencing 2008. The hotel was sold by administrators to Starboard Hotels for £7.5 million free of management, which is equivalent to £62,500 per bedroom. This represented a 7.4% NIY after an FF&E reserve although was influenced by the low operating profit. We have had regard to this comparable, although we would consider Warwick to be in a stronger location. The yields for similar quality hotels held on a freehold basis have ranged between 7.5% and 9%. Having regard to the comments above and the fundamentals of the Property including the location of the hotel within the national and local context and quality of the asset, we are of the opinion that the equivalent freehold interest would achieve a yield of 8.0%. We have made an adjustment in our choice of capitalisation rate to reflect the proposed leasehold interest having regard to the location of the hotel and the level of rent payable as detailed in the head report. Based on these factors, we have adopted a capitalisation rate of 9.50%. We have adopted a discount rate of 11.50%. Our valuation is the net figure that would appear in a sale and purchase agreement with any purchaser’s costs being paid in addition to the figure reported. We have not made any explicit

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

deduction for purchaser’s costs within our calculation rather implicitly reflecting this in our capitalisation rate. In summary, in arriving at our opinion of value we have adopted the following:

Market Value

Gross Initial Yield 9.00%

Capitalisation Rate 9.00%

Discount Rate 11.00%

Market Value £9,700,000

Capital value Per Bedroom £70,290 per bedroom

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £440,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Warwick, Stratford Road, Valuation Date: 1 May 2019 Warwick, CV34 6TW

APPENDIX A: MAPS AND PLANS

Stratford Rd, Warwick CV34 6TW

A 429

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FB Longbridge

PH Pond

Hotel

E l S ub Co Sta

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