MARKET FEASIBILITY STUDY REPORT FOR THE PROPOSED INDOOR WATERPARK RESORT 84 CHALET ROAD THOMPSON, SULLIVAN COUNTY, NEW YORK Date of Report: January 23, 2014 FOR Mr. Tim Lies Project Manager EPR Properties 909 Walnut Suite 200 Kansas City, Missouri 64106 January 23, 2014 Mr. Tim Lies Project Manager EPR Properties 909 Walnut Suite 200 Kansas City, Missouri 64106 RE: Proposed Indoor Waterpark Resort Thompson, Sullivan County, New York Dear Mr. Lies: In fulfillment of our engagement letter, we have completed our study of the market demand and economic feasibility for the proposal to develop an indoor waterpark resort and timeshare units in Thompson, Sullivan County, New York. The study is based upon market conditions observed as of the date of our market inspection on November 14, 2013, and research conducted in November and December 2013 and January 2014. The property is part of larger master plan development that will encompass 1,735 acres of the former Concord Resort. The subject will occupy approximately 135 acres of the total development and be located just east of 84 Chalet Road, the current clubhouse for the Concord Monster Golf Course. A traveler on State Route 17 will take exit 106 then travel north on Joyland Road to the subject site. Assumptions The conclusions contained in this report are based upon a review of information provided by you and on-site field work in the market area which is described in the Scope of Assignment section. As in all studies of this type, the conclusions reached do not take into account, or make provisions for, the effect of any sharp rise or decline in local or general economic conditions not presently foreseeable. The estimated results are based on competent and efficient management of the proposed resort and timeshare development, as well as an aggressive marketing program prior to and after the opening of the proposed subject. We assume the subject will hire appropriate management personnel to operate and market the entire resort development. We assume that the subject will operate as an independent resort property not affiliated with a national franchise. We assume the proposed resort will open January 1, 2017. We assume that the timeshare units will be constructed in 50-unit increments over a four-year period between 2018 and 2021 with presales occurring in 2017. The timeshare units maybe developed as cabins, duplexes, apartment style structures or any combination of developmental structures which optimizes the usage of the site while blending with the regions scenic beauty and landscaping. We presume no significant change in the competitive position of the hotel industry in the area from that as set forth in this report. We do not warrant that the estimates will be attained, but they have been conscientiously prepared on the basis of information obtained and our experience in the hotel industry. Cleveland, Ohio ● 216-228-7000 www.hladvisors.com San Antonio, Texas ● 210-319-5440 Corporate Headquarters: 14805 Detroit Avenue, Suite 420, Cleveland, Ohio 44107-3921 Mr. Tim Lies January 23, 2014 Page 2 It is expressly understood that the scope of this study and the report thereon do not include the possible impact of zoning regulations, licensing requirements, or other restrictions concerning the project, except where such matters have been brought to our attention and which are set forth in this report. This report and its contents are intended solely for the information of our client for internal use relative to determining the feasibility of the project. The report should not be relied upon for any other purpose. Otherwise, neither our report nor any of its contents nor any reference to Hotel & Leisure Advisors, LLC (H&LA) may be included or quoted in any document, offering circular, registration statement, prospectus, sales brochure, other appraisal, or other agreement without our prior written approval. Such permission will not be unreasonably withheld. We are available to perform additional consulting services such as an economic impact study on this proposed property as the scope of the development is finalized. In addition, we are available to perform a self-contained full narrative appraisal report for the proposed development upon your request. We appreciate the opportunity to be of service to your organization and look forward to working with you again. Respectfully submitted, Hotel & Leisure Advisors, LLC __________________________ David J. Sangree, MAI, ISHC President __________________________ Joseph Pierce Director of Appraisal & Consulting Services MARKET FEASIBILITY STUDY REPORT FOR THE PROPOSED INDOOR WATERPARK RESORT 84 CHALET ROAD THOMPSON, SULLIVAN COUNTY, NEW YORK TABLE OF CONTENTS A. INTRODUCTION Scope of the Assignment ......................................................................... A-1 Executive Summary ................................................................................ A-2 Standard Conditions ............................................................................... A-14 Extraordinary Assumptions and Hypothetical Conditions .............................. A-16 Competency of the Consultants ................................................................ A-17 B. AREA ANALYSIS AND DESCRIPTIVE DATA Area Review .......................................................................................... B-1 Neighborhood Analysis ............................................................................ B-19 Demographic Comparison of Thompson vs. Wisconsin Dells and Sandusky .... B-26 Site Analysis .......................................................................................... B-33 Description of Projected/Recommended Improvements ............................... B-42 Franchise Affiliation Analysis .................................................................... B-52 Municipal Incentives ............................................................................... B-53 C. MARKET ANALYSIS National Lodging Market Overview ............................................................ C-1 Analysis of Indoor Waterpark Resorts ........................................................ C-10 New York City MSA and Sullivan County Lodging Overview .......................... C-25 Competitive Lodging Market Overview ...................................................... C-27 Projected Market Occupancy .................................................................... C-48 Demand Interviews ................................................................................ C-49 D. INDOOR WATERPARK RESORT HOTEL OCCUPANCY AND AVERAGE DAILY RATE ANALYSIS Competitive Advantages and Disadvantages of Subject Property .................. D-1 Projected Subject Occupancy ................................................................... D-2 Estimated Average Daily Rate .................................................................. D-8 Indoor Waterpark Analysis....................................................................... D-12 E. INDOOR WATERPARK RESORT HOTEL FINANCIAL ANALYSIS Introduction .......................................................................................... E-1 Income and Expense Analysis .................................................................. E-3 Prospective Financial Analysis in Inflated Dollars ........................................ E-18 Feasibility Analysis ................................................................................. E-22 F. TIMESHARE MARKET ANALYSIS National Timeshare Market Overview ........................................................ F-1 Overview of Competitive Resorts Offering Timeshares ................................. F-9 Annual Dues and Seasonality for the Subject Timeshares ............................ F-13 Timeshare Pricing & Sales Revenue .......................................................... F-17 G. TIMESHARE FINANCIAL ANALYSIS Introduction .......................................................................................... G-1 Competitive Advantages and Disadvantages of the Timeshare Units ............. G-2 TABLE OF CONTENTS – PAGE 2 Expense Analysis .................................................................................... G-5 Discounted Cash Flow Analysis ................................................................. G-10 H. SUMMARY OF CONCLUSIONS Summary .............................................................................................. H-1 I. CERTIFICATION ......................................................................................... I-1 ADDENDA Qualifications ............................................................................ Addendum I Smith Travel Research Report ..................................................... Addendum II ERSI Demographic Report .......................................................... Addendum III Site Plans ................................................................................ Addendum IV Demand Interviews Survey Form ................................................. Addendum V 400-room Resort without Timeshare Development Scenario ............ Addendum VI Proposed Indoor Waterpark Resort, Thompson, New York Introduction A-1 SCOPE OF THE ASSIGNMENT Hotel & Leisure Advisors, LLC has been retained by Mr. Tim Lies with EPR Properties to estimate the potential market feasibility of the development of a hotel with indoor waterpark resort hotel and timeshare units in Thompson, New York. We made a number of independent investigations and analyses in performing this study.