Amendment to Tender-Offer Statement — Going-Private Transaction — Schedule 13E-3
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SC 13E3/A Amendment No.3 to Schedule 13E-3 7 27K
8: EX-99.C.10 Market Value Appraisal of Hotel Property 128 419K
2: EX-99.C.4 Market Value Appraisal of Hotel Property 101 402K
3: EX-99.C.5 Market Value Appraisal of Hotel Property 116 370K
4: EX-99.C.6 Market Value Appraisal of Hotel Property 99 295K
5: EX-99.C.7 Market Value Appraisal of Hotel Property 124 400K
6: EX-99.C.8 Market Value Appraisal of Hotel Property 95 294K
7: EX-99.C.9 Market Value Appraisal of Hotel Property 139 454K
EX-99.C.7 — Market Value Appraisal of Hotel Property
Exhibit Table of Contents
Exhibit C(7)
COMPLETE APPRAISAL IN A
SELF-CONTAINED APPRAISAL REPORT
HOTEL PROPERTY
HOLIDAY INN CANTON
4520 Everhard Road NW
Canton, Stark County, Ohio 44718
PREPARED FOR:
Maureen Mastroieni
Murray Devine & Co.
1650 Arch Street, Suite 2700
Philadelphia, PA 19103
EFFECTIVE DATE OF THE APPRAISAL:
June 20, 2003
INTEGRA REALTY RESOURCES - COLUMBUS
FILE NUMBER: 411-033
[PICTURE]
November 24, 2003
Maureen Mastroieni
Murray Devine & Co.
1650 Arch Street, Suite 2700
Philadelphia, PA 19103
SUBJECT: Market Value Appraisal - Hotel Property
Holiday Inn Canton
4520 Everhard Road
Canton, Stark County, Ohio 44718
Integra Columbus File No. 411-033
Dear Ms. Mastroieni:
Integra Realty Resources is pleased to transmit the summary report of a complete
appraisal that was prepared on the referenced property. The purpose of this
appraisal is to derive an opinion of the market value of the Fee Simple Estate
of the property as of June 20, 2003, the effective date of the appraisal. The
attached report sets forth the data, research, analyses, and conclusions for
this appraisal.
The report has been prepared in conformity with the Uniform Standards of
Professional Appraisal Practice (USPAP) and the Standards of Professional
Practice of the Appraisal Institute. Our opinion of market value is premised
upon the Assumptions and Limiting Conditions beginning on Page 3. The definition
of market value is in Addendum B.
The site has an area of approximately 4.81 acres; it is improved with a 2 and 3
story, masonry hotel containing 194 rooms. The room mix includes 8 singles, 124
doubles and 62 kings. The common area includes 3,001 square feet of ballroom
space along with additional meeting rooms. The improvements were constructed in
1970 with a three story addition in 1973. The improvements contain 104,260
square feet.
November 24, 2003
Page 2
Based on the analyses and conclusions in the accompanying report, and subject to
the definitions, assumptions, and limiting conditions expressed in this report,
it is our opinion that the prospective market value of the Fee Simple Estate of
the subject as a going concern, as of January 1, 2004, or upon completion of
deferred maintenance.
EIGHT MILLION THOUSAND DOLLARS
($8,000,000 ).
The subject's going concern value may be allocated as follows:
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Land & Buildings $7,050,000 88%
Furniture, Fixtures & Equipment $ 550,000 7%
Business & Other Intangibles $ 400,000 5%
Total Going Concern Value $8,000,000 100%
The preceding value conclusion is subject to the following Extraordinary
Assumptions and Limiting Conditions.
1. The subject is currently operating as a franchised Holiday Inn hotel. This
appraisal implicitly assumes a sale, at which point the Franchisor will
prepare a Product Improvement Plan (PIP) as one of the items required for
transfer of the franchise. Our analysis assumes continued, uninterrupted
affiliation with the existing franchise. Any PIP requirements necessary
are assumed complete under the As Stabilized Value above.
2. We assume any leased items including furniture, fixtures and equipment are
paid off at closing. Therefore we have not deducted any lease balances. We
further assume accounts receivable and accounts payable are reconciled at
closing. No liquidated damages due to disaffiliation have been considered.
3. The subject is an existing Holiday Inn hotel that was constructed in
1970/73. The property was evaluated on May 23, 2002 for hotel cleanliness,
conditions, life safety and brand integrity standards. The subject
property received an overall evaluation score of 97.5% and received a
passing score. No Product Improvement plan has reportedly been completed
by Janus Hotels and Resorts for a transfer of this asset. The definition
of Market value assumes a sale. A Product Improvement plan will be
conducted at the time of application for a franchise transfer. Integra
Realty resources has assumed continued affiliation with Holiday Inn
Hotels. The stabilized value assumes that any product improvement items
are completed. Therefore, the "As Is" market value could be LESS THAN
reported above. Any PIP requirements should be deducted from the above
Stabilized value. Our report, and value indication is subject to all
transfer requirements of the affiliation, including a product improvement
plan.
November 24, 2003
Page 3
As Is Value is determined by deducting any costs necessary to stabilize the
subject. Correction of some deferred maintenance is necessary, subject to
additional PIP requirements by Holiday Inn. We have estimated costs at $100,000.
The As Is Value as of June 20, 2002, is therefore estimated at:
SEVEN MILLION NINE HUNDRED THOUSAND DOLLARS
($7,900,000).
If you have any questions or comments, please contact the undersigned. Thank you
for the opportunity to be of service.
Respectfully submitted,
INTEGRA COLUMBUS
Eric E. Belfrage, MAI, CRE, ISHC Robin M. Lorms, MAI, CRE
Certified General Real Estate Appraiser Certified General Real Estate Appraiser
OH Certificate #383767 OH Certificate #383772
HOLIDAY INN CANTON TABLE OF CONTENTS
TABLE OF CONTENTS
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PAGE NO.
----------
TABLE OF CONTENTS .................................................. 1
SUMMARY OF SALIENT FACTS AND CONCLUSIONS ........................... 2
GENERAL INFORMATION ................................................ 3
Identification of Subject ....................................... 3
Current Ownership, Sales History, Status ........................ 3
Purpose, Property Rights and Effective Date ..................... 3
Intended Use and Intended User .................................. 3
Scope of Appraisal .............................................. 3
ECONOMIC ANALYSIS .................................................. 6
Stark County Area Analysis ...................................... 6
MARKET AREA ANALYSIS ............................................... 16
Lodging Market Analysis ......................................... 20
PROPERTY ANALYSIS .................................................. 43
Description and Analysis of the Land ............................ 43
Description and Analysis of the Improvements .................... 46
Real Estate Tax Analysis ........................................ 52
Highest and Best Use Analyses ................................... 54
VALUATION ANALYSIS ................................................. 56
Valuation Methodology ........................................... 56
Sales Comparison Approach ....................................... 57
Income Capitalization Approach .................................. 67
Capitalization .................................................. 81
Reconciliation .................................................. 94
CERTIFICATION ...................................................... 97
ASSUMPTIONS AND LIMITING CONDITIONS ................................ 99
ADDENDA
Qualifications of Appraiser(s) .................................. Addendum A
Definitions ..................................................... Addendum B
Subject Photographs ............................................. Addendum C
Financials and Property Information ............................. Addendum D
DCF Reports ..................................................... Addendum E
Letter of Authorization ......................................... Addendum F
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HOLIDAY INN CANTON SUMMARY OF SALIENT FACTS AND CONCLUSIONS
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
HOTEL PROPERTY
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PROPERTY Holiday Inn
4520 Everhard Road
Canton, Stark County, Ohio 44718
PROPERTY TAX IDENTIFICATION NUMBER (S) 1607046 and 7045
EFFECTIVE DATE OF THE APPRAISAL July 14, 2003
"AS IS" VALUE June 20, 2003
PROSPECTIVE VALUE January 1, 2004 (or completion of deferred
maintenance)
OWNER OF RECORD JAGI Cleveland - N Canton, LLC
LAND AREA 4.81 acres, 207,346 square feet
NUMBER OF ROOMS 194
GROSS BUILDING AREA (GBA) 104,260 square feet
YEAR BUILT 1970/73
ZONING DESIGNATION B-3, Commercial Business District
FLOOD PLAIN MAP PANEL NUMBER AND DATE 390780 0085B, Sept. 1, 1983
FLOOD PLAIN DESIGNATION Zone C
REAL ESTATE TAXES, YEAR 2002 $77,048.24
HIGHEST AND BEST USE AS IMPROVED Continued hotel use
PROPERTY RIGHTS APPRAISED Fee Simple Estate
ESTIMATED EXPOSURE TIME AND
MARKETING PERIOD 12 months, 12 months
MARKET VALUE INDICATIONS
COST APPROACH Not developed
SALES COMPARISON APPROACH $8,300,000 to $8,800,000
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION $8,000,000
MARKET VALUE CONCLUSION OF GOING CONCERN $8,000,000 OR $41,237 PER ROOM
GOING CONCERN ALLOCATION AS OF JAN. 1, 2002
LAND & IMPROVEMENTS $7,050,000
PERSONAL PROPERTY $550,000
BUSINESS AND OTHER INTANGIBLES $400,000
TOTAL $8,000,000
AS IS MARKET VALUE AS OF JUNE 20, 2003 $7,900,000
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HOLIDAY INN CANTON GENERAL INFORMATION
GENERAL INFORMATION
IDENTIFICATION OF SUBJECT
The subject consists of a 194-room, lodging facility containing a gross
building area of approximately 104,260 square feet. The improvements were
constructed in 1970 and 1973 and are located on a site containing 4.81
acres, or 207,376 square feet, more or less. The street address is 4520
Everhard Road NW, Canton, Ohio. It is further identified by the assessment
office as Parcels 1607046 and 1607045, Stark County, Ohio. A complete
legal description of the property is in Addendum D. Photographs of the
subject are in Addendum A.
