Valuation of: Holiday Inn Express, Llandarcy, Neath, Swansea, SA10 6GZ Prepared for Morgan Stanley Bank N.A. Valuation Date: 1 May 2019 1 Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ TABLE OF CONTENTS Executive Summary ........................................................................................ 1 Property Record .............................................................................................. 3 1. Location ........................................................................................................................... 3 2. Description & Accommodation ........................................................................................ 4 3. Structural Condition and Repair ...................................................................................... 6 4. Statutory Enquiries .......................................................................................................... 6 5. Tenure ............................................................................................................................. 7 6. Operational Structure ...................................................................................................... 8 7. Local Hotel Market Analysis ............................................................................................ 8 8. Business Analysis ........................................................................................................... 9 9. C&W Trading Projections .............................................................................................. 12 10. Principal Valuation Considerations ............................................................................... 15 Appendix A: Maps and Plans ........................................................................ 18 2 Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ EXECUTIVE SUMMARY This summary is strictly confidential to you as the Addressee. It must not be copied, distributed or considered in isolation from the full report. Property Summary Location The hotel lies adjacent to the M4 motorway, 7.5 miles east of Swansea and 2.3 miles west of Neath. Description The hotel comprises 91 guest bedrooms with ancillary Great Room and three meeting rooms. The Property was constructed in approximately 2003. Condition Good Tenure Long leasehold Operating Structure Owner operator Trading Performance Year 2017 2018 2019 (2+10) forecast Occupancy 75.53% 75.44% 74.92% ADR £57.64 £58.87 £59.38 RevPAR £43.54 £44.41 £44.49 Total Revenue £1,609,721 £1,643,175 £1,638,345 NOI (post FF&E)* £443,883 £496,328 £358,737 Profit Margin 27.6% 30.2% 21.9% *2019 figures include the proposed ground rent payable. C&W Trading Projections Year Year 1 Year 2 Year 3 Occupancy 75.00% 75.00% 75.00% ADR £59.50 £60.69 £61.90 RevPAR £44.63 £45.52 £46.43 Total Revenue £1,641,249 £1,674,074 £1,707,556 NOI (post FF&E and £351,154 £358,177 £365,341 ground rent) Profit Margin 21.4% 21.4% 21.4% Market Value and Yields Valuation Date 1 May 2019 Market Value £3,300,000 Capitalisation Rate 10.75% Discount Rate 12.75% 1 Executive Summary Cushman & Wakefield | Morgan Stanley Bank N.A. Valuation of: Holiday Inn Express, Llandarcy, Neath, Valuation Date: 1 May 2019 Swansea, SA10 6GZ Gross Initial Yield 10.75% Capital expenditure None deducted from gross valuation Loan security We consider the Property represents adequate security against a loan over the proposed period. Liquidity Reasonable subject to the comments in the property record and the head report. Key Investment / Market Considerations for Loan Security Strengths / Opportunities • Good connectivity to the M4 motorway; • Good levels of hotel demand in local area, with relatively good corporate demand generators; • Strong and stable management team. • Relatively limited direct competition within the immediate locality. Weaknesses / Risks • Peripheral location on the outskirts of Swansea; • Road noise from the M4 motorway, accentuated by lack of air conditioning in bedrooms; • Poor customer feedback for adjacent Harvester restaurant, which is sometimes associated with the hotel on web based customer reviews; • Investment appetite for Swansea is likely to be more limited than for many of the other hotels within the portfolio. 2 PROPERTY RECORD Inspection The Property was subject to an external inspection, from ground level and an internal inspection, on 9 May 2019. The inspection was undertaken by Ian Thompson, MRICS. 1. Location 1.1. Location General Swansea is located on the south coast of Wales, within Swansea Bay, which opens on to the Bristol Channel. Swansea lies approximately 40 miles west of Cardiff and 50 miles west of Newport. Bristol is approximately 80 miles to the east, accessible via the Severn Bridge. The hotel is reasonably well located within the context of the local market, lying directly adjacent to Junction 43 of the M4 motorway. Swansea town centre is located approximately 6.5 miles to the west, while the town of Neath lies approximately 2.3 miles to the east. Port Talbot is approximately six miles south east of the hotel. Surrounding land uses include the M4 motorway to the east, a David Lloyd leisure and fitness club to the south and a Harvester restaurant to the west. Swansea has a predominantly post-industrial service economy, with main employers including 3M, Bemis, 118 UK/Conduit, Admiral Group, Amazon and a number of public sector organisations including the DVLA and HMRC. Public sector employment in Swansea is significantly above average, at 11.1% of total employment compared to the average of 6.8% across Wales (ONS, 2016). According to the latest estimated in mid- 2017, Bath and North East Somerset count a resident population of 245,480. The hotel itself is located just within the border of Neath Port Talbot Council. This local authority borders Swansea and has a population of 141,600 with a profile otherwise similar to Swansea in terms of demography and employment. Swansea also has a number of tourist attractions, with 4.59 million visitors in 2016 according to the City and County of Swansea. Attractions include The Gower Peninsula, which received the European designation of Area of Natural Beauty in 1956, and numerous beaches along the coastline. 3 Site Boundary The plan above is shown for indication purposes only and may not accord strictly with the title plan. 2. Description & Accommodation Summary The hotel comprises 91 guest bedrooms with ancillary Great Room and three meeting rooms. The Property was constructed in approximately 2003 and is arranged over ground, first and second floor. The building is of brick construction underneath a pitched tiled roof. 4 Guestrooms The following table summarises the Property's guestroom facilities, based on information provided by Atlas Hotels. Category Unit Count Twin 25 Double 60 Accessible 6 Total 91 There are three room types – twin, accessible and double rooms (which can accommodate up to three guests). There are 25 twin bedrooms and 60 double bedrooms. In addition, there are six accessible bedrooms which have an interconnecting door. The style of the bedrooms is Fourth Generation, having been refurbished in 2015. The bedrooms are not fitted with air conditioning units. Food & Beverage The primary dining area is The Great Room, a seated open plan restaurant offering 60 covers. A breakfast buffet servery lies adjacent to the Great Room. The bar and lobby area extend from the Great Room adjoining the reception, and offer more casual soft seating. There is air conditioning to the ground floor public areas. 5 Meeting Rooms There are three meeting rooms, one of which is significantly larger with a capacity of 25 theatre style, while the smaller two each have a capacity of 12. All meeting rooms have natural light. Additional food and beverage packages are on offer alongside meeting room hire. There is air conditioning to the meeting rooms. Car Parking There are approximately 130 car parking spaces, which are offered free of charge to guests. The car park is shared with the adjacent Harvester restaurant. Back of House Accommodation There is appropriate storage provision and back of house accommodation. The staff room is able to accommodate eight covers. 3. Structural Condition and Repair The Property has been well maintained and was found to be in good condition. Following construction in 2003, the hotel was further extended in 2006 with the addition of 18 bedrooms. The hotel has undergone various refurbishments since construction; in 2012 The Great Room and meeting rooms received a soft refurbishment, which included new fitted carpets and painting. In 2015 the bedrooms were refurbished to Generation Four standards. This refurbishment included the redecorating of wall coverings, the replacement of desk with a moveable work surface and an iconic red chair, and the upscaling of the headboards to include charging sockets. We have been provided with a schedule of the capital expenditure plan, which confirms the following: 2018 2019 Forecast £28,538 £51,378 3.1. Indication of Reinstatement Cost Our informal guide to the Day One Cost is £7,800,000 (exclusive of VAT) This guide figure envisages clearance and reinstatement using modern methods and materials, which may not necessarily be appropriate or permitted. It does not reflect any additional costs attributable