Valuation Of: Atlas Hotel Portfolio

Valuation of: Atlas Hotel Portfolio

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 01 May 2019

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

TABLE OF CONTENTS

Valuation Record ...... 3 The Portfolio ...... 12 1. Portfolio History ...... 12 2. Location Analysis ...... 13 3. Description ...... 14 4. Structural Condition and Repair ...... 14 5. Environmental Considerations and Environmental Performance ...... 16 6. Taxation ...... 18 7. Tenure and Occupational Interests ...... 18 8. Operational Structure ...... 22 9. Business Analysis ...... 28 10. C&W Trading Projections ...... 30 11. Principal Valuation Considerations ...... 32 12. Valuation Approach and Opinions of Value ...... 32 13. Security for the Loan ...... 50 Appendix A – Glossary of Terms ...... 53 Appendix B – Market Overview ...... 55 Appendix C – Individual Reports ...... 56 Appendix D – Terms of Business ...... 57

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

VALUATION RECORD

To: Morgan Stanley Bank N.A. Morgan Stanley Mortgage Capital Holdings LLC 1585 Broadway, 25th Floor New York, New York 10036

Attention: Nick George

Borrower: London & Regional (the "Borrower")

Property: The address, tenure and property type of the property or each of the properties (the "Property") is included in the Property Record section.

Report date: 6/09/2019

Valuation date: 1/05/2019 ("Valuation Date")

Our reference: 1913UB00

Instructions

Appointment We are pleased to submit our report and valuation (the "Valuation Report"), which has been prepared in accordance with the engagement letter issued by you dated 7 May 2019 and our acknowledgment dated 19 May 2019, a copy of both are to be found at the back of this document. This engagement letter and the acknowledgement set out therein constitute the "Terms of Business", which form an integral part of this Valuation Report. Therefore, it is essential to understand that the contents of this Valuation Report are subject to the various matters we have assumed, which are referred to and confirmed as Assumptions in the Valuation Services Schedule (which forms part of the Terms of Business). Where Assumptions detailed in the Valuation Services Schedule are also referred to within this Valuation Report they are referred to as an "assumption" or "assumptions". Unless otherwise defined, all capitalised terms herein shall be as defined in the Terms of Business. We have valued the property interests detailed in the Property Record section within each individual report.

Compliance with RICS Valuation – Global Standards We confirm that the valuation and Valuation Report have been prepared in accordance with the RICS Valuation – Global Standards, which incorporate the International Valuation Standards ("IVS") and the RICS UK Valuation Standards (the "RICS Red Book"), edition current at the Valuation Date. It follows that the valuations are compliant with IVS.

Status of Valuer and Conflicts of Interest We confirm that all valuers who have contributed to the valuation have complied with the requirements of PS1 of the RICS Red Book. We confirm that we have sufficient current knowledge of the relevant markets, and the skills and understanding to undertake the valuation

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

competently. We confirm that Carl Ridgley has overall responsibility for the valuation and is in a position to provide an objective and unbiased valuation and is competent to undertake the valuation. Finally, we confirm that we have undertaken the valuation acting as an External Valuer as defined in the RICS Red Book. We have previously undertaken a valuation of the Properties for the Bank in October 2017. Other than this, we further confirm that we have no current, anticipated or previous recent involvement with the Properties or parties to the transaction and therefore do not consider that any conflict arises in preparing the advice requested.

Purpose of Valuation The purpose of this Valuation Report is for secured lending purposes in connection with a new loan to refinance the above Properties.

Basis of Valuation In accordance with your instructions, we have undertaken our valuation on the following bases: 1. Market Value 2. Market Rent

Definitions Market Value The term "Market Value" as referred to in VPS4 Item 4 of the RICS Red Book and applying the conceptual framework which is set out in IVS 104: "The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion." Market Rent The term "Market Rent" as referred to in VPS 4 Item 5 of the RICS Red Book. Under VPS 4 Item 5, the term "Market Rent" is defined in IVS 104 as: "The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and willing lessee on appropriate lease terms in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion".

Valuation of Trade Related Properties Certain property types are normally brought and sold based on their trading potential as they have usually been designed or adapted and fitted out for a specific use and the resulting lack of flexibility usually means that the value of the property interest is intrinsically linked to the returns that the owner can generate from that use. As a result, our opinion of value of the Properties has been assessed having regard to its trading potential based on an income approach to value unless there is a clear alternative use, Unless otherwise stated our opinion of value assumes the Properties are fully equipped operational entities and include: • The legal interest in the land and buildings. • The trade inventory, usually comprising all trade fixtures, fittings, furnishings and equipment. • The market's perception of the trading potential, together with the ability to obtain and renew existing licences, consents, certificates and permits. For the avoidance of doubt our opinions of values do not include consumables and stock.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Valuations made on the basis of trading potential assume that the business will at all times be effectively and competently managed, operated and promoted. The Property is integral to the operation of the business and therefore, as with all classes of property valued by reference to trading potential, the underlying value of the property asset can fluctuate to a greater degree when that trading potential is altered, either up or down, than is normally the case with most other types of commercial property. Consequently, if the net operating income (NOI) were to fall substantially short of estimated levels, then this would have a detrimental effect on future value, conversely if the NOI were to rise substantially this would have a positive effect.

Assumption

An Assumption is referred to in the Glossary in the RICS Red Book as an assumption that is made where it is reasonable for the valuer to accept that something is true without the need for specific investigation or verification. Any such assumption must be reasonable and relevant having regard to the purpose for which the valuation is required. The full definition from the RICS glossary is as follows.

“A supposition taken to be true. It involves facts, conditions or situations affecting the subject of, or approach to, a valuation that, by agreement, do not need to be verified by the valuer as part of the valuation process. Typically, an assumption is made where specific investigation by the valuer is not required in order to prove that something is true.’

It will almost always be necessary to couple a basis of value with appropriate assumptions (or special assumptions – see section below) that describe the assumed status or condition of the property or asset at the valuation date.

Special Assumptions A Special Assumption is referred to in the Glossary in the RICS Red Book as an assumption that "either assumes facts that differ from the actual facts existing at the valuation date, or that would not be made by a typical market participant in a transaction on the valuation date", ("Special Assumption"). As agreed, we have provided an opinion of Market Value subject to the following Special Assumptions: • Market Value subject to the Special Assumption that sufficient funds to meet the remaining cost of committed extension works is held in an escrow account and available for such purposes to a subsequent purchaser if sold before the extensions are completed. • Each hotel is available with vacant possession (“Vacant Possession Value”) (within the individual reports only) For the purpose of our valuation on this basis we have made the following assumptions: o Each hotel was open for trade; o Each hotel forming part of the portfolio was sold on an individual basis. o The hotels continue to be operated under their respective brands under a franchise agreement on standard franchise fees. o The existing management Atlas platform is no longer in place, but each hotel is operated by another management company on a standalone basis on market facing terms. o Each of the hotels were able to achieve the same revenues as set out in our assessment of trade.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Departures We have made no Departures from the RICS Red Book.

Reservations The valuations are not subject to any reservation.

Inspection Details of our inspections of the Properties are included in the Property Record section within each of the individual property reports appended to this head report.

Measurement As a trading entity, hotels are typically valued by reference to their earnings potential adopting an income approach of valuation. As a result, we have not undertaken a measured survey of the Properties as is standard practice when assessing the value of such property types.

Sources of Information In addition to information established by us, we have relied on the information obtained from you, the Borrower and others listed in this Valuation Report. We have made the assumption that the information provided by you, the Borrower and your respective professional advisers in respect of the Properties we have valued is both full and correct. We have made the further assumption that details of all matters relevant to value within your and their collective knowledge, such as prospective lettings, rent reviews, outstanding requirements under legislation and planning decisions, have been made available to us, and that such information is up to date.

General Comment All valuations are professional opinions on a stated basis, coupled with any appropriate assumptions or Special Assumptions. A valuation is not a fact, it is an estimate. The degree of subjectivity involved will inevitably vary from case to case, as will the degree of certainty, or probability, that the valuer's opinion of value would exactly coincide with the price achieved were there an actual sale at the Valuation Date. Property values can change substantially, even over short periods of time, and so our opinion of value could differ significantly if the date of valuation were to change. If you wish to rely on our valuation as being valid on any other date you should consult us first. Should you or the Borrower contemplate a sale, we strongly recommend that the Properties are given proper exposure to the market. A copy of this Valuation Report should be provided to your solicitors and they should be asked to inform us if they are aware of any aspect which is different, or in addition, to that we have set out; in which case we will be pleased to reconsider our opinion of value in the light of their advice and opinions.

Valuation

Market Value Our opinion of the Market Value of the leasehold interests in the Properties detailed in this report as at the Valuation Date, is:

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

(Five Hundred and Forty Six Million Nine Hundred £546,900,000 Thousand Pounds)

The above is shown after the deduction of capital expenditure of £14.2 million for the extensions to be undertaken at the Holiday Inn Express Cambridge, Edinburgh Waterfront and London Hammersmith. The value quoted above is the aggregated value of the individual properties without the benefit of the central management platform and the benefit of the portfolio franchise fees. It does however assume that the hotel would continue to operated under their current brand by way of a franchise agreement on standard terms. In the event the properties were to be sold as a single portfolio we consider that any purchaser would reflect the benefits of the management platform, the current franchise fees, economies of scale and the ability to deploy high level of capital through a single transaction which in our opinion would result in a portfolio premium. This would be reflected in the yield a purchaser would be prepared to pay but the portfolio premium would typically be in the region of 5%-10% of overall value.

Market Value on the Special Assumption that the Cap-Ex Contribution is held in an Escrow Account Our opinion of the Market Value on the above Assumption of the leasehold interests in the Properties detailed in this report as at the Valuation Date, is:

(Five Hundred and Sixty One Million One Hundred £561,100,000 Thousand Pounds)

Please note that this Assumption assumes that the £14,200,000 outstanding cap-ex monies in respect of Cambridge, Hammersmith and Edinburgh are held in an Escrow Account, for such purpose that they would be available to a subsequent purchaser if sold before the extensions are completed. This amount will fluctuate as and when the works are completed and money drawn down.

Market Value assuming that the Assets are sold on a Portfolio basis and subject to the Special Assumption that the Cap-Ex Contribution is held in an Escrow Account Our opinion of the Market Value on the above Assumption of the leasehold interests in the Properties detailed in this report, on a portfolio basis and cap-ex held in escrow, as at the Valuation Date, is:

(Five Hundred and Ninety Four Million Three Hundred £594,300,000 Thousand Pounds)

The value quoted above is for the Properties sold as a single portfolio as they currently benefit from a centralised management platform and are operated under franchise agreements paying discounted franchise fees being part of a large portfolio. Please note that this Assumption assumes that the £14,200,000 outstanding cap-ex monies in respect of Cambridge, Hammersmith and Edinburgh are held in an Escrow Account, for such purpose that they would be available to a subsequent purchaser if sold before the extensions are completed. This amount will fluctuate as and when the works are completed and money drawn down.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Market Rent Our opinion of the Market Rent of the leasehold interests in the Properties detailed in this report as at the Valuation Date, is:

(Twenty Five Million Two Hundred Thousand Pounds £25,200,000 pa per annum)

The allocation of the Market Value between the various Properties is shown in the table below. Please refer to section 12 of this report for detailed schedules for the remaining valuation bases.

No Hotel No of Beds Market Value 1 Bath 145 £23,300,000 2 Bedford 80 £4,900,000 3 Birmingham NEC 179 £21,900,000 4 Birmingham Oldbury 109 £4,700,000 5 Bristol City Centre 96 £13,400,000 6 Bristol - North 157 £17,300,000 7 Cambridge 100 £16,400,000 8 Derby Pride Park 103 £5,800,000 9 Droitwich 94 £4,000,000 10 East Midlands Airport 90 £5,600,000 11 Edinburgh - Waterfront 145 £16,400,000 12 Exeter 149 £11,900,000 13 Glasgow Airport 143 £10,600,000 14 Glasgow City Centre Riverside 128 £11,800,000 15 Gloucester South 106 £7,100,000 16 Hamilton 104 £5,000,000 17 Hemel Hempstead 116 £8,700,000 18 Inverness 94 £9,800,000 19 Leeds City Centre 112 £7,300,000 20 Lichfield 102 £5,200,000 21 Lincoln City Centre 118 £8,300,000 22 Liverpool Hampton by Hilton 151 £17,800,000 23 Chingford - North Circular 102 £9,800,000 24 London - Dartford 126 £8,400,000 25 London Greenwich 162 £34,300,000 26 London - Hammersmith 135 £38,500,000 27 London - Wandsworth 148 £23,700,000 28 Luton Airport 154 £20,300,000 29 Manchester East 97 £2,900,000 30 Manchester Salford Quays 120 £10,800,000 31 Milton Keynes 192 £16,900,000 32 Newcastle - City Centre 130 £5,900,000 33 Newcastle Metro 134 £4,500,000 34 Newport 125 £7,000,000 35 Northampton 126 £9,100,000

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

No Hotel No of Beds Market Value 36 Peterborough 80 £4,400,000 37 Portsmouth - North 150 £16,000,000 38 Southampton - West 105 £6,600,000 39 Stafford 103 £3,000,000 40 Stevenage 129 £5,600,000 41 Stirling 80 £3,100,000 42 Stoke-on-Trent 123 £5,300,000 43 Swansea East 91 £3,300,000 44 Swindon - West 121 £7,000,000 45 Taunton 92 £5,400,000 46 Warwick - Stratford-upon-Avon 138 £9,700,000 47 Poole - (leased) 85 £9,800,000 48 York - Park Inn (leased) 200 £26,700,000 49 Exeter City Centre 103 £11,700,000 TOTAL 5,972 £546,900,000

Confidentiality This Valuation Report is confidential to you, for your sole use only and for the Purpose of Valuation as stated. Other than as detailed below, we will not accept responsibility to any third party in respect of any part of its contents.

Disclosure The Valuation shall be disclosed on a non-reliance basis to: • Agents, trustees and advisers of the Addressees • Affiliates, employees, officers, directors and auditors of the Addressees • Any servicer of any loan under any related credit facility (and advisers to such servicer) • Governmental, banking, taxation or other regulatory authority • As required by law, court order or regulation in connection with legal or arbitration proceedings • Any prospective purchaser, transferee or assignee of, participant in, or hedge counterparty in respect of, any related loan, mortgage secured by, the Property or any direct or indirect ownership interests in the owner of the Property • Any entity that becomes an agent or senior facility agent on behalf of lender-parties to a credit agreement • To or pursuant to rules of a stock exchange, listing authority or similar body • To any rating agency actually or prospectively rating any securities issued in connection with a securitisation of any loan related to the subject of the Valuation and its advisers • Any actual or prospective investor in any securities issued in connection with a securitisation of any loan related to the subject of the Valuation, and their advisers This Valuation Report or any part of it may not be modified, altered (including altering the context in which the Valuation Report is displayed) or reproduced without our prior written consent. Any person who breaches this provision shall indemnify us against all claims, costs, losses and expenses that we may suffer as a result of such breach.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

We hereby exclude all liability arising from use of and/or reliance on this Valuation Report by any person or persons except as otherwise set out in the Terms of Business.

Reliance This report was prepared for and may be relied upon by Morgan Stanley Bank, N.A., Morgan Stanley Mortgage Capital Holdings LLC, and their respective affiliates and successors and assigns (collectively, “Morgan Stanley”) with respect to any loan(s) placed upon the property (or on direct or indirect ownership interests in the owner of the property) described in the report. This report may also be relied upon by: (i) Morgan Stanley or its designee, in its capacity as Administrative Agent (or any analogous role) on behalf of lenders in the lending syndicate, and the successors and assigns of each of the foregoing; and (ii) Any entity that becomes a finance party in accordance with the related credit agreement or facility agreement. The valuation shall be capable of being relied upon by 1) Morgan Stanley Bank N.A. or any of its affiliates, 2) any entity that becomes a Finance Party in accordance with the terms of the Senior Facility Agreement, 3) any entity that becomes a Finance Party in accordance with the terms of the Mezzanine Facility Agreement 4) the Senior Facility Agent on behalf of the Senior Lenders and 5) the Mezzanine Facility Agent on behalf of the Mezzanine Lenders The valuation shall be in a form and the valuer shall permit that the valuation to be included in an Offering Memorandum or prospectus (including responsibility taken for the valuation and confirmation of no material change to value confirmation stated in any Offering Memorandum or prospectus) The valuer will need to confirm their consent that: (i) the Valuation or a reference to and summary of it (and the methodologies and concepts on which it is based) may be included in any information memorandum, offering circular, registration statement or similar document as may be required to comply with any applicable laws, regulations or official guidelines relating to the issuance of or investment in any securitisation of a loan related to the subject of the Valuation; and (ii) The Valuation or references to it may be included in any document provided to any potential providers of finance and their directors, officers, employees, agents and professional advisors in connection with any syndication or securitisation in relation to the financing.

Liability C&W's total aggregate liability to the Client or to any other party entitled to rely on the Valuation Report, arising out of, under or in connection with this Engagement shall be limited to an aggregate sum not exceeding the lesser of £75 million or 25% of the Market Value of the Engagement Property.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Record Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Signed for and on behalf of Cushman & Wakefield Debenham Tie Leung Limited.

Carl Ridgley MRICS Ian Thompson MRICS Partner Partner RICS Registered Valuer RICS Registered Valuer RICS Number: 0851608 RICS No: 0852608 +44 (0)20 7152 5436 +44 (0)20 7152 5006 [email protected] [email protected]

Registered Office: Cushman & Wakefield Debenham Tie Leung Limited 125 Old Broad Street, London, EC2N 1AR Registration number: 02757768

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

THE PORTFOLIO

1. Portfolio History

The portfolio is the combination of what was previously two portfolios held by Somerston Hotels and Morethan Hotels. The historic context can be seen graphically below.

• 1-15 hotels • Opened first Holiday Inn Express in Warwick, going on to build a further 14 hotels between 1997 1997 and 2002

• 15 hotels 2004 • Refinanced with Anglo Irish Bank

• 31 hotels • Expanded through the purchase of 13 Holiday Inn Express hotels from BDL Hotels and three 2005 from Saltire Hotels • 34 hotels • Purchased three more hotels: Leeds City Centre, London Dartford and Poole 2006 • Partial Sale of 64% ownership to HNW • 34 hotels • Sold Holiday Inn Woking 2008 • Holiday Inn Express Lincoln City Centre opened

• 34 hotels • Sold Ramada Encore York 2010 • Hampton by Hilton Liverpool City Centre opened

• 48 hotels • Lone Star acquired the Morethan portfolio, Hamilton and Somerston Hotels. • Management of Portsmouth Park Hotel (Holiday Inn Express Portsmouth North) 2014 • MDA signed with IHG • Rebranded as Atlas Hotels February 2015

• 48 hotels (includes the acquisitions) 2016 • L&R acquired the Atlas Hotels portfolio • L&R acquired the Holiday Inn Express Portsmouth North and the Park Inn York

• 49 hotels 2019 • Development of the Holiday Inn Express Exeter City Centre, opening May

• 50 hotels 2020 • Holiday Inn Express Bicester is planned to open in Q3

In 2014 Lone Star acquired the Morethan Portfolio and the Somerston Hotels portfolio, along with the Hamilton Holiday Inn Express and management of Portsmouth Park Hotel. The portfolio was then rebranded as Atlas Hotels in February 2015 and purchased by London & Regional in 2016. In the same year London & Regional also acquired ownership of the Holiday Inn Express Portsmouth North, which had previously been the Portsmouth Park hotel. Many of the properties within the Morethan portfolio were originally developed by Premier Hotels, the trading name of Oriel Leisure. The Somerston portfolio was a combination of properties developed by Somerston themselves between 1997 and 2002, and hotels acquired by Somerston throughout 2005 to 2010.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

2. Location Analysis

2.1. Location

General The hotels are geographically dispersed throughout England, Wales and Scotland. Five hotels are located within Greater London with the remainder located primarily within the UK provincial markets. Six hotels are located in Scotland and two in South Wales. All hotels are located either within a city centre or within close proximity to infrastructure hubs, such as motorway junctions or airports.

Further maps and plans are attached to individual property reports

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

3. Description

The Atlas portfolio comprises 49 hotels located throughout the UK comprising 5,687 bedrooms. The portfolio is made up of Holiday Inn Express hotels, with the exception of one Hampton by Hilton in Liverpool and a Park Inn in York, which is let to Park Hotels Management Limited (Radisson Hotel Group). The Holiday Inn Express in Poole has been let to Eclipse Hotels and is therefore not one of the operational Atlas Hotels.

Three extensions are currently under construction at the hotels in Cambridge, Edinburgh and London Hammersmith, which will increase the bedroom count by 157 bedrooms by Q1 2020.

4. Structural Condition and Repair We have not carried out a building or condition survey nor have we been provided with any building surveys or reports by you or your Borrower. The Properties were constructed between 1997 and 2010, with the majority being constructed between 2000-2004. All are very similar in architectural style. From a decorative perspective, the hotels were for the most part found to be in good condition, with many of the properties having undergone refurbishment within recent years. The soft refurbishment of bedrooms to IHG Generation Four standards mitigate against what would otherwise be increasingly outdated bedrooms. However, it is worth noting that the focus on maintenance and soft refurbishment of the hotels may potentially mask longer term issues in terms of the bedrooms becoming outdated, particularly with regards to bathrooms and case goods. The public areas of each hotel are of a somewhat mixed quality. The majority however comprise a traditional reception area with adjoining open-plan Great Room dining area, characterised by wooden furnishings, an array of soft seating and bar and breakfast servery. Only a minority of the hotels have benefitted from a more recent refurbishment of the Great Room that is in keeping with the theme of the Generation Four bedroom. This is characterised by new separated reception desks, updated bar and breakfast servery, new flooring, modern decoration and artwork and a mixture of modern upholstered seating throughout. Recent examples of this are at the Holiday Inn Express Bath and Portsmouth. Capital Expenditure The Atlas portfolio has seen a total investment of approximately £23 million between 2016 and 2018. A large proportion of this investment has been on the refurbishment of the guest bedrooms with circa £6 million investment on bedroom extensions at Bath, Cambridge, Luton Airport and Milton Keynes. In addition, approximately £1 million has been spent in 2018 on the refurbishment of the public areas at the Holiday Inn Express Birmingham NEC, Bristol City Centre and Edinburgh Waterfront. The forecast capital expenditure across the portfolio for the current year is approximatively £2.75 million. In addition to this amount, bedroom extensions are to be undertaken at the Holiday Inn Express Cambridge, Edinburgh Waterfront and London Hammersmith. The total budget for these three hotels was £16.8million, of which we were advised that £2.6million had been spent up to May 2019, as confirmed by Andrew Callaghan of Linesight. We set out below the remaining balances:

Hotel No of Beds Cost Cost per Bedroom Cambridge 73 £6,400,000 £87,671 Edinburgh Waterfront 24 £1,800,000 £75,000 London Hammersmith 60 £6,000,000 £110,000

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

4.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost of each Property is listed in the individual reports. We have not been provided with any details of the floor areas and therefore our indicative assessments purely rely on our experience of the build costs of similar limited service hotels on a price per bedroom basis. You should therefore 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. 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).

No Hotel Reinstatement Costs 1 Bath £14,500,000 2 Bedford £6,800,000 3 Birmingham NEC £17,900,000 4 Birmingham Oldbury £9,300,000 5 Bristol City Centre £9,600,000 6 Bristol - North £13,400,000 7 Cambridge £8,500,000 8 Derby Pride Park £8,800,000 9 Droitwich £8,000,000 10 East Midlands Airport £7,700,000 11 Edinburgh - Waterfront £12,400,000 12 Exeter £12,700,000 13 Glasgow Airport £12,200,000 14 Glasgow City Centre Riverside £10,900,000 15 Gloucester South £9,100,000 16 Hamilton £8,900,000 17 Hemel Hempstead £9,900,000 18 Inverness £8,000,000 19 Leeds City Centre £9,600,000 20 Lichfield £8,700,000 21 Lincoln City Centre £10,100,000 22 Liverpool Hampton by Hilton £13,600,000 23 Chingford - North Circular £11,300,000 24 London - Dartford £13,900,000 25 London Greenwich £17,900,000 26 London - Hammersmith £14,900,000 27 London - Wandsworth £16,300,000 28 Luton Airport £13,100,000 29 Manchester East £8,300,000 30 Manchester Salford Quays £10,200,000 31 Milton Keynes £16,400,000 32 Newcastle - City Centre £13,000,000

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

No Hotel Reinstatement Costs 33 Newcastle Metro £11,400,000 34 Newport £10,700,000 35 Northampton £10,800,000 36 Peterborough £6,800,000 37 Portsmouth - North £12,800,000 38 Southampton - West £10,500,000 39 Stafford £8,800,000 40 Stevenage £11,000,000 41 Stirling £6,800,000 42 Stoke-on-Trent £10,500,000 43 Swansea East £7,800,000 44 Swindon - West £10,300,000 45 Taunton £7,900,000 46 Warwick - Stratford-upon-Avon £11,800,000 47 Poole - (leased) £7,300,000 48 York - Park Inn (leased) £24,000,000 49 Exeter City Centre £8,800,000 TOTAL £543,900,000

5. Environmental Considerations and Environmental Performance

5.1. Environmental Considerations We have been provided with environmental due diligence reports for each hotel prepared by Argyll Environmental undertaken on 29 May 2019. Our enquiries have provided no evidence that there is a significant risk of contamination or other adverse environmental issues in respect of the Properties other than detailed in the individual property reports. . Other than as referred to above, we have made no investigations to establish if there is existing or potential contamination or other adverse environmental issues and, in practice, a purchaser may undertake further investigations. If it is subsequently established that contamination or other adverse environmental issues exist at the Properties or on neighbouring land, or that the premises have been or are being put to a contaminative use, this might reduce the value now reported. You are advised to ensure your legal adviser takes up the usual enquiries on your behalf in respect of possible contamination or other adverse environmental issues before entering a financial commitment regarding the Properties. Our valuation has been prepared on the basis that the Properties do not suffer from contamination.

5.2. Environmental Performance

Energy Performance Certificate and Minimum Energy Efficiency Standards We have not been provided with or been able to recover an EPC for the Properties and we are not qualified to estimate their energy rating. We have therefore made an assumption that the Property's energy performance rating is above 'E'.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

However, an unknown EPC rating represents a potential additional risk factor to the Property's future cash flow. Prior to making a lending decision we would recommend that an EPC is obtained to assess the level of risk posed by MEES. An F or G rating means the Property is not currently compliant with MEES regulations and an E rating is likely to become non-compliant over time. This presents a significant risk to the Property's future cash flow. Energy Performance Certificates (EPCs) must be produced for all properties before being marketed for sale or lease. Ground Conditions We have made the assumption that there are no adverse ground conditions affecting the Properties, unless otherwise stated in the individual property reports. Flooding Risk Please refer to the individual property reports.

Planning We have assumed that all necessary planning permissions are in place for use of the Properties as hotels. We have assumed that there are no outstanding planning matters that would impact value unless stated.

Please refer to the individual property reports.

Fire Risk Assessment The Regulatory Reform (Fire Safety) Order 2005 (the "Order") came into force in England and Wales in October 2006, replacing the requirement for fire certificates with Risk Assessments. The new law places the responsibility on the employer or "responsible person" for a particular building or premises. He or she is required to assess the risk of fire and take steps to reduce them. The findings of any risk assessment must be recorded in writing. The onus is on that person to ensure the building is compliant. The fire authority is still permitted to inspect premises to ensure adequate fire precautions are in place, and hotels, being places where there is a significant degree of public access, will come under particularly close scrutiny. Responsibility for complying with the Fire (Scotland) Act 2005 and the associated Fire Safety (Scotland) Regulations 2006 rests with the Duty Holder. The Duty Holder is required to assess the risk of fire and take steps to reduce them. The findings of any risk assessment must be recorded in writing. The onus is on that person to ensure the building is compliant. The fire authority is still permitted to inspect premises to ensure adequate fire precautions are in place, and hotels, being places where there is a significant degree of public access, will come under particularly close scrutiny. We have made the assumption that the necessary risk assessments are in place to comply with the requirements of the Order and there are no outstanding matters that would impact on our opinion of value.

Registration and Licencing We have not had sight of the licences however we have made the assumption that the appropriate licenses are in place for its operation and if this should prove otherwise then our valuations may be negatively affected.

The Equality Act The Equality Act 2010 (the "Act") came into force in October 2010, primarily to consolidate a number of anti-discrimination Acts and Regulations, including the Disability Discrimination Act

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

1995. The Act places an obligation on landlords to make reasonable adjustments where a disabled person is placed at a substantial disadvantage in comparison to a non-disabled person, although the Act does not require the alteration or removal of a physical feature. The obligation will only take effect when a request is made by a disabled tenant or occupier. Hotels generally require (with few exceptions) to be accessible for wheelchair bound guests (including access from the street into the hotel, and to all public areas) and to have a reasonable proportion of guest bedrooms providing adequate accommodation for disabled guests. Adequate accommodation could include wider doorways (to allow easy ingress and egress of wheelchairs), alarm-light (to awake the hard of hearing in the event of a fire), and specially adapted bathrooms (with seats in the showers and alarm cords). Some hotels will need physical modifications for the occupier to be able to comply with the Act. Often these will be minor, but if major modifications are required (for example to provide wheelchair access), these could prove costly. A property without the necessary modifications may also be harder to sell or let. We have made the assumption that the Properties would comply with the Act.

Other Statutory Matters We have made the assumption that the hotels comply with all other statutory requirements including those relating to the control of asbestos and food safety hygiene. We have not made any specific enquiries as to whether there are any road scheme or compulsory purchase orders that could affect the Properties.

6. Taxation

Business Rates Please refer to the individual reports which set out the rateable value for each hotel.

7. Tenure and Occupational Interests

Title As existing, the portfolio is equally represented by freehold and leasehold interests. 25 properties within the portfolio are freehold whilst 22 are held long leasehold. The exceptions are York and Bath, which are both held part freehold and part leasehold.

There are only three leasehold hotels with less than 100 years unexpired, being Bristol City Centre (77 years remaining), Holiday Inn Portsmouth North (94 years remaining) and Luton Airport (82 years remaining). We have been provided with draft undated Red Flag Reports prepared by Osborne Clarke LLP. Further detail on the tenure of each of the Properties can be found in the individual property reports.

7.1. Proposed Ground Lease The proposal is to sell the current freehold or long leasehold interests in 43 of the hotels to M&G Investments who will simultaneously grant a 125 year ground leasehold interest in each of the hotels. The six hotels where the structure is not being adopted are Holiday Inn Express Bedford, Bristol City Centre, Luton, Portsmouth, Poole and the Park Inn York where it is not suitable based on the current legal interest.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

The proposal is to grant an individual leasehold interest in each of the 43 hotels on identical terms save for the rent payable. The initial rent payable for each hotel is to be set at an amount equivalent to 15% of the Net Operating Income (NOI) achieved in 2018 by each hotel. We have been provided with heads of terms and a draft version of the standard form of lease and summarise the proposed terms below:

Landlord Kleinworth Benson (Guernsey) Ltd as Trustee of the [.] Trust and its Nominee Borrowdale Nominees Ltd.

Tenant TBC.

Date of Lease Undated draft.

Term 125 years from the Term Commencement Date.

Option Agreement £1 buy back in favour of the Tenant in year 60.

Rent An initial total rent of £6.9 million per annum being 15% of the adjusted NOI for the financial year 2018. A schedule of the individual rents is shown below. The Tenant is also to be responsible for the head rent payable at any property.

Rent review provisions The rent is reviewed annually. The rent shall be reviewed by formula linked to the change in the Retail Price Index subject to a minimum of 0% and a maximum of 5%.

Repair To keep the demised premises in good and substantial repair and condition in accordance with the Operating Standards.

Insurance The Tenant is to insure the demised premises.

User Hotel or an Alternative Use subject to landlord’s approval. Residential use within Use Class C3 is prohibited.

Alienation The Tenant is permitted to assign the whole subject to Landlords consent which is not to be withheld or unreasonably delayed provided the assignee is of sufficient financial standing. The Tenant is permitted to underlet the whole or substantially the whole by means of an Operating Lease and a Permitted underletting.

Alterations The Tenant may carry out any works that are not Major Structural Alterations without consent including non structural alterations and structural alterations that do not require planning permission. If the Tenant intends to carry out Major Structural Alterations the Tenant must give the Landlord advance notice in writing and the Landlord will have been deemed to have accepted the proposals if the Landlord does not serve a counter notice stating the works would materially impact the landlords interest.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Alternative Use The Tenant must apply to the Landlord for a change of use and they must not withhold their consent provided it is not a Prohibited Use and it can be demonstrated that the projected NOI is greater than the projected NOI of the business. The projected NOI of the alternative use is not to be less than the Yearly Rent multiplied by 5.5 and the realisable market rent is not less than the Year Rent multiplied by 3.0. The Market Value of the Demised Premises (assuming the Demised Premises is used for the proposed Alternative Use) shall not be less than the amount equal to the prevailing Market Value of the Landlord's Interest (assuming the Demised Premises is used for the proposed Alternative Use) at the date of the application by the Tenant for change of use to the Alternative Use multiplied by 2.0.