CURRENT OWNERSHIP, SALES HISTORY, STATUS
The subject is currently owned by JAGI Cleveland-N Canton, LLC, who
acquired title August 17, 1998 from Galburtonn, Inc. for $5,454,250, as
recorded in Volume 98, page 057097 of the Stark County Recorder's Office.
To the best of our knowledge, no other sale or transfer of ownership has
occurred within the past three years, and as of the effective date of this
appraisal, the property is not subject to an agreement of sale or option
to buy, nor is it listed for sale.
PURPOSE, PROPERTY RIGHTS AND EFFECTIVE DATE
The purpose of the appraisal is to develop an opinion of the market value
of the fee simple interest in the property as of the effective date of the
appraisal, as of June 20, 2003. Unless otherwise stated, all factors
pertinent to a determination of value have been considered as of this
date.
INTENDED USE AND INTENDED USER
The purpose of this appraisal is to derive our opinion of the market value
of the Fee Simple interest of the subject as of the effective date of the
appraisal, June 20, 2003. Unless otherwise stated, all factors pertinent
to a determination of value have been considered as of this date. The
property was inspected on June 20, 2003 by Eric E. Belfrage, MAI, CRE,
ISHC and John R. Dehner. This appraisal report has been prepared for
Maureen Mastroieni of Murray Devine & Co. to assist in due diligence in
the process of assisting Janus Hotels in a transaction converting then
from a public to private organization. It is not intended for any other
use.
SCOPE OF APPRAISAL
As part of this appraisal, we have completed the following steps to
gather, confirm, and analyze the data.
- Physically inspected the subject and the surrounding neighborhood.
- Collected factual information about the subject and the surrounding
market and confirmed that information with various sources.
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HOLIDAY INN CANTON GENERAL INFORMATION
- Prepared a highest and best use analysis of the subject site as
though vacant and of the subject as improved.
- Collected and confirmed market information needed to consider the
three traditional approaches to value: cost approach, sales
comparison approach and income capitalization approach.
- Prepared a summary appraisal report setting forth the conclusion
derived in this analysis as well as the information upon which the
conclusions are based.
This report involves a complete appraisal of the subject and conforms with
the requirements of the Uniform Standards of Professional Appraisal
Practice (USPAP), the Standards of Professional Practice of the Appraisal
Institute, and the appraisal guidelines set forth in the Financial
Institutions Reform Recovery Enforcement Act (FIRREA). All of the three
traditional approaches to value have been considered in this appraisal.
Additional information regarding the appraisal methods used can be found
in the individual sections of this report.
Pertinent definitions, including the definition of market value and
property rights appraised, are in Addendum B.
The exposure period and marketing time are defined as follows:
EXPOSURE TIME AND MARKETING PERIOD
Generally, exposure time relates to what has occurred
(retrospective) and is occurring (current) in the market, whereas
marketing period is a projection (prospective) of what is likely to
occur in the market. Any sound opinion of value must consider what
has occurred and what will most likely occur. Both time periods are
a function of price, time, use, and the cost and availability of
funds. The primary difference between the two time periods is that
for marketing period anticipated changes in market conditions
(trends) are also considered.
Verification of sales data, such as days on the market for both
listed and sold properties, and interviews with market participants
are the primary source for both time estimates. Other important
factors are an understanding of buyers' and sellers' motivations,
their financial assumptions, who the most likely purchasers will be,
and how financing influences their buying decision.
Recent national surveys were consulted to determine the typical
expected marketing period. Following is the First Quarter 2003
Survey from PriceWaterhouse Coopers.
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HOLIDAY INN CANTON GENERAL INFORMATION
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CURRENT THIRD
KEY INDICATORS QUARTER QUARTER 2001 YEAR AGO
-------------- ------- ------------ --------
AVERAGE MARKETING TIME (IN MONTHS)
RANGE 2.00-12.00 2.00-12.00 2.00-12.00
AVERAGE 7.00 7.00 7.90
CHANGE (Basis Points) -- 0 -11.39
*Source: PricewaterhouseCoopers
Despite the market downturn in lodging performance, assets continue to
sell. Obviously, well performing, new and well located assets that are
priced correctly will sell quickly. Many hotel assets listed for sale
including some older, poorly maintained or poorly performing assets are
experiencing a pricing gap between sellers and buyers expectations.
Financing remains a critical issue in the marketability of hotel assets.
While difficult to obtain, hotel financing remains available, at
reasonably favorable pricing.
In our opinion, given the subject's affiliation and pricing at or near the
appraised values, both exposure and marketing periods of up to 12 months
are reasonable.
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HOLIDAY INN CANTON ECONOMIC ANALYSIS
ECONOMIC ANALYSIS
STARK COUNTY AREA ANALYSIS
INTRODUCTION
We analyzed the demographics of Stark County and the State of Ohio, using
as a basis information provided by NPA Data Services, Inc., a recognized
source. Information includes historical and projected population,
employment and income data.
POPULATION
Historical and projected population trends for Stark County are charted
below:
POPULATION TRENDS
STARK COUNTY
[BAR CHART]
The population of Stark County increased at a compounded annual rate of
0.28% from 1998 to 2003. For the same time period, the State of Ohio grew
at a compounded annual rate of approximately 0.44%. Over the last fifteen
years Stark County's average annual compound change was 0.27%, compared to
0.46% for the State of Ohio.
Looking ahead, both Stark County and the State of Ohio are anticipated to
experience continued growth, with future population estimates reflecting
growth rates similar to those experienced in the past. For the period 2003
to 2018, the populations of Stark County and the the State of Ohio are
expected to increase by an average annual compound rate of 0.20% and
0.51%, respectively. For the next five years, the population of Stark
County should grow slower than the 15-year average.
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HOLIDAY INN CANTON ECONOMIC ANALYSIS
POPULATION TRENDS COMPARISON
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STATE OF OHIO STARK COUNTY
------------------------------------ ----------------------------
% %
YEAR POPULATION (000'S) CHANGE POPULATION (000'S) CHANGE
---- ------------------ ------ ------------------ ------
1988 10,798.6 367.4
1993 11,101.1 2.8% 374.8 2.0%
1998 11,311.5 1.9% 377.6 0.7%
HISTORICAL 1999 11,335.5 0.2% 378.2 0.2%
2000 11,371.2 0.3% 378.4 0.0%
2001 11,394.4 0.2% 378.1 -0.1%
2002 11,476.4 0.7% 380.5 0.6%
CURRENT 2003 11,560.8 0.7% 382.8 0.6%
2004 11,607.0 0.4% 383.2 0.1%
2005 11,655.0 0.4% 383.5 0.1%
2006 11,704.8 0.4% 383.9 0.1%
2007 11,757.0 0.4% 384.4 0.1%
PROJECTED 2008 11,811.7 0.5% 385.0 0.2%
2013 12,119.2 2.6% 388.9 1.0%
2018 12,471.0 2.9% 394.3 1.4%
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AVERAGE ANNUAL HISTORICAL
COMPOUND CHANGE Past 5 years 0.44% 0.28%
Past 15 years 0.46% 0.27%
PROJECTED
Next 5 years 0.43% 0.11%
Next 15 years 0.51% 0.20%
Source: NPA Data Services, Inc.; compiled by IRR
EMPLOYMENT
Employment trends for both Stark County and the State of Ohio should
follow a pattern similar to the population trends for these areas,
although at higher rates of increase. From 1998 to 2003, Stark County
employment decreased at an average annual compound rate of -0.17% compared
to 0.35% for the the State of Ohio. These figures indicate that Stark
County lagged the State of Ohio in employment growth over the last five
years. Looking back fifteen years, Stark County employment grew at an
average annual compound rate of 0.91%, compared to the State of Ohio
growth rate of 1.19%.
