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Hotel Values & CAP Rates Meet The Money® 2015 May 6, 2015 – Sheraton Gateway Hotel Los Angeles

Presented by: Suzanne Mellen, MAI, CRE, FRICS, ISHC

Senior Managing Director Hotel and Casino Consulting & Valuation HVS San Francisco, Los Angeles, and Las Vegas 415-268-0351 smellen@hvs.com

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Historical Sales (Total Assets >$2.5M)

Source: Real Capital Analytics (RCA)

$136,001

$203,248

$0

$5

$10

$15

$20

$25

$30

$35

$60,000

$90,000

$120,000

$150,000

$180,000

$210,000

$ in

Bill

ion

s

Pri

ce P

er

Ke

y

Sales Volume Price Per Key

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Hotel Sales Volume Trends

$0

$5

$10

$15

$20

$25

$30

$35

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

$ in

Bill

ion

s

>$10M

$2.5-10M

Source: Real Capital Analytics (RCA)

- 4 -

Comparison of # Properties Sold

Source: Real Capital Analytics (RCA)

924 1,044

907

607

243 325

526 701

937 995

626

723 746

284

79

236

449 381

483

755

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

>$10M

$2.5-10M

+56.3%

+6.2%

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2014 Sales By Price Per Room: $10M+

Source: Real Capital Analytics (RCA)

124 177

206

354 61

117

48

62

21

30

11

15

0

100

200

300

400

500

600

700

800

2013 2014

# o

f P

rop

ert

ies $750k+

$500-750k

$300-500k

$200-300k

$100-200k

<$100k

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Portfolio Sales Driving Overall Sales Volume 1Q2015 Notable Portfolio Sales

Equity Inns 116 Limited & Full Service Properties

Buyer: American Realty Capital Hospitality Trust

Seller: Whitehall Real Estate Funds

Price: $1,800,000,000

Price/Room: $132,120

Prudential RE Investors 28 Full & Limited Service Properties

Buyer: Ashford Hospitality Trust

Seller: Prudential RE Investors

Price: $1,735,000,000

Price/Room: $227,094

Apple Hospitality REIT 48 Limited & Full Service Properties

Buyer: MCR Development LLC

Seller: Apple Hospitality REIT

Price: $206,400,000

Price/Room: $114,730

Source: Real Capital Analytics (RCA)

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Major Hotel Sales Transactions (Assets $10M+)

Source: Real Capital Analytics (RCA)

Year Number of

Hotels % Change Average Price

per Room % Change

1Q 2015 269 102% $286,860 49%

1Q 2014 133 $192,870

2014 755 56% $211,020 5%

2013 483 27% $200,905 6%

2012 381 -15% $189,393 -3%

2011 449 90% $196,147 5%

2010 236 199% $185,943 44%

2009 79 -72% $129,074 -30%

2008 284 -62% $183,409 4%

2007 746 3% $175,729 -9%

2006 723 15% $183,409 22%

2005 626 $159,317

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Major Hotel Sales Transactions (Assets $10M+)

Source: Real Capital Analytics (RCA)

Year Number of

Hotels % Change Average Price

per Room % Change

1Q 2015 269 102% $286,860 49%

1Q 2014 133 $192,870

2014 755 56% $211,020 5%

2013 483 27% $200,905 6%

2012 381 -15% $189,393 -3%

2011 449 90% $196,147 5%

2010 236 199% $185,943 44%

2009 79 -72% $129,074 -30%

2008 284 -62% $183,409 4%

2007 746 3% $175,729 -9%

2006 723 15% $183,409 22%

2005 626 $159,317

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Major Hotel Sales Transactions (Assets $10M+)

Source: Real Capital Analytics (RCA)

Year Number of

Hotels % Change Average Price

per Room % Change

1Q 2015 269 102% $286,860 49%

1Q 2014 133 $192,870

2014 755 56% $211,020 5%

2013 483 27% $200,905 6%

2012 381 -15% $189,393 -3%

2011 449 90% $196,147 5%

2010 236 199% $185,943 44%

2009 79 -72% $129,074 -30%

2008 284 -62% $183,409 4%

2007 746 3% $175,729 -9%

2006 723 15% $183,409 22%

2005 626 $159,317

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Montage Laguna Beach $1,440,000 per key