Minimum Capex Spend The Tenant is to devise a programme for renewals, replacement and investment in FF&E and other Capex equivalent to 3% of Total Revenue in the previous accounting period. There will be no requirement to provide for expenditure in the accounting period following Major Structural Alterations. There will be no breach of this obligation if the Tenant is able to demonstrate that is has or will provide for expenditure of an average of 3% of Total Revenue over a 5 year period.

Forfeiture The Landlord may re-enter the demised premises at any time by court order if the Yearly Rent remains unpaid for 21 days or more or if there is a continual material breach of Clause 3.3, 3.6 and 3.9. The Landlord cannot forfeit the lease unless it has given a Disclosed Mortgagee not less than 30 days prior written notice of its intention to forfeit and the Disclosed Mortgagee has not paid the sums owed or provided an undertaking to remedy any breach.

Provision of Information The Tenant is to provide the Landlord with quarterly management accounts and annual audited accounts. The Tenant is to notify the Landlord of the grant of any planning permission.

The initial rent payable under each Property is shown in the schedule below:

# Hotel Initial Ground Rent pa £271,087 1 Bath £102,014 2 Oldbury £115,166 3 Derby £75,112 4 Droitwich £213,602 5 Edinburgh Waterfront £38,882 Edinburgh Extension £195,811 6 Exeter £192,414 7 Glasgow Riverside £134,825 8 Gloucester

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

# Hotel Initial Ground Rent pa £144,429 9 Hemel Hempstead £153,999 10 Inverness £111,376 11 Leeds £164,386 12 Lincoln £341,204 13 Hammersmith £66,155 14 Manchester East £300,698 15 Milton Keynes £135,530 16 Newport £159,391 17 Northampton £103,145 18 Peterborough £115,275 19 Stevenage £67,265 20 Stirling £108,108 21 Stoke £74,449 22 Swansea £131,192 23 Swindon £100,688 24 Taunton £154,652 25 Warwick £364,351 26 Greenwich £268,460 27 Wandsworth £58,578 28 Stafford £180,986 29 Glasgow Airport £119,217 30 Newcastle £89,013 31 Newcastle Metro £124,220 32 Southampton £277,887 33 Liverpool £114,394 34 Hamilton £127,622 35 Chingford £190,884 36 Cambridge £98,367 Cambridge Extension (in year two) £102,515 37 East Midlands £298,270 38 Birmingham NEC £87,716 39 Lichfield £121,856 40 Dartford £173,792 41 Salford Quays £272,818 42 Bristol North £133,900 43 Exeter City Centre (due to open April 2019) Total including extensions in Year Two £6,975,701 The above schedule includes the initial rents agreed although this does not include the additional rent payable for the Holiday inn Express London Hammersmith upon completion of the proposed extensions. The additional amount payable upon completion for these hotels are set out below:

Hammersmith Extension £97,374

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

The level of rent proposed as a proportion of NOI is within the parameters we would typically expect under a ground lease. The rent is to be reviewed annually in line with the increase in the Retail Price Index subject to a collar and cap at 0% and 5%. For the 43 hotels that are to be held under the proposed ground lease, it is this proposed leasehold interest that we have valued. For the remaining six hotels it is the existing leasehold interest that we have valued, the full year 2018 rents for which are summarised in the table below:

Hotel Rent Payable Bedford £39,410 Bristol City £3,500 Luton £149,192 Portsmouth £118,000 Poole £575,121 York £1,839,780 We would recommend that you ensure that the proposed ground leases are completed on the terms set out above or we are notified of any changes to the terms of the proposed lease as this could have an impact on the values reported. We have been advised that the proposed buy back option is to be documented in a separate agreement although we have yet to see a draft agreement. This document should be obtained and reviewed as this option will influence the value of the leasehold interests. Our valuation specifically has regard to the buy back option proposed as we consider this will be a key factor in the return a purchaser is prepared to accept. Our choice of yields, reflects the ability for the tenant to buy back the freehold interest for £1 at year 60. We do not consider there would be any impact if this buy back period were to change by five years.

8. Operational Structure

8.1. Franchise Agreement The hotels are operated under the Holiday Inn Express brand by way of franchise agreements from IHG with the exception of the Hampton by Hilton Liverpool, which is operated under a franchise agreement from Hilton and one of the two hotels that has been let to a third party. The Holiday Inn Express brand was built on a foundation of robust consumer insights. The efficient design and the modular approach to construction reduces build cost and operating cost. The brand, also at the initial stages of design concentrates on the maximisation of revenue generating space. An example of this is the reception desk and bar which are connected. This enables the staff to seamlessly switch between the two. The brand operates in the limited service sector providing a limited food and beverage offer which allows the hotels to generate higher profit margins. There are currently 144 Holiday Inn Express hotels in the UK providing 17,912 bedrooms making it the fourth largest brand in the country. We have been provided with a copy of the franchise agreement as summarised below:

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Operating Term Typically 15-20 year term.

The System The franchise agreement importantly grants a right to the franchisee to access Holidex which is IHG’s powerful hotel operating and revenue management system.

Royalty Fee 4% of Total Rooms Revenue.

Marketing Fee 2% of Total Rooms Revenue.

Reservation Fees 1% of Total Rooms Revenue.

Leased Space If the Licensee leases or grants a concession over any portion of the hotel to a third party then the Licensee shall procure that the relevant area and all activities conducted shall be compliant with IHG requirements.

Operation 24 hours a day except as otherwise permitted by the Licensor based on special circumstances.

R&M Maintain the hotel in a clean, safe and orderly manner and in first class condition.

Insurance Licensee shall comply at all times during the term with all insurance requirements of any lease or mortgage covering the hotel.

Transfer The licence is personal to the Licensee although the Licensor shall have the right to transfer or assign this Agreement or any of the Licensor’s rights or obligations to any person or legal entity capable of operating, maintaining and protecting the system.

Termination The franchise agreement is terminable in advance of the expiration date although compensation will be payable. The hotel will have to be de-identified on termination.

8.2. Portfolio Agreement The Portfolio Agreement supersedes the Master Development Agreement (MDA) which was originally negotiated in December 2014 based on the strength of the partnership with IHG and the size of the portfolio. The Portfolio Agreement is dated 19 October 2017 between IHG Hotels and Atlas Hotels. The franchise agreements were all extended from the original expiry dates by 15 years and the hotels were then subject to discounted fees. Details of the term of each agreement and the discounted fee levels are set out below:-

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Fees pre 15 year additional period Fees during 15 year additional period

Holidex Fee Marketing Marketing and Discounted Holidex Fee Franchise Contract Expiry 2017 or the and Hotel Reservation Franchise New Expiry Date 2017 Fee date prevailing Reservation Fee Fee rate Fee Inverness 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 08 February 2030 Birmingham Oldbury 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 28 February 2030 Derby 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 28 February 2030 Exeter 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 28 February 2030 Glasgow City Riverside 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 28 February 2030 London Greenwich 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 28 February 2030 Manchester Salford Quays 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 28 February 2030 Stoke on Trent 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 28 February 2030 Taunton 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 28 February 2030 Warwick/Stratford on Avon 9.77 4.5% 2.0% N/A 9.77 4.0% 3.0% 28 February 2030 London Chingford 8.47 4.5% 3.0% N/A 9.77 4.0% 3.0% 27 November 2031 Bristol North 8.46 4.5% 3.0% N/A 9.77 4.0% 3.0% 06 May 2032 Bath 8.46 4.5% 3.0% N/A 9.77 4.0% 3.0% 22 May 2032 Stirling 8.16 4.0% 2.0% N/A 9.77 4.0% 3.0% 13 October 2032 Edinburgh Waterfront 8.16 4.0% 2.0% N/A 9.77 4.0% 3.0% 14 March 2034 Glasgow Airport 8.16 4.0% 2.0% 15 June 2020 9.77 4.0% 3.0% 16 June 2035 East Midlands Airport 8.46 4.0% 2.0% 28 August 2020 9.77 4.0% 3.0% 29 August 2035 London Wandsworth 8.46 4.0% 3.0% 29 October 2020 9.77 4.0% 3.0% 30 October 2035 Gloucester South 8.46 4.0% 3.0% 14 November 2020 9.77 4.0% 3.0% 15 November 2035 Manchester East 8.16 4.0% 3.0% 14 November 2020 9.77 4.0% 3.0% 15 November 2035 Peterborough 8.46 4.0% 3.0% 14 November 2020 9.77 4.0% 3.0% 15 November 2035 Newcastle Metro Centre 8.46 4.0% 3.0% 21 November 2020 9.77 4.0% 3.0% 22 November 2035 Lichfield 8.46 4.0% 3.0% 14 December 2020 9.77 4.0% 3.0% 15 December 2035

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Fees pre 15 year additional period Fees during 15 year additional period

Holidex Fee Marketing Marketing and Discounted Holidex Fee Franchise Contract Expiry 2017 or the and Hotel Reservation Franchise New Expiry Date 2017 Fee date prevailing Reservation Fee Fee rate Fee Milton Keynes 8.46 4.0% 2.0% 31 January 2021 9.77 4.0% 3.0% 01 February 2036 Southampton West 8.46 4.0% 3.0% 18 February 2021 9.77 4.0% 3.0% 19 February 2036 Swindon West 8.46 4.0% 2.0% 24 May 2021 9.77 4.0% 3.0% 24 May 2036 Leeds City Centre 8.16 5.0% 3.0% 11 June 2021 9.77 4.0% 3.0% 11 June 2036 London Dartford 8.16 5.0% 3.0% 12 June 2021 9.77 4.0% 3.0% 12 June 2036 London Hammersmith 8.46 4.0% 2.0% 01 July 2021 9.77 4.0% 3.0% 01 July 2036 Luton Airport 8.46 4.0% 2.0% 24 March 2022 9.77 4.0% 3.0% 24 March 2037 Swansea 8.46 5.0% 3.0% 26 January 2023 9.77 4.0% 3.0% 26 January 2038 Droitwich 8.46 5.0% 3.0% 18 March 2023 9.77 4.0% 3.0% 18 March 2038 Northampton 8.46 5.0% 3.0% 06 July 2023 9.77 4.0% 3.0% 06 July 2038 Cambridge 8.46 4.0% 2.0% 30 November 2023 9.77 4.0% 3.0% 30 November 2038 Lincoln City Centre 9.77 4.5% 3.0% 14 December 2023 9.77 4.0% 3.0% 14 December 2038 Newport 8.46 5.0% 3.0% 07 March 2024 9.77 4.0% 3.0% 08 March 2039 Bedford 9.77 4.0% 2.0% 12 April 2024 9.77 4.0% 3.0% 13 April 2039 Stevenage 9.77 5.0% 3.0% 12 October 2024 9.77 4.0% 3.0% 13 October 2039 Hemel Hempstead 8.46 4.0% 2.0% 17 October 2024 9.77 4.0% 3.0% 18 October 2039 Newcastle City Centre 9.77 4.0% 2.0% 10 July 2025 9.77 4.0% 3.0% 10 July 2040 Bradford City Centre 9.77 5.0% 3.0% 19 October 2025 9.77 4.0% 3.0% 19 October 2040 Birmingham NEC 9.77 5.0% 3.0% 22 November 2025 9.77 4.0% 3.0% 22 November 2040 Bristol City Centre 9.77 5.0% 3.0% 22 November 2025 9.77 4.0% 3.0% 22 November 2040 Stafford 9.77 5.0% 3.0% 22 November 2025 9.77 4.0% 3.0% 22 November 2040 Hamilton 9.77 5.0% 3.0% 11 February 2028 9.77 4.0% 3.0% 11 February 2035 Portsmouth 9.77 4.0% 3.0% 9.77 4.0% 3.0% to be agreed

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

The discounted fees were originally contingent on Atlas developing a further 850 new IHG rooms by the end of 2018 (joint undertaking by Atlas and Somerston). However, an amendment was agreed, which set a new target of 400 rooms for Atlas by the end of 2020. If this were not achieved, it would result in an increase in the Franchise Fees payable to 5% of rooms revenue across the whole portfolio, and 4.5% of rooms revenue for new hotels. The MDA also included a significant key money contribution from IHG to refurbish bedrooms to Generation Four brand standards. IHG have a right of first refusal on any new development opportunity.

8.3. Franchise Agreement upon Sale A franchise agreement is a personal agreement between the franchisor and the franchisee and does not run with the property. On sale of a franchised hotel the new owner would typically approach the franchisor, in this case IHG, and request a transfer of the franchise agreement. In nearly all cases, IHG would agree to the transfer as it is not in their interests to lose brand presence. In the case of the subject hotel portfolio, we consider that if sold as a portfolio then IHG would maintain the current discounted fees given the size and strategic importance of the portfolio. However, if the hotels were sold off individually, it is unlikely that IHG would agree to maintain the current discounted fees that are available to Atlas, as a result of their scale unless it was sold to an existing franchisee who through their own scale were able to negotiate their own discounted fees. On an individual basis, therefore, it is a reasonable assumption that although the franchise agreement is likely to be assigned to a new owner, the fees would revert back to a market level, which is typically a Royalty Fee of 5% of rooms revenue and a Sales and Marketing Fee of 3% of rooms revenue. Any additional reservation fees are typically recorded within rooms departmental expenses.

8.4. The Brand

InterContinental Hotels Group PLC InterContinental Hotels Group PLC (IHG) is a British multinational hotels company headquartered in Denham, UK. It is one of the largest hotel companies in the world measured by rooms (with 842,759 by Q1 2019) and has over 5,650 hotels in more than 100 countries. Its brands span the lodging sector from luxury full service hotels and resorts to extended stay suites, mid-market hotels and timeshare properties. IHG’s 16 brands are shown below.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

The origins of IHG can be traced back to 1777 to the Bass Brewery which branched out into the hotel industry when in 1988 it acquired the international part of the Holiday Inn business established by Kemmons Wilson in 1954 subsequently acquiring the North American division in 1990. In 1998 the company acquired InterContinental Hotels Corporation, which was established by Pan American Airways founder Juan Trippe in 1946. Following the sale of its various divisions, Bass changed its name and demerged its two remaining businesses to create IHG. In the early part of the century IHG embarked on a strategy to become asset light selling the majority of its hotels and now it is primarily a franchise and management company. It is perhaps one of the leading franchised businesses, selling its expertise in hotel management, systems, and marketing, while leaving investment in real property to others. Of the total hotels operated under IHG’s brands, 69% are franchised and 30% are managed with the company only owning or leasing 23 hotels as of December 2018. We have provided a summary of relevant financial operating figures from the past fiscal year for IHG below:

The following table shows the number of hotels and hotel rooms under each of IHG’s brands on a global scale in addition to those in the pipeline.

Hotels Rooms Hotels in Rooms in Hotel brand open open pipeline pipeline Six Senses 18 1,469 17 1,308 Regent Hotels & Resorts 6 2,005 5 944 InterContinental Hotels & Resorts 204 69,166 60 15,871 Kimpton Hotels & Restaurants 68 13,357 27 4,494 Hotel Indigo 103 12,828 99 14,435 Even Hotels 10 1,551 22 3,952 Hualuxe Hotels & Resorts 8 2,335 20 5,825

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Crowne Plaza Hotels & Resorts 427 119,641 88 24,647 Voco 4 1,182 8 1,510 Holiday Inn 1,186 215,714 268 50,229 Holiday Inn Express 2,742 282,050 790 99,265 Holiday Inn Club Vacations 27 7,927 - - Holiday Inn Resort 46 11,561 20 5,094 Avid 1 87 183 17,013 Staybridge Suites 282 30,799 190 21,678 Candlewood Suites 399 37,464 97 8,675

Total 5,531 809,136 1,894 274,940

IHG Operating System IHG’s operating system includes advertising and marketing campaigns, 11 global call centres, 15 local language websites, global sales team of more than 18,000 professionals, IHG Rewards Club (World’s largest scheme with over 100 million members) and all the advantages that IHG’s global hotel distribution and scale brings to brand awareness.

IHG Rewards Club IHG Rewards Club is IHG’s worldwide loyalty program, which replaced Priority Club Rewards in July 2013. The loyalty scheme was first introduced in 1983, and now has more than 100 million members. Points are earned on all overnight stays. There are no blackout dates for Reward Nights and points can also be used for flights on over 400 airlines.

IHG Business Advantage Business Advantage is IHG’s corporate programme designed for small and medium sized businesses. As well as providing an easier way to organise, book and pay for hotel accommodation, Business Advantage also entitle their account holders to preferential rates at all IHG’s hotels across the UK and Northern Ireland.

9. Business Analysis The portfolio is managed by a central head office team based in Stratford Upon Avon. The team plays a key role in the operational efficiency of the portfolio. There are 53 people employed within the head/central office. The Chief Executive Officer is Sean Lowe who is assisted by 13 senior personnel covering key positions such as finance, IT, marketing, purchasing etc. According to the 2018 hotel performance, the total head office costs equated to approximately 2.2% of overall revenue across the portfolio. Typically head office costs range between 2% and 5% of overall revenue depending on the number and type of assets and the level of service provided and therefore the level of costs falls at the lower end of this range. In general, the portfolio of hotels are well established in their respective markets and have reached a stabilised trading position achieving high levels of occupancy. The exception to this is the new Holiday Inn Express at Exeter City Centre, which opened in May 2019 and the Holiday

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Inn Express Cambridge, Edinburgh Waterfront and London Hammersmith where there is further growth potential through the construction of bedroom extensions over the course of the next 12 months. One of the main goals of management this year is to improve efficiencies to lower operating costs. Whilst a large proportion of leisure business is generated from bookings through Online Travel Agencies, IHG has managed to negotiate favourable commission levels. Atlas are also focussing on payroll costs and the Human Resources department. Cost saving initiatives for the current year include the following: • Installing new staff clocking machines and software across the portfolio that should result in greater efficiencies in staffing levels and rotas. The new system is currently being tested at the new Exeter City Centre hotel, which opened at the beginning of May 2019, after which it will be rolled out across the whole portfolio. • General Managers (GMs) will be allocated responsibility for dual locations reducing the need for a manager at every hotel. • The end of year bonus system will be tied to successful cost savings at a property level, encouraging GMs to actively keep track of expenses at the hotel. • Removing plants in the public areas, pens and notepads within the guest bedrooms and hard copy newspapers for guests, instead offering a free internet download of the Metro newspaper. • New supplier contracts with energy and various food suppliers. It is estimated that these measures will achieve savings of approximately £1m in 2019 and have been included in the company’s forecast for the year to December 2019 provided to us. The table below shows the trading performance across the portfolio for 2017, 2018, that forecast for 2019 and projections for 2020: 2019 (2+10) 2017 2018 2020 forecast forecast Total Revenue £128,406,707 £130,299,623 £136,196,907 £144,818,968 NOI (post FF&E) £50,554,732 £51,646,522 £52,388,352 £56,168,364 NOI (post FF&E and N/A N/A £45,273,891 £48,840,468 ground rent)

The figures for 2019 include approximately nine months of trading for the Holiday Inn Express Exeter City Centre. The projections for 2020 include the additional bedrooms being constructed at the Holiday Inn Express Cambridge, Edinburgh Waterfront and London Hammersmith Total revenue is forecast to increase by 4.5% in 2019 to £136.2 million having increased by 1.4% in 2018. NOI before the ground rent has shown a positive trend and is forecast to increase by 1.5% in 2019 to £52.4 million having increased by 2.1% in 2018. Management have forecast an improvement in Net Operating Income in 2020 to allow for the build up in trade at Exeter as well as the addition of 157 bedrooms at Cambridge, Edinburgh Waterside and London Hammersmith. The improvement in NOI forecast across these hotels for 2020 is shown below:

Property Projected Opening NOI improvement (in million £) Exeter City Centre 30 April 2019 1.2 Edinburgh Waterfront November 2019 0.3 London Hammersmith December 2019 0.6

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Cambridge December 2019 0.7 Total 2.7

Details of the trading performance of each hotel is shown in the individual property reports.

10. C&W Trading Projections

Introduction & General Assumptions Fundamental to the opinions of operating results is that we assume a competent and efficient management at the property level, a well-coordinated marketing plan for the hotel, and a well- devised yield management strategy. Among the primary responsibilities of management are the maintenance of a quality facility, the execution of an adequate marketing effort, and operating in a cost efficient manner. Our projections set out within each individual report incorporate an opinion of general price inflation based upon economic projections from various sources and historical data. To portray price level changes, we have adopted an average inflation rate of 2% per year throughout the projection period. This is intended only to portray an expected long-term trend in price movements, rather than for a specific interval in time. Based on our review of each Property's current and prospective operating performance, as well as our analysis of comparable hotel income and expense statements and industry norms, we have derived base levels of income and expense. The units of comparison include percentage of departmental and/or total revenue, amount per available room, and amount per occupied room. After reviewing the current performance of the hotel and the projections prepared in respect of the Properties, hotel industry averages, and the performance of comparable hotels, we have developed a ten year projection of income and expense, with the first year beginning May 2019. The projection of income and expense is intended to reflect the valuer's opinion of how a typical buyer would project the Property's operating results. Depending on the dynamics of the local market, a typical buyer's projection may be adjusted upward or downward. We have attempted to incorporate these considerations into this analysis. Our projections have been prepared on the basis that the hotels were sold individually and they would not get the benefit of the economies of scale of a central management platform or the current level of discounted franchise fees payable. We have also reflected this scenario in arriving at our Vacant Possession Value. For our opinion of the Portfolio Value with have assume the Properties would continue to be operated as part of the portfolio benefitting from the economies of a central management platform and thus allow for the deduction of a central head office allocation. They also assume the current level of discounted franchise fees payable. The table below set out our year one trading assessment for each hotel compared to managements forecast for 2019, which includes the rental income received for the Holiday Inn Express Poole and the Park Inn York. Please note that our assessment reflects an increased level of franchise fees and sales and marketing expenses:

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Atlas Hotels 2019 (2+10) Forecast C&W Y1 Projections 2019 NOI NOI NOI NOI NOI NOI Occupancy ADR Total Revenue NOI % Occupancy ADR Total Revenue NOI % No Hotel (post FF&E) (Post GR) (Post GR) % (post FF&E) (Post GR) (Post GR) % 1 Bath 86.6% 88.9£ £4,387,560 £1,876,318 43% £1,605,231 37% 87.0% £89.00 £4,408,483 £1,814,778 41% £1,543,691 35% 2 Bedford 81.3% 64.6£ £1,738,869 £493,082 28% £493,082 28% 80.0% £64.50 £1,710,520 £428,286 25% £428,286 25% 3 Birmingham NEC 81.7% 82.3£ £5,088,861 £2,239,238 44% £1,940,968 38% 81.0% £82.00 £5,023,901 £2,158,401 43% £1,860,131 37% 4 Birmingham Oldbury 80.4% 58.1£ £2,113,979 £656,146 31% £554,132 26% 81.0% £58.00 £2,122,999 £621,547 29% £519,533 24% 5 Bristol City Centre 86.6% 77.4£ £2,686,788 £984,363 37% £984,363 37% 88.0% £77.25 £2,587,519 £868,844 34% £868,844 34% 6 Bristol - North 86.0% 80.2£ £4,204,571 £1,837,760 44% £1,564,942 37% 86.0% £80.00 £4,197,484 £1,771,116 42% £1,498,298 36% 7 Cambridge 84.9% 91.2£ £3,102,555 £1,311,835 42% £1,022,584 33% 85.0% £91.00 £3,103,775 £1,221,754 39% £932,503 30% 8 Derby Pride Park 76.8% 70.8£ £2,173,045 £766,319 35% £651,153 30% 77.0% £70.25 £2,162,708 £720,591 33% £605,425 28% 9 Droitwich 81.3% 58.9£ £1,835,157 £517,803 28% £442,690 24% 81.0% £58.75 £1,822,577 £485,542 27% £410,430 23% 10 East Midlands Airport 81.9% 62.4£ £2,172,944 £734,477 34% £631,962 29% 81.0% £62.50 £2,155,881 £672,809 31% £570,294 26% 11 Edinburgh - Waterfront 82.1% 80.1£ £3,685,448 £1,389,017 38% £1,136,533 31% 75.0% £85.00 £3,860,944 £1,432,078 37% £1,179,594 31% 12 Exeter 86.6% 67.7£ £3,491,474 £1,283,667 37% £1,087,856 31% 86.0% £69.00 £3,533,106 £1,234,909 35% £1,039,098 29% 13 Glasgow Airport 85.1% 71.4£ £4,081,058 £1,239,610 30% £1,058,625 26% 85.0% £71.25 £4,069,560 £1,138,049 28% £957,063 24% 14 Glasgow City Centre Riverside 85.1% 75.2£ £3,219,372 £1,280,380 40% £1,087,966 34% 85.0% £75.25 £3,216,928 £1,222,931 38% £1,030,517 32% 15 Gloucester South 84.4% 66.6£ £2,329,866 £895,050 38% £760,225 33% 84.0% £67.00 £2,330,673 £860,188 37% £725,363 31% 16 Hamilton 82.3% 66.8£ £2,281,039 £702,459 31% £588,065 26% 82.0% £66.75 £2,273,741 £667,647 29% £553,253 24% 17 Hemel Hempstead 83.4% 70.5£ £2,714,549 £1,017,568 37% £873,138 32% 83.0% £70.25 £2,697,140 £926,698 34% £782,269 29% 18 Inverness 80.7% 89.2£ £2,602,359 £1,061,066 41% £907,067 35% 81.0% £89.00 £2,604,288 £1,014,968 39% £860,969 33% 19 Leeds City Centre 80.4% 65.9£ £2,446,579 £757,424 31% £646,048 26% 80.0% £66.00 £2,447,464 £730,376 30% £619,000 25% 20 Lichfield 79.4% 61.4£ £1,972,959 £606,050 31% £518,334 26% 80.0% £61.00 £1,974,124 £569,001 29% £481,285 24% 21 Lincoln City Centre 81.7% 70.4£ £2,788,463 £1,032,472 37% £868,087 31% 81.0% £71.00 £2,783,356 £995,865 36% £831,479 30% 22 Liverpool Hampton by Hilton 81.6% 87.5£ £4,438,546 £1,801,665 41% £1,523,778 34% 81.0% £87.50 £4,413,576 £1,794,964 41% £1,517,077 34% 23 Chingford - North Circular 87.0% 70.5£ £2,473,240 £846,654 34% £719,032 29% 87.0% £70.00 £2,453,007 £786,307 32% £658,685 27% 24 London - Dartford 79.5% 61.3£ £2,588,703 £782,293 30% £660,437 26% 79.5% £61.00 £2,578,435 £753,398 29% £631,542 24% 25 London Greenwich 80.2% 102.4£ £5,461,980 £2,609,643 48% £2,245,292 41% 80.0% £102.50 £5,456,960 £2,529,139 46% £2,164,788 40% 26 London - Hammersmith 83.3% 106.1£ £4,518,153 £2,089,491 46% £1,650,913 37% 83.0% £106.00 £4,987,307 £2,285,580 46% £1,944,376 39% 27 London - Wandsworth 82.3% 88.7£ £4,228,592 £1,773,656 42% £1,505,197 36% 82.0% £89.00 £4,222,880 £1,690,031 40% £1,421,571 34% 28 Luton Airport 84.9% 72.4£ £4,246,226 £1,698,355 40% £1,698,355 40% 85.0% £72.00 £4,227,852 £1,575,535 37% £1,575,535 37% 29 Manchester East 77.4% 55.8£ £1,711,565 £404,262 24% £338,107 20% 77.0% £56.00 £1,709,564 £372,255 22% £306,100 18% 30 Manchester Salford Quays 80.0% 76.6£ £2,983,812 £1,138,065 38% £964,273 32% 79.0% £76.50 £2,947,803 £1,066,910 36% £893,118 30% 31 Milton Keynes 82.7% 71.8£ £4,737,848 £1,986,507 42% £1,685,810 36% 82.0% £71.85 £4,702,103 £1,822,175 39% £1,521,477 32% 32 Newcastle - City Centre 80.6% 61.5£ £2,534,686 £733,225 29% £614,008 24% 80.0% £61.50 £2,515,040 £646,600 26% £527,383 21% 33 Newcastle Metro 85.2% 51.4£ £2,296,325 £615,528 27% £526,515 23% 84.0% £51.25 £2,280,726 £564,490 25% £475,477 21% 34 Newport 80.3% 64.2£ £2,624,888 £876,465 33% £740,935 28% 80.0% £65.00 £2,642,900 £857,941 32% £722,411 27% 35 Northampton 76.6% 73.8£ £2,985,640 £1,068,119 36% £908,728 30% 76.0% £73.50 £2,958,301 £1,019,875 34% £860,484 29% 36 Peterborough 81.8% 69.1£ £1,782,608 £620,395 35% £517,249 29% 82.0% £69.00 £1,784,536 £590,466 33% £487,321 27% 37 Portsmouth - North 79.8% 73.8£ £3,693,098 £1,264,942 34% £1,264,942 34% 79.0% £74.00 £3,669,885 £1,178,053 32% £1,178,053 32% 38 Southampton - West 86.0% 64.7£ £2,367,726 £767,490 32% £643,269 27% 86.0% £64.50 £2,358,853 £718,145 30% £593,925 25% 39 Stafford 76.9% 55.6£ £1,773,995 £429,457 24% £370,879 21% 76.0% £55.50 £1,749,692 £386,902 22% £328,324 19% 40 Stevenage 79.4% 60.4£ £2,466,105 £732,951 30% £617,676 25% 80.0% £60.00 £2,468,580 £718,002 29% £602,727 24% 41 Stirling 77.0% 67.8£ £1,675,579 £440,079 26% £372,814 22% 77.0% £67.75 £1,673,291 £404,911 24% £337,646 20% 42 Stoke-on-Trent 78.5% 61.2£ £2,356,702 £715,205 30% £607,097 26% 78.0% £61.00 £2,337,104 £644,425 28% £536,317 23% 43 Swansea East 74.9% 59.4£ £1,638,345 £433,186 26% £358,737 22% 75.0% £59.50 £1,641,249 £425,603 26% £351,154 21% 44 Swindon - West 80.1% 63.8£ £2,625,387 £916,238 35% £785,047 30% 80.0% £64.00 £2,630,748 £852,157 32% £720,965 27% 45 Taunton 80.6% 70.8£ £2,114,790 £691,371 33% £590,683 28% 80.0% £71.50 £2,119,076 £655,797 31% £555,109 26% 46 Warwick - Stratford-upon-Avon 81.6% 65.2£ £2,962,750 £1,125,012 38% £970,360 33% 81.0% £65.00 £2,927,381 £1,029,746 35% £875,094 30% 47 Poole - (leased) £584,694 £584,694 584,694 £584,694 48 York - Park Inn (leased) £1,878,909 £1,878,909 £1,878,909 £1,878,909 49 Exeter City Centre 75.0% 76.0£ £1,792,123 £682,392 38% £507,104 28% 75.0% 76.00 £2,406,415 £859,461 36% £725,561 30% TOTAL £136,196,907 £52,388,352 £45,273,891 £136,950,432 £50,248,845 £43,273,144

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

11. Principal Valuation Considerations We set out below our key considerations for the portfolio below:

Strengths / Opportunities Weaknesses / Threats

• National portfolio providing good geographic • A number of secondary locations. spread. • Capital intensive with continued need for • Purpose built properties that are functional investment due to high occupancy. and well maintained. • The Great Rooms in some of the hotels are • The size of the portfolio generates starting to appear dated which could start to economies including reduced franchise detract from the overall appearance of the fees. hotel. • Strength of the IHG brand, system and • Competition from other brands in an loyalty program. increasingly competitive market. • Quality central management platform able to • The ground lease structure proposed will not effectively manage a larger portfolio. appeal to all investors in the market and • Stable trading performance across the therefore there is likely to be a narrower pool majority of the hotels which produce strong of purchasers. This is likely to be more occupancy levels. evident if the hotels are sold individually. • Simple operating model which results in • The NOI levels at the individual hotels could good levels of profitability. be at greater risk if the rental growth is greater than profit growth i.e. profitability • The addition of bedroom extensions at does not keep pace with the RPI, although Cambridge (73), Edinburgh (24) and the level of increase is to be capped. Hammersmith (60) and the new opening at Exeter City Centre provide further growth • As a relatively new structure in the market, potential. there is a lack of transactional activity for residual leasehold interests where the • Aspiration to grow to 60 hotels in the freehold has been sold, which could lead to a medium term. greater level of uncertainty in the value achievable. • Economic and political uncertainty.

Please refer to the individual property reports for comments on each individual asset.

12. Valuation Approach and Opinions of Value

12.1. Approach The value of a trading hotel is assessed by adopting the income approach to valuation whereby the sustainable earnings that can be generated are capitalised at a rate of return that investors require in the market. The approach adopted will ultimately depend on the type of hotel asset and the level of sophistication of purchasers in the market although this would typically involve adopting a discounted cash flow whereby the future earnings of the business are discounted over a given period before assuming a sale at the end of this period. Adopting an income approach also requires the analysis of comparable transactions in the market to assess the rates of returns investors are prepared to accept at the date of valuation. The sales approach is also used as a secondary measure to analyse value on a price per bedroom basis as this method will often be used by purchasers in the market as a guide.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

As such our opinions of value are based on analysis of recent relevant market transactions supported by market knowledge derived from our agency experience.