Over the next five and fifteen years Stark County employment growth should
lag the State of Ohio growth rate. From 2003 to 2008, Stark County should
grow by a 0.95% average annual growth rate, while the long term
projection, 2003 to 2018, is for a 0.77% increase. For the same periods,
employment in the State of Ohio is expected to grow at average annual
compound rates of 1.27% and 1.10%, respectively. Employment gains are a
strong indicator of economic health and generally correlate with real
estate demand. Historically, Stark County has lagged the State of Ohio's
growth rate, suggesting that Stark County's relative position is stable.
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HOLIDAY INN CANTON ECONOMIC ANALYSIS
Employment trends for Stark County and the the State of Ohio are presented
below.
NON-FARM EMPLOYMENT TRENDS COMPARISON
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STATE OF OHIO STARK COUNTY
------------------------------------ ----------------------------
% %
YEAR EMPLOYMENT (000'S) CHANGE EMPLOYMENT (000'S) CHANGE
---- ------------------ ------ ------------------ ------
1988 5,610.6 185.7
1993 5,907.8 5.3% 192.8 3.8%
1998 6,586.3 11.5% 214.4 11.2%
HISTORICAL 1999 6,685.5 1.5% 215.6 0.6%
2000 6,787.1 1.5% 220.2 2.1%
2001 6,728.2 -0.9% 214.5 -2.6%
2002 6,637.8 -1.3% 211.1 -1.6%
CURRENT 2003 6,704.0 1.0% 212.6 0.7%
2004 6,792.7 1.3% 214.8 1.0%
2005 6,892.9 1.5% 217.3 1.2%
2006 6,977.1 1.2% 219.2 0.9%
PROJECTED 2007 7,062.7 1.2% 221.2 0.9%
2008 7,140.3 1.1% 222.9 0.8%
2013 7,549.8 5.7% 231.7 4.0%
2018 7,894.8 4.6% 238.5 2.9%
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AVERAGE ANNUAL HISTORICAL
COMPOUND CHANGE Past 5 years 0.35% -0.17%
Past 15 years 1.19% 0.91%
PROJECTED
Next 5 years 1.27% 0.95%
Next 15 years 1.10% 0.77%
Source: NPA Data Services, Inc.; compiled by IRR
To more completely understand the economy of Stark County and the State of
Ohio and how it relates to future real estate demand, we analyze
employment mix. The following chart depicts the current distribution of
employment by industry.
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HOLIDAY INN CANTON ECONOMIC ANALYSIS
EMPLOYMENT SECTORS 2003
STARK COUNTY
[BAR CHART]
The preceding chart and following tables show that in 2003, the largest
employment sectors in Stark County were:
- Services (30.6%)
- Manufacturing (19.2%)
- Retail Trade (18.6%)
- Government (9.8%)
By comparison, the State of Ohio's largest employment sectors were
Services (30.9%), Retail Trade (18.0%), Manufacturing (15.2%), and
Government (12.4%).
Over the past fifteen years, the largest meaningful percentage gains in
employment within Stark County occurred within the Construction and
Services sectors with annual average compound growth rates of 2.54% and
2.01% respectively. Over the past five years the most significant activity
has occurred in the Mining & Other and Government sectors with annual
average compound growth rates of 1.64% and 0.93%, respectively.
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HOLIDAY INN CANTON ECONOMIC ANALYSIS
HISTORIC EMPLOYMENT TRENDS
STARK COUNTY
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% % CHANGE RATE
1988 OF TOTAL 1993 1998 2003 OF TOTAL (15 YR) (5 YR)
---- -------- ---- ---- ---- -------- ------- ------
Total Employment 185.7 100% 192.8 214.4 212.6 100% 0.9% -0.2%
Services 48.3 26.0% 53.0 63.4 65.0 30.6% 2.0% 0.5%
Manufacturing 44.6 24.0% 42.8 46.1 40.9 19.2% -0.6% -2.4%
Retail Trade 35.4 19.0% 37.1 39.7 39.6 18.6% 0.8% 0.0%
Government 19.4 10.4% 19.6 19.9 20.8 9.8% 0.5% 0.9%
Construction 9.1 4.9% 10.7 12.9 13.3 6.3% 2.5% 0.7%
FIRE 10.6 5.7% 10.9 12.5 12.9 6.1% 1.3% 0.6%
Wholesale Trade 8.7 4.7% 8.6 10.4 10.5 4.9% 1.2% 0.2%
TCPU 6.7 3.6% 7.0 6.6 6.3 3.0% -0.4% -0.8%
Mining & Other 3.1 1.7% 3.0 3.1 3.3 1.6% 0.5% 1.6%
Ttl Non-Mfg 141.1 76.0% 150.0 168.3 171.7 80.8% 1.3% 0.4%
Ttl Office-Related* 78.2 42.1% 83.6 95.8 98.8 46.5% 1.6% 0.6%
*Includes FIRE, Services and Government (Numbers in thousands (000's))
In the following chart, we examine relative changes in the broad
categories of Manufacturing, Office Related and Other Non-Manufacturing
employment. For purposes of this analysis, we define office related
employment as total employment in the FIRE, Services and Government
sectors. While not all employment in these sectors is office related,
office employment trends tend to mirror the trends in these three
categories combined. As seen in these charts, office-related employment
has captured an increasing share of total employment, indicating a shift
toward a more service-based economy, which is consistent with the national
trend.
EMPLOYMENT SECTOR TRENDS
STARK COUNTY
[CHART]
Historical trends for the State of Ohio are summarized in the following
chart. The largest meaningful gains in employment over the past fifteen
years occurred within the
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HOLIDAY INN CANTON ECONOMIC ANALYSIS
Services and Construction sectors with annual average compound growth
rates of 2.2% and 2.2% respectively. Over the past five years significant
activity has occurred in the Mining & Other and Construction sectors with
annual average compound growth rates of 1.9% and 1.5%.
HISTORIC EMPLOYMENT TRENDS
STATE OF OHIO
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% % CHANGE RATE
1988 OF TOTAL 1993 1998 2003 OF TOTAL (15 YR) (5 YR)
---- -------- ---- ---- ---- -------- ------- ------
Total Employment 5610.6 100% 5907.8 6586.3 6704.0 100% 1.2% 0.4%
Construction 266.4 4.7% 286.1 343.1 370.0 5.5% 2.2% 1.5%
FIRE 388.2 6.9% 401.5 478.9 512.7 7.6% 1.9% 1.4%
Government 744.2 13.3% 789.0 803.2 828.0 12.4% 0.7% 0.6%
Manufacturing 1128.3 20.1% 1073.7 1121.2 1017.1 15.2% -0.7% -1.9%
Mining & Other 71.4 1.3% 73.3 77.8 85.6 1.3% 1.2% 1.9%
Retail Trade 1001.9 17.9% 1064.3 1186.1 1209.8 18.0% 1.3% 0.4%
Services 1487.9 26.5% 1685.3 1968.3 2070.2 30.9% 2.2% 1.0%
TCPU 248.8 4.4% 254.9 289.2 297.1 4.4% 1.2% 0.5%
Wholesale Trade 273.7 4.9% 279.7 318.6 313.5 4.7% 0.9% -0.3%
Ttl Non-Mfg. 4482.3 79.9% 4834.0 5465.1 5686.9 84.8% 1.6% 0.8%
Ttl Office-Related* 2620 46.7% 2875.8 3250.4 3410.9 50.9% 1.8% 1.0%
*Includes FIRE, Services and Government (Numbers in thousands (000's))
Fifteen year projections for Stark County show Mining & Other related
employment leading all other sectors with Construction second. The
forecast for the State of Ohio has Mining & Other related employment
leading all other sectors with Wholesale Trade second. Future projections
are summarized in the following tables.
