- 1 -

Hotel Valuation and Transaction Trends for the U.S. Lodging Industry

June 2014

Steve Rushmore, MAI, FRICS, CHA

srushmore@hvs.com

- 2 -

Value Trend for a Typical U.S. Hotel

2004 2005 2006

Value Per Room

Percent Change 28% 26% 21%

2007 2008 2009

Value Per Room

Percent Change -4% -15% -31%

Source: HVS/STR Hotel Valuation Index

2014 2015 2016

Value Per Room $122,000 $135,000 $142,000

Percent Change 13% 11% 5%

2017 2018

$147,000 $148,000

4% 0%

2010 2011 2012 2013

Value Per Room $65,000 $78,000 $94,000

Percent Change

$108,000

Values peaked

in 2006

Values bottomed out

in 2009

Values recovered to

2006 peak level

Values

increase at a

slowing rate

21% 20% 17% 15%

$56,000 $81,000 $95,000

$99,000 $82,000 $65,000

- 3 -

Why Is Hotel Value Growth Slowing?

• Supply growth is accelerating

• Occupancy levels are reaching their cyclical peak

• Hotel values exceeding replacement cost

• Inevitable rise in mortgage interest rates

- 4 - Source: STR and HVS

Mortgage REITS Overactive

Deregulation of Savings and Loans

Real Estate Financing Boom but Minimal

Construction Lending

Gradual Supply Acceleration

Supply Growth Is Accelerating But Not Excessively

HVS Forecasts Continue to Reflect

Slow Supply Growth

- 5 -

Annual Feasibility Studies Are Gradually Recovering

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012 2013

- 6 -

Supply Growth Will Be Gradual

y = 4318x + 84.117 R² = 0.6771

0

50

100

150

200

250

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%

- 7 -

Occupancy Levels Are Reaching Their Cyclical Peak

48.0%

50.0%

52.0%

54.0%

56.0%

58.0%

60.0%

62.0%

64.0%

66.0%

68.0%

1986 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015

Stabilized Occupancy

Occupancy

- 8 -

Hotel Values vs. Hotel Costs: When to Build and Buy?

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

1987 1991 1995 1999 2003 2007 2011 2015 2018

Val

ue

pe

r R

oo

m

Value

Cost

Build

Buy

Build

Source: STR and HVS

- 9 -

Impact on Value From Rising Interest Rates

- 10 -

What Do These Hotel Value Trends Mean To Investors?

US hotel value growth is moderating, however

opportunities exist in individual markets

Good time to refinance or sell either this year or in 2015

Better to build than to buy

- 11 -

Projected Change In Value Per Room: 2013 - 2017

- 12 -

Top U.S. Cities - Value Per Room - 2013

Source: STR and HVS

- 13 -

HVI.HVS.Com

- 14 -

Major Hotel Sales Transactions (Assets $10M+)

Source: Real Capital Analytics (RCA) and HVS

- 15 -

Calistoga Ranch, Napa Valley, CA

$1,100,000 per key

Prices Exceeding $1 Million Per Key

Park Lane Hotel, Manhattan, NY

$1,090,909 per key

Langham Place Fifth Avenue, Manhattan, NY

$1,070,093 per key

Source: HVS

- 16 -

Derived Cap Rates Remain Unchanged

Source: Derived From Hotels Appraised by HVS at Time Of Sale

6.1

7.7

9.5

5.8

7.4

9.3

6.2

7.4

9.2

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Full Service SS & ES Ltd. Service

2013 2011 2012

Select Service & Extended Stay

Limited Service

- 17 -

Buy

Miami

Tampa

Orlando

Atlanta

Sell

Cleveland

Detroit

Where To Buy, Sell And Build

Build

Anywhere you can get construction financing

Phoenix

- 18 -

Summary of Findings - U.S. Hotel Industry

► Hotel values continue to grow but at a slowing rate

► The future of mortgage interest rates – the big unknown

► Don’t worry about future supply growth – the lack of

construction financing is likely to continue

► Ideal conditions for another strong transaction year –

activity is expected to equal or exceed that of 2013

► Availability of debt will continue, with lender competition

putting pressure on interest rates and loan-to-value ratios

- 19 -

The Future Looks Good For

The U.S. Hotel Industry

- 20 -

HVS Hotel Management Contract Survey USA | Europe | India | APAC

May 2014

HVS India

- 21 -

14%

86%

India

11%

89%

APAC

Yes

No

61%

39%

USA

Provision for Owner’s Priority

49% 51%

Europe

- 22 -

49% 51%

APAC

Yes

No 72%

28%

India

63%

37%

Europe

66%

34%

USA

Provision for Operator Performance Test

- 23 -

25%

75%

Europe

27%

73%

India 6%

94%

APAC

Yes

No

44%

56%

USA

Operator Termination for Non-Performance and Upon Sale

- 24 -

Thank You