12.2. Methodology In assessing the value of each hotel we have adopted a discounted cash flow (DCF) having regard to the performance of the business as shown in our assessment above. Under this approach the future profits of the hotel are discounted to present day values at a discount rate reflecting the opportunity cost of capital and risk associated with the investment. It is assumed that the asset will be sold by the end of a given period, which has been taken to be 10 years in this instance, and thus the projected net operating profit in the 11th year is capitalised at a market yield before being brought back to present day values. Our analysis of applicable terminal capitalisation and discount rates for the Properties specifically consider the building type and condition, the current local hotel market conditions, estimated future trends in the hotel market, the current and future earnings potential and the required returns on investment for similar investments. Our DCF assumes a sale of the leasehold interest at the end of the 10th year and therefore the net operating income capitalised includes the deduction of the ground rent payable. However, we have reflected in our choice of yield reflects that there will be an option to acquire the freehold interest at year 60 when the rent will no longer be payable. It is very difficult to compare the hotels within this portfolio with other hotel transactions as trading data is often confidential and where it is available it is extremely difficult to analyse the true trading potential of the hotel.

12.3. Comparable Evidence We set out below the comparable evidence which we have had regard to in arriving at our opinions of value:

Individual Holiday Inn Express Sales We have limited our comparable transactions to other franchised limited service hotels, the majority of which are Holiday Inn Express hotels as detailed below. The hotels are all held freehold unless otherwise stated below:

Address Transaction Details

Holiday Inn Express Aberdeen • Sold February 2019 Airport • £11,000,000 • £56,994 per bedroom The hotel was sold as part of a two property portfolio to M&L Hospitality by developer Dominvs. The hotel’s performance is good considering Aberdeen’s recovering hotel market with the allocated purchase price reflecting an initial yield of 7.6%.

Holiday Inn Express, Leigh Sports • Sold June 2018 Village • £11,250,000 • £83,333 per bedroom The 135-bedroom hotel was sold by Kro Hospitality to Bowling Green Asset Management. The hotel will continue to be operated by Tower Management Ltd. The yield was 9.30% post FF&E.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Address Transaction Details

Holiday Inn Express, Strathclyde • Sold June 2018 Park M74 Junction 5 • Interest: Leasehold • £5,500,000 • £45,833 per bedroom The 120-bedroom was sold by Geminex Hotel & Leisure Management to Hetherley Capital Partners. It will continue to be operated under a franchise agreement from IHG and managed by Hetherley Hotel Management. The property is

planned to undergo a comprehensive refurbishment program costing in excess of £1.5m.

Hampton by Hilton Stansted Airport • Sold October 2017 • £48,300,000 • £135,294 per bedroom The 357-bedroom hotel was sold to Legal & General by Urban & Civic. The income in 2018 projects a yield of c. 6.75%.

Holiday Inn Express, Trafford City, • Sold June 2017 Manchester • £26,000,000 • £118,182 per bedroom The 220-bedroom was sold by Topland to Meteoriate Group. The hotel will continue to be operated by Tower Management Ltd.

Holiday Inn Express Ramsgate • Sold February 2017 • £3,500,000 • £33,333 per bedroom. The 105-bed Holiday Inn Express Ramsgate Minster was purpose built in 2008 and sold by administrators to Starboard Hotels together with the Holiday Inn Express Tamworth. This reflected a net initial yield of 12% pre-FF&E reserve.

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.

The yields achieved for the freehold interests in those hotels in desirable regional locations have been in the range of 6.75% and 7% as evidenced by the Hampton by Hilton Stansted Airport and the Holiday Inn Express hotels in Manchester. The price per bedroom achieved on these was considerably in excess of £100,000 per bedroom.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

In those more secondary locations the yields achieved have ranged from 7.5%, as with the Holiday Inn Express Aberdeen, rising to over 9% in the case of the Holiday Inn Express Leigh and in some cases in excess of this amount as with the Holiday Inn Express Ramsgate, although this was an administration sale. The prices achieved on a per bedroom have ranged between £35,000 to £85,000. Based on the above, we consider that the yields achievable for the current legal interests would be sub 6% in London, between 6% and 7% in prime regional locations and between 7%-9% for the secondary locations.

Individual Leasehold Hotels There have been limited sales of hotels let on ground leases as this is a relatively new concept in the hotel market where the majority of transactions that have occurred have been the sale of the freehold interest. We set out details of those transactions of leasehold hotels that have occurred below:

Address Transaction Details

Hampton by Hilton Bristol Airport • Under Offer January 2019 • £24.4 million • £121,393 per bedroom • Reported NIY: 5.6% The 201 bedroom hotel was bought by Ability Group. The leasehold interest was sold with an unexpired term of circa 98 years and the rent increased on a stepped basis to an amount equivalent to 7% of total revenue. The hotel was also subject to a 20 year management agreement with Hilton.

Hotel Indigo, Glasgow • Sold in October 2018 • £9,490,800 • £101,000 per bedroom • Reported Leasehold NIY: 7.0% The 175 year leasehold interest in the 94 bedroom upscale hotel was purchased by Heeton Holdings JV with KSH Holdings and Lian Beng Group from Maven Capital.

Radisson Blu Hotel, Glasgow • Sold in October 2018 • £39,250,000 • £140,000 per bedroom • Reported NIY: 7.25% (hotel only)

The Swedish hotel owner Pandox purchased the long leasehold interest in the 247- bedroom Radisson Blu Hotel Glasgow for £39.3 million from Azure Group Holdings in October 2018. The hotel offers a variety of bedrooms and suites, restaurant, bar and gym. There are an additional two retail units, accounting for approximately £5 million of the total value of the asset.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Address Transaction Details

Holiday Inn Express Aberdeen City • Sold July 2017 Centre • Interest: Leasehold • £3,750,000 • £24,194 per bedroom The leasehold interest in the 155 bedroom hotel was acquired by Cairn Hotel Group from administrators for a price reflecting a yield of 10%.

Holiday Inn Aberdeen West • Sold July 2017 • Interest: Leasehold • £2,750,000 • £31,977 per bedroom The leasehold interest in the 86 bedroom hotel was acquired by Cairn Hotel Group from administrators for a price reflecting a yield of c.12.5%.

Holiday Inn Express, Edinburgh • Sold January 2017 City Centre • Interest: Leasehold • £17,725,000 • £100,093 per bedroom The 161-bedroom was sold by FRP Advisory to International Hotel Properties Ltd. The yield was reported to be 7.25%.

We are also aware of the sale of the leasehold interest in the Oxford Thames hotel to Covivio in June 2018 for a yield reported to be in the region of 6%. The evidence above demonstrates that there is a huge differential in the yield achievable depending on the location, quality of the asset and rental gearing. The agreed sale of the 70 year leasehold interest in the Hampton by Hilton Bristol represents a yield of 5.6% and the leasehold interest in the Hotel Indigo in Glasgow achieved a yield of 7%. Whilst there are only two transactions to rely upon, this evidence would suggest there would only be a small difference between the leasehold and equivalent freehold interest in strong locations where there are good underlying levels of demand. In those weaker secondary markets, which are less desirable and the level of gearing has been high the yield achieved has been much weaker. This is evidenced by the sale of the Holiday Inn Aberdeen West and Holiday Inn Express Aberdeen City Centre, which were sold by administrators for 12% and 10% respectively.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Portfolios The table below sets out those portfolios of regional hotels that have sold throughout the UK:

Address Transaction Details

Project Zinc, Regional UK • Sold February 2019 • Properties: 9 • Portfolio price: £246m • £170,360 per bedroom • Yield: c. 6.5% The nine, mainly freehold, Hilton branded assets were sold to Vivion Capital by administrators Alix Partners. The 1,444- bedroom strong portfolio is held on individual operational

leases to Park Hotels & Resorts Inc. with an unexpired term of 14 years.

Hallmark Hotels, Regional UK • Sold February 2019 • Properties: 26 • Portfolio price: £250m • £101,338 per bedroom • Yield: Unknown The 2,467-bedroom strong portfolio was sold by Topland Group to the Israeli investment fund Vivion Capital. The hotels will be operated by LGH Hotels Management, a UK- based hotel operator.

Project Galaxy, Regional UK • Sold December 2018 • Properties: 6 • Portfolio price: £42m • £48,611 per bedroom • Yield: c. 8% The six regional, mainly freehold, hotels were sold to EjendomsInvest by Kennedy Wilson Europe Real Estate. The hotels are currently branded as Park Inn hotels although they are to be rebranded as Mercure hotels. Principal Portfolio, Regional UK • Sold June 2018 • Properties: 13 • Portfolio price: £806m • £341,815 per bedroom • Yield: c. 5.3% The portfolio was bought by Covivio (Fonciere des Murs) from Starwood Capital and includes more than 2,300 bedrooms. The hotels will be rebranded and operated by IHG’s various upscale brands such as Kimpton and Voco.

The total portfolio deal stood at c. £858 and included the former Martins bank Building in Liverpool which is to be converted into residential apartments.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Project Merton, Regional UK • Sold February 2018 • Properties: 24 • Portfolio price: £600m • £172,216 per bedroom • Yield: c. 7.75% The portfolio was sold by Lone Star Europe to LRC and comprises more than 3,400 bedrooms. The majority of the hotels are held freehold.

It is difficult to analyse the above portfolios as they are in different locations and comprise full service hotels. The yields achieved on these portfolios have ranged between 5.5% and 8%. The most recent portfolio to transact was the Zinc portfolio which sold off a yield of circa 6.5% although this would have been distorted by the fact that the hotels were let to Hilton with 14 years unexpired and were therefore based on the right to receive the rental income during this period. The other sale of note was LRC’s acquisition on the portfolio of 24 mostly Mercure hotels reflecting a yield of 7.75% although this comprised some assets that needed investment. Based on the above, we consider that the yield achievable for the Properties if sold as a single portfolio and based on the existing legal interests prior to the introduction of the ground leases, would sit at around 7%.

12.4. Valuation Approach Based upon the above and our knowledge of current investment returns required by typical investors, along with factors affecting investment risk specific to the subject properties, we have developed our opinion of reversionary capitalisation rates for the properties. Our capitalisation rate selection process was weighted by our analysis of the resulting running yields. In particular the Initial Yield, which is the initial immediate return of the property at the stated valuation/price based on the present income the property produces. In order to arrive at our conclusions of capitalisation rates we have assessed what we consider to be the most important criteria, specific to the Atlas portfolio. Our criteria are derived reflecting on what a potential investor would consider. These criteria are listed below: • Location • Quality of Property • Condition • Tenure • Volatility of Income • Potential for Income Growth • Potential for Capital Growth • Asset Management Potential • Capital Value Lot Size

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Location This is one of the most important factors in determining the capitalisation rate and will be influenced by the physical location, it’s affluence, the demand generators in the area and the size of the market. Quality of Property This will refer to age of construction, size and physical building attributes and the facilities available within the hotel. Condition The Atlas hotels are generally well presented and have been subject to investment in recent years. Tenure We consider the leasehold interests would usually trade at a discount to a freehold interest as they could place more restrictions on the leaseholder. The level of rent, gearing and buy back provisions will all influence the yield a purchaser is prepared to pay. Our choice of yield has specific regard to the 60 year period in which the buy back option can be exercised although a five year difference in this period would not impact our choice of yield. Volatility of Income This will depend on the local market dynamics for each asset as well as the business mix of the operation and the current point of the life cycle of the hotel i.e. whether the hotel has reached a stabilised trading position and the date of the last refurbishment. Potential for Income Growth The current level of earnings being generated will heavily influence a purchaser’s attitude to risk and they are likely to place much greater reliance on actual levels of earnings, but future earnings and growth potential will also be a key consideration. Potential for Capital Growth This will be influenced by the desirability of the location and also linked to the potential income growth referenced above. The current level of earnings being generated will heavily influence a purchaser’s attitude to risk and they are likely to place much greater reliance on actual levels of earnings but future earnings, and growth potential will also be a key consideration. Asset Management Potential This will be an important criteria for any potential purchaser in assessing the future potential to grow the business through opportunities to develop the individual properties further. Capital Value Lot Size This will influence the number of potential purchasers in the market with the level of demand impacting directly on the capitalisation rate. Recent Sales Process We have also had regard to the recent sales process for the portfolio conducted by Eastdil Secured for the current legal interests. We have been advised that there was strong interest in the portfolio both on an outright sale basis and also on a joint venture basis where the Borrower retained the management platform. We understand that the interest ranged between £720 million and £770 million which represents a yield spread of between 6.6% and 7%.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

12.5. Conclusions Based on these factors and the evidence above we have arrived at a core yield for the equivalent freehold interest making adjustments for the proposed leasehold interest. These adjustments range from 50 basis points for those hotels we consider most desirable through to 300 basis points for the least desirable. The above reflects what yields that would be applicable in the event that the hotels were sold on an individual basis, however, it does not take into account any impact this may have should the hotels all be offered for sale at the same time and assumes the trading position is as at the date of valuation. In reality in the event of sale, it is likely that the hotels would be sold as a single portfolio or in groups and in this event economies of scale would be available due to location etc and therefore it is possible they could benefit from some of the same economies and reduced level of fees being achieved in certain instances. As a result, we have also provided an opinion of value on the basis the Properties were sold as a single portfolio. In arriving at our choice of capitalisation rate on this basis, we consider that any purchaser would reflect the benefits of the management platform, economies of scale, the ability to deploy high level of capital through a single transaction which in our opinion would result in a portfolio premium which we have assessed through our choice of yield. We are of the opinion thet the yield differential applied will differ according to the quality of the asset having regard to those factors set out in Section 12.4 above. We consider that the prime assets are likely to achieve the same yield whether sold as a single asset or as part of a portfolio given the likely purchaser demand on an individual basis. Conversely, we consider the biggest deferential would be for those assets where demand is likely to be weakest on a single asset basis and where the benefits of the economies of scale of forming part of a portfolio are greatest. We have therefore ranked the hotels in terms of quality based on the criteria in 12.4 above and not made any adjustment to our capitalisation rate to those assets we consider prime. We have applied a 25 basis points differential to those mid tier assets and 50 basis adjustment to those bottom tier assets. For the two leased assets we do not consider there would be any differential in yield. Having undertaken this analysis, we set out below our adopted capitalisation and discount rates in arriving at our opinion of Market Value and our Portfolio Value.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

No Hotel Market Value Cap Rate Adjustment Portfolio Value Cap Rate 1 Bath 6.75% 0.00% 6.75% 5 Bristol City Centre 6.50% 0.00% 6.50% 7 Cambridge 6.75% 0.00% 6.75% 13 Glasgow Airport 9.00% 0.00% 9.00% 19 Leeds City Centre 8.50% 0.00% 8.50% 22 Liverpool Hampton by Hilton 8.50% 0.00% 8.50% 24 London - Dartford 7.50% 0.00% 7.50% 25 London Greenwich 6.25% 0.00% 6.25% 26 London - Hammersmith 5.50% 0.00% 5.50% 27 London - Wandsworth 6.00% 0.00% 6.00% 35 Northampton 9.50% 0.00% 9.50% 38 Southampton - West 9.00% 0.00% 9.00% 46 Warwick - Stratford-upon-Avon 9.00% 0.00% 9.00% 47 Poole - (leased) 5.50% 0.00% 5.50% 48 York - Park Inn (leased) 6.50% 0.00% 6.50% 2 Bedford 8.75% 0.25% 8.50% 6 Bristol - North 8.75% 0.25% 8.50% 9 Droitwich 10.25% 0.25% 10.00% 12 Exeter 8.75% 0.25% 8.50% 14 Glasgow City Centre Riverside 8.75% 0.25% 8.50% 18 Inverness 8.75% 0.25% 8.50% 3 Birmingham NEC 8.50% 0.25% 8.25% 11 Edinburgh - Waterfront 8.00% 0.25% 7.75% 17 Hemel Hempstead 9.00% 0.25% 8.75% 20 Lichfield 9.25% 0.25% 9.00% 21 Lincoln City Centre 10.00% 0.25% 9.75% 23 Chingford - North Circular 6.75% 0.25% 6.50% 28 Luton Airport 7.75% 0.25% 7.50% 29 Manchester East 10.50% 0.25% 10.25% 30 Manchester Salford Quays 8.25% 0.25% 8.00% 31 Milton Keynes 9.00% 0.25% 8.75% 32 Newcastle - City Centre 9.00% 0.25% 8.75% 37 Portsmouth - North 8.00% 0.25% 7.75% 49 Exeter City Centre 8.25% 0.25% 8.00% 8 Derby Pride Park 10.50% 0.50% 10.00% 10 East Midlands Airport 10.25% 0.50% 9.75% 15 Gloucester South 10.25% 0.50% 9.75% 33 Newcastle Metro 10.50% 0.50% 10.00% 34 Newport 10.25% 0.50% 9.75% 44 Swindon - West 10.25% 0.50% 9.75% 45 Taunton 10.25% 0.50% 9.75% 4 Birmingham Oldbury 11.00% 0.50% 10.50% 16 Hamilton 11.00% 0.50% 10.50% 36 Peterborough 11.00% 0.50% 10.50% 39 Stafford 11.00% 0.50% 10.50% 40 Stevenage 10.75% 0.50% 10.25% 41 Stirling 10.75% 0.50% 10.25% 42 Stoke-on-Trent 10.75% 0.50% 10.25% 43 Swansea East 10.75% 0.50% 10.25% Any purchaser on a portfolio basis is also likely to be heavily influenced by the overall net operating income generated by the entire portfolio applying a single yield to this income. Based on the above our opinion of value on a portfolio basis represents a yield of 7.28%. This is a 25 basis points shift from our opinion of the yield that the portfolio is likely to achieve if sold as a single portfolio and based on the existing legal interests prior to the introduction of the ground leases as stated in Section 12.3 above.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Valuation

Market Value

Based on our assessments of trade shown in the individual trading assessments contained in the individual property reports and adopting the yield profiles above results in an overall value of £546,900,000. 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. This value represents an initial yield of circa 8.2% based on our assessment of the year one net operating income after the deduction of the ground rent and including the rental income from Poole and York. The aggregate value of the portfolio at £546,900,000 is equivalent to £91,577 per bedroom. Our valuation has made a specific deduction of the capital expenditure of £14,200,000 to build the bedroom extensions at the Holiday Inn Express Cambridge, Edinburgh Waterfront and London Hammersmith. Therefore, the value would be £561,100,000 before this specific deduction. Our opinion of the Market Value of the leasehold interests in the Properties detailed in this report as at the Valuation Date, is:

(Five Hundred and Forty Six Million Nine Hundred £546,900,000 Thousand Pounds)

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Valuation 2019 Market Value Discount No Hotel No of Beds Cap rate MV MV/Key rate 1Bath 145 6.75%8.75%£23,300,000£160,690 2Bedford 80 8.75%10.75%£4,900,000£61,250 3Birmingham NEC 179 8.50%10.50%£21,900,000£122,346 4Birmingham Oldbury 109 11.00%13.00%£4,700,000£43,119 5Bristol City Centre 96 6.50%8.50%£13,400,000£139,583 6Bristol - North 157 8.75%10.75%£17,300,000£110,191 7Cambridge 100 6.75%8.75%£16,400,000£164,000 8Derby Pride Park 103 10.50%12.50%£5,800,000£56,311 9Droitwich 94 10.25%12.25%£4,000,000£42,553 10 East Midlands Airport 90 10.25%12.25%£5,600,000£62,222 11 Edinburgh - Waterfront 145 8.00%10.00%£16,400,000£113,103 12 Exeter 149 8.75%10.75%£11,900,000£79,866 13 Glasgow Airport 143 9.00%11.00%£10,600,000£74,126 14 Glasgow City Centre Riverside 128 8.75%10.75%£11,800,000£92,188 15 Gloucester South 106 10.25%12.25%£7,100,000£66,981 16 Hamilton 104 11.00%13.00%£5,000,000£48,077 17 Hemel Hempstead 116 9.00%11.00%£8,700,000£75,000 18 Inverness 94 8.75%10.75%£9,800,000£104,255 19 Leeds City Centre 112 8.50%10.50%£7,300,000£65,179 20 Lichfield 102 9.25%11.25%£5,200,000£50,980 21 Lincoln City Centre 118 10.00%12.00%£8,300,000£70,339 22 Liverpool Hampton by Hilton 151 8.50%10.50%£17,800,000£117,881 23 Chingford - North Circular 102 6.75%8.75%£9,800,000£96,078 24 London - Dartford 126 7.50%9.50%£8,400,000£66,667 25 London Greenwich 162 6.25%8.25%£34,300,000£211,728 26 London - Hammersmith 135 5.50%7.50%£38,500,000£285,185 27 London - Wandsworth 148 6.00%8.00%£23,700,000£160,135 28 Luton Airport 154 7.75%9.75%£20,300,000£131,818 29 Manchester East 97 10.50%12.50%£2,900,000£29,897 30 Manchester Salford Quays 120 8.25%10.25%£10,800,000£90,000 31 Milton Keynes 192 9.00%11.00%£16,900,000£88,021 32 Newcastle - City Centre 130 9.00%11.00%£5,900,000£45,385 33 Newcastle Metro 134 10.50%12.50%£4,500,000£33,582 34 Newport 125 10.25%12.25%£7,000,000£56,000 35 Northampton 126 9.50%11.50%£9,100,000£72,222 36 Peterborough 80 11.00%13.00%£4,400,000£55,000 37 Portsmouth - North 150 8.00%10.00%£16,000,000£106,667 38 Southampton - West 105 9.00%11.00%£6,600,000£62,857 39 Stafford 103 11.00%13.00%£3,000,000£29,126 40 Stevenage 129 10.75%12.75%£5,600,000£43,411 41 Stirling 80 10.75%12.75%£3,100,000£38,750 42 Stoke-on-Trent 123 10.75%12.75%£5,300,000£43,089 43 Swansea East 91 10.75%12.75%£3,300,000£36,264 44 Swindon - West 121 10.25%12.25%£7,000,000£57,851 45 Taunton 92 10.25%12.25%£5,400,000£58,696 46 Warwick - Stratford-upon-Avon 138 9.00%11.00%£9,700,000£70,290 47 Poole - (leased) 85 5.50%N/A £9,800,000£115,294 48 York - Park Inn (leased) 200 6.50%N/A£26,700,000£133,500 49 Exeter City Centre 103 8.25%10.25%£11,700,000£113,592 TOTAL 5,972 £546,900,000

(Five Hundred and Sixty One Million One Hundred £561,100,000 Thousand Pounds)

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Valuation MV

No Hotel No of Beds in escrow

1 Bath 145 £23,300,000 2 Bedford 80 £4,900,000 3 Birmingham NEC 179 £21,900,000 4 Birmingham Oldbury 109 £4,700,000 5 Bristol City Centre 96 £13,400,000 6 Bristol - North 157 £17,300,000 7 Cambridge 100 £22,800,000 8 Derby Pride Park 103 £5,800,000 9 Droitwich 94 £4,000,000 10 East Midlands Airport 90 £5,600,000 11 Edinburgh - Waterfront 145 £18,200,000 12 Exeter 149 £11,900,000 13 Glasgow Airport 143 £10,600,000 14 Glasgow City Centre Riverside 128 £11,800,000 15 Gloucester South 106 £7,100,000 16 Hamilton 104 £5,000,000 17 Hemel Hempstead 116 £8,700,000 18 Inverness 94 £9,800,000 19 Leeds City Centre 112 £7,300,000 20 Lichfield 102 £5,200,000 21 Lincoln City Centre 118 £8,300,000 22 Liverpool Hampton by Hilton 151 £17,800,000 23 Chingford - North Circular 102 £9,800,000 24 London - Dartford 126 £8,400,000 25 London Greenwich 162 £34,300,000 26 London - Hammersmith 135 £44,500,000 27 London - Wandsworth 148 £23,700,000 28 Luton Airport 154 £20,300,000 29 Manchester East 97 £2,900,000 30 Manchester Salford Quays 120 £10,800,000 31 Milton Keynes 192 £16,900,000 32 Newcastle - City Centre 130 £5,900,000 33 Newcastle Metro 134 £4,500,000 34 Newport 125 £7,000,000 35 Northampton 126 £9,100,000 36 Peterborough 80 £4,400,000 37 Portsmouth - North 150 £16,000,000 38 Southampton - West 105 £6,600,000 39 Stafford 103 £3,000,000 40 Stevenage 129 £5,600,000 41 Stirling 80 £3,100,000 42 Stoke-on-Trent 123 £5,300,000 43 Swansea East 91 £3,300,000 44 Swindon - West 121 £7,000,000 45 Taunton 92 £5,400,000 46 Warwick - Stratford-upon-Avon 138 £9,700,000 47 Poole - (leased) 85 £9,800,000 48 York - Park Inn (leased) 200 £26,700,000 49 Exeter City Centre 103 £11,700,000 TOTAL 5,972 £561,100,000

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Market Value assuming the Assets are sold on a Portfolio basis and on the Special Assumption that the Cap-Ex Contribution is held in an Escrow Account Our opinion of the Market Value on the above Assumption of the leasehold interests in the Properties detailed in this report, on a portfolio basis and cap-ex held in escrow, as at the Valuation Date, is:

(Five Hundred and Ninety Four Million Three Hundred £594,300,000 Thousand Pounds)

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Valuation PV

No Hotel No of Beds in escrow

1 Bath 145 £24,200,000 2 Bedford 80 £5,300,000 3 Birmingham NEC 179 £23,200,000 4 Birmingham Oldbury 109 £5,200,000 5 Bristol City Centre 96 £13,800,000 6 Bristol - North 157 £18,500,000 7 Cambridge 100 £23,900,000 8 Derby Pride Park 103 £6,300,000 9 Droitwich 94 £4,300,000 10 East Midlands Airport 90 £6,100,000 11 Edinburgh - Waterfront 145 £19,600,000 12 Exeter 149 £12,800,000 13 Glasgow Airport 143 £11,200,000 14 Glasgow City Centre Riverside 128 £12,600,000 15 Gloucester South 106 £7,800,000 16 Hamilton 104 £5,500,000 17 Hemel Hempstead 116 £9,400,000 18 Inverness 94 £10,500,000 19 Leeds City Centre 112 £7,600,000 20 Lichfield 102 £5,600,000 21 Lincoln City Centre 118 £8,900,000 22 Liverpool Hampton by Hilton 151 £18,100,000 23 Chingford - North Circular 102 £10,600,000 24 London - Dartford 126 £8,800,000 25 London Greenwich 162 £35,900,000 26 London - Hammersmith 135 £46,600,000 27 London - Wandsworth 148 £24,700,000 28 Luton Airport 154 £21,800,000 29 Manchester East 97 £3,200,000 30 Manchester Salford Quays 120 £11,600,000 31 Milton Keynes 192 £18,100,000 32 Newcastle - City Centre 130 £6,500,000 33 Newcastle Metro 134 £5,100,000 34 Newport 125 £7,700,000 35 Northampton 126 £9,400,000 36 Peterborough 80 £4,900,000 37 Portsmouth - North 150 £17,200,000 38 Southampton - West 105 £6,900,000 39 Stafford 103 £3,300,000 40 Stevenage 129 £6,100,000 41 Stirling 80 £3,500,000 42 Stoke-on-Trent 123 £5,900,000 43 Swansea East 91 £3,600,000 44 Swindon - West 121 £7,800,000 45 Taunton 92 £6,000,000 46 Warwick - Stratford-upon-Avon 138 £10,200,000 47 Poole - (leased) 85 £9,800,000 48 York - Park Inn (leased) 200 £26,700,000 49 Exeter City Centre 103 £12,000,000 TOTAL 5,972 £594,300,000

12.6. Market Rent The rent a potential tenant would be prepared to pay for a hotel in most instances will be determined by the potential profitability of the hotel. The usual method for assessing the rental value of a hotel is to determine the net operating income that may be generated by the business and then deducting a number of items including the annualised amount for the tenant's fixtures and fittings and a sum for working capital to arrive at a "divisible balance". This is then apportioned between the landlord and the tenant with the

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

apportionment of the divisible balance reflecting a tenant's bid which will be influenced by a number of factors including location, supply, demand, the type of operation and the lease terms. Hotel rents will rarely be determined solely by comparable evidence, as is sometimes the case with other property classes. This is because it is rare for there to be two hotels in similar locations, with comparable facilities, trading in a sufficiently similar manner to enable the rent offered in one to be used as a direct comparable. There is also little rental evidence as leasehold interests are not a preferred property holding structure in the hotel asset class. The majority of evidence that does exist is for budget hotels, such as Travelodge and Premier Inn, where this structure dominates. We consider that tenant demand for the Properties would be extremely limited other than from these two operators and in reality, therefore there is likely to be very limited, if any, tenant demand making it extremely difficult to let. Where there is tenant demand for hotels these typically range between 50% and 65% of EBITDA and we have adopted these ranges in the event the Properties were hypothetically put to market to let. Our opinion of the Market Rent assumes a new lease, drawn on standard effective full repairing and insuring terms, for a term of 20 years, with upward only rent reviews. On the basis there was tenant demand, we are of the opinion that the aggregated Market Rent of the leasehold interests in the Properties at the Valuation Date is:- (Twenty Five Million Two Hundred Thousand Pounds £25,200,000 pa per annum)

Our opinions of Market Rent take into account the new bedrooms being constructed at the Holiday Inn Express Cambridge, Edinburgh Waterfront and London Hammersmith.