PROJECTED EMPLOYMENT TRENDS
STARK COUNTY
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% % CHANGE RATE
2003 OF TOTAL 2008 2013 2018 OF TOTAL (15 YR) (5 YR)
---- -------- ---- ---- ---- -------- ------- ------
Total Employment 212.6 100% 222.9 231.7 238.5 100% 0.8% 0.9%
Construction 13.3 6.3% 14.6 16.0 17.2 7.2% 1.7% 1.9%
FIRE 12.9 6.1% 13.4 13.8 14.1 5.9% 0.6% 0.7%
Government 20.8 9.8% 22.2 23.3 24.2 10.1% 1.0% 1.2%
Manufacturing 40.9 19.2% 39.8 38.3 36.5 15.3% -0.8% -0.5%
Mining & Other 3.3 1.6% 3.7 4.2 4.5 1.9% 2.1% 2.4%
Retail Trade 39.6 18.6% 41.7 43.5 44.9 18.8% 0.8% 1.0%
Services 65.0 30.6% 69.9 74.3 78.1 32.7% 1.2% 1.5%
TCPU 6.3 3.0% 6.2 6.2 6.1 2.6% -0.2% -0.3%
Wholesale Trade 10.5 4.9% 11.4 12.3 13.0 5.5% 1.5% 1.8%
Ttl Non-Mfg. 171.7 80.8% 183.1 193.4 202.0 84.7% 1.1% 1.3%
Ttl Office-Related* 98.8 46.5% 105.4 111.4 116.3 48.8% 1.1% 1.3%
*Includes FIRE, Services and Government (Numbers in thousands (000's))
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HOLIDAY INN CANTON ECONOMIC ANALYSIS
PROJECTED EMPLOYMENT TRENDS
STATE OF OHIO
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% % CHANGE RATE
2003 OF TOTAL 2008 2013 2018 OF TOTAL (15 YR) (5 YR)
---- -------- ---- ---- ---- -------- ------- ------
Total Employment 6704.0 100% 7140.3 7549.8 7894.8 100% 1.1% 1.3%
Construction 370.0 5.5% 403.4 439.2 471.6 6.0% 1.6% 1.7%
FIRE 512.7 7.6% 544.7 574.0 597.6 7.6% 1.0% 1.2%
Government 828.0 12.4% 884.9 937.2 980.8 12.4% 1.1% 1.3%
Manufacturing 1017.1 15.2% 1014.8 1001.3 975.0 12.3% - 0.3% 0.0%
Mining & Other 85.6 1.3% 96.6 107.9 118.6 1.5% 2.2% 2.5%
Retail Trade 1209.8 18.0% 1297.5 1380.5 1451.9 18.4% 1.2% 1.4%
Services 2070.2 30.9% 2242.7 2410.6 2561.4 32.4% 1.4% 1.6%
TCPU 297.1 4.4% 310.9 323.6 333.8 4.2% 0.8% 0.9%
Wholesale Trade 313.5 4.7% 344.9 375.8 404.2 5.1% 1.7% 1.9%
Ttl Non-Mfg. 5686.9 84.8% 6125.5 6548.6 6919.8 87.7% 1.3% 1.5%
Ttl Office-Related* 3410.9 50.9% 3672.3 3921.8 4139.8 52.4% 1.3% 1.5%
*Includes FIRE, Services and Government (Numbers in thousands (000's))
Stark County accounted for approximately 3.31% of the State of Ohio's
employment in 1988. In 2003, the ratio is 3.18% and it is projected at
3.02% through 2018. This is an indication that Stark County is growing at
a rate below that of the State of Ohio.
Stark County's economy is not dependent on a particular sector. The
employment base is varied, as are the major employers. Therefore, Stark
County should be less susceptible to cyclical fluctuations that have
occurred in other areas dominated by a single industry. The area's major
employers are listed below.
MAJOR EMPLOYERS
EMPLOYER
[Download Table]
Alliance Community Hospital Service
Aultman Hospital Service
Canton City Board of Education Government
Diebold Inc. Manufacturing
General Electric Capital Corp. Finance
Maytag Corp/Hoover Co. Manufacturing
Mercy Medical Center Service
Precision Castparts Corp. Manufacturing
Republic Technologies International Manufacturing
Timken Co. Manufacturing
Source: Ohio Dept. of Development
INCOME
Personal income is a significant factor in determining the real estate
demand in a given market. From 1998 to 2003, Stark County's income grew at
an average annual compound rate of 1.71%, compared to the State of Ohio
average annual compound growth rate of 1.88%. The two market areas
displayed a similar pattern in per capita
[IRR LOGO] PAGE 12
HOLIDAY INN CANTON ECONOMIC ANALYSIS
income growth over the last fifteen years. Stark County's average annual
compound growth rate was 1.57% as compared to 1.73% for the State of Ohio.
Projections for the next five and fifteen year periods reflect growth
rates for Stark County that are greater than the anticipated gains for the
State of Ohio. For the two time frames, 2003 to 2008 and 2003 to 2018,
Stark County is anticipated to experience 2.53% and 2.07% average annual
growth rates, respectively, compared to the projected growth rates of the
State of Ohio of 2.28% and 1.86%.
An examination of income per household reveals that, historically, Stark
County has experienced a growth rate similar to the State of Ohio. Future
projections predict slightly faster growth for Stark County compared to
the State of Ohio. In absolute dollars, Stark County's personal income
historically has been below that of the State of Ohio, both on per capita
and per household bases.
INCOME PER CAPITA COMPARISON
[Download Table]
STATE OF OHIO STARK COUNTY
------------------------------- -----------------------
% %
YEAR INCOME/CAPITA CHANGE INCOME/CAPITA CHANGE
---- ------------- ------ ------------- ------
1988 $21,340 $20,471
1993 $22,325 4.6% $21,216 3.6%
1998 $25,161 12.7% $23,751 11.9%
HISTORICAL 1999 $25,561 1.6% $23,861 0.5%
2000 $26,366 3.1% $24,148 1.2%
2001 $26,658 1.1% $24,813 2.8%
2002 $26,805 0.5% $25,049 0.9%
CURRENT 2003 $27,616 3.0% $25,848 3.2%
2004 $28,362 2.7% $26,606 2.9%
2005 $29,107 2.6% $27,361 2.8%
2006 $29,745 2.2% $28,035 2.5%
PROJECTED 2007 $30,363 2.1% $28,692 2.3%
2008 $30,918 1.8% $29,288 2.1%
2013 $33,787 9.3% $32,358 10.5%
2018 $36,400 7.7% $35,172 8.7%
[Download Table]
AVERAGE ANNUAL HISTORICAL
COMPOUND CHANGE Past 5 years 1.88% 1.71%
Past 15 years 1.73% 1.57%
PROJECTED
Next 5 years 2.28% 2.53%
Next 15 years 1.86% 2.07%
Source: NPA Data Services, Inc.; compiled by IRR
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HOLIDAY INN CANTON ECONOMIC ANALYSIS
INCOME PER HOUSEHOLD COMPARISON
[Download Table]
STATE OF OHIO STARK COUNTY
---------------------------------- --------------------------
% %
YEAR INCOME/HOUSEHOLD CHANGE INCOME/HOUSEHOLD CHANGE
---- ---------------- ------ ---------------- ------
1988 $56,955 $54,350
1993 $58,389 2.5% $55,226 1.6%
1998 $64,676 10.8% $60,871 10.2%
HISTORICAL 1999 $65,439 1.2% $60,950 0.1%
2000 $67,249 2.8% $61,541 1.0%
2001 $67,803 0.8% $62,964 2.3%
2002 $68,025 0.3% $63,459 0.8%
CURRENT 2003 $69,929 2.8% $65,274 2.9%
2004 $71,656 2.5% $67,025 2.7%
2005 $73,373 2.4% $68,756 2.6%
2006 $74,814 2.0% $70,280 2.2%
2007 $76,195 1.8% $71,750 2.1%
PROJECTED 2008 $77,410 1.6% $73,063 1.8%
2013 $83,497 7.9% $79,620 9.0%
2018 $88,211 5.6% $84,822 6.5%
[Download Table]
AVERAGE ANNUAL HISTORICAL
COMPOUND GROWTH Past 5 years 1.57% 1.41%
Past 15 years 1.38% 1.23%
PROJECTED
Next 5 years 2.05% 2.28%
Next 15 years 1.56% 1.76%
Source: NPA Data Services, Inc.; compiled by IRR
CONCLUSION
Overall, the economic outlook for Stark County is positive. Total
population is projected to increase slightly. More importantly, the area
is projected to experience increasing employment growth. Based on this
analysis, it is anticipated that Stark County will continue to grow and
prosper. The expected growth should provide an economic base that supports
demand for real estate in the subject neighborhood and for the subject
property. These conditions should stimulate increases in general property
values within the foreseeable future.