5 Sales Exceeding $1 Million Per Key YTD 2015

Waldorf Astoria, Manhattan, NY $1,368,421 per key

Mandarin Oriental, San Francisco, CA $1,000,000 per key

Source: HVS and RCA

Malibu Beach Inn, Malibu, CA $1,640,000 per key

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Cap and Discount Rates – Derived from Sales

Source: HVS

%

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

Cap Rate - Historical NOI Cap Rate - 1st Yr. Projected NOI

Unlevered Discount Rate Equity Yield

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Cap and Discount Rates – Derived from Sales

Source: HVS

%

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

Cap Rate - Historical NOI Cap Rate - 1st Yr. Projected NOI

Unlevered Discount Rate Equity Yield

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Derived Cap Rates Steady (based on historical NOI)

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

6.7

7.8

9.0

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Full Service Select Service Ltd. Service

2011 2012 2013 2014

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Comparative Rates of Return

Source: Derived from hotels appraised by HVS at time of sale

6.7 7.5

10.6

17.8

7.8 9.0

11.1

19.2

9.0 9.8

12.3

21.3

0

5

10

15

20

25

Historical NOI 1st Year NOI Discount Rate Equity IRR

Full Service SS & ES Ltd. Service

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Luxury Hotel Cap Rates in High Barrier to Entry Markets

Source: Real Capital Analytics (RCA)/HVS

Location Sale Date

San Diego, California Apr-15 $260,227,273 249 $1,045,089 2.2%

San Francisco, California Feb-15 $530,000,000 1,024 $517,578 5.0%

Malibu, California Feb-15 $79,900,000 47 $1,700,000 3.2%

Laguna Beach, California Jan-15 $360,000,000 248 $1,451,613 5.0%

Honolulu, Hawaii Oct-14 $286,238,820 338 $846,860 2.6%

Seattle, Washington Jul-14 $62,000,000 120 $516,667 3.4%

Wailea Maui, Hawaii Jul-14 $325,500,000 544 $598,346 5.2%

Fort Lauderdale, Florida Jul-14 $159,000,000 296 $537,162 2.2%

New York, New York Jun-14 $273,600,000 480 $570,000 2.1%

Coronado, California Jun-14 $787,000,000 757 $1,039,630 4.8%

Napa, California Jun-14 $60,000,000 86 $697,674 5.4%

Overall

CapPrice Rooms Price/Rm

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Hotel Cap Rates in Energy Driven Markets With Low Barriers to Entry

Location Sale Date

Year

Opened

Kenedy, Texas Jan-15 $8,700,000 68 $127,941 33.6% 2013

Pearsall, Texas Aug-14 $9,300,000 66 $140,909 8.5% 2012

Cotulla, Texas Aug-14 $9,990,000 73 $136,849 23.1% 2013

Pleasanton, Texas Aug-14 $8,900,000 63 $141,270 25.1% 2012

Beeville, Texas Dec-13 $8,700,000 70 $124,286 9.9% 2012

Odessa, Texas Aug-13 $12,000,000 118 $101,695 35.4% 1973

Sonora, Texas Aug-13 $3,900,000 54 $72,222 18.6% 2000

Midland, Texas Apr-13 $6,500,000 66 $98,485 16.0% 2009

Victoria, Texas Feb-13 $9,500,000 82 $115,854 25.0% 2009

Hobbs, New Mexico Jan-13 $2,750,000 54 $50,926 15.6% 1996

Price Rooms Price/Rm

Overall

Cap

Source: Real Capital Analytics (RCA)/HVS

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Hotels Maintain Return Premium

%

Source: PWC Real Estate Investor Survey

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

Regional Mall CBD Office Suburban Office Apartment

Full-Service Lodging Limited-Service Lodging Luxury Lodging Select Service Lodging

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Luxury Cap Rates Dip Below Full Service