12.7. Valuation Summary A summary of our opinions of value are set out in the table below:

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Valuation 2019 Market Value Valuation 2019 Portfolio Value Valuation MV Valuation PV Discount Discount Market No Hotel No of Beds Cap rate MV MV/Key Cap rate VPV VPV/Key in escrow in escrow Market Rent rate rate Rent/Key 1 Bath 145 6.75% 8.75% £23,300,000 £160,690 6.75% 8.75% £24,200,000 £166,897 £23,300,000 £24,200,000 £770,000 £5,310 2 Bedford 80 8.75% 10.75% £4,900,000 £61,250 8.50% 10.50% £5,300,000 £66,250 £4,900,000 £5,300,000 £210,000 £2,625 3 Birmingham NEC 179 8.50% 10.50% £21,900,000 £122,346 8.25% 10.25% £23,200,000 £129,609 £21,900,000 £23,200,000 £930,000 £5,196 4 Birmingham Oldbury 109 11.00% 13.00% £4,700,000 £43,119 10.50% 12.50% £5,200,000 £47,706 £4,700,000 £5,200,000 £260,000 £2,385 5 Bristol City Centre 96 6.50% 8.50% £13,400,000 £139,583 6.50% 8.50% £13,800,000 £143,750 £13,400,000 £13,800,000 £430,000 £4,479 6 Bristol - North 157 8.75% 10.75% £17,300,000 £110,191 8.50% 10.50% £18,500,000 £117,834 £17,300,000 £18,500,000 £750,000 £4,777 7 Cambridge 100 6.75% 8.75% £16,400,000 £164,000 6.75% 8.75% £17,500,000 £175,000 £22,800,000 £23,900,000 £470,000 £4,700 8 Derby Pride Park 103 10.50% 12.50% £5,800,000 £56,311 10.00% 12.00% £6,300,000 £61,165 £5,800,000 £6,300,000 £300,000 £2,913 9 Droitwich 94 10.25% 12.25% £4,000,000 £42,553 10.00% 12.00% £4,300,000 £45,745 £4,000,000 £4,300,000 £210,000 £2,234 10 East Midlands Airport 90 10.25% 12.25% £5,600,000 £62,222 9.75% 11.75% £6,100,000 £67,778 £5,600,000 £6,100,000 £290,000 £3,222 11 Edinburgh - Waterfront 145 8.00% 10.00% £16,400,000 £113,103 7.75% 9.75% £17,800,000 £122,759 £18,200,000 £19,600,000 £590,000 £4,069 12 Exeter 149 8.75% 10.75% £11,900,000 £79,866 8.50% 10.50% £12,800,000 £85,906 £11,900,000 £12,800,000 £520,000 £3,490 13 Glasgow Airport 143 9.00% 11.00% £10,600,000 £74,126 9.00% 11.00% £11,200,000 £78,322 £10,600,000 £11,200,000 £480,000 £3,357 14 Glasgow City Centre Riverside 128 8.75% 10.75% £11,800,000 £92,188 8.50% 10.50% £12,600,000 £98,438 £11,800,000 £12,600,000 £520,000 £4,063 15 Gloucester South 106 10.25% 12.25% £7,100,000 £66,981 9.75% 11.75% £7,800,000 £73,585 £7,100,000 £7,800,000 £360,000 £3,396 16 Hamilton 104 11.00% 13.00% £5,000,000 £48,077 10.50% 12.50% £5,500,000 £52,885 £5,000,000 £5,500,000 £280,000 £2,692 17 Hemel Hempstead 116 9.00% 11.00% £8,700,000 £75,000 8.75% 10.75% £9,400,000 £81,034 £8,700,000 £9,400,000 £390,000 £3,362 18 Inverness 94 8.75% 10.75% £9,800,000 £104,255 8.50% 10.50% £10,500,000 £111,702 £9,800,000 £10,500,000 £430,000 £4,574 19 Leeds City Centre 112 8.50% 10.50% £7,300,000 £65,179 8.50% 10.50% £7,600,000 £67,857 £7,300,000 £7,600,000 £310,000 £2,768 20 Lichfield 102 9.25% 11.25% £5,200,000 £50,980 9.00% 11.00% £5,600,000 £54,902 £5,200,000 £5,600,000 £240,000 £2,353 21 Lincoln City Centre 118 10.00% 12.00% £8,300,000 £70,339 9.75% 11.75% £8,900,000 £75,424 £8,300,000 £8,900,000 £420,000 £3,559 22 Liverpool Hampton by Hilton 151 8.50% 10.50% £17,800,000 £117,881 8.50% 10.50% £18,100,000 £119,868 £17,800,000 £18,100,000 £760,000 £5,033 23 Chingford - North Circular 102 6.75% 8.75% £9,800,000 £96,078 6.50% 8.50% £10,600,000 £103,922 £9,800,000 £10,600,000 £330,000 £3,235 24 London - Dartford 126 7.50% 9.50% £8,400,000 £66,667 7.50% 9.50% £8,800,000 £69,841 £8,400,000 £8,800,000 £320,000 £2,540 25 London Greenwich 162 6.25% 8.25% £34,300,000 £211,728 6.25% 8.25% £35,900,000 £221,605 £34,300,000 £35,900,000 £1,190,000 £7,346 26 London - Hammersmith 135 5.50% 7.50% £38,500,000 £285,185 5.50% 7.50% £40,600,000 £300,741 £44,500,000 £46,600,000 £1,170,000 £8,667 27 London - Wandsworth 148 6.00% 8.00% £23,700,000 £160,135 6.00% 8.00% £24,700,000 £166,892 £23,700,000 £24,700,000 £780,000 £5,270 28 Luton Airport 154 7.75% 9.75% £20,300,000 £131,818 7.50% 9.50% £21,800,000 £141,558 £20,300,000 £21,800,000 £790,000 £5,130 29 Manchester East 97 10.50% 12.50% £2,900,000 £29,897 10.25% 12.25% £3,200,000 £32,990 £2,900,000 £3,200,000 £150,000 £1,546 30 Manchester Salford Quays 120 8.25% 10.25% £10,800,000 £90,000 8.00% 10.00% £11,600,000 £96,667 £10,800,000 £11,600,000 £450,000 £3,750 31 Milton Keynes 192 9.00% 11.00% £16,900,000 £88,021 8.75% 10.75% £18,100,000 £94,271 £16,900,000 £18,100,000 £760,000 £3,958 32 Newcastle - City Centre 130 9.00% 11.00% £5,900,000 £45,385 8.75% 10.75% £6,500,000 £50,000 £5,900,000 £6,500,000 £260,000 £2,000 33 Newcastle Metro 134 10.50% 12.50% £4,500,000 £33,582 10.00% 12.00% £5,100,000 £38,060 £4,500,000 £5,100,000 £240,000 £1,791 34 Newport 125 10.25% 12.25% £7,000,000 £56,000 9.75% 11.75% £7,700,000 £61,600 £7,000,000 £7,700,000 £360,000 £2,880 35 Northampton 126 9.50% 11.50% £9,100,000 £72,222 9.50% 11.50% £9,400,000 £74,603 £9,100,000 £9,400,000 £430,000 £3,413 36 Peterborough 80 11.00% 13.00% £4,400,000 £55,000 10.50% 12.50% £4,900,000 £61,250 £4,400,000 £4,900,000 £240,000 £3,000 37 Portsmouth - North 150 8.00% 10.00% £16,000,000 £106,667 7.75% 9.75% £17,200,000 £114,667 £16,000,000 £17,200,000 £590,000 £3,933 38 Southampton - West 105 9.00% 11.00% £6,600,000 £62,857 9.00% 11.00% £6,900,000 £65,714 £6,600,000 £6,900,000 £300,000 £2,857 39 Stafford 103 11.00% 13.00% £3,000,000 £29,126 10.50% 12.50% £3,300,000 £32,039 £3,000,000 £3,300,000 £160,000 £1,553 40 Stevenage 129 10.75% 12.75% £5,600,000 £43,411 10.25% 12.25% £6,100,000 £47,287 £5,600,000 £6,100,000 £300,000 £2,326 41 Stirling 80 10.75% 12.75% £3,100,000 £38,750 10.25% 12.25% £3,500,000 £43,750 £3,100,000 £3,500,000 £170,000 £2,125 42 Stoke-on-Trent 123 10.75% 12.75% £5,300,000 £43,089 10.25% 12.25% £5,900,000 £47,967 £5,300,000 £5,900,000 £270,000 £2,195 43 Swansea East 91 10.75% 12.75% £3,300,000 £36,264 10.25% 12.25% £3,600,000 £39,560 £3,300,000 £3,600,000 £180,000 £1,978 44 Swindon - West 121 10.25% 12.25% £7,000,000 £57,851 9.75% 11.75% £7,800,000 £64,463 £7,000,000 £7,800,000 £360,000 £2,975 45 Taunton 92 10.25% 12.25% £5,400,000 £58,696 9.75% 11.75% £6,000,000 £65,217 £5,400,000 £6,000,000 £280,000 £3,043 46 Warwick - Stratford-upon-Avon 138 9.00% 11.00% £9,700,000 £70,290 9.00% 11.00% £10,200,000 £73,913 £9,700,000 £10,200,000 £440,000 £3,188 47 Poole - (leased) 85 5.50% N/A £9,800,000 £115,294 5.50% £9,800,000 £115,294 £9,800,000 £9,800,000 £415,000 £4,882 48 York - Park Inn (leased) 200 6.50% N/A £26,700,000 £133,500 6.59% £26,700,000 £133,500 £26,700,000 £26,700,000 £1,200,000 £6,000 49 Exeter City Centre 103 8.25% 10.25% £11,700,000 £113,592 8.00% 10.00% £12,000,000 £116,505 £11,700,000 £12,000,000 £360,000 £3,495 TOTAL 5,972 £546,900,000 £580,100,000 £561,100,000 £594,300,000 £22,400,000

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

13. Security for the Loan

Principal Portfolio Risks We are not qualified to assess the adequacy of capital and income cover for the loan, but we comment below on the future prospects for movement in the value of the Properties in comparison to its peers over the period of the loan.

Principal Property Risks

Location / situation: 3 The location of the Properties are geographically spread 1= very poor throughout the UK and therefore there is a range in quality of 5 = excellent location. We anticipate that although there is new supply entering the market in various locations, the mixture of locations of the Properties represent reasonable security over the term of the loan.

Building quality: 4 The Properties are of a satisfactory quality commensurate with 1= very poor their age and use. 5 = excellent All of the bedrooms have recently been updated to IHG’s latest requirements throughout. Extensions of three of the Properties are scheduled to take place over the next 12 months.

Title: 3 The Properties will all be held leasehold with 43 of the hotels to 1= very poor be held under a proposed ground lease for a term of 125 years 5 = very good with a buy back option at year 60 for £1. Whilst offering a suitably long unexpired lease term throughout the period of the loan and also the option to buy back the freehold interest in year 60, there will be a narrower pool of purchasers for the hotels compared to a freehold interest.

Security of income: 3 The majority of the hotels are stable businesses that trade well. 1= very poor The business model and the centralised management platform 5 = excellent allow for the hotels to achieve good levels of profitability. Across the portfolio, we consider there to be a relatively equal split of income between business and leisure guests and thus, fluctuations in guests’ trends will be mitigated to a degree. There is further growth potential following the opening of a new hotel in Exeter and by adding bedrooms to Cambridge, Edinburgh Waterfront and London Hammersmith through extensions. The income security will decrease through the introduction of the ground rents, which are to be set at 15% of the NOI achieved in 2018. There is also potential for the current margins to be eroded by the ground rent in the event that earnings do not keep pace with RPI although the level of increase is being capped under the terms of the lease.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Principal Property Risks

Capital value volatility: 3 The value of a hotel is to a large extent a function of its 1= very high sustainable earnings potential which can be highly volatile and 5 = very low in the event of future changes in the earnings potential or actual trading performance the value may change. The introduction of the ground rent could also result in a greater degree of capital value volatility in the event that hotel profitability does not keep pace with RPI as this will not only impact the earnings potential but the hotel will also be considered to be higher risk by potential purchaser’s. The ground lease structure is a relatively new concept in the hotel market and as such there is little transactional evidence of sales of the long leasehold interest. This lack of market evidence will lead to a greater degree of volatility in the values of long leasehold interests until such time there is a greater level of activity.

Liquidity: 4 The portfolio as a whole provides an opportunity to secure a 1= very low large footprint across the UK and a centralised operating 5 = very high platform. This coupled with the earnings being generated would be attractive to major investors in the sector. On an individual basis the buyer pool will be different, attracting a range of buyer types from investors and national and local owner operators. The location of the hotels varies from Greater London and strong regional locations, which are likely to attract the strongest interest, to secondary locations where purchaser demand will be more limited. The introduction of the ground lease interest will also be a factor in the liquidity of the assets. There is limited comparable evidence of the sale of long leasehold interests as the structure is relatively new within the hotel market. However, on an individual asset basis there will be a smaller pool of purchasers for the leasehold interest compared to a freehold as buyers typically prefer freehold interests. We consider that liquidity would be impacted greatest for the smaller hotels in secondary locations.

Asset management 3 There is limited asset management potential across the potential: portfolio. The Great Rooms are dated in some hotels and have 1= very poor not seen refurbishment since the hotels’ opening although the 5 = excellent Borrower has been investing in these in some locations recently. These will require attention in the short-term.

Re-financing prospects: 4 Given the fundamentals of the portfolio, we consider the 1= very poor refinancing prospects to be reasonable. 5 = excellent

Suitability for Loan Security In our opinion, subject to the comments and assumptions contained below and elsewhere in this Valuation Report, the leasehold interests in the Properties forming the portfolio provide reasonable security for the purposes of a loan (subject to the adequacy of capital and income cover). This is without opinion as to the commercial decision to lend, which remains with the Bank.

Cushman & Wakefield | Morgan Stanley Bank N.A. The Portfolio Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Recommendations • The Banks solicitor should undertake a full review of the title and confirm that the boundaries are as shown on the attached site plan and that they are in accordance with those held at the Land Registry and those over which your charge is to be taken. Further they should confirm that our understanding of the tenure structure is correct. • The Bank should review the final form of ground lease and ensure it is completed on the terms outlined above. A copy of the final lease should be provided to us and our opinions of value confirmed. • The Bank should request a copy of the option agreement to buy back the freehold interests and review these to ensure these are on commercially acceptable terms and can be exercised without penalty. • That the Bank obtain regular management information and continue to monitor the performance of the hotels as any change will have an impact on value.

Cushman & Wakefield | Morgan Stanley Bank N.A. Appendix A – Glossary of Terms Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

APPENDIX A – GLOSSARY OF TERMS

Gross operating profit of a hotel after the deduction of the base Adjusted GOP (AGOP) management.

Measure of performance Average Rate Index measures the average room rate performance of one hotel against the average Average Rate Index room rate set of the competitive hotels. It is calculated by dividing (ARI) the average room rate of the hotel by the average room rate of the set hotels. If the ARI of a hotel is 1.05, it is performing 5% better than the average for the set of hotels.

Average Room Rate The average price a room is sold for during a given period (ARR) or Average calculated and is calculated by dividing rooms revenue by the Daily Rate (ADR) number of rooms sold.

Fair Market Share Fair Market Share is the number of rooms at a particular hotel (FMS) divided by the total number of rooms in a set of competitive hotels.

A sinking fund set aside for cyclical refurbishment to the hotels FF&E Reserve and replacement of fixture fittings and equipment.

This item includes Property Tax, Insurance, Management Fees, Fixed Charges Other non-operating expenses, FF&E Reserve and Rent.

Food & Beverage The total sales from food and beverages for consumption by (F&B) Revenue customers.

Gross Operating Total Revenue less Total Departmental Expenses. Income (GOI)

Gross Operating Profit Total Departmental Income less Undistributed Expenses. (GOP)

Insurance is the cost of insuring the property’s building and Insurance contents, liability insurance and business interruption premiums.

The costs incurred in appointing a management company to operate the property as a whole. The fees are typically split Management Fees between a base fee calculated by reference to revenue and an incentive fee calculated by reference to GOP.

Market Penetration fair market share when compared to the set of hotels. index (MPI)

The number of rooms sold divided by the total number of rooms Occupancy available throughout a given period.

Property Tax is all taxes assessed against the real property by the Property Tax government.

Cushman & Wakefield | Morgan Stanley Bank N.A. Appendix A – Glossary of Terms Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

Repairs & Maintenance expenses include the costs associated Repairs & with the payroll, materials and third party costs associated with Maintenance maintaining the property and contents at an operational standard.

Revenue Generation The product of the ARI and MPI. Index (RGI)

Rooms revenue earned per room over a period calculated by RevPAR dividing the rooms revenue by the number of rooms available in a given period.

The total sales generated from the hire of meeting room Room Hire accommodation as well as equipment and cover charges.

The total sales generated through the rental of accommodation to Rooms Revenue guests and includes revenue through cancellations and no shows but deducts any payments for compensation.

Costs associated with advertising, centralised / brand advertising Sales & Marketing costs and payroll for sales and marketing employees.

Undistributed Expenses are those expenses that are considered applicable to the entire property and are not able to be Undistributed appropriately split between the operating departments. Expenses Administrative & General, Systems Costs, Sales & Marketing, Heat, Light & Power and Repairs & Maintenance comprise the

Cushman & Wakefield | Morgan Stanley Bank N.A. Appendix B – Market Overview Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

APPENDIX B – MARKET OVERVIEW

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Indicator Reference date Measure

Population 66.1 million H1 2017 International tourist arrivals 2018 – 41.7 million forecast 2017 - 39.2 million Change in GDP 0.2% Q4 2018 2016 - 37.6 million

Unemployment rate 3.9% January 2019 Travel and tourism industry 2018 £71.1 Billion (3.7% of the GDP total) Inflation rate 1.9% February 2019 Average receipts per arrival 2017 - £623 Interest rate 0.75% March 2019

Tourism is one of the United Kingdom most successful and Government debt to GDP 84.7% December 2018 largest industries. The country is ranked eighth in terms of visitor numbers, fifth in terms of international visitor’s expenditure and is ranked fifth in the world in terms of international The UK economy recorded GDP growth of 0.2% in the last competitiveness. quarter of 2018 supported by household consumption and government spending. The service sector had a positive impact The UK’s main tourism strengths remain in its cultural resources, on the economy during the quarter whilst construction declined. its sound tourism infrastructure and its attractive business For 2018 GDP growth was 1.4% with the sluggish growth in part environment. due to the uncertainty around the shape of any Brexit deal. This has impacted the level of business investment, which decreased The latest numbers available show that overseas visitors to the by 1.4% in Q4 2018, the fourth consecutive quarter in which UK reached a record high of 39.9 million inbound visits in 2017. there was a decrease in growth. This number was forecast to increase to 41.7 million in 2018. Following the Brexit referendum, international arrivals to the UK The level of inflation has been on a downward trend over the last increased due to the devaluation of the pound making the UK six months and for the 12 months to February 2019 stood at more attractive. 1.9%. The base interest rate remains at 0.75% following its 0.25 percentage point increase in August 2018. In 2017, tourism and travel in the UK directly supported over 4,200,000 jobs (11.9% of total employment) and contributed The unemployment rate as at January 2019 stood at 3.9% with £25.2 billion, representing 11% of total GDP. This contribution the jobless rate at its lowest level in 40 years. The number of represents growth of 1% compared to 2017. people out of work stood at 1.36 million. Wages, excluding bonuses, rose by 3.4% for the year to December 2018 and are Leisure travel spending (inbound and domestic) generated 66% now at the highest level since March 2011. of direct Travel and Tourism GDP in 2018. Domestic travel spending generated 84% of direct Travel & Tourism GDP in 2018 compared with 16% for visitor exports. GDP Growth Rate In 2017, London was named the second most visited city in the 0.8% world, behind Bangkok, with circa 20 million international 0.7% visitors. 0.6% 0.5% 0.4% Travel and Tourism Spending (%) in 2018 0.3% 0.2% 0.1% 0.0% Domestic spending Business 84% spending Leisure 34% spending 66% International spending 16%

Source: WTTC

cushmanwakefield.com Hospitality Market Report 2

UK’s Hospitality Market London According to the latest data from the Office for National Hotel Supply Statistics, the population of Greater London is estimated to be In February 2019, there were over 14,500 hotels across the 8.82 million. United Kingdom providing 660,960 bedrooms with England London is a leading global city and capital of England with accounting for 83% of the United Kingdom stock. The supply strengths in the arts, fashion, commerce, entertainment, is predominantly dominated by branded hotels, representing development, professional services, finance and tourism. The 58.6% of the total. city is one of the world’s leading financial centres and is ranked Currently, demand continues to outpace supply growth but as the second highest global financial centre in the Global supply continues to increase and above average growth is Financial Centres Index September 2018 edition. expected to continue. More than 20,000 new bedrooms are in the pipeline for 2019 and a further 17,700 in 2020. London has the strongest economy in the UK, with the highest proportion of business start-ups in the country (112.3 start-ups per 10,000 of the population) and 23% of the UKs total business Hotel Trading Performance stock, which is the highest of any city, according to the Centre for Cities. The UK hotel industry has historically been one of the strongest London is a global centre for tourism, benefitting from a rich performers in Europe. Occupancy rate in the UK increased by cultural history and attractions. According to Mastercard’s 0.5% between 2017 and 2018 whist ADR grew by 1.7% resulting Global Destinations Cities Index, London was ranked as the in an increase in RevPAR of 2.3%. Occupancy levels reached world’s second most visited city, receiving approximately 19.83 77.9% in 2018 with ADR at £93.86 and RevPAR at £73.13. million overnight visitors in 2017. UK - KPIs for trading performance (ADR and RevPAR in £, occupancy rate in %) London is home to a number of globally recognised educational establishments including 43 universities and has the largest £100 100% concentration of higher education establishments in Europe. £80 80% With such global appeal, the city generates strong levels of accommodation demand helping to mitigate against the impacts £60 60% of domestic economic decline or market shocks. £40 40% Hotel Supply £20 20% The London market currently comprises more than 1,600 establishments providing over 141,000 bedrooms, which £0 0% account for around 21.1% of the total bedrooms in the UK. The market is predominately dominated by branded hotels which account for 68.2% of the London supply. In Greater London, 4 ADR RevPar Occupancy star and budget hotels represent 46.6% of the hotel supply.

Source: STR Global Limited Accommodation supply by category in London in Mar 2019

Luxury Class 19% Upper Upscale Class 24% Upscale Class 13% Upper Midscale Class 13% Midscale Class 22% 9% Economy Class

Source: AMPM

cushmanwakefield.com Hospitality Market Report 3

Over the past four years, 175 hotels have entered the market in London - KPIs for trading performance the capital, representing 16,556 additional rooms in the market. (ADR and RevPAR in £, occupancy rate in %)

The current pipeline in London is strong with 47,458 bedrooms forecast to be added to the market in the following years, giving £150 a potential growth of over 30%. The 499 establishments in the 95% pipeline mainly fall into the upscale, upper midscale and budget £130 hotel category (70.9% of the pipeline). 85% £110 Of all pipeline hotels, 111 hotels are confirmed to be delivered 75% in the next two years, increasing the market share by 14,170 £90 bedrooms, representing a growth of 10.0%. £70 65% Hotel Trading Performance £50 55% The graph below shows the key performance indicators for the capital over the past 10 years. London Hotel Performance ARR and Occupancy ADR RevPar Occupancy Source: AMPM £160 90%

£150 85% £140 80% London Investment Market £130 75% London continues to appeal to global investors looking to £120 70% allocate large amounts of equity in long term investments despite sellers pricing expectations. As a result, the capital £110 65% accounted for around 40% of all UK hotel volumes in 2018. £100 60% As a result of the supply and demand imbalance, pricing remains strong with yields in central locations in the region of 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 5% although they can be lower for prime locations and trophy ADR Occupancy assets.

Source: STR Notable transactions in the capital have included the following:

As a truly global city, the market is reliant on the strength of the Sales Price per Property Date global and European economies, which have continued to Price Key perform well up to the end of 2018. This coupled with the weak pound has seen an increase in the number of international Crowne Plaza Mar-19 £84.3 million £517,500 visitors, boosting demand in 2018. Occupancy levels improved Kensington in 2018 to circa 83% with ADR increasing by just over 3% to Grange Hotels Mar-19 £935 million £709,900 £124.73. (4x) The first half of 2018 saw a slight decline in occupancy and ADR Hilton Oct-18 £260 million £432,600 resulting in a 1.3% fall in hotel RevPAR, however, a strong Kensington summer and second half of the year reversed the capitals fortunes with RevPAR finishing over 10% higher than the Beaumont Sep-18 £115 million £1,575,300 previous year. Hotel, Mayfair For March 2019, the London hotel market has seen an Curtain Hotel, Aug-18 £90 million £750,000 improvement in all key performance metrics with RevPAR up Shoreditch 4.0% compared to the same period in the previous year. As a result of the improvement in top line performance, profitability has also improved with GOPPAR increasing by nearly 2%.

cushmanwakefield.com Hospitality Market Report 4

Regional UK (excluding London) influenced by the domestic economy and local factors and therefore trading performance will vary by region. Hotel trading performance is generally cyclical in nature influenced by wider economic factors and as a result has Regional Hotel Performance ARR and Occupancy generally followed changes in GDP although markets have been impacted by short term shocks over the last 20 years. £80 80% Trading performance across the UK regions has seen continual £75 75% growth over the last seven years with an improvement in demand allowing operators to drive a significant increase in £70 70% ADR. With occupancy levels reaching a natural ceiling, the rate £65 65% of growth has now started to slow with RevPAR growth in 2018 being around 2.9%. £60 60% The devaluation of sterling following the EU referendum has influenced trading performance with the UK now comparatively 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 cheaper for overseas visitors and conversely foreign holidays ADR Occupancy more expensive for UK citizens. As a result, those hotels having a strong tourist base have performed better than those markets Source: STR that are reliant on corporate demand. Operating costs, and particularly wage costs continue to rise and According to STR data, the regional market has however started with the growth in revenues starting to decline profitability across to witness a slowing in RevPAR growth across many UK the sector has started to come under pressure. markets. This is largely due to a plateauing in occupancy and in some markets a marginal decline, although average rooms rates have continued to grow. The regional market is however largely

Edinburgh - Accommodation supply by category in Feb 2019 Edinburgh

Edinburgh is the UK’s second most visited city and financial 18% Luxury Class centre outside of London and as a result benefits from good year round demand. The city also plays host to the Edinburgh 17% Upper Upscale Class Festival during August, which is the largest arts festival in the world selling almost 2.7 million tickets across the numerous 19% Upscale Class shows. Upper Midscale Class 19% The city has seen 25 hotels added to the market since 2014 with Midscale Class the current stock standing at 224 hotels. Most of this new supply has been in the limited service sector including Premier Inns, 20% Economy Class 7% Hub by Premier Inn and Hampton by Hilton hotels. There are a further 18 hotels confirmed in the pipeline over the next three years. Source: AMPM The Edinburgh market had recorded strong revenue performance up to the end of 2017 with RevPAR up 12.4% to Figure 10 £86.01. Despite this strong demand, trading has started to suffer Edinburgh - KPIs for trading performance whilst the city absorbs some of the new supply. Occupancy (ADR and RevPAR in £, occupancy rate in %) levels have seen monthly declines since February 2018 which £100 95% has started to impact average room rates. For the 12 months to £80 December 2018 occupancy stood at 82.8% with the ADR at 85% £103.34 and the resultant RevPAR of £85.59 down 0.4% on the £60 previous year. 75% £40 Notable transactions in the city have included the sale of the 65% Waldorf Astoria Caledonian in January 2018 for £84.5 million £20 (£350,600 per room) and the Jurys Inn Edinburgh in August 2018 for £52m (£279,600 per room). £0 55%

ADR RevPar Occupancy

Source: AMPM

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Cardiff Accommodation supply by category in Cardiff in Feb 2019 The Welsh capital comprises 5,552 bedrooms and has witnessed limited supply growth since 2015 with only three 36% Luxury Class hotels added to the supply, the most notable of which was the Upper Upscale Class Hotel Indigo with 122 rooms. The city currently has a low potential pipeline of new supply with four hotels confirmed during Upscale Class 9% the next three years two of these being Premier Inn hotels. 23% Upper Midscale Class In addition to the corporate demand generated from being the Midscale Class capital city of Wales, the city has grown its appeal as an events 23% Economy Class location at venues such as the Millennium Stadium and Cardiff 8% Arena. As a result, hotel demand is boosted by major events 1% held in the city including music concerts, international rugby matches and speedway world championships amongst others. Source: AMPM

In 2017, the Cardiff market recorded an 8.4% increase in Cardiff - KPIs for trading performance RevPAR to £57.13 largely due to an improvement in the ADR (ADR and RevPAR in £, occupancy rate in %) with the market boosted by a number of one off events including £80 85% the UEFA Champions League Final. In 2018, there has been fewer large scale events when the city can command premium 80% £60 rates. For the year 2018 occupancy stood at 80.4% and ADR 75% £71.81 resulting in RevPAR growth of 1.1%. For the year to February 2019 RevPAR increased by 1.1% providing a positive £40 70% outlook for the year. 65% £20 Transactions in 2018 included the Holiday Inn Cardiff North for 60% £7.9m (£83,150 per room) and the ground lease sale of the Park £0 55% Plaza Cardiff for £13.8m (£106,977 per room), both in December.

ADR RevPar Occupancy Birmingham Centre Source: AMPM

The Birmingham hotel market is reliant on corporate and Figure 13 conference and events generated from the cities various venues Birmingham - Accommodation supply by category in Feb 2019 and the NEC.

The city has seen 11 new hotels added to the competitive supply Luxury Class since 2015. The latest new entrants include the Hilton Garden 24% Inn Birmingham Airport and the Edgbaston Park Hotel & Upper Upscale Class Conference Centre, which both opened in 2018. The pipeline of 34% Upscale Class potential supply in the centre includes two hotels in 2019 and 11% Upper Midscale Class three hotels in 2020 including a new Aloft and Moxy hotel. Midscale Class Trading performance in the city remains positive with the city benefiting from strong events business which have included the 12% 19% Economy Class British Tourism and Travel Show and the Internet Retail Expo. 0% In addition, the city also hosted the World Indoor Athletics Championship in 2018. Source: AMPM

Occupancy levels grew in 2018 to 77.3% with the level of events Figure 14 allowing the city to drive average room rates, which stood at Birmingham - KPIs for trading performance £73.70. RevPAR in 2018 therefore grew by 5.4%. For the year (ADR and RevPAR in £, occupancy rate in %) to date to February 2019 reflects a similar growth compared to £80 85% the same period in 2018. 80% £60 The outlook for the city also remains positive with a large amount 75% of regeneration being undertaken which has helped the city £40 70% attract several major corporate occupiers. The city will also be 65% £20 host of the ICC Cricket World Cup in 2019. In the longer term 60% the HS2 development should also help bolster corporate £0 55% demand. Recent transactions included the sale of the Hilton Garden Inn Birmingham Airport in September 2018 for a reported sale price ADR RevPar Occupancy of £31m (£174,100 per room). More recently the Holiday Inn Source: AMPM Birmingham Airport and Hampton by Hilton have been brought to market. cushmanwakefield.com Hospitality Market Report 6

Manchester Centre Figure 15 Manchester - Accommodation supply by category in Feb 2019 Manchester is one of the largest regional hotel markets in the UK thanks to its strong corporate and conference business. The market comprises 89 hotels with over 11,300 bedrooms. Luxury Class Upper Upscale Class The city has witnessed relatively strong supply growth over the 29% 28% last four years with 17 hotels added to the market, nine of which Upscale Class were added in the last two years. New hotels entering the market Upper Midscale Class have included the AC Hotel Manchester City, Crowne Plaza 9% Manchester Oxford Road, and the Hotel Indigo Manchester 13% Midscale Class Victoria Station. 6% 15% Economy Class There is also a strong pipeline of new supply proposed in the city with nine hotels due to enter the market in 2019 and a further Source: AMPM nine hotels due to enter the market in 2020. The new supply includes another two Motel One hotels, Clayton Hotel, niu Figure 16 Manchester and a Staybridge Suites. Manchester - KPIs for trading performance In 2018 RevPAR in Manchester was relatively static at £66.21 (ADR and RevPAR in £, occupancy rate in %) as the market absorbed 800 bedrooms in both 2017 and 2018. £100 85% With a more competitive trading environment ADR declined 80% marginally by 0.8%. £80 75% £60 Transactions in the city included the Midland in September 2018 70% £40 for £115.3m (£369,500 per room), the Holiday Inn Central Park 65% in February 2019 for £7.5m (90,300 per room) and the Premier £20 60% Inn Circle Square in March 2019 for £45m (174,800 per room). £0 55%

Liverpool ADR RevPar Occupancy The Liverpool market comprises over 109 hotels providing more than 8,600 bedrooms. The market has seen 20 hotels enter the Source: AMPM market since 2015 representing over 1,300 new bedrooms. 2018 saw the highest number of new rooms with 520 entering Figure 17 the market. Liverpool - Accommodation supply by category in 2017 There are a further eight new hotels due to enter the market in 2019. The majority of these new hotels are independently held although the new supply also includes a proposed Roomzzz and 36% Luxury Class the Quest Church Street Liverpool. Upper Upscale Class The city generates good levels of leisure demand from a variety 21% Upscale Class of sources. The city has also benefited from Liverpool FC 9% Upper Midscale Class reaching the Champions League final in both 2018 and 2019 Midscale Class boosting demand for their midweek home matches. The city 13% 19% recorded a 6.8% increase in RevPAR in 2018 reaching £63.11. Economy Class For the year to February 2019 the city has continued to show 2% strong results with RevPAR growth of 6.1%. Source: AMPM The most recent properties sold in Liverpool were the Innside by Melia in October 2018 off a guide price of £46 million (£222,200 Figure 18 per room). In addition, the Staycity Corn Exchange was sold in Liverpool - KPIs for trading performance December 2018 for £22.8 million (£107,500 per room). (ADR and RevPAR in £, occupancy rate in %) £80 85%

80% £60 75% £40 70% 65% £20 60% £0 55%

ADR RevPar Occupancy

Source: AMPM

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Glasgow Figure 19 Glasgow - KPIs for trading performance Glasgow is the largest city in Scotland with the hotel market (ADR and RevPAR in £, occupancy rate in %) currently consisting of 138 hotels accommodating over 11,800 £80 bedrooms. The market has seen 15 new hotels enter the market 95% since 2015, increasing the bedroom count by over 1,700 rooms. £60 New openings have included the Dakota, Radisson RED and 85% Motel One. £40 75% The city has a confirmed pipeline of 10 hotels due to enter the market in the next three years. Most of the new supply is in the £20 65% upper midscale and upscale sectors, including the Courtyard Glasgow SEC, Yotel Glasgow and the Moxy Glasgow SEC. £0 55% 2016 2017 2018 YTD Feb' For the year 2018, occupancy levels declined slightly although 2019 this has been more than offset my strong ADR growth leading to ADR RevPar Occupancy an increase in RevPAR of 4.1%. For the two months to February Source: AMPM 2019 RevPAR has seen a slight decline on the previous year.

In September 2018, the long leasehold interest in the Hotel

Indigo Glasgow sold for circa £9.5 million (£101,000 per room) and the Radisson Blu sold for £39 million (£159,000 per room).

Leeds There are 74 hotels in Leeds providing over 6,700 bedrooms. Figure 20 Since 2017, four new hotels have entered the market increasing the bedroom supply by over 400 bedrooms. There are another Leeds - KPIs for trading performance five hotels due to enter the market over the next three years, (ADR and RevPAR in £, occupancy rate in %) including the Hampton by Hilton Leeds City Centre. £80 80% 75% 2018 saw an improvement in occupancy with demand boosted £60 by the Tour de Yorkshire and although ADR decreased marginally the demand still resulted in a small increase in 70% £40 RevPAR to £53.43. For the year to February 2019 RevPAR grew 65% by 1.7% compared to the same period in the previous year. £20 60%

£0 55% 2016 2017 2018 YTD Feb' 2019 ADR RevPar Occupancy

Source: AMPM

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Aberdeen Figure 21 Aberdeen - KPIs for trading performance The Aberdeen economy is dominated by the oil industry and as (ADR and RevPAR in £, occupancy rate in %) such the city’s hotel market is very much linked to the crude oil 80% price, which has suffered in recent years. £80 This coupled with the large amount of new supply that has 75% entered the market since 2015 (eight hotels) has resulted in £60 Aberdeen being the worst performing hotel market in the UK in 70% recent years. In 2016, RevPAR in the city declined by 31% while £40 2017 saw a further decline of 6.1%. However, recent investment 65% into tourist attractions and a recovery in the corporate market has helped the city’s fortunes with RevPAR showing a slight £20 60% improvement in 2018. £0 55% Still of concern is the amount of potential new supply confirmed 2016 2017 2018 YTD Feb' to enter the market with seven hotels due to open between 2019 2019 and 2021. The majority of the new supply is linked to the opening of the new Aberdeen Exhibition and Conference Centre which is ADR RevPar Occupancy due to open in Summer 2019. Source: AMPM Recent transactions that have occurred in Aberdeen include the DoubleTree Aberdeen Treetops sold in August 2018 for £4.85 million (£40,400 per room). Additional hotels sold in February

2019 were the Crowne Plaza and Holiday Inn Express for £24.1 million (£67,320 per room). Belfast Although the capital of Northern Ireland, the hotel market in Belfast is relatively small with only 52 hotels accommodating 5,270 bedrooms. The city has seen a large amount of Figure 22 regeneration in recent years including investment into its tourist Belfast - KPIs for trading performance industry, which has helped grow demand in the city. The city has also benefitted from the weak pound helping attract visitors (ADR and RevPAR in £, occupancy rate in % particularly from the neighbouring Republic of Ireland. £80 90% Following two strong years, 2018 proved more challenging for 85% the Belfast hotel market with a fall in occupancy due to the vast £60 80% amount of hotel rooms (more than 1,000) which entered the 75% market in 2018. As a result, RevPAR declined by almost 7%. £40 70% As a note of caution, there is further significant pipeline of new £20 65% supply proposed in the city with six hotels confirmed over the 60% next 18 months. In addition to this, there are also 29 further £0 55% schemes in the planning phase or still unconfirmed. This will 2016 2017 2018 YTD Feb' undoubtedly impact trading performance whilst this supply is 2019 absorbed in the market. ADR RevPar Occupancy

Source: AMPM

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Trading Performance Outlook The continued economic uncertainty and a slowdown in the Eurozone economies could slow down visitor demand London into 2020 although investment into regional cities has continued, which could help demand. Those cities which 2018 2019 2020 attract international leisure visitors could continue to Actual Forecast Forecast perform well due to the weak pound with domestic leisure Occupancy % 83.3% 83.6% 83.7% demand also likely to support performance in popular leisure markets. ADR £ £148.8 £150.9 £152.9 PWC are forecasting tougher trading conditions in 2019 RevPAR £ £124.0 £126.1 £128.0 because of the weaker economic environment and the new hotel supply entering the market. Forecast supply Growth compared to previous year % growth is expected to at 4% in London and 3.3% in the regions. As a result, PWC are forecasting a minimal Occupancy 1.9% 0.3% 0.1% increase in RevPAR for London in 2019 and 2020 at 1.7% ADR 1.0% 1.4% 1.4% and 1.4%, respectively. Similarly, the regions are forecast to see RevPAR growth of 0.4% and 0.8% in 2019 and RevPAR 2.9% 1.7% 1.4% 2020.