[IRR LOGO] PAGE 14
HOLIDAY INN CANTON ECONOMIC ANALYSIS
AREA MAP
[MAP]
MAP OF MSA
[MAP]
[IRR LOGO] PAGE 15
HOLIDAY INN CANTON MARKET AREA ANALYSIS
MARKET AREA ANALYSIS
BOUNDARIES
The subject is in the Belden Village area of North Canton in Stark
County. For purposes of this report, the neighborhood is best
described as the Belden Village Mall exit at I-77 and Everhard Road
within an approximate one mile ring of the subject property. We have
provided a demographic study of a 1, 3 and 5 mile ring surrounding
the subject, included following this section.
A map identifying the location of the property follows this section.
The neighborhood is primarily influenced by the Interstate 77 and
the Belden Village Mall. Significant development exists at this
interchange located north of Canton and south of Akron.
ACCESS
Primary access to the neighborhood is provided by I-77, Everhard
Road and Whipple Avenue. Road access is good.
EMPLOYMENT
Primary employment centers in the neighborhood consist of the Belden
Village Mall for retail employment. Several office complexes
surround the mall as well as restaurants, retail establishments and
small commercial stores. Additional major employment in the area
includes the Akron/Canton Regional Airport to the north, Diebold,
Timken Company, The Hoover Company, Graphic Enterprises, Stark
Technical College and Kent State University Stark campus.
PUBLIC SERVICES
Schools, fire and police protection are all considered average for
the neighborhood.
LAND USE
Neighborhood land uses include a mixture of commercial, business,
office, retail, hotel and residential. Other land use
characteristics are summarized in the following outline format.
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
PREDOMINANT AGE OF IMPROVEMENTS 20 years
PREDOMINANT QUALITY AND CONDITION Average
APPROXIMATE PERCENT DEVELOPED 80%
LIFE CYCLE STAGE Stability
INFRASTRUCTURE/PLANNING Good
PREDOMINANT LOCATION OF UNDEVELOPED LAND North and west
PREVAILING DIRECTION OF GROWTH North
SUBJECT'S IMMEDIATE SURROUNDING LAND USE
NORTH Restaurant, retail
SOUTH Office, retail
EAST Retail
WEST Retail
DEMOGRAPHIC FACTORS
In order to assess the dynamics of the immediate environment, we have
prepared a ring study using Claritas demographic site reports. Projections
for the near term future are also offered. The 1 mile ring conclusions are
presented following this section.
TRENDS
From 1990 to 2000, the subject's neighborhood has shown an increase in
population and households within the 1, 3 and 5 mile radius studied. The
most significant growth in both population and households has been within
the 1 mile ring of the subject property. Population has grown 8.94% over
the ten year span. Households over this same time grew 14.48%.
DEVELOPMENT ACTIVITY
During the last few years in the subject's neighborhood new development
has included Kohl's, Target, DSW Shoe Warehouse, Dick's Sporting Goods,
Value City, World Market, JoAnn's, PetsMart, and HH Gregg retail
development. The Belden Village Mall is a three anchor mall including
Dillard's, Kaufman's and Sears. There are restaurants of all types in the
Belden Village area.
DEMAND GENERATORS
The following generates lodging demand in the area and neighborhood:
[Download Table]
- Kent State Stark Campus - Stark State Community College
- Belden Village Mall - Akron/Canton Regional Airport
- The Hoover Company - Foreign Trade Zone at Akron Canton Airport
- Diebold - Kent State Stark Campus Conference Center
- Timken Headquarters - Graphic Enterprises
- Pro Football Hall of Fame - Firestone Country Club
(IRR LOGO) Page 17
HOLIDAY INN CANTON MARKET AREA ANALYSIS
OUTLOOK AND CONCLUSIONS
The neighborhood is in the stability stage of its life cycle. Recent
development activity has occurred and has largely been retail based. Much
of the retail development occurred on a site previously occupied by the
Park Hotel, which was demolished in favor of redevelopment. Expected
trends are positive. Given the history of the neighborhood and the growth
trends, it is our opinion the values in the neighborhood will be expected
to increase over the near term future.
ONE, THREE, AND FIVE MILE RADIUS MAP
(MAP)
(IRR LOGO) Page 18
HOLIDAY INN CANTON MARKET AREA ANALYSIS
POP-FACTS: DEMOGRAPHIC QUICK FACTS
4520 EVERHARD RD NW
CANTON, OH 44718-2407
[Enlarge/Download Table]
1 ML 3 ML 5 ML
DESCRIPTION RADIUS PCT. RADIUS PCT. RADIUS PCT.
POPULATION
2008 Projection 3,062 51,932 157,875
2003 Estimate 3,042 51,117 157,553
2000 Census 3,034 50,686 157,451
1990 Census 2,785 47,676 150,988
Growth 1990 - 2000 8.94% 6.31% 4.28%
HOUSEHOLDS
2008 Projection 1,427 23,226 66,895
2003 Estimate 1,389 22,384 65,579
2000 Census 1,368 21,918 64,854
1990 Census 1,195 20,022 60,532
Growth 1990 - 2000 14.48% 9.47% 7.14%
2003 EST. POPULATION BY SINGLE CLASSIFICATION RACE 3,042 51,117 157,553
White Alone 2,886 94.87% 48,327 94.54% 143,791 91.27%
Black or African American Alone 73 2.40% 1,315 2.57% 9,068 5.76%
American Indian and Alaska Native Alone 4 0.13% 93 0.18% 313 0.20%
Asian Alone 55 1.81% 782 1.53% 1,458 0.93%
Native Hawaiian and Other Pacific Islander Alone 0.00% 4 0.01% 21 0.01%
Some Other Race Alone 2 0.07% 103 0.20% 537 0.34%
Two or More Races 22 0.72% 493 0.96% 2,365 1.50%
2003 EST. POPULATION HISPANIC OR LATINO 3,042 51,117 157,553
Hispanic or Latino 32 1.05% 491 0.96% 1,656 1.05%
Not Hispanic or Latino 3,010 98.95% 50,626 99.04% 155,898 98.95%
2003 TENURE OF OCCUPIED HOUSING UNITS* 1,389 22,384 65,579
Owner Occupied 892 64.22% 15,380 68.71% 44,974 68.58%
Renter Occupied 497 35.78% 7,004 31.29% 20,605 31.42%
2003 AVERAGE HOUSEHOLD SIZE 2.13 2.24 2.34
2003 EST. HOUSEHOLDS BY HOUSEHOLD INCOME 1,389 22,384 65,579
Income Less than $15,000 171 12.31% 2,021 9.03% 7,661 11.68%
Income $15,000 - $24,999 156 11.23% 2,554 11.41% 7,866 11.99%
Income $25,000 - $34,999 136 9.79% 2,490 11.12% 7,880 12.02%
Income $35,000 - $49,999 204 14.69% 3,949 17.64% 11,791 17.98%
Income $50,000 - $74,999 241 17.35% 4,390 19.61% 13,077 19.94%
Income $75,000 - $99,999 178 12.81% 2,512 11.22% 6,975 10.64%
Income $100,000 - $149,999 208 14.97% 2,659 11.88% 6,546 9.98%
Income $150,000 - $249,999 81 5.83% 1,186 5.30% 2,530 3.86%
Income $250,000 - $499,999 12 0.86% 441 1.97% 888 1.35%
Income $500,000 and over 1 0.07% 181 0.81% 363 0.55%
2003 EST. AVERAGE HOUSEHOLD INCOME $67,349 $71,816 $63,563
2003 EST. MEDIAN HOUSEHOLD INCOME $52,841 $51,013 $46,934
2003 EST. PER CAPITA INCOME $31,095 $31,659 $26,787
*In contrast to Claritas Demographic Estimates, "smoothed" data items are Census
2000 tables made consistent with current year estimated and 5 year projected
base counts.