Source: PriceWaterhouseCoopers Real Estate Investor Survey

%

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

Full-Service Lodging Limited-Service Lodging Luxury Lodging Select Service Lodging

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Slight Uptick in Terminal Cap Rates

Source: PWC Real Estate Investor Survey

10.26 11.25

9.75

NA

8.17 9.25

7.62 8.34 8.31

9.63

7.38

8.65

0%

2%

4%

6%

8%

10%

12%

Full-Service Lodging Limited-ServiceLodging

Luxury Lodging Select ServiceLodging

5 Years Ago (1Q2010) 1 Year Ago (1Q2014) 1Q2015

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Cap Rates Remain Well Above Hotel Mortgage Interest Rates

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield

Source: Federal Reserve, ACLI, and HVS

%

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Cap Rates Remain Well Above Hotel Mortgage Interest Rates

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield

Source: Federal Reserve, ACLI, and HVS

%

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Cap Rates Remain Well Above Hotel Mortgage Interest Rates

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield

Source: Federal Reserve, ACLI, and HVS

%

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Cap Rates Remain Well Above Hotel Mortgage Interest Rates

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield

Source: Federal Reserve, ACLI, and HVS

%

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Cap Rates Remain Well Above Hotel Mortgage Interest Rates

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield

Source: Federal Reserve, ACLI, and HVS

%

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REITS Outlook is Positive

Source: Investment Banking Bulletins, SEC, HVS

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

YE2007

YE2008

YE2009

YE2010

YE2011

YE2012

YE2013

YE2014

YTD5/14

YTD5/15

Implied REIT Cap Rates

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REITS Outlook is Positive

Source: Investment Banking Bulletins, SEC, HVS

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

YE2007

YE2008

YE2009

YE2010

YE2011

YE2012

YE2013

YE2014

YTD5/14

YTD5/15

Implied REIT Cap Rates

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REITS Outlook is Positive

Source: Investment Banking Bulletins, SEC, HVS

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

YE2007

YE2008

YE2009

YE2010

YE2011

YE2012

YE2013

YE2014

YTD5/14

YTD5/15

Implied REIT Cap Rates

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Summary

Ideal conditions for another strong transaction year – activity expected to well exceed that of 2014 and prior peak achieved in 2006

Wide array of buyers continue to pursue hotel investments

More sellers are coming to the table as sales prices near peak pricing

Availability of debt will continue, with lender competition putting pressure on interest rates and loan-to-value ratios

Interest rates expected to rise only moderately – no major concern

Capitalization rates expected to remain steady despite rise in NOI due to availability of capital and buyer competition for quality assets

Values will continue to rise driven by ADR and profit gains coupled with low cost of capital and increasing leverage

Values likely to peak within next two to three years

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Please, Call Me or e-mail Me With Any Questions

smellen@hvs.com

415-268-0351

Thank You!

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Suzanne R. Mellen, MAI, CRE, FRICS, ISHC

Suzanne R. Mellen is the Senior Managing Director of Consulting & Valuation for HVS San

Francisco, Los Angeles, and Las Vegas, and President of HVS Gaming Services. HVS is a full-

service consulting and valuation firm specializing in hotel, gaming, and hospitality properties

worldwide. HVS offices under her leadership are renowned for excellence and integrity. Ms. Mellen

has appraised thousands of hotels, gaming assets, and related real estate over the past 37 years.

She has authored numerous articles and is a frequent lecturer and expert witness on the valuation

of hotels, casinos, and related issues.

Ms. Mellen has a B.S. degree in Hotel Administration from Cornell University and holds the following

designations: MAI (Appraisal Institute), CRE (Counselor of Real Estate), FRICS (Fellow of the Royal

Institution of Chartered Surveyors), and ISHC (International Society of Hospitality Consultants).

Suzanne Mellen’s professional experience includes consulting and appraisal positions with HVS

New York, Morgan Guaranty Trust, Laventhol & Horwath, and Helmsley-Spear Hospitality Services,

Inc. in New York City and Harley-Little Associates in Toronto, Canada.