PWC has also included the positive impact of the UEFA Euro 2020 which is co-hosted in London and Glasgow Regions amongst other European cities. 2018 2019 2020 Cost pressures continue to be a challenge to the sector Actual Forecast Forecast putting pressure on hotel profitability. Inflationary pressures coupled with rising costs of imports has seen Occupancy % 76.1% 76.0% 75.9% commodity prices increase, in particular food costs. ADR £ £72.1 £72.5 £73.1 The National Living Wage (NLW), for working people aged 25, and the National Minimum Wage (NMW), for RevPAR £ £54.8 £55.1 £55.5 workers between the age of 21-24, will increase by 4.9% and 4.2% respectively in April 2019. With the hospitality Growth compared to previous year % sector having a high proportion of jobs paying the minimum wage and with wages typically representing Occupancy 0.3% -0.1% -0.1% between a quarter and a third of operating costs in ADR 1.2% 0.5% 0.8% businesses, these increases continue to impact operating costs. RevPAR 1.5% 0.4% 0.8% This increase may also bring about inflationary impacts Source: PwC UK hotels forecast update for 2019 and 2020 on the remaining employee structure. The rising minimum wage will decrease or eradicate the pay gap between those on the minimum wage and their supervisors, meaning a full re-evaluation of staff cost structures may be required for larger organisations. There is also concern around sourcing staff with a decline in net migration resulting in the hotel industry having one of the highest vacancy rates of any sector. This is leading to a lack of suitably trained staff, which will naturally increase the pressure on wage inflation.

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Figure 3 Hotel Investment Market Hotel investment volumes (£bn) and RevPAR growth Deal Value RevPAR Investment volumes in the UK increased to around £6.1 (£ billions) Growth (%) billion in 2018 with a number of portfolio transactions including: 10 10% • LRC’s acquisition of a portfolio of 22 Mercure and Hilton 8 6% hotels from Lone Star for in the region of £600m in 6 2% February 2018. • Convivio’s acquisition of 12 Principal Hotels and two 4 -2% further hotels under development for £858 million in May 2 -6% 2018. 0 -10% • Vivion Capital Partners acquisition of Apollo Global Management's UK Holiday Inns portfolio for circa £750m in May 2018. Total RerPAR Growth • LRC’s acquisition of 7 Doubletree hotels in July 2018. These sales mean that portfolio transactions accounted for (%) around half of the amount transacted in 2018. Despite the Source: Cushman & Wakefield US private equity owners divesting of their UK assets, the sector has benefitted from increased activity from overseas investors with the UK still proving attractive despite the Figure 4 Hotel investment by investor origin in 2018 economic uncertainties and providing value due to the weak 16% pound. The sector has seen investment from a variety of 15% jurisdictions including the US, the Far East (despite the restriction placed on Chinese investment), Israel and UK Europe. 17% European As a result of the weight of capital in the market for good Israel 14% quality hotels in London and prime regional locations, there France has been downward pressure on yields in such locations. North America This has not however been the case in more secondary 30% locations.

The sector is the most established of the alternative sectors Source: Cushman & Wakefield and is now being viewed as more mainstream attracting institutional investors seeking to invest in fixed lease hotels and ground rents providing secure index linked returns. Figure 5 Some institutional investors are now also looking at trading Hotel investment - portfolio vs. single asset between risk perhaps best highlighted by Schroders acquisition of 2012 and 2018 Algonquin in May 2018 as well as institutional funds Deal Value (£ billions) acquiring single assets such as Blackrocks acquisition of the 6 Hilton Garden Inn Birmingham Airport in October 2018. 5 London continues to appeal to global investors looking to 4 allocate large amounts of equity in long term investments 3 despite sellers pricing expectations. As a result, the capital 2 accounted for around 40% of all volume in 2018. With the supply and demand imbalance, pricing remains strong with 1 yields in central locations in the region of 5% although they 0 can be lower for prime locations and trophy assets. 2012 2013 2014 2015 2016 2017 2018 Investment volumes for the current year are however likely Portfolio Single Asset to be down on 2018 with there likely to be fewer portfolio sales. Furthermore, the economic uncertainty caused by Source: Cushman & Wakefield Brexit is also resulting in buyers and sellers delaying decisions which is also likely to impact volumes.

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Transactions in UK

Listed below are recent hotel transactions that have occurred across the UK.

Reported Reported Sale Reported Hotel Name City Date Rooms Price / Purchaser Vendor Price NIY Room Fragrance Group Ltd & Crowne Plaza London Kensington London Mar-19 163 84,361,000 517,552 c. 3.6% Heeton Holdings Aspal Corporation Ltd Queensgate Grange Hotels (4x properties) London Mar-19 1,317 935,000,000 709,947 c. 4.25% Grange Hotels Investments LLP Vorlaz Asset Holiday Inn Manchester Central Park Manchester Feb-19 83 7,500,000 90,361 7.25% Undisclosed Management Project Zinc (9x Hilton properties) Various Feb-19 1,444 246,000,000 170,360 Undisclosed Vivion Capital Alix Partners

Hallmark Portfolio (26x properties) Various Feb-19 2,467 250,000,000 101,338 Undisclosed Vivion Capital Topland Group Crowne Plaza & Holiday Inn Express Aberdeen Feb-19 358 24,100,000 67,318 8.5% M&L Hospitality Dominvs Group Aberdeen Hampton by Hilton Bristol Bristol Jan-19 201 24,400,000 121,393 5.6% Ability Group Undisclosed

Project Prime (5x properties) Various Jan-19 655 94,660,000 144,519 5.1% UBS William Pears Group Advance Synergy Beaver Hotel London Jan-19 38 10,200,000 268,421 Undisclosed Undisclosed Berhad Project Galaxy (6x Park Inn Various Dec-18 864 42,000,000 48,611 8.0% EjendomsInvest Kennedy Wilson properties) StayCity Aparthotels Liverpool Corn Knight Frank Liverpool Dec-18 212 22,800,000 107,547 5.25% Mason Partners Exchange Investments Hilton Coylumbridge Hotel Aviemore Dec-18 175 11,800,000 67,429 Undisclosed Britannia Hotels Starwood Capital Group Melford Capital Hotel Felix Cambridge Dec-18 52 8,000,000 153,846 6.0% Cassel Hotels Partners

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Reported Reported Sale Reported Hotel Name City Date Rooms Price / Purchaser Vendor Price NIY Room 8,500,000 Fairview Hotels & Holiday Inn Cardiff North Cardiff Dec-18 95 89,474 Undisclosed Undisclosed (Guide) Healthcare 7.25% (hotel Radisson Blu Hotel Glasgow Glasgow Oct-18 247 39,250,000 138,664 Pandox Azure Group Holdings part only) Rotch Property Group JV Hilton London Kensington London Oct-18 601 261,500,000 435,108 Undisclosed Cola Holdings Farnsworth Group Heeton Holdings JV Hotel Indigo Glasgow Glasgow Oct-18 94 9,490,800 100,966 7.00% KSH Holdings JV Lian Maven Capital Beng Group The Beaumont Mayfair London Sep-18 73 116,000,000 1,589,041 Undisclosed Barclay Brothers Grosvenor Pandox JV Fattal Midland Hotel Manchester Manchester Sep-18 312 116,000,000 371,795 Undisclosed Aprirose Hotels Hilton Garden Inn Birmingham Airport Birmingham Sep-18 178 31,000,000 174,157 Undisclosed Blackrock Castlebridge

The Curtain, Shoreditch London Aug-18 120 92,500,000 770,833 c. 4.7% Stamford Group GHG London Oaktree Capital DoubleTree Aberdeen Treetops Aberdeen Aug-18 120 Undisclosed Undisclosed 77 Hospitality Management 115,000,000 Hilton Olympia Kensington London Aug-18 401 286,783 Undisclosed Undisclosed Undisclosed (approximate) Jurys Inn Edinburgh Edinburgh Aug-18 186 52,000,000 279,570 Undisclosed Fattal Hotels Pears Group Quidnet Capital Partners Holiday Inn York York Jun-18 148 15,000,000 101,351 Undisclosed Rockspring JV colony NorthStar Principal Portfolio (13 Properties) Various Jun-18 2200 830,000,000 377,273 5.30% Covivio Starwood Capital Group Hong-Kong based Russell House Hotel London May-18 11 3,500,000 318,182 Undisclosed Chiesa family investor GoGlasgow Urban Hotel Glasgow May-18 117 10,000,000 85,470 Undisclosed Buxani Group Crerar Hotel Group Apollo Global Project Ribbon (Holiday Inns) Various May-18 4272 750,000,000 175,562 Undisclosed Vivion Capital Management cushmanwakefield.com Hospitality Market Report 13

Reported Reported Sale Reported Hotel Name City Date Rooms Price / Purchaser Vendor Price NIY Room

Eynsham Hall Hotel Witney May-18 135 10,000,000 74,074 Undisclosed Ennismore Capital Cathedral Hotels Lothbury Investment Malmaison York York Apr-18 150 44,000,000 293,333 Confidential Developer Management Oaktree Capital 7x Serviced Apartments (Oaktree PF) Various Feb-18 1078 440,000,000 408,163 Undisclosed Brookfield Europe Management Project Dragonglass (6 Properties) Various Feb-18 1159 135,000,000 116,480 Undisclosed Starwood Capital Park Hotels & Resorts

Mercure Banbury Whately Hall Banbury Feb-18 69 3,550,000 51,449 Undisclosed Serani Hotels Amaris Hospitality 7% Amaris hotels (25 Properties) Various Feb-18 4000 600,000,000 150,000 LRC Group Lone Star (blended) Guangyhou R&F One Nine Elms - Wanda Vista Hotel London Jan-18 173 59,000,000 341,040 Undisclosed Dalian Wanda Properties Milton Commercial Estates easyHotel Jan-18 124 8,700,000 70,161 Undisclosed easyHotel plc Keynes Group Waldorf Astoria Edinburgh - The Edinburgh Jan-18 241 85,000,000 352,697 4.60% Twenty14 Holdings Farnsworth Group Caledonian

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About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for our clients. Cushman & Wakefield is among the largest commercial real estate services firms, with core services of agency leasing, asset services, capital markets, facility services, global occupier services, investment & asset management (DTZ Investors), project & development service as, tenant representation and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. © Cushman & Wakefield 2018 Cushman & Wakefield | Morgan Stanley Bank N.A. Appendix C – Individual Reports Valuation Date: 01 May 2019 Valuation of: Atlas Hotel Portfolio

APPENDIX C – INDIVIDUAL REPORTS

No Hotel No Hotel

1 Bath 26 London - Hammersmith 2 Bedford 27 London - Wandsworth 3 Birmingham NEC 28 Luton Airport 4 Birmingham Oldbury 29 Manchester East 5 Bristol City Centre 30 Manchester Salford Quays 6 Bristol - North 31 Milton Keynes 7 Cambridge 32 Newcastle - City Centre 8 Derby Pride Park 33 Newcastle Metro 9 Droitwich 34 Newport 10 East Midlands Airport 35 Northampton 11 Edinburgh - Waterfront 36 Peterborough 12 Exeter 37 Portsmouth - North 13 Glasgow Airport 38 Southampton - West 14 Glasgow City Centre Riverside 39 Stafford 15 Gloucester South 40 Stevenage 16 Hamilton 41 Stirling 17 Hemel Hempstead 42 Stoke-on-Trent 18 Inverness 43 Swansea East 19 Leeds City Centre 44 Swindon - West 20 Lichfield 45 Taunton 21 Lincoln City Centre 46 Warwick - Stratford-upon-Avon 22 Liverpool Hampton by Hilton 47 Poole - (leased) 23 Chingford - North Circular 48 York - Park Inn (leased) 24 London - Dartford 49 Exeter City Centre 25 London Greenwich

Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Bath BA2 3QU

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 Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

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 ...... 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 Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

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 Property lies at the junction of Brougham Hayes (B311) and Lower Bristol Road (A36), at 15 minute walk from the centre of Bath.

Description Limited service hotel constructed in approximately 2002 arranged over ground and three upper floors and covered by a pitched tiled roof.

Facilities The hotel comprises 145 rooms ancillary Great Room and parking facilities.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

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

Occupancy 91.20% 86.40% 86.63%

ADR £93.70 £85.79 £88.89

RevPAR £85.45 £74.12 £77.01

Total Revenue £4,159,851 £4,090,514 £4,387,560

NOI (post FF&E) ** £1,876,795 £1,807,248 £1,605,231

Profit Margin 45.1% 44.2% 36.6%

*Please note that the hotel added an extension with 19 rooms in 2018. Thus, 2017 figures reflect 126 bedrooms whereas 2018 going forward reflects 145 bedrooms. ** Please note 2019 figures include the proposed ground rent payable.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 87.0% 87.0% 87.0%

ADR £89.00 £91.50 £93.33

RevPAR £77.43 £79.61 £81.20

Total Revenue £4,408,483 £4,529,805 £4,620,401

NOI (post FF&E and £1,543,691 £1,603,241 £1,635,306 ground rent)

Profit Margin 35.0% 35.4% 35.4%

Market Value and Yields

Valuation Date 1 May 2019

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

Market Value £23,300,000

Capitalisation Rate 6.75% Discount Rate 8.75%

Gross Initial Yield 6.64%

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 • Located in a strong leisure destination; • 19-room extension completed in 2018; • Recent refurbishment of the Great Room; • On site car park.

Weaknesses / Risks • Additional hotel supply entering the market; • Limited corporate base within Bath; • Changes in leisure demand impacting hotel occupancy.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 10 May 2019. The inspection was undertaken by Carl Ridgley.

1. Location

1.1. Location

General The hotel is well located at the junction of Brougham Hayes (B311) and Lower Bristol Road (A36). The hotel lies approximately one mile from the city centre of Bath. It benefits from good transport communications with the A4, A36 and A46 all within easy reach. Bath is situated 97 miles west of London, 13 miles south-east of Bristol and 19 miles from Bristol International Airport. According to the latest estimated in mid- 2017, Bath and North East Somerset count a resident population of 188,678. Bath is a UNESCO World Heritage Site. It is widely recognised as a premier city break destination both domestically and in key overseas markets. According to VisitBritain, in 2017 the city ranked 12th out of 20 major UK cities in terms of international tourists. However, Bristol, Oxford and Cambridge rank higher than Bath as contemporary destinations. Bath’s spas, established by the Romans about 20 years after they had arrived in Britain (AD43), remain the main reason for visiting the city. According to Invest in Bath, the city’s particular specialism is in IT security, tech investment and creative and digital businesses. Bath is home to a cluster of leading software consultancies - Praxis High Integrity Systems providing software solutions for defence, aerospace and nuclear solutions; IPL whose clients include Orange; and AMDOCS, a truly international company operating in Asia, America and Europe. The University of Bath also makes a significant economic impact at both national and local level. Part of the University of Bath is the Innovation Centre, a membership organisation that has helped its members raise venture capital and is home to Silicon SouthWest, the largest concentration of silicon designers outside of California.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

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 145 bedrooms, the Great Room and on-site parking. The Property was constructed in approximately 2002 and comprises ground and three upper floors of brick construction underneath a pitched tiled roof. The fenestration comprises UPVC framed double glazed units. Originally comprising 126 bedrooms, 19 guestrooms were added to the inventory in 2018 when an extension to the building was added. There are approximately 73 car parking spaces charged at £7.50 per night.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

2.1. Accommodation

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

Category Unit Count

Twin 118

Accessible Twin 3

Double (excl. sofa bed) 36

Double (incl. sofa bed) 84

Accessible Double 4

Total after extension 145

The original 126 bedrooms were upgraded to IHG’s Generation Four brand standards in 2016, although the bathrooms only received a soft refurbishment consisting in the replacement of shower curtains with shower screens. The 19 new bedrooms are of more modern design representing the latest Generation Four standards including a modern bathroom. All bedrooms feature a double bed or two single beds provided with a padded, noise-reducing headboard and a small table with signature chair. All double rooms also include a sofa bed which can accommodate up to two children.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

Food & Beverage The Great Room extends through most of the ground floor entrance area accessed from the reception lobby. Also located in the lobby is a business desk and vending machine. The Great Room incorporates a bar with sofa seating adjoining the reception area, beyond which is the restaurant area, providing an overall capacity of 150. The breakfast buffet area, located at the end of the Great Room, was converted from the former meeting room in 2016. The area has been refurbished to give a modern appearance with full height glazed section to one elevation.

Meeting Rooms The Property does not have any meeting space.

Back of House Accommodation Back of the house and storage accommodation are located on the ground floor.

3. Structural Condition and Repair The Property has been well maintained and was found to be in good condition. In early 2016, the original bedrooms and bathrooms were upgraded to IHG Generation Four brand standards. The hotel also went through a £2 million, 19-bedroom extension which was completed in 2018. The Great Room was also refurbished in 2018. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £1,093,529 £46,582

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £14,500,000 (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 Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

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 located in Flood Zone 2 and adjacent to Flood Zone 3.

Environmental considerations Please refer to head report.

Planning The planning policy for the Property is determined by Bath & North East Somerset Council. We are not aware of any outstanding or unimplemented planning applications.

Conservation Area and Listed Building Status The Property is not listed. However, it is set within the City of Bath Conservation Area and the wider World Heritage Site.

Business Rates

Demise Description Rateable Values Holiday Inn Express Bath Hotel and Premises £592,000

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 part freehold, part leasehold (Titles ST315157, ST206533) 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

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

Overview

Rent £271,087 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 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, Bath counts 2,567 rooms across 65 hotels, 10 of which are located within a 0.5-mile radius from the Property. Approximately 34% of the total supply consists of four star hotels, followed by budget hotels (25%) and three star hotels (14%).

Just over 38% of the total supply is run independently, followed by national and regional brands at 12% and 19% respectively.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

• Travelodge Bath Waterside • Hilton Bath City Hotel • Holiday Inn Express Bath • Travelodge Bath Central Hotel • Premier Inn Bath City Centre 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 Property registered higher occupancy levels than its competitive set both in 2017 and 2018 with an MPI of 108 and 104 respectively. ADR performance, however showed the opposite, decreasing from £93.7 in 2017 to £85.8 in 2018, widening the gap with the market with an ARI of 94.9. As a result, the subject fell below the competition in RevPAR terms between 2017 and 2018, when its RGI was registered at 98.7. The first three months to March 2019 however show improvements with an RGI of 107.

7.3. Proposed Supply The pipeline consists of 11 projects accounting for 307 rooms, 206 of which will be the Hampton by Hilton Bath, currently under construction. The remaining projects are in final planning and will mostly be of three and four star category.

8. Business Analysis

Overview The Holiday Inn Express Bath, which opened in 2002, has experienced strong growth in recent years as Bath has become an increasing popular leisure destination. Rooms business is fundamentally from corporate clients Monday to Thursday with Friday to Sunday dominated by guests visiting for leisure purposes. Based on our conversation with hotel management, corporate accounts include Help Here, BMT, Select Science, BAE Systems and Road Talk. Road Talk are the largest corporate client who provide around 1,200 room nights per year at a contracted rate of £93 midweek and £125 weekend and Redde who provide around 600 room nights at a contracted rate of £96. Weekend business is generally leisure related when the hotel can charge premium rates. A large amount of these bookings are delivered by Online Travel Agents which deliver around 30% of the total business. As well as the Roman baths Bath University also represents the major demand generator, attracting prospective and existing students and their friends and families. The business suffered a degree of disruption during 2017 and 2018 due to the construction of the bedroom extension and the market has also been impacted by the opening of the Apex Hotel.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

However Q1 2019 performance has been strong with management focussing on a occupancy led strategy. The refurbishment of the Great Room and the introduction of new menu has had a positive impact on business, which has resulted in food and beverage revenue increasing by around 50%. The hotel charges for car parking at a rate of £7.50 per night.

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 Bath, Lower Bristol Road, Bath BA2 3QU

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

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 Bath, Lower Bristol Road, Bath BA2 3QU

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: 145 145 145 145 145 Occupancy Rate 87.00% 87.00% 87.00% 87.00% 87.00% Average Room Rate 89.00 91.50 93.33 95.20 97.10 Revenue Per Available Room (RevPAR) 77.43 79.61 81.20 82.82 84.48 Days Open 365 365 365 365 365 Available Rooms 52,925 52,925 52,925 52,925 52,925 Occupied Rooms 46,045 46,045 46,045 46,045 46,045 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 4,408,483 % POR PAR 4,529,805 % POR PAR 4,620,401 % POR PAR 4,712,809 % POR PAR 4,807,065 % POR PAR

BEDROOMS Room Sales 4,097,983 93.0% 89.00 28,262 4,213,095 93.0% 91.50 29,056 4,297,357 93.0% 93.33 29,637 4,383,304 93.0% 95.20 30,230 4,470,970 93.0% 97.10 30,834 Room Expenses 1,330,000 32.5% 28.88 9,172 1,356,600 32.2% 29.46 9,356 1,383,732 32.2% 30.05 9,543 1,411,407 32.2% 30.65 9,734 1,439,635 32.2% 31.27 9,929 Departmental Profit 2,767,983 67.5% 60.12 19,090 2,856,495 67.8% 62.04 19,700 2,913,625 67.8% 63.28 20,094 2,971,897 67.8% 64.54 20,496 3,031,335 67.8% 65.83 20,906

FOOD & BEVERAGE Food & Beverage Sales 190,000 4.3% 4.13 1,310 193,800 4.3% 4.21 1,337 197,676 4.3% 4.29 1,363 201,630 4.3% 4.38 1,391 205,662 4.3% 4.47 1,418 Other Income / Room Hire - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - Food & Beverage Cost 65,000 34.2% 1.41 448 66,300 34.2% 1.44 457 67,626 34.2% 1.47 466 68,979 34.2% 1.50 476 70,358 34.2% 1.53 485 Departmental Profit 125,000 65.8% 2.71 862 127,500 65.8% 2.71 862 130,050 65.8% 2.82 897 132,651 65.8% 2.88 915 135,304 65.8% 2.94 933

CAR PARK Car Park Revenue 112,000 2.5% 2.43 772 114,240 2.5% 2.48 788 116,525 2.5% 2.53 804 118,855 2.5% 2.58 820 121,232 2.5% 2.63 836 Car Park Expenses - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - Departmental Profit 112,000 100.0% 2.43 772 114,240 100.0% 2.48 - 116,525 100.0% 2.53 - 118,855 100.0% 2.58 - 121,232 100.0% 2.63 -

TELEPHONE Telephone Revenue 4,000 0.1% 0.09 28 4,080 0.1% 0.09 28 4,162 0.1% 0.09 28 4,245 0.1% 0.09 29 4,330 0.1% 0.09 30 Telephone Expenses 12,000 300.0% 0.26 83 12,240 300.0% 0.27 84 12,485 300.0% 0.27 86 12,734 300.0% 0.28 88 12,989 300.0% 0.28 90 Departmental Profit (8,000) (200.0%) (0.17) (55) (8,160) (200.0%) (0.18) (56) (8,323) (200.0%) (0.18) (57) (8,490) (200.0%) (0.18) (59) (8,659) (200.0%) (0.19) (60)

MISCELLANEOUS Miscellaneous Revenue 4,500 0.1% 0.10 31 4,590 0.1% 0.10 32 4,682 0.1% 0.10 32 4,775 0.1% 0.10 33 4,871 0.1% 0.11 34 Miscellaneous Expenses (14,000) (311.1%) (0.30) (97) (14,280) (311.1%) (0.31) (98) (14,566) (311.1%) (0.32) (100) (14,857) (311.1%) (0.32) (102) (15,154) (311.1%) (0.33) (105) Departmental Profit 18,500 411.1% 0.40 128 18,870 411.1% 0.41 130 19,247 411.1% 0.42 133 19,632 411.1% 0.43 135 20,025 411.1% 0.43 138

GROSS OPERATING INCOME 3,015,483 68.4% 65.49 20,796 3,108,945 68.6% 67.52 21,441 3,171,124 68.6% 68.87 21,870 3,234,546 68.6% 70.25 22,307 3,299,237 68.6% 71.65 22,753

LESS EXPENDITURE Administrative & General 97,000 2.2% 2.11 669 98,940 2.2% 2.15 682 100,919 2.2% 2.19 696 102,937 2.2% 2.24 710 104,996 2.2% 2.28 724 Information & Technology - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - Sales & Marketing 22,042 0.5% 0.48 152 22,649 0.5% 0.49 156 23,102 0.5% 0.50 159 23,564 0.5% 0.51 163 24,035 0.5% 0.52 166 Repairs & Maintenance 92,000 2.1% 2.00 634 93,840 2.1% 2.04 647 95,717 2.1% 2.08 660 97,631 2.1% 2.12 673 99,584 2.1% 2.16 687 Energy Costs 134,000 3.0% 2.91 924 136,680 3.0% 2.97 943 139,414 3.0% 3.03 961 142,202 3.0% 3.09 981 145,046 3.0% 3.15 1,000 TOTAL UNDISTRIBUTED COSTS 345,042 7.8% 7.49 2,380 352,109 7.8% 7.65 2,428 359,151 7.8% 7.80 2,477 366,334 7.8% 7.96 2,526 373,661 7.8% 8.12 2,577

GROSS OPERATING PROFIT 2,670,440 60.6% 58.00 18,417 2,756,836 60.9% 59.87 19,013 2,811,972 60.9% 61.07 19,393 2,868,212 60.9% 62.29 19,781 2,925,576 60.9% 63.54 20,176

LESS FIXED COSTS Property Tax 298,400 6.8% 6.48 2,058 304,368 6.7% 6.61 2,099 310,455 6.7% 6.74 2,141 316,664 6.7% 6.88 2,184 322,998 6.7% 7.01 2,228 Management Base Fee 88,170 2.0% 1.91 608 90,596 2.0% 1.97 625 92,408 2.0% 2.01 637 94,256 2.0% 2.05 650 96,141 2.0% 2.09 663 Rental Income Payable - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - -

Franchise Royalty Fees 204,899 5.0% 4.45 1,413 210,655 5.0% 4.58 1,453 214,868 5.0% 4.67 1,482 219,165 5.0% 4.76 1,511 223,548 5.0% 4.86 1,542 Franchise Marketing Fees 122,939 3.0% 2.67 848 126,393 3.0% 2.75 872 128,921 3.0% 2.80 889 131,499 3.0% 2.86 907 134,129 3.0% 2.91 925 Ground Rent - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - -

Empoyee Bonus Provision 9,000 0.2% 0.20 62 9,180 0.2% 0.20 63 9,364 0.2% 0.20 65 9,551 0.2% 0.21 66 9,742 0.2% 0.21 67 TOTAL FIXED COSTS 723,408 16.4% 15.71 4,989 741,192 16.4% 16.10 5,112 756,015 16.4% 16.42 5,214 771,136 16.4% 16.75 5,318 786,559 16.4% 17.08 5,425

EBITDA (Pre FF&E Reserve) 1,947,032 44.2% 42.29 13,428 2,015,644 44.5% 43.78 13,901 2,055,957 44.5% 44.65 14,179 2,097,076 44.5% 45.54 14,463 2,139,017 44.5% 46.46 14,752

FF&E RESERVE 132,254 3.0% 2.87 912 135,894 3.0% 2.95 937 138,612 3.0% 3.01 956 141,384 3.0% 3.07 975 144,212 3.0% 3.13 995

NET OPERATING INCOME (Post FF&E Reserve) 1,814,778 41.2% 39.41 12,516 1,879,750 41.5% 40.82 12,964 1,917,345 41.5% 41.64 13,223 1,955,692 41.5% 42.47 13,488 1,994,806 41.5% 43.32 13,757

Proposed Ground Rent 271,087 10.2% 5.89 1,870 276,509 10.0% 6.01 1,907 282,039 10.0% 6.13 1,945 287,680 10.0% 6.25 1,984 293,433 10.0% 6.37 2,024

NET OPERATING INCOME (Post Ground Rent) 1,543,691 35.0% 33.53 10,646 1,603,241 35.4% 34.82 11,057 1,635,306 35.4% 35.52 11,278 1,668,012 35.4% 36.23 11,504 1,701,372 35.4% 36.95 11,734

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

Commentary on C&W Projections Over the last few years, occupancy at the hotel has ranged between 91.20% in 2017 and 86.40% in 2018 with the 2019 forecast showing 86.63%. The hotel has increased the total number of rooms from 126 to 145 in 2018, which has impacted on occupancy levels although we consider that the hotel as scope to improve this and therefore we have adopted an occupancy of 89% from year one onwards. ADR saw a decrease of 8% to £85.79 in 2018 compared to the previous year due to the impact of the bedroom extension. Following the works the 2019 forecast shows ADR up by 3.6% to £88.89. For the purpose of our assessment, we have adopted a year one ADR of £89. We have assumed inflationary increases thereafter taking into account the stabilised nature of the operation. Based on our KPIs assumptions, rooms revenue is estimated to be £4.09 million, which represents almost 93% of total revenue. 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 £1,814,778, which compares to the forecast for the current year of £1,876,318. The hotel is forecast to achieve a net operating profit margin of 42.8% for the current year compared to 44.2% last year. Our projected net operating profit margin is 41.2%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

After the deduction of the proposed ground rent of £271,087 per annum our adjusted net operating profit is £1,543,691, which is equivalent to a profit margin of 35.0%.

10. Principal Valuation Considerations

Location / Situation and Competition The Property is approximately one mile from the historic city centre and Bath railway station. The A4, A36 and A46 are all within easy reach. Thanks to its position at the junction of Brougham Hayes and Lower Bristol Road, it benefits from good prominence and visibility. The would be considered a strong regional market in investment terms.

Building Design / Condition / Suitability The Property is in good condition. An additional 19 bedrooms have recently been added which present well and the Great Room has been refurbished to create a modern flexible space on the ground floor.

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 £271,087 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 well established in its local market and is a strong performing business. The hotel has suffered more recently with new competition entering the market and the extension works causing a degree of disruption to the business. The profit margin being achieved is 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.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

Saleability

Current Sale Prospects

What is the estimated period it would take to sell the Property at 9-12 months Market Value?

Purchaser demand is likely to be Good

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. 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 6.25% and 8.25%. We have also had regard to the sale of the leasehold interest in the Hampton by Hilton at Bristol Airport, as detailed on the head report, which sold off a yield of sub 6%. 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 6.25%. 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 6.75%. We have adopted a discount rate of 8.75%. 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:

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

Market Value

Gross Initial Yield 6.64%

Capitalisation Rate 6.75%

Discount Rate 8.75%

Market Value £23,300,000

Capital value Per Bedroom £160,690 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 £770,000 per annum.

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 Bath, Lower Bristol Road, Valuation Date: 1 May 2019 Bath BA2 3QU

APPENDIX A: MAPS AND PLANS

Holiday Inn Express Bath Brougham Hayes, Lower Bristol Road, Bath BA2 3QU

3 Club . 8 10 1 7 6 5

4 1

El Sub Sta 19.2m

2 Shelter

The Depot

1 1

Hotel

El Sub Sta

20.4m

St James's Cemetery

0m 10m 20m 30m Chapel

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Valuation of:

Holiday Inn Bedford, Elstow Interchange, Bedford MK42 9BF

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 Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

TABLE OF CONTENTS

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

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 the southern outskirts of the town of Bedford in Bedfordshire approximately two miles from the town centre. The hotel is situated at the Elstow Interchange between the A6 and the A421, arterial routes serving the local area.

Description The Property was constructed in around 2004 and is arranged over ground and two upper floors with predominately brick elevations set beneath a pitched tiled roof. The hotel comprises 80 guest bedrooms with ancillary Great Room and two meeting rooms.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) Forecast

Occupancy 75.70% 78.0% 81.27%

ADR £66.76 £62.55 £64.63

RevPAR £50.54 £48.79 £52.53

Total Revenue £1,687,602 £1,620,870 £1,738,869

NOI (Post FF&E) £525,648 £474,341 £493,082

Profit Margin 31.1% 29.3% 28.4%

*A ground rent will not be payable at this Property.