(C) 2003 CLARITAS INC. All rights reserved.
(IRR LOGO) Page 19
HOLIDAY INN CANTON MARKET AREA ANALYSIS
LODGING MARKET ANALYSIS
The strength of any market depends on supply and demand. The following
analysis addresses national, regional and local investment trends.
However, the primary concern is to discover the conditions affecting the
subject's specific market area competitive set. Supply and demand in this
submarket directly affects the subject's value. We have presented
national, regional and state trends. This data frames the local market and
competitive set performance and displays influential trends occurring in
the lodging industry. Statistics compiled by Smith Travel Research for the
US Lodging Industry are presented below.
NATIONAL TRENDS
U.S. LODGING INDUSTRY
KEY STATISTICS
[Enlarge/Download Table]
SUPPLY DEMAND % % GOP FIXED CHARGES
% CHG % CHG OCCUPANCY % CHG ADR CHG REVPAR CHG (RTS) * (RTS)
----- ----- --------- ----- --- --- ------ --- ------- -----
1992 0.8 2.1 62.6 1.3 $59.17 1.5 $37.06 2.8 29.5 25.6
1993 0.4 1.9 63.6 1.6 $60.79 2.7 $38.64 4.2 30.5 22.8
1994 1.2 3.1 64.7 1.7 $63.19 3.9 $40.91 5.9 36.2 24.0
1995 1.5 2.1 65.1 0.6 $66.22 4.8 $43.10 5.4 37.0 20.1
1996 2.4 2.32 64.9 -0.3 $70.53 6.5 $45.81 6.3 38.2 17.6
1997 3.6 2.8 64.4 -0.8 $74.71 5.9 $48.13 5.1 40.3 15.8
1998 4.2 3.1 63.8 -0.9 $78.17 4.6 $49.86 3.6 40.2 13.5
1999 4.1 3.0 63.2 -1.1 $81.29 4.0 $51.33 2.9 39.2 13.9
2000 3.1 3.7 63.5 0.6 $85.24 4.9 $54.15 5.5 40.9 13.5
2001 2.4 -3.4 59.8 -5.7 $84.45 -1.3 $50.49 -6.9 37.0 17.7
2002 1.8 .8 59.2 -1.0 $83.15 -1.5 $49.24 -2.5 N/A N/A
* GROSS OPERATING PROFIT RATIO TO SALES
SOURCE: (C) 2002 Smith Travel Research
Positive factors between 1996 and 1999 formed an environment in which
significant new hotel supply was developed, and in many cases is
completing its way through the pipeline. The forces impacting the
expansion cycle of lodging assets which dominated the market between 1996
and 1999 included:
- Improved hotel performance
- Financing availability at low interest rates
- Demand from real estate investment trusts
- Growing economic trends
- Expansion of major franchise affiliations
During this time feasibility of many new projects had been indicated for
the first time in many years. This meant that product could be designed,
built and stabilized at a cost less than its value. Participants and
Analysts became concerned in 2000 that an oversupply of new product was
being added. As a result, financing became more restrictive and the
pipeline began to slow.
(IRR LOGO) Page 20
HOLIDAY INN CANTON MARKET AREA ANALYSIS
The room demand for hotels is measured by room nights sold (RNS). Demand
grew in excess of supply between 1992 and 1995. Supply (Room Nights
Available) increased faster than demand between 1996 and 2001 (except for
a slight increase in 2000), resulting in occupancy decreases. Rate growth
continued through 2000, likely fueled by the healthy economy and new
product, which generally can be sold for a higher room rate. Room rates
declined in 2001 for the first time in the 10 year trend presented.
The hotel real estate investment trusts showed poor performance subsequent
to the late 1998 capital market disruption. This weakened the REIT
purchase capabilities. Many in fact sold non-core assets to reposition
themselves. Commercial mortgage backed securities experienced increased
rate spreads and some lenders were unable or unwilling to honor rate
commitments. These factors along with perceived overbuilding resulted in a
more conservative posture among buyers, sellers, lenders and analysts. The
recession and events of September 11 exacerbated these trends. Recovery of
the lodging market has been delayed by:
- Prolonged economic downturn
- Uncertainty with regard to the war with Iraq
- Continued terrorism fears
- Financial market instability
- Public mistrust of business leaders
- Prolonged travel reductions
These factors have resulted in a fundamental shift in the lodging market.
The combination of the above factors has dampened the lodging industry's
health. In Legg Mason's 1st Quarter 2003 Market Cycle Monitor, the hotel
sector was judged to be at the beginning of Phase I (Recovery). Legg Mason
states "hotel recovery slowed as business and leisure travel slowed; many
hotels are still not at break even occupancy". In each region, where
occupancies decreased supply increased faster than demand, room revenue
continued to show healthy growth.
(IRR LOGO) Page 21
HOLIDAY INN CANTON MARKET AREA ANALYSIS
(PICTURE)
SOURCE: Legg Mason Equity Research Real Estate Market Cycle Monitor
The future of the lodging industry is understandably the topic of much
study. PricewaterhouseCoopers has forecast the following lodging
performance.
TABLE 1: PRICEWATERHOUSECOOPERS ANNUAL FIGURES
U.S. LODGING FORECAST, JUNE 2003
[Enlarge/Download Table]
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
OCCUPANCY (PERCENT) 63.4 59.7 59.2 59.1 60.7 61.6
PERCENTAGE CHANGE FROM PRIOR YEAR 0.6 -5.7 -0.9 -0.1 2.7 1.4
PCT. POINT DIFFERENCE FROM PRIOR YEAR 0.4 -3.6 -0.5 0.0 1.6 0.9
AVERAGE DAILY RATE ($) $85.79 $85.00 $83.71 $83.46 $84.94 $87.30
PERCENTAGE CHANGE FROM PRIOR YEAR 5.5 -0.9 -1.5 -0.3 1.8 2.8
ANNUAL REVPAR ($, SEAS. ADJ.) $19,840 $18,533 $18,079 $18,010 $18,822 $19,619
PERCENTAGE CHANGE FROM PRIOR YEAR 6.2 -6.6 -.2.4 -0.4 4.5 4.2
INFLATION AS MEASURED BY CPI 3.4 2.8 1.6 2.6 1.7 2.4
REAL GDP, PERCENT CHANGE FROM PRIOR YEAR 3.8 0.3 2.4 2.4 3.8 3.6
AVERAGE DAILY ROOMS SOLD (000S) 2,644 2,551 2,570 2,603 2,705 2,781
PERCENTAGE CHANGE FROM PRIOR YEAR 3.4 -3.5 0.8 1.3 3.9 2.8
Sources: PricewaterhouseCoopers LLP (2003 to 2005)
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
Recovery by 2004 is generally expected by lodging analysts. Of course,
this may vary by segment and location.
The next step in drilling down to the subject market is to study regional
and state trends.
REGIONAL & STATE TRENDS
Regional trends show a generally comparable decline in occupancy as the
national statistics. The following data reported by Smith Travel by region
depicts this.