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 80.0% 80.0% 80.0%

ADR £64.50 £65.79 £67.11

RevPAR £51.60 £52.63 £53.68

Total Revenue £1,710,520 £1,744,730 £1,779,625

NOI (post FF&E) £464,473 £473,762 £483,238

Profit Margin 27.2% 27.2% 27.2%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £4,900,000

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

Capitalisation Rate 8.75% Discount Rate 10.75%

Gross Initial Yield 8.75%

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 • Well located within Bedford with good road connectivity. • Large car park. • Stable business with a variety of longer standing corporate clients.

Weaknesses / Risks • Lacks visibility from the main road. • Accessed via the adjoining petrol filling station. • Limited weekend demand generators in the area.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 10 May 2019. The inspection was undertaken by Chris Mieczkowski.

1. Location

1.1. Location

General The hotel is located on the southern outskirts of the town of Bedford in Bedfordshire at the Elstow Interchange between the A6 and the A421. The centre of Bedford is approximately two miles distant. Bedford is approximately 18 miles north east of Milton Keynes, 19 miles north of Luton and 21 miles south east of Northampton. The former market town is home to international businesses such as IBM, Fuji Film and Asda. In addition, there is a reasonable film industry in the area with five studios surrounding the town. The wider Borough of Bedford has an estimated population of around 157,500. The hotel has good transport links being located off the A421, which provides access to the M1 motorway and the A1 approximately eight miles to the south west and nine miles to the north east respectively. The A6, which intersects the town, provides access to Kettering to the north and Luton to the south. Bedford railway station, located in the town centre, provides commuter services on London Midland trains with Kempston Hardwick station also in close proximity of the hotel. Whilst located on a busy traffic roundabout, the hotel lacks visibility and is accessed via a petrol filling station to the front of the roundabout. On the opposite side of the roundabout is the Interchange Retail Park with the Priory Business Park one and a half miles distant and the Millbrook vehicle testing centre six miles from the hotel.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

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 80 guest bedrooms with ancillary Great Room and two meeting rooms. The Property was constructed in around 2004 and is arranged over ground and two upper floors in an L shape plan. The building has predominately brick elevations with painted render sections to the upper floor and is set beneath a pitched tiled roof. There is a small single storey section to the rear of the hotel. The fenestration comprises aluminium framed double glazed units.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

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

Category Unit Count

Twin 26

Double 50

Accessible 4

Total 80

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 are air conditioned.

Food & Beverage The Great Room extends through most of the ground floor entrance area from the reception lobby. The lobby also includes a business desk and vending machine. The Great Room incorporates a bar with sofa seating for around 20 and restaurant area providing seating for circa 60 and a buffet area to the rear.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

Meeting Rooms There are two meeting rooms both of which can accommodate around 30 delegates.

Car Parking There are approximately 70 car parking spaces, which are provided free of charge to guests.

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 the early part of 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. We have not been advised of the cost of the most recent capital expenditure. The Great Room has not been refurbished in recent years, but it still presents reasonably well. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £10,491 £37,649

We do not consider that a purchaser would allow for any additional capital expenditure over and above the FF&E reserve of which both amounts above are less than the implied allowance per annum.

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £6,800,000 (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)

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

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.

Environmental Considerations Please refer to the head report.

Planning The planning policy for the Property is determined by Bedford 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, Bedford Hotel & Premises £161,000 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 on a 125-year lease from 24 April 1996. It is one of six properties in the portfolio that will not be subject to a new ground lease.

Overview

Type of tenure Long Leasehold

Title no(s) BD194553

Any material encumbrances or unduly None other than disclosed in the draft certificate of onerous / unusual easements, restrictions, title and for which title indemnity insurance has outgoings or conditions? been obtained.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

Overview

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

We are advised that the rent is £39,410 per annum subject to five yearly reviews to 11.25% of the estimated rental value. The date of the next rent review is 24 April 2021.

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, Bedford counts 837 rooms across 17 hotels, all of which are located over a mile away from the subject Property. Over half of the total supply consists of budget hotels, followed by three-star hotels (24%) and four-star (21%). 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. Approximately 43% of the total room supply is run independently.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

• Travelodge Bedford Marston Moretaine • Travelodge Bedford Hotel • Premier Inn Bedford South A421 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 117.4 in 2018. For the first three months of 2019, the hotel has increased its MPI although its ARI has decreased a bit from the prior year.

7.3. Proposed Supply The only project currently in the pipeline in Bedford is the three-star Technology House, comprising 70 bedrooms, and currently in final planning.

8. Business Analysis

Overview The hotel is well established having been open for trade since around 2004. Midweek business at the hotel is largely corporate and weekends largely leisure. The hotel benefits from a good level of contractor trade and can also pick up overspill from the nearby Milton Keynes market. We were advised by the General Manager that the largest provider of room nights is Wordsworth at approximately 500 room night per annum at a rate of £77, inclusive of breakfast. Travis Perkins used to be the top corporate client at the hotel but a project has finished recently, consequently reducing the number of room nights to approximately 300 nights per annum from over 500 in prior years. Other prominent corporate clients include Capita, Fuji Film, Network Rail and DHL. These are all long standing clients of the hotel who provide a steady level of demand. The reduction in room nights from Travis Perkins has also had some effect on the F&B department as the rate of £93 included a £28 voucher for use at the hotel restaurant. F&B covers vary during the week from approximately 12 to 35 covers according to management. Average spend per resident is roughly £3.80, food and drink. In addition to this base the hotel also picks up film crew business that operate in the area. The guest demographic is predominantly UK domestic and weekend demand is reliant on leisure business generated by events at Millbrook and Silverstone as well as the Asian Festival held in Milton Keynes. Much of this business is generated through OTA’s such as booking.com rather that the IHG system. It was estimated that online travel agencies (OTAs) provide a third of the rooms business at the hotel and commissions generally tend to average approximately 15%, with booking.com being the largest contributor among third-parties. Weekend demand tends to fluctuate depending on the events being held with August the busiest period coinciding with the Asian Festival. There are two meeting rooms onsite that are used a handful of times each week. British Gas is one of the more frequent users of the space and room hire rates range from £150 to £210 per day. Day delegate packages start from £25 and include a basic lunch offer and refreshment

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

breaks. Parking is provided for no charge to residents so no significant revenue is achieved from this amenity.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Bedford, Elstow Interchange, Bedford MK42 9BF

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: 80 80 80 80 80 Occupancy rate 78.50% 75.70% 78.00% 81.27% 81.27% Average Room Rate 64.79 66.76 62.55 64.63 66.57 Revenue Per Available Room (RevPAR) 50.86 50.54 48.79 52.53 54.10 Number of Days Open 366 365 365 365 365 Available Rooms 29,280 29,200 29,200 29,200 29,200 Occupied Rooms 22,985 22,104 22,776 23,732 23,732

TOTAL SALES 1,694,682 % POR PAR 1,687,602 % POR PAR 1,620,870 % POR PAR 1,738,869 % POR PAR 1,795,942 % POR PAR

BEDROOMS Room Sales 1,489,438 87.9% 64.80 18,618 1,475,598 87.4% 66.76 18,445 1,424,620 87.9% 62.55 17,808 1,533,784 88.2% 64.63 19,172 1,584,126 88.2% 66.75 19,802 Room Expenses 614,767 41.3% 26.75 7,685 627,240 42.5% 28.38 7,841 630,610 44.3% 27.69 7,883 671,775 43.8% 28.31 8,397 687,088 43.4% 28.95 8,589 Departmental Profit 874,671 58.7% 38.05 10,933 848,358 57.5% 38.38 10,604 794,010 55.7% 34.86 9,925 862,009 56.2% 36.32 10,775 897,038 56.6% 37.80 11,213

FOOD & BEVERAGE Food & Beverage Sales 176,919 10.4% 7.70 2,211 180,410 10.7% 8.16 2,255 167,542 10.3% 7.36 2,094 175,575 10.1% 7.40 2,195 181,337 10.1% 7.64 2,267 Other Income / Room Hire 23,678 1.4% 1.03 296 23,721 1.4% 1.07 297 23,768 1.5% 1.04 297 24,569 1.4% 1.04 307 25,376 1.4% 1.07 317 Food & Beverage Cost 62,232 31.0% 2.71 778 64,197 31.4% 2.90 802 59,503 31.1% 2.61 744 56,662 28.3% 2.39 708 57,953 28.0% 2.44 724 Departmental Profit 138,365 69.0% 6.02 1,730 139,934 68.6% 6.33 1,749 131,807 68.9% 5.79 1,648 143,482 71.7% 6.05 1,794 148,760 72.0% 6.27 1,859

TELEPHONE Telephone Revenue 1,584 0.1% 0.07 20 1,285 0.1% 0.06 16 1,253 0.1% 0.06 16 1,323 0.1% 0.06 17 1,366 0.1% 0.06 17 Telephone Expenses 10,235 646.1% 0.45 128 10,516 818.4% 0.48 131 7,987 637.4% 0.35 100 10,142 766.7% 0.43 127 10,374 759.2% 0.44 130 Departmental Profit (8,651) (546.1%) -0.38 108 (9,231) (718.4%) -0.42 115 (6,734) (537.4%) -0.30 84 (8,820) (666.7%) -0.37 110 (9,007) (659.2%) -0.38 113

MISCELLANEOUS Miscellaneous Revenue 3,063 0.2% 0.13 38 6,588 0.4% 0.30 82 3,687 0.2% 0.16 46 3,618 0.2% 0.15 45 3,736 0.2% 0.16 47 Miscellaneous Expenses 2,134 69.7% 0.09 27 5,960 90.5% 0.27 75 1,779 48.3% 0.08 22 (6,899) (190.7%) -0.29 86 (7,056) (188.9%) -0.30 88 Departmental Profit 929 30.3% 0.04 12 628 9.5% 0.03 8 1,908 51.7% 0.08 24 10,516 290.7% 0.44 131 10,792 288.9% 0.45 135

GROSS OPERATING INCOME 1,005,314 59.3% 43.74 12,566 979,689 58.1% 44.32 12,246 920,991 56.8% 40.44 11,512 1,007,188 57.9% 42.44 12,590 1,047,583 58.3% 44.14 13,095

LESS EXPENDITURE Administrative & General 47,470 2.8% 2.07 593 44,816 2.7% 2.03 560 47,091 2.9% 2.07 589 50,318 2.9% 2.12 629 51,325 2.9% 2.16 642 Sales & Marketing 30,630 1.8% 1.33 383 29,160 1.7% 1.32 365 21,274 1.3% 0.93 266 27,210 1.6% 1.15 340 31,683 1.8% 1.34 396 Repairs & Maintenance 56,258 3.3% 2.45 703 56,328 3.3% 2.55 704 72,661 4.5% 3.19 908 80,878 4.7% 3.41 1,011 82,722 4.6% 3.49 1,034 Energy Costs 75,237 4.4% 3.27 940 69,005 4.1% 3.12 863 77,937 4.8% 3.42 974 86,915 5.0% 3.66 1,086 88,897 4.9% 3.75 1,111 TOTAL UNDISTRIBUTED COSTS 209,595 12.4% 9.12 2,620 199,309 11.8% 9.02 2,491 218,963 13.5% 9.61 2,737 245,322 14.1% 10.34 3,067 254,626 14.2% 10.73 3,183

GROSS OPERATING PROFIT 795,719 47.0% 34.62 9,946 780,380 46.2% 35.30 9,755 702,028 43.3% 30.82 8,775 761,866 43.8% 32.10 9,523 792,957 44.2% 33.41 9,912

LESS FIXED COSTS Property Tax 63,984 3.8% 2.78 800 73,868 4.4% 3.34 923 69,620 4.3% 3.06 870 81,303 4.7% 3.43 1,016 81,303 4.5% 3.43 1,016 Franchise Royalty Fees 59,578 3.5% 2.59 745 59,024 3.5% 2.67 738 56,985 3.5% 2.50 712 61,350 3.5% 2.59 767 63,365 3.5% 2.67 792 Rent Payable 25,242 1.5% 1.10 316 32,695 1.9% 1.48 409 39,410 2.4% 1.73 493 40,068 2.3% 1.69 501 40,068 2.2% 1.69 501 Head Office 33,894 2.0% 1.47 424 33,752 2.0% 1.53 422 32,417 2.0% 1.42 405 34,777 2.0% 1.47 435 35,919 2.0% 1.51 449 Employee Bonus Provision 3,626 0.2% 0.16 45 4,765 0.3% 0.22 60 310 0.0% 0.01 4 4,739 0.3% 0.20 59 4,929 0.3% 0.21 62 TOTAL FIXED COSTS 186,324 11.0% 8.11 2,329 204,104 12.1% 9.23 2,551 198,742 12.3% 8.73 2,484 222,238 12.8% 9.36 2,778 225,584 12.6% 9.51 2,820

EBITDA (Pre FF&E Reserve) 609,395 36.0% 26.51 7,617 576,276 34.1% 26.07 7,203 503,286 31.1% 22.10 6,291 539,628 31.0% 22.74 6,745 567,373 31.6% 23.91 7,092

FF&E RESERVE 50,840 3.0% 2.21 636 50,628 3.0% 2.29 633 28,945 1.8% 1.27 362 46,546 2.7% 1.96 582 53,878 3.0% 2.27 673

NET OPERATING INCOME (Post FF&E Reserve) 558,555 33.0% 24.30 6,982 525,648 31.1% 23.78 6,571 474,341 29.3% 20.83 5,929 493,082 28.4% 20.78 6,164 513,495 28.6% 21.64 6,419

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

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 Bedford, Elstow Interchange, Bedford MK42 9BF

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: 80 80 80 80 80 Occupancy Rate 80.00% 80.00% 80.00% 80.00% 80.00% Average Room Rate 64.50 65.79 67.11 68.45 69.82 Revenue Per Available Room (RevPAR) 51.60 52.63 53.68 54.76 55.85 Days Open 365 365 365 365 365 Available Rooms 29,200 29,200 29,200 29,200 29,200 Occupied Rooms 23,360 23,360 23,360 23,360 23,360 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 1,710,520 % POR PAR 1,744,730 % POR PAR 1,779,625 % POR PAR 1,815,218 % POR PAR 1,851,522 % POR PAR

BEDROOMS Room Sales 1,506,720 88.1% 64.50 18,834 1,536,854 88.1% 65.79 19,211 1,567,591 88.1% 67.11 19,595 1,598,943 88.1% 68.45 19,987 1,630,922 88.1% 69.82 20,387 Room Expenses 665,000 44.1% 28.47 8,313 678,300 44.1% 29.04 8,479 691,866 44.1% 29.62 8,648 705,703 44.1% 30.21 8,821 719,817 44.1% 30.81 8,998 Departmental Profit 841,720 55.9% 36.03 10,522 858,554 55.9% 36.75 10,732 875,725 55.9% 37.49 10,947 893,240 55.9% 38.24 11,165 911,105 55.9% 39.00 11,389

FOOD & BEVERAGE Food & Beverage Sales 175,000 10.2% 7.49 2,188 178,500 10.2% 7.64 2,231 182,070 10.2% 7.79 2,276 185,711 10.2% 7.95 2,321 189,426 10.2% 8.11 2,368 Other Income / Room Hire 24,000 1.4% 1.03 300 24,480 1.4% 1.05 306 24,970 1.4% 1.07 312 25,469 1.4% 1.09 318 25,978 1.4% 1.11 325 Food & Beverage Cost 56,500 28.4% 2.42 706 57,630 28.4% 2.47 720 58,783 28.4% 2.52 735 59,958 28.4% 2.57 749 61,157 28.4% 2.62 764 Departmental Profit 142,500 71.6% 6.10 1,781 145,350 71.6% 6.10 1,781 148,257 71.6% 6.35 1,853 151,222 71.6% 6.47 1,890 154,247 71.6% 6.60 1,928

TELEPHONE Telephone Revenue 1,300 0.1% 0.06 16 1,326 0.1% 0.06 17 1,353 0.1% 0.06 17 1,380 0.1% 0.06 17 1,407 0.1% 0.06 18 Telephone Expenses 10,100 776.9% 0.43 126 10,302 776.9% 0.44 129 10,508 776.9% 0.45 131 10,718 776.9% 0.46 134 10,933 776.9% 0.47 137 Departmental Profit (8,800) (676.9%) (0.38) (110) (8,976) (676.9%) (0.38) (112) (9,156) (676.9%) (0.39) (114) (9,339) (676.9%) (0.40) (117) (9,525) (676.9%) (0.41) (119)

MISCELLANEOUS Miscellaneous Revenue 3,500 0.2% 0.15 44 3,570 0.2% 0.15 45 3,641 0.2% 0.16 46 3,714 0.2% 0.16 46 3,789 0.2% 0.16 47 Miscellaneous Expenses (6,900) (197.1%) (0.30) (86) (7,038) (197.1%) (0.30) (88) (7,179) (197.1%) (0.31) (90) (7,322) (197.1%) (0.31) (92) (7,469) (197.1%) (0.32) (93) Departmental Profit 10,400 297.1% 0.45 130 10,608 297.1% 0.45 133 10,820 297.1% 0.46 135 11,037 297.1% 0.47 138 11,257 297.1% 0.48 141

GROSS OPERATING INCOME 985,820 57.6% 42.20 12,323 1,005,536 57.6% 43.05 12,569 1,025,647 57.6% 43.91 12,821 1,046,160 57.6% 44.78 13,077 1,067,083 57.6% 45.68 13,339

LESS EXPENDITURE Administrative & General 50,000 2.9% 2.14 625 51,000 2.9% 2.18 638 52,020 2.9% 2.23 650 53,060 2.9% 2.27 663 54,122 2.9% 2.32 677 Sales & Marketing 8,553 0.5% 0.37 107 8,724 0.5% 0.37 109 8,898 0.5% 0.38 111 9,076 0.5% 0.39 113 9,258 0.5% 0.40 116 Repairs & Maintenance 80,000 4.7% 3.42 1,000 81,600 4.7% 3.49 1,020 83,232 4.7% 3.56 1,040 84,897 4.7% 3.63 1,061 86,595 4.7% 3.71 1,082 Energy Costs 87,000 5.1% 3.72 1,088 88,740 5.1% 3.80 1,109 90,515 5.1% 3.87 1,131 92,325 5.1% 3.95 1,154 94,172 5.1% 4.03 1,177 TOTAL UNDISTRIBUTED COSTS 225,553 13.2% 9.66 2,819 230,064 13.2% 9.85 2,876 234,665 13.2% 10.05 2,933 239,358 13.2% 10.25 2,992 244,145 13.2% 10.45 3,052

GROSS OPERATING PROFIT 760,267 44.4% 32.55 9,503 775,473 44.4% 33.20 9,693 790,982 44.4% 33.86 9,887 806,802 44.4% 34.54 10,085 822,938 44.4% 35.23 10,287

LESS FIXED COSTS Property Tax 81,150 4.7% 3.47 1,014 82,773 4.7% 3.54 1,035 84,428 4.7% 3.61 1,055 86,117 4.7% 3.69 1,076 87,839 4.7% 3.76 1,098 Management Base Fee 34,210 2.0% 1.46 428 34,895 2.0% 1.49 436 35,593 2.0% 1.52 445 36,304 2.0% 1.55 454 37,030 2.0% 1.59 463 Franchise Royalty Fees 75,336 5.0% 3.23 942 76,843 5.0% 3.29 961 78,380 5.0% 3.36 980 79,947 5.0% 3.42 999 81,546 5.0% 3.49 1,019 Franchise Marketing Fees 45,202 3.0% 1.94 565 46,106 3.0% 1.97 576 47,028 3.0% 2.01 588 47,968 3.0% 2.05 600 48,928 3.0% 2.09 612 Rent Payable 40,068 2.3% 1.72 501 40,869 2.3% 1.75 511 41,687 2.3% 1.78 521 42,520 2.3% 1.82 532 43,371 2.3% 1.86 542

Employee Bonus Provision 4,700 0.3% 0.20 59 4,794 0.3% 0.21 60 4,890 0.3% 0.21 61 4,988 0.3% 0.21 62 5,087 0.3% 0.22 64 TOTAL FIXED COSTS 280,666 16.4% 12.01 3,508 286,279 16.4% 12.26 3,578 292,005 16.4% 12.50 3,650 297,845 16.4% 12.75 3,723 303,802 16.4% 13.01 3,798

EBITDA (Pre FF&E Reserve) 479,601 28.0% 20.53 5,995 489,193 28.0% 20.94 6,115 498,977 28.0% 21.36 6,237 508,957 28.0% 21.79 6,362 519,136 28.0% 22.22 6,489

FF&E RESERVE 51,316 3.0% 2.20 641 52,342 3.0% 2.24 654 53,389 3.0% 2.29 667 54,457 3.0% 2.33 681 55,546 3.0% 2.38 694

NET OPERATING INCOME (Post FF&E Reserve) 428,286 25.0% 18.33 5,354 436,852 25.0% 18.70 5,461 445,589 25.0% 19.07 5,570 454,500 25.0% 19.46 5,681 463,590 25.0% 19.85 5,795

Proposed Ground Rent - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - -

NET OPERATING INCOME (Post Ground Rent) 428,286 25.0% 18.33 5,354 436,852 25.0% 18.70 5,461 445,589 25.0% 19.07 5,570 454,500 25.0% 19.46 5,681 463,590 25.0% 19.85 5,795

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

C&W Projections The hotel is a stabilised business with occupancy levels fairly consistent ranging between 76- 78% with the full year forecast for 2019 showing a slightly higher level of approximately 81%. We have adopted an occupancy of 80% in each year of our projections. The hotel achieved an ADR of £62.55 in 2018, which reflected a decrease of over £4 from one year prior. The hotel was able to increase occupancy by 2.30%, although RevPAR still decreased by about £1.70. For the purpose of our assessment we have adopted a year one ADR of £64.50 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 somewhat limited other revenue generated from the hotel with rooms revenue accounting for around 88% 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 £428,286 which compares to the forecast for the current year of £493,082. The hotel is forecast to achieve a net operating profit margin of 28.4% for the current year compared to 29.3% last year. Our projected net operating profit margin is 25.0%. There is no proposed ground rent of for this asset.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

10. Principal Valuation Considerations

Location / Situation and Competition The hotel is well located in Bedford being slightly out of town at the intersection of two major arterial roads, which provide access to the major conurbations in the area and the nearby motorway network. Despite its connectivity the hotel is accessed via the adjoining petrol filling station that fronts the traffic roundabout and therefore it does lack visibility from the A421. From an investment perspective Bedford would be viewed 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. Access to the hotel is via the adjoining petrol filling station.

Tenure The hotel is held on a long leasehold basis. Whilst purchasers generally prefer freehold assets the length of lease and low level of gearing (the rent equates to circa 2.3% of revenue), is sufficient not to impact investor appetite. This hotel will not be subject to a ground lease relative to most of the assets in the portfolio.

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 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 Reasonable

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.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

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 most recent sales in the surrounding area include the following:

Bedford Swan Hotel • Sold March 2018 • £11.5 million • £101,770 per bedroom

The Distinct Group acquired the 113 bedroom Bedford Swan Hotel in Bedford from BDL Select Hotels off a guide price of £11.5M, in a deal brokered by JLL. The hotel was sold free of management and branding. The Distinct Group owns the Cromwell Hotel and Rump and Wade brasserie in Stevenage, which it acquired in 2015. In 2017, the company sold four pubs in order to focus on its hotel operations. The hotel is situated in a more central location within Bedford and also reflects a superior product relative to the Property. For these reasons, we would expect the subject to yield a lower price per room in a sales scenario.

Whilst a little historic, the Holiday Inn Luton South is comparable in location. This hotel was sold in June 2016 for £6.95 million presenting a yield of 8.6%. 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 not made an adjustment in our choice of capitalisation rate as the existing leasehold interest comprises over 100 years unexpired and the Property will not be subject to a ground lease like most of the hotels in the portfolio. Based on these factors, we have adopted a capitalisation rate of 9.00%. We have adopted a discount rate of 11.00%. 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 8.75%

Capitalisation Rate 8.75%

Discount Rate 10.75%

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

Market Value

Market Value £4,900,000

Capital value Per Bedroom £61,250 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 £210,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Bedford, Elstow Interchange, Valuation Date: 1 May 2019 Bedford MK42 9BF

APPENDIX A: MAPS AND PLANS

Holiday Inn Bedford, Elstow Interchange, Bedford MK42 9BF

Filling

Station c

r D Area Service

1:1250

Hotel l E rown Copyright 2017. All rights reserved. Licence number 100022432. Plotted Scale - - Scale 100022432. Plotted number Licence reserved. rights All 2017. Copyright rown C Pond © © Holiday Inn Bedford, Elstow Interchange, Bedford MK42 9BF MK42 Bedford Interchange, Elstow Bedford, Inn Holiday Ordnance Survey Ordnance 20m 30m 10m Mast 0m

About Cushman & Wakefield

Valuation of: Holiday Inn Express Birmingham NEC, Bickenhill Parkway, Birmingham B40 1QA

Prepared for Morgan Stanley Bank N.A.

Valuation Date: 1 May 2019

Cushman & Wakefield | Morgan Stanley Bank N.A. Executive Summary Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express Birmingham NEC, Bicknell Parkway, Birmingham, B40 IQA

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 ...... 8 6. Operational Structure ...... 8 7. Local Hotel Market Analysis ...... 8 8. Business Analysis ...... 10 9. C&W Trading Projections ...... 13 10. Principal Valuation Considerations ...... 16 Appendix A: Maps and Plans ...... 19

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

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 approximately 35 miles due east of Birmingham City Centre and 1 mile north of Birmingham National Exhibition Centre (NEC), next to Junction 6 of the M42 motorway.

Description The hotel comprises 179 guest bedrooms with ancillary Great Room and seven conference rooms. The Property was constructed in approximately 1999.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018* 2019 (2+10) forecast

Occupancy 79.10% 79.20% 81.75%

ADR £78.59 £78.31 £82.35

RevPAR £62.16 £62.02 £67.32

Total Revenue £4,662,994 £4,651,116 £5,088,861

NOI (post FF&E)* £1,991,529 £1,988,468 £1,940,968

Profit Margin 42.7% 42.8% 38.1%

*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 £82.00 £83.64 £85.31

RevPAR £66.42 £67.75 £69.10

Total Revenue £5,023,901 £5,124,379 £5,226,866

NOI (post FF&E and £1,860,131 £1,897,333 £1,935,280 ground rent)

Profit Margin 37.0% 37.0% 37.0%

Market Value and Yields

Valuation Date 1 May 2019

Cushman & Wakefield | Morgan Stanley Bank N.A. Executive Summary Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express Birmingham NEC, Bicknell Parkway, Birmingham, B40 IQA

Market Value £21,900,000

Capitalisation Rate 8.50% Discount Rate 10.50%

Gross Initial Yield 8.50%

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 Close to Birmingham NEC; General location close to M42 motorway, business parks and Birmingham city centre; Increasing business at the NEC; New businesses moving onto the business park; Property in good condition

Weaknesses / Risks Competition from other hotels nearer the NEC; Terrorism threat; The general economy.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

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 approximately 35 miles due east of Birmingham City Centre and 10 miles north west of Coventry. The Property is 1 mile north of Birmingham National Exhibition Centre (NEC), next to Junction 6 of the M42 motorway. The hotel is accessed off the B4438, which links the hotel to the M42 motorway, which leads north to the M6 motorway and south to the M40 motorway. The B4438 also provides direct access to Birmingham Airport approximately 1 mile to the west, and to Birmingham NEC approximately 1 mile to the north. The nearest Railway station to the hotel is Birmingham International, leading South to London Euston and north to the central Birmingham Stations (Snow Hill and New Street). Birmingham Airport handled 12.5 million passengers in 2018, making it the seventh busiest airport in the UK. The airport offers domestic and international flights to destinations in Europe, the Middle East, India, North America and the Caribbean. Even though the airport welcomed new airlines in 2018, passenger numbers fell in 2018. The Exhibition Centre has been open since 1976. The NEC originally comprised of 89,000 sq m of exhibition space. It was then extended in 1989 increasing to 125,000 sq m, then again in 1993 to 158,000 sq m, and then finally in 1998 it was increased to 190,000 sq m. The Venue is nearing completion of a £40 million, five-year improvement programme. Since 1991, the NEC has been the host venue for Crufts, the international dog show, and other events such as BBC Gardeners World Live, Good Food Show and Grand Designs Live. The NEC announced in 2013 that it would host a series of corporate Christmas Parties between 8th and 21st December.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

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 179 guest bedrooms with ancillary Great Room and seven conferences rooms. The Property was constructed in approximately 1999 and comprises ground and three upper floors with brick elevations to ground, first and second floors and cladding to the third floor, set beneath a pitched tiled roof. The fenestration comprises aluminium framed double glazed units. There is a porte-cochère to the front centre of the hotel.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

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

Category Unit Count

Twin 64

Double 94

Accessible 10

Total 179

There are three room types, namely twin, accessible and double rooms (which can accommodate up to three guests). There are 64 twin bedrooms and 94 double bedrooms. In addition, there are 10 accessible bedrooms. The style of the bedrooms is Generation Three and present well. All guest bedrooms are air conditioned.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

Food & Beverage The Great Room is located on the ground floor and was refurbished to Generation Four in January/February 2018. The ground floor is shared by the meeting rooms and the Great Room. The Great Room can cater for up to approximately 80 covers. Breakfast is steady during the week, and busy at certain times at the weekend. The Great Room is accessed from the reception lobby, and incorporates a bar with sofa seating. Beyond this is the restaurant area. The buffet breakfast servery area is located off the restaurant area.

Meeting Rooms There seven meeting rooms on the ground floor, the largest having a capacity for 80 delegates.

Car Parking There are approximately 200 car parking spaces which are charged to guests at £7 per 24 hours.

Back of House Accommodation There is appropriate storage and back of house accommodation including a kitchen, a back office and a staff canteen.

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 2008, the hotel was fully refurbished. The hotel bedrooms were refurbished in 2016 to show a consistent, Generation Three bedroom. Further to this refurbishment the hotel bedrooms present well. The most recent refurbishment was completed in January/February 2019 when the Great Room was refurbished to Generation Four standard. We do not consider that a purchaser would allow for any additional capital expenditure over and above the FF&E reserve.

Upcoming Refurbishment Works We have been provided with a schedule of the capital expenditure plan, which confirms the following:

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

2018 2019 Forecast £512,702 £113,913

The expenditure in 2018 was allocated to the refurbishment of the Great Room to Generation Four standard.

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £17,900,000 (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) 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 in Flood Zone 1.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject Property is determined by Birmingham City 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 Value Holiday Inn Express Bath Hotel and Premises £399,000

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

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

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 hotel is subject to a long lease (Title WM707586) that commenced on the 17 August 1999. The lease is for a term of 175 years, expiring on the 19 August 2124. There are 105 years unexpired. The tenant has full repairing and insuring obligations. The proposal is to sell the long leasehold 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 £298,270 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, Birmingham counts 14,226 rooms across 133 hotels. There are 3,340 rooms and 25 hotels specifically located in the NEC and Airport area, of which 5 hotels (1,405 rooms) are located within a one-mile radius from the Property. Approximately 37% of the total supply in Birmingham consist of budget hotels, followed by four- star hotels and three-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. Approximately 18% of the total supply is run independently.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

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: • Novotel Birmingham Airport • Holiday Inn Birmingham Airport-NEC • Best Western Plus Birmingham NEC Meriden Manor Hotel • Holiday Inn Express Birmingham NEC • Crowne Plaza Birmingham NEC • Premier Inn Birmingham NEC Airport • ibis Birmingham Airport NEC • ibis Styles Birmingham NEC & Airport Hotel 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 outperformed the competitive set in occupancy for the last two years but is currently trailing behind the set at YTD 2019. ADR has been very consistent over the last two years and this rate is currently being maintained YTD 2019. The subject hotel is currently behind the Average Rate of the competitive set, but this allows for some growth into the market. The Hotel is trailing behind the competitive set overall as evidenced by the RGI score of 95.0 at YTD 2019.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

7.3. Proposed Supply The pipeline in this market consists of 36 hotels and 4,353 rooms, 19% of which are currently in construction and 23% of which are of speculative nature (either unconfirmed or deferred). The proposed supply will mostly consist of three and four-star properties.

8. Business Analysis

Overview The Property, built in 1999, has stabilised over the last year at approximately 80% occupancy. The hotel has had three years of stabilised trading but is continuing to push rate and occupancy to achieve further growth. The hotel is on the edge of Birmingham National Exhibition Centre (NEC), but is not the closest hotel to the venue, even so, the hotels entire business is pivotal on the events at the NEC, to the extent that during major events at venue, corporate contracted business is blocked, as the hotel is able to achieve a higher rate from the leisure guests. All the hotel’s surrounding the NEC compete for its business, and to a certain extent, the choice of hotel by potential guests, can be influenced by the distance from the NEC. However, for some events it depends entirely on the relationship that the hotels have with event organisers. For each of the hotels this business is key, as it forms the base of rooms revenue, with transient guests as an additional source of revenue on top. Organisers are contracted on an annual basis. The agreed rates with the organisers fluctuate depending on the event at the NEC. The level of room rate is determined by the level of demand. For example, if there are simultaneous events at the NEC then there is high demand and the rate is set higher. Corporate shows at the NEC naturally attract the highest rates as corporates want to get maximum impact from the show. To a certain extent, the business characteristic at the hotel is still very much ‘feast or famine’ but this is common with hotels close to major exhibition centres. The overall message from management was that there is increasing demand from regular visitors of the NEC who were originally staying at competitor hotels, but have discovered the new Great Room at the subject hotel, and have since changed their allegiance. When the NEC is going through quieter periods the hotel relies on coach tours to sustain business. This is usually during July and August. In July/August 2017 the hotel received 65 Chinese tours with some tours booking rooms on the morning of the intended night’s stay. This last-minute business is characteristic of Chinese tours due to uncertainty over visas, but this suits the hotel with rooms to fill during these months. The other major guest nationality is American, mostly coming for events at the NEC. Unsurprisingly, booking origin is 65% direct to the hotel given the hotels relationship with events’ organisers. The remaining 35% is through the brand and from OTA’s. The hotel has managed to grow its corporate contracted business. The most successful contract is with Royals Royce who are on an agreed contracted rate of £79, closely followed by Oldeck Training and Fujitsu, both on agreed contracted rates of £75. These corporates originate from the Birmingham Business Park, adjacent to the subject hotel. Food and beverage at the hotel is reasonably stable with some walk ins for breakfast in addition to the 100% take up from guests. The hotel charges £4.95 per person for breakfast for walk ins. Lunch is also reasonably popular at the hotel with many walk ins from the business park with the hotel often making as much as £200 per day. In addition to these lunches, the hotel provides conference lunches to meeting delegates. Dinner has increased with the refurbishment of the Great Room, guests now find this space more inviting and are more willing to spend time in the space. The hotel offers the 24-hour snacking menu, but also adds specials each evening for dinner. The current retention rate for dinner is 35%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

Conference business has increased over the last few years, this is mainly due to the conversion of the meeting rooms on the business park to additional offices, leading to a shortage of space there. Regular clients include Astec Training, NYR Organic and PAT Training. Current rates for the meeting rooms stand between £150 and £350 per day depending on which room is requested and the demand. Delegate lunches cost £9.95 per person. The hotel also offers long term parking packages to guests using Birmingham Airport. Guests are charge £150 per week. Guests are charged on a daily basis at a rate of £7 for 24hrs.

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 includes the proposed ground rent.

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express Birmingham NEC, Bickenhill Parkway, Birmingham B40 1QA

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: 179 179 179 179 179 Occupancy rate 81.90% 79.10% 79.20% 81.75% 81.75% Average Room Rate 72.40 78.59 78.31 82.35 84.82 Revenue Per Available Room (RevPAR) 59.30 62.16 62.02 67.32 69.34 Number of Days Open 365 365 365 365 365 Available Rooms 65,335 65,335 65,335 65,335 65,335 Occupied Rooms 53,509 51,680 51,745 53,410 53,410

TOTAL SALES 4,503,414 % POR PAR 4,662,994 % POR PAR 4,651,116 % POR PAR 5,088,861 % POR PAR 5,255,887 % POR PAR

BEDROOMS Room Sales 3,883,324 86.2% 72.57 21,695 4,063,704 87.1% 78.63 22,702 4,052,572 87.1% 78.32 22,640 4,398,099 86.4% 82.35 24,570 4,542,453 86.4% 85.05 25,377 Room Expenses 1,391,196 35.8% 26.00 7,772 1,402,706 34.5% 27.14 7,836 1,421,523 35.1% 27.47 7,941 1,487,884 33.8% 27.86 8,312 1,521,799 33.5% 28.49 8,502 Departmental Profit 2,492,128 64.2% 46.57 13,923 2,660,998 65.5% 51.49 14,866 2,631,049 64.9% 50.85 14,699 2,910,215 66.2% 54.49 16,258 3,020,653 66.5% 56.56 16,875

FOOD & BEVERAGE Food & Beverage Sales 370,288 8.2% 6.92 2,069 373,825 8.0% 7.23 2,088 403,205 8.7% 7.79 2,253 466,832 9.2% 8.74 2,608 482,155 9.2% 9.03 2,694 Other Income / Room Hire 114,462 2.5% 2.14 639 102,769 2.2% 1.99 574 79,290 1.7% 1.53 443 98,444 1.9% 1.84 550 101,675 1.9% 1.90 568 Food & Beverage Cost 136,285 28.1% 2.55 761 138,682 29.1% 2.68 775 159,351 33.0% 3.08 890 155,948 27.6% 2.92 871 159,503 27.3% 2.99 891 Departmental Profit 348,465 71.9% 6.51 1,947 337,912 70.9% 6.54 1,888 323,144 67.0% 6.24 1,805 409,328 72.4% 7.66 2,287 424,326 72.7% 7.94 2,371

CAR PARK Car Park Revenue 121,122 2.7% 2.26 677 114,707 2.5% 2.22 641 107,822 2.3% 2.08 602 118,702 2.3% 2.22 663 122,598 2.3% 2.30 685 Departmental Profit 121,122 100.0% 2.26 677 114,707 100.0% 2.22 641 107,822 100.0% 2.08 602 118,702 100.0% 2.22 663 122,598 100.0% 2.30 685

TELEPHONE Telephone Revenue 4,994 0.1% 0.09 28 3,728 0.1% 0.07 21 4,788 0.1% 0.09 27 3,703 0.1% 0.07 21 3,825 0.1% 0.07 21 Telephone Expenses 18,140 363.2% 0.34 101 16,191 434.3% 0.31 90 16,746 349.7% 0.32 94 17,879 482.8% 0.33 100 18,287 478.1% 0.34 102 Departmental Profit (13,146) (263.2%) -0.25 73 (12,463) (334.3%) -0.24 70 (11,958) (249.7%) -0.23 67 (14,176) (382.8%) -0.27 79 (14,462) (378.1%) -0.27 81

MISCELLANEOUS Miscellaneous Revenue 9,224 0.2% 0.17 52 4,261 0.1% 0.08 24 3,439 0.1% 0.07 19 3,081 0.1% 0.06 17 3,182 0.1% 0.06 18 Miscellaneous Expenses 2,292 24.8% 0.04 13 2,362 55.4% 0.05 13 2,337 68.0% 0.05 13 (17,396) (564.7%) -0.33 97 (17,793) (559.2%) -0.33 99 Departmental Profit 6,932 75.2% 0.13 39 1,899 44.6% 0.04 11 1,102 32.0% 0.02 6 20,477 664.7% 0.38 114 20,974 659.2% 0.39 117

GROSS OPERATING INCOME 2,955,501 65.6% 55.23 16,511 3,103,053 66.5% 60.04 17,335 3,051,159 65.6% 58.96 17,046 3,444,546 67.7% 64.49 19,243 3,574,090 68.0% 66.92 19,967

LESS EXPENDITURE Administrative & General 97,461 2.2% 1.82 544 99,332 2.1% 1.92 555 101,857 2.2% 1.97 569 110,588 2.2% 2.07 618 112,800 2.1% 2.11 630 Sales & Marketing 122,364 2.7% 2.29 684 124,176 2.7% 2.40 694 83,435 1.8% 1.61 466 126,265 2.5% 2.36 705 136,274 2.6% 2.55 761 Repairs & Maintenance 117,762 2.6% 2.20 658 113,217 2.4% 2.19 632 158,335 3.4% 3.06 885 126,948 2.5% 2.38 709 129,842 2.5% 2.43 725 Energy Costs 129,236 2.9% 2.42 722 141,839 3.0% 2.74 792 144,318 3.1% 2.79 806 172,700 3.4% 3.23 965 176,637 3.4% 3.31 987 TOTAL UNDISTRIBUTED COSTS 466,823 10.4% 8.72 2,608 478,564 10.3% 9.26 2,674 487,945 10.5% 9.43 2,726 536,502 10.5% 10.04 2,997 555,552 10.6% 10.40 3,104

GROSS OPERATING PROFIT 2,488,678 55.3% 46.51 13,903 2,624,489 56.3% 50.78 14,662 2,563,214 55.1% 49.54 14,320 2,908,044 57.1% 54.45 16,246 3,018,538 57.4% 56.52 16,863

LESS FIXED COSTS Property Tax 192,200 4.3% 3.59 1,074 191,488 4.1% 3.71 1,070 195,311 4.2% 3.77 1,091 199,702 3.9% 3.74 1,116 199,702 3.8% 3.74 1,116 Franchise Royalty Fees 194,166 4.3% 3.63 1,085 203,185 4.4% 3.93 1,135 202,629 4.4% 3.92 1,132 219,906 4.3% 4.12 1,229 227,123 4.3% 4.25 1,269 Employee Bonus Provision 8,379 0.2% 0.16 47 5,137 0.1% 0.10 29 727 0.0% 0.01 4 11,203 0.2% 0.21 63 11,651 0.2% 0.22 65 TOTAL FIXED COSTS 484,813 10.8% 9.06 2,708 493,070 10.6% 9.54 2,755 491,689 10.6% 9.50 2,747 532,587 10.5% 9.97 2,975 543,593 10.3% 10.18 3,037

EBITDA (Pre FF&E Reserve) 2,003,865 44.5% 37.45 11,195 2,131,419 45.7% 41.24 11,907 2,071,525 44.5% 40.03 11,573 2,375,457 46.7% 44.48 13,271 2,474,945 47.1% 46.34 13,827

FF&E RESERVE 135,102 3.0% 2.52 755 139,890 3.0% 2.71 782 83,057 1.8% 1.61 464 136,219 2.7% 2.55 761 157,677 3.0% 2.95 881

NET OPERATING INCOME (Post FF&E Reserve) 1,868,763 41.5% 34.92 10,440 1,991,529 42.7% 38.54 11,126 1,988,468 42.8% 38.43 11,109 2,239,238 44.0% 41.93 12,510 2,317,269 44.1% 43.39 12,946

Proposed Ground Rent - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 298,270 5.9% 5.58 1,666 307,218 5.8% 5.75 1,716 NET OPERATING INCOME (Post Ground Rent) 1,868,763 41.5% 34.92 10,440 1,991,529 42.7% 38.54 11,126 1,988,468 42.8% 38.43 11,109 1,940,968 38.1% 36.34 10,843 2,010,051 38.2% 37.63 11,229

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

9. C&W Trading Projections

Cushman & Wakefield | Morgan Stanley Bank N.A. Property Record Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express Birmingham NEC, Bickenhill Parkway, Birmingham B40 1QA

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: 179 179 179 179 179 Occupancy Rate 81.00% 81.00% 81.00% 81.00% 81.00% Average Room Rate 82.00 83.64 85.31 87.02 88.76 Revenue Per Available Room (RevPAR) 66.42 67.75 69.10 70.49 71.90 Days Open 365 365 365 365 365 Available Rooms 65,335 65,335 65,335 65,335 65,335 Occupied Rooms 52,921 52,921 52,921 52,921 52,921 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 5,023,901 % POR PAR 5,124,379 % POR PAR 5,226,866 % POR PAR 5,331,404 % POR PAR 5,438,032 % POR PAR

BEDROOMS Room Sales 4,339,551 86.4% 82.00 24,243 4,426,342 86.4% 83.64 24,728 4,514,869 86.4% 85.31 25,223 4,605,166 86.4% 87.02 25,727 4,697,269 86.4% 88.76 26,242 Room Expenses 1,466,768 33.8% 27.72 8,194 1,496,103 33.8% 28.27 8,358 1,526,026 33.8% 28.84 8,525 1,556,546 33.8% 29.41 8,696 1,587,677 33.8% 30.00 8,870 Departmental Profit 2,872,783 66.2% 54.28 16,049 2,930,238 66.2% 55.37 16,370 2,988,843 66.2% 56.48 16,697 3,048,620 66.2% 57.61 17,031 3,109,592 66.2% 58.76 17,372

FOOD & BEVERAGE Food & Beverage Sales 460,000 9.2% 8.69 2,570 469,200 9.2% 8.87 2,621 478,584 9.2% 9.04 2,674 488,156 9.2% 9.22 2,727 497,919 9.2% 9.41 2,782 Other Income / Room Hire 98,500 2.0% 1.86 550 100,470 2.0% 1.90 561 102,479 2.0% 1.94 573 104,529 2.0% 1.98 584 106,620 2.0% 2.01 596 Food & Beverage Cost 156,380 28.0% 2.95 874 159,508 28.0% 3.01 891 162,698 28.0% 3.07 909 165,952 28.0% 3.14 927 169,271 28.0% 3.20 946 Departmental Profit 402,120 72.0% 7.60 2,246 410,162 72.0% 7.60 2,246 418,366 72.0% 7.91 2,337 426,733 72.0% 8.06 2,384 435,268 72.0% 8.22 2,432

CAR PARK Car Park Revenue 119,000 2.4% 2.25 665 121,380 2.4% 2.29 678 123,808 2.4% 2.34 692 126,284 2.4% 2.39 705 128,809 2.4% 2.43 720 Car Park Expenses - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - - 0.0% - - Departmental Profit 119,000 100.0% 2.25 665 121,380 100.0% 2.29 - 123,808 100.0% 2.34 - 126,284 100.0% 2.39 - 128,809 100.0% 2.43 - TELEPHONE Telephone Revenue 3,750 0.1% 0.07 21 3,825 0.1% 0.07 21 3,902 0.1% 0.07 21 3,980 0.1% 0.08 22 4,059 0.1% 0.08 23 Telephone Expenses 17,800 474.7% 0.34 99 18,156 474.7% 0.34 101 18,519 474.7% 0.35 103 18,890 474.7% 0.36 106 19,267 474.7% 0.36 108 Departmental Profit (14,050) (374.7%) (0.27) (78) (14,331) (374.7%) (0.27) (80) (14,618) (374.7%) (0.28) (82) (14,910) (374.7%) (0.28) (83) (15,208) (374.7%) (0.29) (85)

MISCELLANEOUS Miscellaneous Revenue 3,100 0.1% 0.06 17 3,162 0.1% 0.06 18 3,225 0.1% 0.06 18 3,290 0.1% 0.06 18 3,356 0.1% 0.06 19 Miscellaneous Expenses (17,400) (561.3%) (0.33) (97) (17,748) (561.3%) (0.34) (99) (18,103) (561.3%) (0.34) (101) (18,465) (561.3%) (0.35) (103) (18,834) (561.3%) (0.36) (105) Departmental Profit 20,500 661.3% 0.39 115 20,910 661.3% 0.40 117 21,328 661.3% 0.40 119 21,755 661.3% 0.41 122 22,190 661.3% 0.42 124

GROSS OPERATING INCOME 3,400,353 67.7% 64.25 18,996 3,468,360 67.7% 65.54 19,376 3,537,727 67.7% 66.85 19,764 3,608,481 67.7% 68.19 20,159 3,680,651 67.7% 69.55 20,562

LESS EXPENDITURE Administrative & General 110,526 2.2% 2.09 617 112,736 2.2% 2.13 630 114,991 2.2% 2.17 642 117,291 2.2% 2.22 655 119,637 2.2% 2.26 668 Sales & Marketing 25,120 0.5% 0.47 140 25,622 0.5% 0.48 143 26,134 0.5% 0.49 146 26,657 0.5% 0.50 149 27,190 0.5% 0.51 152 Repairs & Maintenance 125,598 2.5% 2.37 702 128,109 2.5% 2.42 716 130,672 2.5% 2.47 730 133,285 2.5% 2.52 745 135,951 2.5% 2.57 760 Energy Costs 170,050 3.4% 3.21 950 173,451 3.4% 3.28 969 176,920 3.4% 3.34 988 180,458 3.4% 3.41 1,008 184,068 3.4% 3.48 1,028 TOTAL UNDISTRIBUTED COSTS 431,293 8.6% 8.15 2,409 439,919 8.6% 8.31 2,458 448,717 8.6% 8.48 2,507 457,691 8.6% 8.65 2,557 466,845 8.6% 8.82 2,608

GROSS OPERATING PROFIT 2,969,060 59.1% 56.10 16,587 3,028,441 59.1% 57.23 16,919 3,089,010 59.1% 58.37 17,257 3,150,790 59.1% 59.54 17,602 3,213,806 59.1% 60.73 17,954

LESS FIXED COSTS Property Tax 201,100 4.0% 3.80 1,123 205,122 4.0% 3.88 1,146 209,224 4.0% 3.95 1,169 213,409 4.0% 4.03 1,192 217,677 4.0% 4.11 1,216 Management Base Fee 100,478 2.0% 1.90 561 102,488 2.0% 1.94 573 104,537 2.0% 1.98 584 106,628 2.0% 2.01 596 108,761 2.0% 2.06 608 Franchise Royalty Fees 216,978 5.0% 4.10 1,212 221,317 5.0% 4.18 1,236 225,743 5.0% 4.27 1,261 230,258 5.0% 4.35 1,286 234,863 5.0% 4.44 1,312 Franchise Marketing Fees 130,187 3.0% 2.46 727 132,790 3.0% 2.51 742 135,446 3.0% 2.56 757 138,155 3.0% 2.61 772 140,918 3.0% 2.66 787 Employee Bonus Provision 11,200 0.2% 0.21 63 11,424 0.2% 0.22 64 11,652 0.2% 0.22 65 11,886 0.2% 0.22 66 12,123 0.2% 0.23 68 TOTAL FIXED COSTS 659,942 13.1% 12.47 3,687 673,141 13.1% 12.72 3,761 686,604 13.1% 12.97 3,836 700,336 13.1% 13.23 3,912 714,343 13.1% 13.50 3,991

EBITDA (Pre FF&E Reserve) 2,309,118 46.0% 43.63 12,900 2,355,300 46.0% 44.51 13,158 2,402,406 46.0% 45.40 13,421 2,450,454 46.0% 46.30 13,690 2,499,463 46.0% 47.23 13,963

FF&E RESERVE 150,717 3.0% 2.85 842 153,731 3.0% 2.90 859 156,806 3.0% 2.96 876 159,942 3.0% 3.02 894 163,141 3.0% 3.08 911

NET OPERATING INCOME (Post FF&E Reserve) 2,158,401 43.0% 40.79 12,058 2,201,569 43.0% 41.60 12,299 2,245,600 43.0% 42.43 12,545 2,290,512 43.0% 43.28 12,796 2,336,322 43.0% 44.15 13,052

Proposed Ground Rent 298,270 10.0% 5.64 1,666 304,235 10.0% 5.75 1,700 310,320 10.0% 5.86 1,734 316,527 10.0% 5.98 1,768 322,857 10.0% 6.10 1,804

NET OPERATING INCOME (Post Ground Rent) 1,860,131 37.0% 35.15 10,392 1,897,333 37.0% 35.85 10,600 1,935,280 37.0% 36.57 10,812 1,973,986 37.0% 37.30 11,028 2,013,465 37.0% 38.05 11,248

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

Commentary on C&W Projections The hotel is a stabilised business with occupancy levels showing historical consistency at approximately 79%, with the full year forecast for 2019 showing an occupancy of 81.75%. We have adopted an occupancy of 81% in each year of our projections. The hotel achieved an ADR of £78.31 in 2018, showing no growth on the previous year, and management are forecasting a 5.0% increase in the current year to £82.35. For the purpose of our assessment we have adopted a year one ADR of £82.00. 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 87% 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 £2,158,401, which compares to the forecast for the current year of £2,239,238. The hotel is forecast to achieve a net operating profit margin of 44% for the current year compared to 42.8% last year. Our projected net operating profit margin is 43.0%. After the deduction of the proposed ground rent of £298,270 per annum our adjusted net operating profit is £1,860,131 which is equivalent to a profit margin of 37.0%.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

10. Principal Valuation Considerations

Location / Situation and Competition The Property is well located. The hotel is easily accessible by road also by air from Birmingham Airport. The hotel consistently benefits from the NEC, as one of the nearest hotels to the venue. There are several competitors closer to the NEC, however this micro market is as such that the demand is greater than the supply.

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 £298,270 per annum subject to annual increases in line with RPI with a cap and collar of 0% and 5%. The proposed rent represents 15.4% 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 a good profit margin being achieved. 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, however targeting more corporate business may help to grow the ADR.

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 Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

10.1. Market Value

Value Conclusion 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 most recent sales in the surrounding area are somewhat historic and have included the following:

Ibis Styles Birmingham Airport • March 2018. • £18.4 million (guide) • £110,800 per bedroom The 166-bedroom limited service hotel located near to Birmingham Airport and the NEC is currently being marketed for sale off a guide price of £18.4 million. The hotel comprises 166 bedrooms, six conference rooms, bar and restaurant. It was rebranded as an Ibis Styles in 2015 following a renovation. This hotel is located out of the city centre at the Airport catering for a different market including business from the NEC. It is also owned freehold.

Based on the above and the comparable properties in the head report, the yields for similar quality hotels held on a freehold basis have ranged between 7% 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 7.25%. 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 made an adjustment of 125 basis points to the freehold yield and adopted a capitalisation rate of 8.50%. We have adopted a discount rate of 10.50%. 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 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:

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

Market Value

Capitalisation Rate 8.50%

Discount Rate 10.50%

Market Value £21,900,000

Capital value Per Bedroom £122,346 per bedroom

Gross Initial Yield 8.50%

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £930,000 per annum.

Appendix A: Maps and Plans Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham NEC, Valuation Date: 1 May 2019 Bickenhill Parkway, Birmingham B40 1QA

APPENDIX A: MAPS AND PLANS

liday Inn Express Birmingham NEC, Bickenhill Parkw Birmingham, B40 1QA

D Hotel Pond 1:1391

S S

About Cushman & Wakefield Holiday Inn Express Cushman & Wakefield | Morgan Stanley Bank N.A. Birmingham NEC, Bickenhill Parkway, Birmingham B40 Valuation Date: 1 May 2019 1QA

About Cushman & Wakefield

Valuation of: Holiday Inn Express Birmingham Oldbury, Birchley Park, Oldbury B69 2BD

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 Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

TABLE OF CONTENTS

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

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 Birchley Business Park next to Junction 2 of the M5 motorway south of Oldbury, in the West Midlands. West Bromwich is situated 2.7 miles to the north east, while Dudley is 3.2 miles to the north west. The centre of Oldbury is 1.5 miles to the north east.

Description The Property was constructed in around 1998 and is arranged over ground and three upper floors with brick elevations set beneath a pitched tiled roof.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (10+2) Forecast

Occupancy 79.00% 78.5% 78.4%

ADR £49.70 £53.90 £57.09

RevPAR £39.26 £42.31 £44.76

Total Revenue £1,811,273 £1,956,791 £2,025,782

NOI (post FF&E)* £637,655 £590,688 £649,404

Profit Margin 35.2% 30.2% 32.1%

* 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 £58.00 £59.16 £60.34

RevPAR £46.98 £47.92 48.88

Total Revenue £2,122,999 £2,165,459 £2,208,768

NOI (post FF&E and £519,533 £529,924 £540,522 ground rent)

Profit Margin 24.5% 24.5% 24.5%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £4,700,000

Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

Capitalisation Rate 11.00% Discount Rate 13.00%

Gross Initial Yield 11.00%

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 • Location just off motorway and close to Birmingham; • Good product; • Road works; • Hospital construction; • Npower parking revenue; • Opportunity for more meeting room revenue

Weaknesses / Risks • Twin to Double rooms ratio, need more doubles; • Noise from road; • Road works (temporary); • No food and beverage at weekends; • Premier Inn refurbishment/extension of 25 rooms;

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

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 Birchley Business Park next to Junction 2 of the M5 motorway south of Oldbury, in the West Midlands. West Bromwich is situated 2.7 miles to the north east, while Dudley is 3.2 miles to the north west. The centre of Oldbury is 1.5 miles to the north east. The hotel is accessed from the A4123 Birchley Island Roundabout/Wolverhampton Road, this links to Junction 2 of the M5 motorway which leads eventually to Exeter in the south west of England, and north to join the M6 which leads north as far as Carlisle. There are therefore good transport links to the hotel. The nearest railway station to the hotel is Rowley Regis railway station which serves the town of Blackheath and the Rowley Regis area of Sandwell, in the West Midlands of England. It is located on the Birmingham to Worcester via Kidderminster Line. The nearest airport to the hotel is Birmingham Airport, approximately 40 minutes by car via the M6 motorway. The hotel is located on a light industrial business park with businesses such as Npower, Halfords, Metal Fusion Technology Limited and DOM UK in occupation. There is a Premier Inn and a Travelodge north west of the subject hotel providing strong competition.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

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 109 guest bedrooms with ancillary Great Room and one conference room. The property was constructed in approximately 1998 and comprises ground and three upper floors of brick construction set beneath a pitched tiled roof. The fenestration comprises UPVC framed double glazed units. There is a porte-cochèreto the front centre of the hotel.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

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

Category Unit Count

Twin 48

Double 55

Accessible 6

Total 109

There are three room types, namely twin, accessible and double rooms (which can accommodate up to three guests). There are 48 twin bedrooms and 55 double bedrooms. In addition, there are 6 accessible bedrooms. The style of the bedrooms is third generation and presents well. The rooms were given a soft refurbishment in March/April of 2016 to generation 4, with carpets, curtains and beds upgraded, as well as the showers in the ensuite bathrooms. All guest bedrooms are air conditioned.

Food & Beverage The Great Room extends through most of the ground floor entrance area accessed from the reception lobby.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

The Great Room incorporates a bar with sofa seating which then leads through to the restaurant area, the combined area has a capacity for approximately 60 covers. There is a buffet breakfast are located off to the rear of the restaurant area.

Meeting Rooms There is one meeting room located on the ground floor, this room has a capacity for 25 delegates theatre style.

Car Parking There are over 100 car parking spaces on site.

Back of House Accommodation There is appropriate storage and back of house accommodation including a kitchen, a back office and a staff canteen.

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. The most recent refurbishment was in 2016 which included a light refurbishment of the bedrooms with new carpets, curtains and beds. The bedrooms are of the third generation, but the light refurbishment was to generation 4. All the showers in the ensuite bathrooms were redone. Management were unsure as to when the Great Room was last refurbished and there are currently no plans to upgrade this space. We do not consider that a purchaser would allow for any additional capital expenditure over and above the FF&E reserve.

2018 2019 Forecast £64,896 £23,334

The capital expenditure above is for general improvements to the property.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £9,300,000 (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 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 is in Flood Zone 1.

Environmental Considerations Please refer to head report.

Planning The planning policy for the subject property is determined by Sandwell 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 Hotel & Premises £175,000 Total 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.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

The Property is held freehold (Title WM660650) 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

Lease Term 125 years

Rent £102,014 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, Birmingham counts 14,226 rooms across 133 hotels. Five hotels and 376 rooms are located within a one-mile radius of the subject Property, in the area of Birmingham Oldbury. These are either budget or three-star branded properties. Approximately 37% of the total supply in Birmingham consist of budget hotels, followed by four- star hotels and three-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. Approximately 18% of the total supply is run independently.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

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: • Premier Inn Birmingham Oldbury M5 Jct 2 • Holiday Inn Express Birmingham Oldbury • Travelodge Birmingham Oldbury Hotel • Village Hotel Dudley • Ramada Oldbury Birmingham • Premier Inn Dudley Town Centre 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’s performance in terms of occupancy was at its peak in 2018 with an MPI of 111.6. For the first quarter to 2019, occupancy is back at the same level as 2017 and MPI has gone down to 97.8. The opposite trend can be observed from the ADR performance, as the hotel’s ARI went below market (96.7) in 2018 and is now back to 105 despite an actual decrease of £2 in ADR. Occupancy and ADR combined have translated to a RevPAR above the competitive set and an RGI of around 108 in 2017 and 2018. The RGI for the first three months of 2019 has decreased to 102.6.

8. Business Analysis

Overview The Birmingham Oldbury Holiday Inn Express has shown consistent growth in total revenue since 2017. This strong growth has translated to the operating profit, which after good control on costs has also increased year on year. The business is 60% corporate with 40% leisure. The mid-week peak nights are Tuesday and Wednesday with an occupancy of 90-95%, with shoulder nights at 70% to 80% on Mondays and Thursdays. When there are few rooms left to sell, the rate is pushed as high as £130 bed and breakfast. Most Friday and Saturday nights the hotel is predominately booked with leisure guests. There are lots of families in this category who are drawn to the area by Cadbury World and the nearby

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury, Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

Safari Park. Most of the leisure guests that stay in the hotel are from the UK. In order to bring the leisure guests into the hotel, revenue management have to set low rates of £40 at the weekends. Sunday nights are the quietest nights with occupancy rarely exceeding 50%. Corporate guests staying during the week are made up of both contracted corporate businesses, and some transient. Notable corporate contracts include: CITV. The hotel won a contract with this company over the last eighteen months. The hotel provides accommodation for the trainees. There is an agreed rate of £220 based on two person sharing with dinner included. The AA. These clients have contributed many room nights over the last few years. The room rate has been agreed at £85 bed and breakfast. This contract is annually renewed and has done so for the last few years. Npower. These clients have also contributed many room nights over the last few years. The rate has been agreed at £70 bed and breakfast. This contract is annually renewed and has done for the last few years. Other contracted business includes the Keys Group and Voestalpine. The hotel also benefits from opportunistic business. Currently there are major roadworks on the M5, and the construction companies are contributing room nights to the hotel. In addition, the Midland Metropolitan Hospital is currently under construction in Smethwick and the construction companies working on this are also contributing room nights to the hotel. Most of the leisure guests staying at the hotel are transient, some take advantage of the lower rate that the hotel offers when compared with hotels in central Birmingham. In addition, the hotel has seen an increase in Chinese tourist groups that tend to book last minute due to uncertainty of travel due to visa restrictions. Generally, during the summer, the hotel quietens as many corporates are on holiday. Increasingly, leisure guests are replacing these corporates during this time. Most bookings are made directly to the hotel or through the brand website, and the remainder come from online travel agents (OTA’s). Breakfast at the hotel is served weekdays between 6.30am and 9.30am on weekdays, and 7.00am to 11.00am on weekends. There are the occasional walk ins for breakfast. Lunch has picked up a little at the hotel, but it is rare if covers exceed more than five in a day. There are however, lots of casual business meetings at the hotel, which generate revenue through tea and coffee. Dinner is reasonably popular at the hotel with 20-25 covers on average per night (not including the guests from CITV). This equates to a retention rate of approximately 35% of sleepers. The subject has one meeting room which can cater for 25 delegates theatre style. On average, there are two meetings/conferences per week. There is a regular foster care agency that uses the room on a weekly basis. The hotel does not offer a day delegate rate but will charge out the conference room at £150 per day (£75 for a half day), but this rate is flexible.