OPERATING PERFORMANCE - DECEMBER 2002
YEAR TO DATE - DECEMBER 2002 VS. DECEMBER 2001
[Enlarge/Download Table]
ROOM ROOM ROOM
OCCUPANCY % ADR ($) REVPAR ($) REV AVAIL SOLD
---------------------- ------------------------ ----------------------- ----- ----- -----
SEGMENT 2002 2001 % CHG 2002 2001 % CHG 2002 2001 % CHG % CHG % CHG % CHG
------- ---- ---- ----- ---- ---- ----- ---- ---- ----- ----- ----- -----
UNITED STATES 59.2 59.8 -1.0 83.15 84.45 -1.5 49.24 50.49 -2.5 -0.7 1.8 0.8
------------- ---- ---- --- ----- ----- --- ----- ----- --- --- --- ---
REGION
NEW ENGLAND 60.0 61.2 -2.0 98.69 101.55 -2.8 59.20 62.19 -4.8 -2.3 2.7 0.6
MIDDLE ATLANTIC 63.4 63.7 -0.5 109.44 111.55 -1.9 69.44 71.02 -2.2 -0.4 1.9 1.5
SOUTH ATLANTIC 59.1 59.4 -0.5 81.05 81.63 -0.7 47.86 48.50 -1.3 0.4 1.8 1.2
E N CENTRAL 54.8 55.3 -0.9 75.04 75.94 -1.2 41.10 41.97 -2.1 -0.2 2.0 1.0
E S CENTRAL 55.9 54.9 1.8 61.19 60.24 1.6 34.21 33.07 3.4 4.6 1.1 3.0
W N CENTRAL 56.0 56.4 -0.7 65.22 64.78 0.7 36.56 36.54 0.1 1.6 1.5 0.9
W S CENTRAL 57.4 58.7 -2.2 71.07 71.08 -0.1 40.72 41.74 -2.4 -0.1 2.4 0.0
MOUNTAIN 61.2 61.8 -1.0 82.51 83.78 -1.5 50.47 51.80 -2.6 -1.7 0.9 -0.2
PACIFIC 62.9 64.0 -1.7 96.15 100.09 -3.9 60.53 64.03 -5.5 -3.6 2.0 0.3
---- ---- --- ----- ------ --- ----- ----- --- --- --- ---
PRICE
LUXURY 65.8 65.6 0.3 137.85 143.32 -3.8 90.73 94.06 -3.5 -1.5 2.1 2.4
UPSCALE 61.7 61.7 0.0 91.05 93.18 -2.3 56.22 57.50 -2.2 0.3 2.6 2.6
MIDPRICE 57.2 58.1 -1.5 68.40 69.58 -1.7 39.13 40.44 -3.2 -0.9 2.4 0.8
ECONOMY 54.8 56.1 -2.3 54.11 54.26 -0.3 29.68 30.44 -2.5 -1.5 1.0 -1.2
BUDGET 56.1 58.0 -3.3 42.27 41.22 2.5 23.69 23.90 -0.9 -1.5 -0.6 -4.0
==== ==== === ===== ====== === ===== ===== === === === ===
Source: Smith Travel Research, December 2002 Lodging Outlook
[Enlarge/Download Table]
YEAR TO DATE - MAY 2003 VS. MAY 2002
----------------------------------------------------------------------------
OCCUPANCY % ADR ($) REVPAR ($) PERCENT CHG FROM YTD 2002
------------- --------------- ------------- -------------------------
ROOM ROOM ROOM
SEGMENT 2003 2002 2003 2002 2003 2002 REV AVAIL SOLD
------- ---- ---- ---- ---- ---- ---- --- ----- ----
UNITED STATES 56.7 57.8 83.92 84.63 47.59 48.88 -1.2 1.5 -0.3
------------- ---- ---- ----- ----- ----- ----- --- --- ---
NEW ENGLAND 52.0 54.1 91.76 94.01 47.70 50.83 -3.7 2.6 -1.3
MIDDLE ATLANTIC 56.9 59.0 102.88 106.81 58.56 63.03 -5.3 1.9 -1.7
SOUTH ATLANTIC 59.6 60.6 85.53 85.44 51.01 51.81 -0.3 1.3 -0.4
E N CENTRAL 49.9 50.5 72.76 72.75 36.30 36.71 0.5 1.7 0.5
E S CENTRAL 55.1 53.7 60.94 59.70 33.58 32.09 5.6 0.9 3.4
W N CENTRAL 49.3 50.9 63.66 63.52 31.41 32.31 -1.4 1.4 -1.7
W S CENTRAL 56.5 58.6 71.60 73.08 40.44 42.82 -3.9 1.7 -2.0
MOUNTAIN 60.1 61.0 89.81 90.69 54.01 55.29 -1.2 1.2 -0.2
PACIFIC 60.1 60.9 96.30 96.76 57.84 58.92 -0.1 1.7 0.3
---- ---- ----- ----- ----- ----- --- --- ---
PRICE
LUXURY 65.1 66.1 144.55 147.48 94.15 97.52 -1.0 2.5 1.0
UPSCALE 59.0 60.1 90.83 92.24 53.55 55.43 -0.8 2.7 0.7
MIDPRICE 54.3 55.5 67.47 68.14 36.66 37.84 -1.8 1.3 -0.8
ECONOMY 51.2 52.5 51.97 52.03 26.62 27.33 -2.4 0.2 -2.2
BUDGET 53.5 54.6 40.48 40.24 21.66 21.98 -1.5 -0.1 -2.1
==== ==== ===== ===== ===== ===== === === ===
(IRR LOGO) Page 23
HOLIDAY INN CANTON MARKET AREA ANALYSIS
SMITH TRAVEL RESEARCH
OHIO HOTEL & LODGING COMP CITIES CVB
APRIL 2003 COMPARED WITH APRIL 2002
[Enlarge/Download Table]
OPERATING PERFORMANCE - APRIL - YEAR TO DATE
---------------------------------------------------------------------------------------------------
OCCUPANCY AVERAGE ROOM RATE REVPAR REVENUE SUPPLY DEMAND
-------------------- --------------------- ----------------------- ------- ------ ------
SEGMENT 2003 2002 % CHG 2003 2002 % CHG 2003 2002 % CHG % CHG % CHG % CHG
------- ---- ---- ----- ---- ---- ----- ---- ---- ----- ----- ----- -----
United States 55.7 56.9 -2.1 84.31 85.07 -0.9 46.97 48.38 -2.9 -1.4 1.6 -0.5
Ohio 46.9 47.6 -1.5 65.15 64.79 0.6 30.54 30.85 -1.0 0.8 1.8 0.2
Cincinnati, Oh-Ky-In 48.1 47.4 1.5 66.79 66.18 0.9 32.12 31.34 2.5 1.2 -1.3 0.2
Cleveland, Oh 48.1 48.4 -0.6 71.00 73.52 -3.4 34.13 35.61 -4.2 -3.7 0.5 -0.3
Columbus, Oh 52.1 54.1 -3.7 71.32 69.98 1.9 37.14 37.85 -1.9 2.2 4.1 0.2
Akron, Oh 46.9 46.6 0.6 63.54 63.05 0.8 29.77 29.35 1.4 3.7 2.2 2.9
Sandusky, Oh 23.8 24.1 -1.2 52.79 53.24 -0.8 12.57 12.80 -1.8 -1.8 0.0 -1.0
Toledo, Oh 46.2 51.2 -9.8 60.46 60.49 0.0 27.91 31.00 -10.0 -8.1 2.0 -8.1
Youngstown-
Warren, Oh 41.0 38.8 5.7 57.86 55.93 3.5 23.75 21.68 9.5 9.5 0.0 5.9
Ohio North Area 43.2 43.5 -0.7 57.11 56.07 1.9 24.69 24.37 1.3 4.3 2.9 2.4
I-75 Corridor North 41.0 42.1 -2.6 55.44 54.82 1.1 22.76 23.05 -1.3 -1.3 0.0 -2.4
Dayton Oh 50.9 50.6 0.6 62.93 61.57 2.2 32.02 31.16 2.8 6.2 3.3 3.9
Springfield Oh 45.9 46.4 -1.1 58.21 58.87 -1.1 26.72 27.34 -2.3 -1.9 0.4 -0.8
SOURCE: Smith Travel Research
State performance is shown below.