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 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 Birmingham Oldbury, Birchley Park, Oldbury B69 2BD

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: 109 109 109 109 109 Occupancy rate 78.50% 77.20% 81.70% 80.45% 80.45% Average Room Rate 53.90 57.46 56.11 58.08 59.82 Revenue Per Available Room (RevPAR) 42.31 44.36 45.84 46.72 48.13 Number of Days Open 365 365 365 365 365 Available Rooms 39,785 39,785 39,785 39,785 39,785 Occupied Rooms 31,231 30,714 32,504 32,006 32,006

TOTAL SALES 1,956,791 % POR PAR 2,002,168 % POR PAR 2,077,743 % POR PAR 2,113,979 % POR PAR 2,183,364 % POR PAR

BEDROOMS Room Sales 1,688,374 86.3% 54.06 15,490 1,764,220 88.1% 57.44 16,186 1,822,820 87.7% 56.08 16,723 1,858,931 87.9% 58.08 17,054 1,919,945 87.9% 59.99 17,614 Room Expenses 764,494 45.3% 24.48 7,014 791,167 44.8% 25.76 7,258 835,064 45.8% 25.69 7,661 847,401 45.6% 26.48 7,774 866,717 45.1% 27.08 7,952 Departmental Profit 923,880 54.7% 29.58 8,476 973,053 55.2% 31.68 8,927 987,756 54.2% 30.39 9,062 1,011,530 54.4% 31.60 9,280 1,053,228 54.9% 32.91 9,663

FOOD & BEVERAGE Food & Beverage Sales 173,219 8.9% 5.55 1,589 149,166 7.5% 4.86 1,368 164,721 7.9% 5.07 1,511 161,126 7.6% 5.03 1,478 166,414 7.6% 5.20 1,527 Other Income / Room Hire 15,279 0.8% 0.49 140 8,349 0.4% 0.27 77 7,157 0.3% 0.22 66 6,661 0.3% 0.21 61 6,880 0.3% 0.21 63 Food & Beverage Cost 67,455 35.8% 2.16 619 57,785 36.7% 1.88 530 56,885 33.1% 1.75 522 49,897 29.7% 1.56 458 51,034 29.4% 1.59 468 Departmental Profit 121,043 64.2% 3.88 1,110 99,730 63.3% 3.25 915 114,993 66.9% 3.54 1,055 117,890 70.3% 3.68 1,082 122,260 70.6% 3.82 1,122

CAR PARK Car Park Revenue 68,933 3.5% 2.21 632 73,017 3.6% 2.38 670 77,232 3.7% 2.38 709 81,397 3.9% 2.54 747 84,069 3.9% 2.63 771 Car Park Expenses - 0.0% 0.00 0 197 0.3% 0.01 2 - 0.0% 0.00 0 1,053 1.3% 0.03 10 1,077 1.3% 0.03 10 Departmental Profit 68,933 100.0% 2.21 632 72,820 99.7% 2.37 668 77,232 100.0% 2.38 709 80,344 98.7% 2.51 737 82,992 98.7% 2.59 761

TELEPHONE Telephone Revenue 2,504 0.1% 0.08 23 2,016 0.1% 0.07 18 2,432 0.1% 0.07 22 3,032 0.1% 0.09 28 3,131 0.1% 0.10 29 Telephone Expenses 13,092 522.8% 0.42 120 12,816 635.7% 0.42 118 13,156 541.0% 0.40 121 13,808 455.5% 0.43 127 14,122 451.0% 0.44 130 Departmental Profit (10,588) (422.8%) -0.34 97 (10,800) (535.7%) -0.35 99 (10,724) (441.0%) -0.33 98 (10,776) (355.5%) -0.34 99 (10,991) (351.0%) -0.34 101

MISCELLANEOUS Miscellaneous Revenue 8,482 0.4% 0.27 78 5,400 0.3% 0.18 50 3,381 0.2% 0.10 31 2,832 0.1% 0.09 26 2,925 0.1% 0.09 27 Miscellaneous Expenses 1,670 19.7% 0.05 15 1,282 23.7% 0.04 12 1,269 37.5% 0.04 12 (9,398) (331.9%) -0.29 86 (9,612) (328.6%) -0.30 88 Departmental Profit 6,812 80.3% 0.22 62 4,118 76.3% 0.13 38 2,112 62.5% 0.06 19 12,230 431.9% 0.38 112 12,537 428.6% 0.39 115

GROSS OPERATING INCOME 1,110,080 56.7% 35.54 10,184 1,138,921 56.9% 37.08 10,449 1,171,369 56.4% 36.04 10,747 1,211,219 57.3% 37.84 11,112 1,260,026 57.7% 39.37 11,560

LESS EXPENDITURE Administrative & General 52,526 2.7% 1.68 482 56,382 2.8% 1.84 517 56,399 2.7% 1.74 517 62,282 2.9% 1.95 571 63,528 2.9% 1.98 583 Sales & Marketing 51,548 2.6% 1.65 473 53,406 2.7% 1.74 490 37,139 1.8% 1.14 341 52,201 2.5% 1.63 479 57,598 2.6% 1.80 528 Repairs & Maintenance 98,634 5.0% 3.16 905 71,841 3.6% 2.34 659 76,761 3.7% 2.36 704 80,931 3.8% 2.53 742 82,776 3.8% 2.59 759 Energy Costs 78,887 4.0% 2.53 724 76,337 3.8% 2.49 700 83,013 4.0% 2.55 762 91,352 4.3% 2.85 838 93,434 4.3% 2.92 857 TOTAL UNDISTRIBUTED COSTS 281,595 14.4% 9.02 2,583 257,966 12.9% 8.40 2,367 253,312 12.2% 7.79 2,324 286,766 13.6% 8.96 2,631 297,336 13.6% 9.29 2,728

GROSS OPERATING PROFIT 828,485 42.3% 26.53 7,601 880,955 44.0% 28.68 8,082 918,057 44.2% 28.24 8,423 924,453 43.7% 28.88 8,481 962,690 44.1% 30.08 8,832

LESS FIXED COSTS Property Tax 68,350 3.5% 2.19 627 80,077 4.0% 2.61 735 85,663 4.1% 2.64 786 88,376 4.2% 2.76 811 88,376 4.0% 2.76 811 Franchise Royalty Fees 67,479 3.4% 2.16 619 70,569 3.5% 2.30 647 72,913 3.5% 2.24 669 74,357 3.5% 2.32 682 76,798 3.5% 2.40 705 Head Office 39,136 2.0% 1.25 359 40,043 2.0% 1.30 367 41,555 2.0% 1.28 381 42,280 2.0% 1.32 388 43,667 2.0% 1.36 401 Employee Bonus Provision 4,128 0.2% 0.13 38 (395) (0.0%) -0.01 4 727 0.0% 0.02 7 6,707 0.3% 0.21 62 6,975 0.3% 0.22 64 TOTAL FIXED COSTS 179,093 9.2% 5.73 1,643 190,294 9.5% 6.20 1,746 200,858 9.7% 6.18 1,843 211,720 10.0% 6.61 1,942 215,817 9.9% 6.74 1,980

EBITDA (Pre FF&E Reserve) 649,392 33.2% 20.79 5,958 690,661 34.5% 22.49 6,336 717,199 34.5% 22.06 6,580 712,733 33.7% 22.27 6,539 746,873 34.2% 23.34 6,852

FF&E RESERVE 58,704 3.0% 1.88 539 60,065 3.0% 1.96 551 37,103 1.8% 1.14 340 56,587 2.7% 1.77 519 65,501 3.0% 2.05 601

NET OPERATING INCOME (Post FF&E Reserve) 590,688 30.2% 18.91 5,419 630,596 31.5% 20.53 5,785 680,096 32.7% 20.92 6,239 656,146 31.0% 20.50 6,020 681,373 31.2% 21.29 6,251

Proposed Ground Rent - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 102,014 4.8% 3.19 936 105,075 4.8% 3.28 964 NET OPERATING INCOME (Post Ground Rent) 590, 688 30.2% 18.91 5,419 630,596 31.5% 20.53 5,785 680,096 32.7% 20.92 6,239 554,132 26.2% 17.31 5,084 576,298 26.4% 18.01 5,287

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

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 of each year.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation Date: 1 May 2019 Valuation of: Holiday Inn Express Birmingham Oldbury Birchley Park, Oldbury B69 2BD

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: 109 109 109 109 109 Occupancy Rate 81.00% 81.00% 81.00% 81.00% 81.00% Average Room Rate 58.00 59.16 60.34 61.55 62.78 Revenue Per Available Room (RevPAR) 46.98 47.92 48.88 49.86 50.85 Days Open 365 365 365 365 365 Available Rooms 39,785 39,785 39,785 39,785 39,785 Occupied Rooms 32,226 32,226 32,226 32,226 32,226 Occupancy Growth Factor 1.000 1.000 1.000 1.000 1.000 TOTAL SALES 2,122,999 % POR PAR 2,165,459 % POR PAR 2,208,768 % POR PAR 2,252,944 % POR PAR 2,298,003 % POR PAR

BEDROOMS Room Sales 1,869,099 88.0% 58.00 17,148 1,906,481 88.0% 59.16 17,491 1,944,611 88.0% 60.34 17,840 1,983,503 88.0% 61.55 18,197 2,023,173 88.0% 62.78 18,561 Room Expenses 850,440 45.5% 26.39 7,802 867,449 45.5% 26.92 7,958 884,798 45.5% 27.46 8,117 902,494 45.5% 28.01 8,280 920,544 45.5% 28.57 8,445 Departmental Profit 1,018,659 54.5% 31.61 9,345 1,039,032 54.5% 32.24 9,532 1,059,813 54.5% 32.89 9,723 1,081,009 54.5% 33.54 9,918 1,102,629 54.5% 34.22 10,116

FOOD & BEVERAGE Food & Beverage Sales 160,000 7.5% 4.96 1,468 163,200 7.5% 5.06 1,497 166,464 7.5% 5.17 1,527 169,793 7.5% 5.27 1,558 173,189 7.5% 5.37 1,589 Other Income / Room Hire 6,600 0.3% 0.20 61 6,732 0.3% 0.21 62 6,867 0.3% 0.21 63 7,004 0.3% 0.22 64 7,144 0.3% 0.22 66 Food & Beverage Cost 49,980 30.0% 1.55 459 50,980 30.0% 1.58 468 51,999 30.0% 1.61 477 53,039 30.0% 1.65 487 54,100 30.0% 1.68 496 Departmental Profit 116,620 70.0% 3.62 1,070 118,952 70.0% 3.62 1,070 121,331 70.0% 3.77 1,113 123,758 70.0% 3.84 1,135 126,233 70.0% 3.92 1,158

CAR PARK Car Park Revenue 81,500 3.8% 2.53 748 83,130 3.8% 2.58 763 84,793 3.8% 2.63 778 86,488 3.8% 2.68 793 88,218 3.8% 2.74 809 Car Park Expenses 1,050 1.3% 0.03 10 1,071 1.3% 0.03 10 1,092 1.3% 0.03 10 1,114 1.3% 0.03 10 1,137 1.3% 0.04 10 Departmental Profit 80,450 98.7% 2.50 738 82,059 98.7% 2.55 10 83,700 98.7% 2.60 10 85,374 100.0% 2.65 10 87,082 98.7% 2.70 10 TELEPHONE Telephone Revenue 3,000 0.1% 0.09 28 3,060 0.1% 0.09 28 3,121 0.1% 0.10 28 3,184 0.1% 0.10 29 3,247 0.1% 0.10 30 Telephone Expenses 13,800 460.0% 0.43 127 14,076 460.0% 0.44 129 14,358 460.0% 0.45 132 14,645 460.0% 0.45 134 14,938 460.0% 0.46 137 Departmental Profit (10,800) (360.0%) (0.34) (99) (11,016) (360.0%) (0.34) (101) (11,236) (360.0%) (0.35) (103) (11,461) (360.0%) (0.36) (105) (11,690) (360.0%) (0.36) (107)

MISCELLANEOUS Miscellaneous Revenue 2,800 0.1% 0.09 26 2,856 0.1% 0.09 26 2,913 0.1% 0.09 27 2,971 0.1% 0.09 27 3,031 0.1% 0.09 28 Miscellaneous Expenses (9,400) (335.7%) (0.29) (86) (9,588) (335.7%) (0.30) (88) (9,780) (335.7%) (0.30) (90) (9,975) (335.7%) (0.31) (92) (10,175) (335.7%) (0.32) (93) Departmental Profit 12,200 435.7% 0.38 112 12,444 435.7% 0.39 114 12,693 435.7% 0.39 116 12,947 435.7% 0.40 119 13,206 435.7% 0.41 121

GROSS OPERATING INCOME 1,217,129 57.3% 37.77 11,166 1,241,472 57.3% 38.52 11,390 1,266,301 57.3% 39.29 11,617 1,291,627 57.3% 40.08 11,850 1,317,460 57.3% 40.88 12,087

LESS EXPENDITURE Administrative & General 62,200 2.9% 1.93 571 63,444 2.9% 1.97 582 64,713 2.9% 2.01 594 66,007 2.9% 2.05 606 67,327 2.9% 2.09 618 Sales & Marketing 10,615 0.5% 0.33 97 10,827 0.5% 0.34 99 11,044 0.5% 0.34 101 11,265 0.5% 0.35 103 11,490 0.5% 0.36 105 Repairs & Maintenance 80,900 3.8% 2.51 742 82,518 3.8% 2.56 757 84,168 3.8% 2.61 772 85,852 3.8% 2.66 788 87,569 3.8% 2.72 803 Energy Costs 91,289 4.3% 2.83 838 93,115 4.3% 2.89 854 94,977 4.3% 2.95 871 96,877 4.3% 3.01 889 98,814 4.3% 3.07 907 TOTAL UNDISTRIBUTED COSTS 245,004 11.5% 7.60 2,248 249,904 11.5% 7.75 2,293 254,902 11.5% 7.91 2,339 260,000 11.5% 8.07 2,385 265,200 11.5% 8.23 2,433

GROSS OPERATING PROFIT 972,125 45.8% 30.17 8,919 991,568 45.8% 30.77 9,097 1,011,399 45.8% 31.38 9,279 1,031,627 45.8% 32.01 9,464 1,052,260 45.8% 32.65 9,654

LESS FIXED COSTS Property Tax 88,200 4.2% 2.74 809 89,964 4.2% 2.79 825 91,763 4.2% 2.85 842 93,599 4.2% 2.90 859 95,471 4.2% 2.96 876 Management Base Fee 42,460 2.0% 1.32 390 43,309 2.0% 1.34 397 44,175 2.0% 1.37 405 45,059 2.0% 1.40 413 45,960 2.0% 1.43 422 Franchise Royalty Fees 93,455 5.0% 2.90 857 95,324 5.0% 2.96 875 97,231 5.0% 3.02 892 99,175 5.0% 3.08 910 101,159 5.0% 3.14 928 Franchise Marketing Fees 56,073 3.0% 1.74 514 57,194 3.0% 1.77 525 58,338 3.0% 1.81 535 59,505 3.0% 1.85 546 60,695 3.0% 1.88 557 Employee Bonus Provision 6,700 0.3% 0.21 61 6,834 0.3% 0.21 63 6,971 0.3% 0.22 64 7,110 0.3% 0.22 65 7,252 0.3% 0.23 67 TOTAL FIXED COSTS 286,888 13.5% 8.90 2,632 292,626 13.5% 9.08 2,685 298,478 13.5% 9.26 2,738 304,448 13.5% 9.45 2,793 310,537 13.5% 9.64 2,849

EBITDA (Pre FF&E Reserve) 685,237 32.3% 21.26 6,287 698,942 32.3% 21.69 6,412 712,921 32.3% 22.12 6,541 727,179 32.3% 22.57 6,671 741,723 32.3% 23.02 6,805

FF&E RESERVE 63,690 3.0% 1.98 584 64,964 3.0% 2.02 596 66,263 3.0% 2.06 608 67,588 3.0% 2.10 620 68,940 3.0% 2.14 632

NET OPERATING INCOME (Post FF&E Reserve) 621,547 29.3% 19.29 5,702 633,978 29.3% 19.67 5,816 646,658 29.3% 20.07 5,933 659,591 29.3% 20.47 6,051 672,783 29.3% 20.88 6,172

Proposed Ground Rent 102,014 10.5% 3.17 936 104,054 10.5% 3.23 955 106,135 10.5% 3.29 974 108,258 10.5% 3.36 993 110,423 10.5% 3.43 1,013

NET OPERATING INCOME (Post Ground Rent) 519,533 24.5% 16.12 4,766 529,924 24.5% 16.44 4,862 540,522 24.5% 16.77 4,959 551,333 24.5% 17.11 5,058 562,359 24.5% 17.45 5,159

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

Commentary on C&W Projections The hotel has seen growth in occupancy levels over the last few years, with an increase between 2017 and 2018 from 77.20% to 81.70%. The reason for this increase is unclear, other than a slight drop in ADR which is negatively correlated to occupancy. We have adopted an occupancy of 81% in each year of our projections. The hotel achieved an ADR of £56.11 in 2018, showing a small drop of approximately £1.50 on the previous year, and management are forecasting a 3.5% increase in the current year to £58.08. For the purpose of our assessment we have adopted a year one ADR of £58.00. 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 88% 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 £621,547, which compares to the forecast for the current year of £656,146. The hotel is forecast to achieve a net operating profit margin of 31% for the current year compared to 32.7% last year. Our projected net operating profit margin is 29.3%. After the deduction of the proposed ground rent of £102,014 per annum our adjusted net operating profit is £519,533 which is equivalent to a profit margin of 24.5%.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

10. Principal Valuation Considerations

Location / Situation and Competition The property is well located for the principal demand generators in the area, the M5 motorway and the major businesses in the area including the AA, Npower and various others. It is easy to get to central Birmingham and West Bromwich. From an investment perspective Birmingham Oldbury would be considered a secondary regional market.

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 a 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 £102,014 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 a good profit margin being achieved. 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. We would consider the hotel to be 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

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

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

•

Hilton Garden Inn Birmingham • September 2018 Airport • £31 million • £174,157 per bedroom. Blackrock has completed a sale and leaseback purchase of the hotel. the deal reflects a yield of 6.9%. This is a full service hotel with 178 bedrooms. This hotel is located out of the city centre at the Airport catering for a different market. It is also owned freehold. Ibis Styles Birmingham Airport • March 2018. • £18.4 million (guide) • £110,800 per bedroom The 166-bedroom limited service hotel located near to Birmingham Airport and the NEC is currently being marketed for sale off a guide price of £18.4 million. The hotel comprises 166 bedrooms, six conference rooms, bar and restaurant. It was rebranded as an Ibis Styles in 2015 following a renovation. This hotel is located out of the city centre at the Airport catering for a different market. It is also owned freehold.

Based on the above and the comparable properties in the head report, the yields for similar quality hotels held on a freehold basis have ranged between 7% 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 8.50%. 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 made an adjustment of 200 basis points to the freehold yield and adopted a capitalisation rate of 11.00%. We have adopted a discount rate of 13.00%. 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

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

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

Capitalisation Rate 11.00%

Discount Rate 13.00%

Market Value £4,700,000

Capital value Per Bedroom £43,119 per bedroom

Gross Initial Yield 11.00%

10.2. Market Rent Our opinion of the Market Rent of the Property on the basis set out in the head report is £260,000 per annum.

Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Birmingham Oldbury Valuation Date: 1 May 2019 Birchley Park, Oldbury B69 2BD

APPENDIX A: MAPS AND PLANS

Holiday Inn Express Birmingham Oldbury, Birchley Park, Oldbury B69 2BD

h S Works

142

126 Works

130

R BI

144

148.4m

7 4

7 5

7 6 149.0m

T E E R T S

H 1:1250 P Hotel E S JO 75m Shelter

About Cushman & Wakefield

Valuation of: Holiday Inn Express Bristol City Centre, South End, Temple Gate House, Temple Meads, Bristol BS1 6P

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 Bristol City Centre, South Valuation Date: 1 May 2019 End, Temple Gate House, Temple Meads, Bristol BS1 6P

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 ...... 7 6. Operational Structure ...... 8 7. Local Hotel Market Analysis ...... 8 8. Business Analysis ...... 9 9. C&W Trading Projections ...... 11 10. Principal Valuation Considerations ...... 14 Appendix A: Maps and Plans ...... 17

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 opposite Temple Meads train station in Brstol city centre.

Description The hotel comprises 96 guest bedrooms, ancillary Great Room and car parking spaces in the Council’s car park located at the rear. The Property was converted from a 1960s office building in 1998.

Condition Good

Tenure Long leasehold

Operating Structure Owner operator

Trading Performance

Year 2017 2018 2019 (2+10) forecast

Occupancy 88.7% 89.5% 86.6%

ADR £75.87 £74.20 £77.44

RevPAR £67.30 £66.41 £67.08

Total Revenue £2,508,620 £2,516,072 £2,686,788

NOI (post FF&E) £916,710 £910,017 £984,363

Profit Margin 36.5% 36.2% 36.6%

C&W Trading Projections

Year Year 1 Year 2 Year 3

Occupancy 88.0% 88.0% 88.0%

ADR £77.25 £78.80 £80.37

RevPAR £67.98 £69.34 £70.73

Total Revenue £2,587,519 £2,639,270 £2,692,055

NOI (post FF&E) £868,844 £886,221 £903,945

Profit Margin 33.6% 33.6% 33.6%

Market Value and Yields

Valuation Date 1 May 2019

Market Value £13,400,000

Capitalisation Rate 6.50% Discount Rate 8.50%

Gross Initial Yield 6.50%

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 opposite Temple Meads train station and on the A4 in Bristol city centre; • Positioned to attract both corporate and leisure guests.

Weaknesses / Risks • Hotel older than several competitors; • Long leasehold tenure; • New hotel supply entering the market.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bristol City Centre, South Valuation Date: 1 May 2019 End, Temple Gate House, Temple Meads, Bristol BS1 6P

PROPERTY RECORD

Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 10 May 2019. The inspection was undertaken by Carl Ridgley.

1. Location

1.1. Location

General The hotel is located opposite Bristol Temple Meads train station and on the Temple Gate (A4), which gives easy access to the M32. Bristol Airport can be reached in 40 minutes by direct train from Temple Meads. Bristol is England’s seventh largest city, with good communications being situated close to the M4 and M5 motorway interchange. The city has two railway stations (Temple Meads in the centre and Parkway to the north) and one airport, which operates routes to numerous regional locations and in Europe. According to the latest data (2017), the city has an estimated population of 459,252. Bristol is located 118 miles west of London and is the regional capital of the south west of England. The city has developed around its port, which has since been moved to the outer suburb of Avonmouth. In recent years, the city centre docks have regenerated as a centre of heritage and culture. Bristol has the largest employment base in banking, finance and insurance services outside London. Major players based in Bristol include Lloyds TSB, Bristol and West, NatWest, AXA Sun Life and Halifax. The printing, packaging and graphic communications sector is the UK’s sixth largest industry and over the year it has been transformed from a traditional craft-based industry to a leader in communication and information technology (ICT) and digital technology. As a result, the city, together with Bath, has attracted investment from US companies including Oracle, Strava and Japanese Cookpad, as well as local growth from Ultrahaptics, BluWirelless Technology and Graphcore who have all made significant investments in recent months. Bristol has also established itself as one of the UK’s top tourism destinations. Major attractions include the Clifton Suspension Bridge, the Berkeley Castle, the Lido and a variety of eateries and cocktail bars, which make the city especially appealing to millennials.

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 96 guest bedrooms with ancillary Great Room and on-site car parking. The 20 car parking spaces are located in the multi storey car park owned and operated by the local council. Access is via a gate controlled by a key pad. Originally constructed as an office, the Property was converted to hotel use in 1999 and comprises ground and six upper floors of reinforced concrete. The fenestration comprises aluminium framed glazed units.

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

Category Unit Count

Double 48

Double+ Sofa bed 11

Twin 36

Accessible 1

Total 96

There are 59 double bedrooms including 11 with a sofa bed, 36 twin bedrooms and one accessible bedroom. The bedrooms were last refurbished in 2013 according to IHG Generation Three brand standards and present well. The bathrooms differ slightly from Generation Three’s typical bathrooms due to the hotel’s conversion from an office building.

Food & Beverage The Great Room extends through most of the ground floor entrance area and provides covers for approximately 73 guests. The room was fully refurbished in 2018 and includes breakfast buffet area and the bar visible to the guests throughout the day.

Meeting Rooms There are no meeting rooms at the hotel.

Car Parking There are 20 car parking spaces in the multi storey car park, owned and operated by the local council. Access is via a gate controlled by a key pad.

Back of House Accommodation The back of house accommodation is arranged on the rear of the ground floor and comprises a well-equipped although small kitchen, staff room and store.

3. Structural Condition and Repair The Property has been well maintained and was found to be in good condition. In 2013 the bedrooms underwent a soft refurbishment, which included new beds, carpets, bedding and paintwork. No changes were made to the bathrooms, which are still the original bathrooms. The Great Room was refurbished in 2018. We have been provided with a schedule of the capital expenditure plan, which confirms the following:

2018 2019 Forecast £351,314 £39,375

3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £9,600,000 (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 head report.

Flooding Risk

The Property is located in Flood Zone 1.

Environmental Considerations Please refer to head report.

Planning The planning policy for the Property is determined by the Bristol Council 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, Bristol Hotel & Premises £315,000 City Centre Total In England, the Non-Domestic Rating Multiplier for the fiscal year 2019/2020 has been set at 50.4 pence.

5. Tenure The Property is subject to a 125-year lease at a ground rent of £4,000 per annum. The lease commenced on 21 December 1971 and therefore has an unexpired term of approximately 77 years. The tenant has full repairing and insuring obligations. We have been provided with a Certificate of Title prepared by Reed Smith LLP dated 3 November 2017, which states the following:

Overview

Type of tenure Long Leasehold

Title no(s) BL71141

Any material encumbrances or unduly None 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?

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, Bristol counts 6,934 rooms across 84 hotels, of which 12 hotels (1,492 rooms) are located within a 0.5-mile radius of the Property. Approximately 39% of the total supply consists of four star hotels, followed by budget and three star hotels. Just over 86% of the total room supply is branded, with Hilton, Premier Inn and Travelodge all having a presence in the city.

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: • Novotel Bristol Centre • DoubleTree by Hilton Hotel Bristol City Centre • Holiday Inn Express Bristol City Centre • Premier Inn Bristol City Centre Haymarket • Travelodge Bristol Central Hotel • Premier Inn Bristol City Centre King Street • Ibis Bristol Temple Meads Quay

The competition to the subject hotel is relatively strong and include four limited service hotels (two Premier Inn hotels, a Travelodge and an Ibis) and two full service hotels (Novotel and DoubleTree by Hilton). 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’s occupancy has continuously outperformed its competitive set with an MPI in 2018 of 113.37. This has been achieved at the expense of ADR which decreased by 2.2% over the same period of time. However, a declining ADR seems to be wider trend within the competitive set, which shows an ADR decrease of 1.6%. A reason for this might be the additional 522 rooms in Bristol which have entered the market in 2017 and 2018 and need to be absorbed. Overall, this had an impact on RevPAR with a decrease of 1.3% at the Property, compared to the competitive set’s decrease of 4.5%. In 2018, the hotel was ranked 2 out of 7 with an RGI of 120.3. Year to Date March 2019 gives a promising outlook with the hotel reflecting an RGI of 126.61.

7.3. Proposed Supply The pipeline consists of 32 hotels (3,000 rooms), 60% (1,750 rooms) of which is confirmed and 23% (610 rooms) currently under construction. The majority of the proposed supply is of three and four star category.

8. Business Analysis

Overview The hotel opened in 1998 following its conversion from office use. The hotel has a strong visibility being located in front of the main train station, which has resulted in good leisure demand, albeit this has been impacted temporarily by on going road works in front of the hotel. The surrounding area includes a variety of mixed uses with offices including KPMG, Deloitte and Grand Thornton located nearby. The guest segmentation is estimated to be dominated by the leisure segment, reaching 95% of the total over the weekend and reducing to 40% during weekdays, with the remaining part being represented by corporate guests. According to hotel management, the hotel does not have any major corporate accounts although the hotels does pick up business from government departments (finance related) and Network Rail. The Great Room is used for breakfast by over 90% of guests. Following the refurbishment of this area, the hotel has been able to increase its food and beverage spend.

Property Record Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express Bristol City Centre, South End, Temple Gate House, Temple Valuation Date: 1 May 2019 Meads, Bristol BS1 6P

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: 96 96 96 96 96 Occupancy rate 88.70% 88.70% 89.50% 86.63% 86.63% Average Room Rate 71.60 75.87 74.20 77.44 79.76 Revenue Per Available Room (RevPAR) 63.51 67.30 66.41 67.08 69.10 Number of Days Open 365 365 365 365 365 Available Rooms 35,040 35,040 35,040 35,040 35,040 Occupied Rooms 31,080 31,080 31,361 30,354 30,354

TOTAL SALES 2,375,797 % POR PAR 2,508,620 % POR PAR 2,516,072 % POR PAR 2,686,788 % POR PAR 2,774,973 % POR PAR

BEDROOMS Room Sales 2,233,390 94.0% 71.86 23,264 2,357,335 94.0% 75.85 24,556 2,327,665 92.5% 74.22 24,247 2,479,254 92.3% 81.68 25,826 2,560,628 92.3% 84.36 26,673 Room Expenses 816,902 36.6% 26.28 8,509 867,146 36.8% 27.90 9,033 899,602 38.6% 28.69 9,371 935,133 37.7% 30.81 9,741 956,448 37.4% 31.51 9,963 Departmental Profit 1,416,488 63.4% 45.57 14,755 1,490,189 63.2% 47.95 15,523 1,428,063 61.4% 45.54 14,876 1,544,121 62.3% 50.87 16,085 1,604,179 62.6% 52.85 16,710

FOOD & BEVERAGE Food & Beverage Sales 83,477 3.5% 2.69 870 92,010 3.7% 2.96 958 126,757 5.0% 4.04 1,320 141,907 5.3% 4.68 1,478 146,565 5.3% 4.83 1,527 Other Income / Room Hire 30 0.0% 0.00 0 2 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 - 0.0% 0.00 0 Food & Beverage Cost 26,198 31.4% 0.84 273 32,002 34.8% 1.03 333 48,342 38.1% 1.54 504 46,221 32.6% 1.52 481 47,274 32.3% 1.56 492 Departmental Profit 57,309 68.6% 1.84 597 60,010 65.2% 1.93 625 78,415 61.9% 2.50 817 95,687 67.4% 3.15 997 99,291 67.7% 3.27 1,034 CAR PARK Car Park Revenue 51,132 2.2% 1.65 533 54,323 2.2% 1.75 566 57,178 2.3% 1.82 596 60,630 2.3% 2.00 632 62,620 2.3% 2.06 652 Car Park Expenses 6,990 13.7% 0.22 73 2,938 5.4% 0.09 31 7,941 13.9% 0.25 83 9,811 16.2% 0.32 102 10,034 16.0% 0.33 105 Departmental Profit 44,142 86.3% 1.42 460 51,385 94.6% 1.65 535 49,237 86.1% 1.57 513 50,819 83.8% 1.67 529 52,586 84.0% 1.73 548

TELEPHONE Telephone Revenue 4,770 0.2% 0.15 50 2,617 0.1% 0.08 27 2,469 0.1% 0.08 26 2,919 0.1% 0.10 30 3,015 0.1% 0.10 31 Telephone Expenses 12,181 255.4% 0.39 127 11,331 433.0% 0.36 118 11,693 473.6% 0.37 122 9,019 309.0% 0.30 94 9,225 306.0% 0.30 96 Departmental Profit (7,411) (155.4%) -0.24 77 (8,714) (333.0%) -0.28 91 (9,224) (373.6%) -0.29 96 (6,100) (209.0%) -0.20 64 (6,210) (206.0%) -0.20 65

MISCELLANEOUS Miscellaneous Revenue 2,998 0.1% 0.10 31 2,333 0.1% 0.08 24 2,003 0.1% 0.06 21 2,077 0.1% 0.07 22 2,146 0.1% 0.07 22 Miscellaneous Expenses 491 16.4% 0.02 5 579 24.8% 0.02 6 348 17.4% 0.01 4 (10,620) (511.2%) -0.35 111 (10,863) (506.3%) -0.36 113 Departmental Profit 2,507 83.6% 0.08 26 1,754 75.2% 0.06 18 1,655 82.6% 0.05 17 12,698 611.2% 0.42 132 13,008 606.3% 0.43 136

GROSS OPERATING INCOME 1,513,035 63.7% 48.68 15,761 1,594,624 63.6% 51.31 16,611 1,548,146 61.5% 49.37 16,127 1,697,226 63.2% 55.91 17,679 1,762,855 63.5% 58.08 18,363

LESS EXPENDITURE Administrative & General 52,054 2.2% 1.67 542 68,901 2.7% 2.22 718 65,959 2.6% 2.10 687 68,184 2.5% 2.25 710 69,548 2.5% 2.29 724 Sales & Marketing 67,467 2.8% 2.17 703 71,236 2.8% 2.29 742 47,219 1.9% 1.51 492 69,125 2.6% 2.28 720 76,819 2.8% 2.53 800 Repairs & Maintenance 88,590 3.7% 2.85 923 73,287 2.9% 2.36 763 79,850 3.2% 2.55 832 81,678 3.0% 2.69 851 83,540 3.0% 2.75 870 Energy Costs 76,238 3.2% 2.45 794 85,151 3.4% 2.74 887 86,170 3.4% 2.75 898 80,236 3.0% 2.64 836 82,065 3.0% 2.70 855 TOTAL UNDISTRIBUTED COSTS 284,349 12.0% 9.15 2,962 298,575 11.9% 9.61 3,110 279,198 11.1% 8.90 2,908 299,223 11.1% 9.86 3,117 311,972 11.2% 10.28 3,250

GROSS OPERATING PROFIT 1,228,686 51.7% 39.53 12,799 1,296,049 51.7% 41.70 13,501 1,268,948 50.4% 40.46 13,218 1,398,003 52.0% 46.06 14,563 1,450,883 52.3% 47.80 15,113

LESS FIXED COSTS Property Tax 102,666 4.3% 3.30 1,069 137,625 5.5% 4.43 1,434 153,773 6.1% 4.90 1,602 157,660 5.9% 5.19 1,642 157,660 5.7% 5.19 1,642 Rental Income Receivable - 0.0% 0.00 0 (10,747) (0.4%) -0.35 112 (10,747) (0.4%) -0.34 112 (2,891) (0.1%) -0.10 30 - 0.0% 0.00 0 Franchise Royalty Fees 111,670 4.7% 3.59 1,163 117,867 4.7% 3.79 1,228 116,383 4.6% 3.71 1,212 123,964 4.6% 4.08 1,291 128,031 4.6% 4.22 1,334 Ground Rent 3,500 0.1% 0.11 36 3,500 0.1% 0.11 36 3,500 0.1% 0.11 36 3,503 0.1% 0.12 36 3,503 0.1% 0.12 36 Head Office 47,516 2.0% 1.53 495 50,172 2.0% 1.61 523 50,321 2.0% 1.60 524 53,736 2.0% 1.77 560 55,499 2.0% 1.83 578 Employee Bonus Provision 440 0.0% 0.01 5 5,663 0.2% 0.18 59 770 0.0% 0.02 8 5,748 0.2% 0.19 60 5,978 0.2% 0.20 62 TOTAL FIXED COSTS 265,792 11.2% 8.55 2,769 304,080 12.1% 9.78 3,168 314,000 12.5% 10.01 3,271 341,719 12.7% 11.26 3,560 350,672 12.6% 11.55 3,653

EBITDA (Pre FF&E Reserve) 962,894 40.5% 30.98 10,030 991,969 39.5% 31.92 10,333 954,948 38.0% 30.45 9,947 1,056,283 39.3% 34.80 11,003 1,100,211 39.6% 36.25 11,461

FF&E RESERVE 71,274 3.0% 2.29 742 75,259 3.0% 2.42 784 44,931 1.8% 1.43 468 71,920 2.7% 2.37 749 83,249 3.0% 2.74 867

NET OPERATING INCOME (Post FF&E Reserve) 891,620 37.5% 28.69 9,288 916,710 36.5% 29.49 9,549 910,017 36.2% 29.02 9,479 984,363 36.6% 32.43 10,254 1,016,962 36.6% 33.50 10,593