OHIO HOTEL & LODGING
DECEMBER 2002 COMPARED WITH DECEMBER 2001
OPERATING PERFORMANCE - DECEMBER
[Enlarge/Download Table]
OCCUPANCY % AVERAGE ROOM RATE REVPAR REVENUE SUPPLY DEMAND
------------------------ ----------------------- ------------------------ ------- ------ ------
SEGMENT 2002 2001 % CHG 2002 2001 % CHG 2002 2001 % CHG % CHG % CHG % CHG
------- ---- ---- ----- ---- ---- ----- ---- ---- ----- ----- ----- -----
United States 59.2 59.8 -1 83.15 84.45 -1.5 49.24 50.49 -2.5 -0.7 1.8 0.8
Ohio 53.2 53.3 -0.2 67.07 67.56 -0.7 35.71 35.99 -0.8 1.2 1.9 1.9
Cincinnati, Oh-Ky-In 51.7 50.1 3.2 68.43 69.77 -1.9 35.39 34.96 1.2 0.2 -1 2.2
Cleveland, Oh 55 57.4 -4.2 75.3 77.51 -2.9 41.41 44.47 -6.9 -3.9 3.2 -1.1
Columbus, Oh 56.9 58.6 -2.9 71.07 70.8 0.4 40.44 41.46 -2.5 2.9 5.5 2.5
Akron, Oh 54.4 52.9 2.8 64.91 66.69 -2.7 35.28 35.31 -0.1 0.3 0.4 3.1
Sandusky, Oh 40.9 38.2 7.1 76.32 75.64 0.9 31.25 28.92 8.1 9.6 1.4 8.6
Toledo, Oh 54.1 53.7 0.7 60.66 60.37 0.5 32.8 32.43 1.1 2.5 1.3 2
Youngstown-Warren, Oh 46.1 47.9 -3.8 58.45 59.11 -1.1 26.96 28.32 -4.8 -6.5 -1.8 -5.5
Ohio North Area 51.7 49.6 4.2 60.39 60 0.7 31.23 29.77 4.9 7 1.9 6.3
I-75 Corridor North 47 48.4 -2.9 55.44 55.21 0.4 26.04 26.73 -2.6 -3.4 -0.9 -3.8
Dayton Oh 55 56.8 -3.2 61.84 60.55 2.1 34 34.37 -1.1 0.4 1.5 -1.7
Springfield Oh 49.2 49.2 0 60.04 60.73 -1.1 29.54 29.89 -1.2 3 4.2 4.2
SOURCE: Smith Travel Research
LOCAL TRENDS
It is hoped by market participants that slowing room starts and
demand recovery will enhance the occupancy rates for hotels
beginning in mid to late 2003. New supply within the subject's
market area is assessed by studying the Smith Travel Response
Reports for the market tracts within which the subject is located.
The subject is located
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
in the North Ohio tract which includes a rather wide range of
geography such as Mt. Vernon, Marion, Port Clinton, Newcomerstown,
Ashtabula, Defiance, Elyria, Wooster, Mansfield, Ashland and Canton.
While this geography is wide ranging, it demonstrated the
significant amount of supply growth in the northern Ohio market. New
supply in the subject tract has included hotels built between 1998
and 2003. These are summarized as follows.
NEW SUPPLY 1998 - 2003
----------------------
[Download Table]
PROJECT ROOMS OPEN
------- ----- ----
Holiday Inn Express, Alliance 70 2000
Holiday Inn Express, Ashland 89 2000
Fairfield Inn and Suites, Avon 82 2002
Days Inn, Belleville 38 2000
Comfort Inn, Berlin 69 2002
Zincks Inn, Berlin 46 1999
Holiday Inn Express, Bucyrus 62 2000
Days Inn, Carrollton 43 1999
Red Roof Inn, Clyde 68 2000
Holiday Inn Express, Defiance 62 2001
AmeriHost, East Liverpool 66 2000
Country Inn and Suites, Elyria 74 2003
Holiday Inn Express, Fostoria 52 1998
Comfort Inn, Fremont 64 2001
South Beach Resort, Lakeside Marblehead 55 2002
Lisbon Inn, Lisbon 71 1998
Super 8 Motel, Marion 63 1998
Country Inn and Suites, Marion 63 1999
Holiday Inn Express, Marion 81 2001
Hampton Inn, Massillon 73 2000
Holiday Inn Express, Mount Vernon 71 1998
Holiday Inn Express, Napoleon 56 1998
Hampton Inn, New Philadelphia 60 2000
Super 8, Newcomerstown 62 2000
Hampton Inn, Newcomerstown 59 2001
Microtel Inn and Suites, North Canton 62 1999
AmeriHost and Suites, Norwalk 64 2000
Sleep Inn, Port Clinton 71 1999
Holiday Inn Express, Port Clinton 102 2000
Hampton Inn, Steubenville 74 2002
Ramada Limited 58 1998
Holiday Inn Express, Tiffin 60 2000
Hampton Inn, Tiffin 65 2001
Super 8, Uniontown 59 1998
Country Inn and Suites 116 1999
TOTAL 2,330
===== ===== ====
(IRR LOGO) Page 25
HOLIDAY INN CANTON MARKET AREA ANALYSIS
The previous chart shows a total of 35 hotels, or 2,330 rooms.
The Census among the this tract was 10,850 rooms in 1997. This
indicates a 21.5% growth in supply in five years. Significant
supply additions have generally resulted in declining
occupancies. These have been exacerbated by the current economic
conditions and events of September 11.
The only known new hotel development within the competitive
market area includes a proposed Hilton Garden Inn near the
airport. Discussion with the owner indicate that this project
will ultimately go forward and contain 116 units. Construction
will likely begin in 2004. However, given the significant growth
of the Akron Canton Airport, development at some point in the
future does not appear unreasonable.
DEMAND ASSESSMENT
Demand for hotel rooms can be categorized as:
1) "demonstrated demand", or that demand which can be quantified
by examining occupancy levels at existing hotels;
2) "induced" demand, defined as that demand which does not
currently seek accommodations in the market area but could be
persuaded to do so through proper sales efforts, new demand
generators or the availability of additional rooms supply or
3) "unsatisfied demand" is existing demand that cannot be
satisfied within the immediate area due to full occupancy. Each
source of demand is discussed as follows.
DEMONSTRATED DEMAND
Demand for hotels in any given area is measured by occupancy
percentages, average daily rates and revenue per available room.
Although these statistics vary between properties due to age,
condition, location, franchise affiliation, marketing efforts and
seasonality of the market area, a review of area occupancy levels
and ADR's is useful in preparing an estimate of future market
performance.
In the case of the subject market, it is located in Stark County,
North Canton, the Belden Village Mall area. It is largely impacted
by the Belden Village Mall and major employers in the area,
interstate highway travel, the Akron Canton Airport and leisure
demand generators.
We have identified several area hotels as primary competitors, and
quantified their historical performance. Existing hotel demand
growth was studied along with other demand factors such as
population growth, household growth, employment growth, etc. for
determination of an applicable demonstrated demand growth rate.
INDUCED DEMAND
Induced demand is defined as demand that does not now seek
accommodations in the area but could be persuaded to purchase room
nights through sales and marketing
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
efforts, availability of appropriate facilities or the entry of some
new demand generator. Induced demand has been generated in the
subject area historically by the addition of the new franchise
hotels, offering branded accommodations to travelers that previously
had not stayed in the market. New demand generators can include
industrial or business activity, new development or employer shifts.
Sources of new demand could include the Canton Akron Airport
expansion to accommodate growth and new passengers. Discussions with
Christy Van Aucken of the Akron Canton Airport indicate that
significant positive passenger enplanement and deplanement stats
have been noted. More than 97,000 passengers used the airport in May
2003. This is a 22% increase from May of 2002. The number of
passengers has increased 26% for the first five months of the year
over the like period of 2002. A $50 million, five year, runway
expansion plan is underway and there is foreign trade zone status
for some industrial ground in the area. Ms. Van Aucken indicates
that part of their success is attributed to the presence of Air
Trans, a successful, affordable fare carrier and their secondary
airport. The secondary airports appear to be viewed as having
superior ease of use for passengers. A new airport exit is planned
at Shuffle Road on I-77 to the north of the subject interchange. If
the new Hilton Garden Inn were built at some point in the future,
this could induce demand into the marketplace as the only Hilton
affiliated product located among the competitive set is the Hampton
Inn.
UNSATISFIED DEMAND
Unsatisfied demand is defined as potential room nights previously
lost in the market because of lack of available facilities. For
example, if an event fills every hotel in the immediate market, any
excess demand for that event will be distributed into secondary
markets. In addition, regular transient traffic would be displaced.
The subject's business is heavily segmented toward commercial
travel. Therefore Tuesdays and Wednesdays are reported to be the
busiest nights. Fill nights occur periodically during the summer.
Weekend demand is strong, mid June to August on Friday and Saturday.
The hotel generally fills on approximately 10 weekends during this
period. The hotel also often fills on busy week nights. The subject
property is generally located towards the top of the fill pattern,
however. Patrons are generally satisfied within the market area,
given an average occupancy in 2002 at 60.3%. No turnway demand is
considered to exist in the market area. No turn-away demand is
projected.
SEGMENTATION OF DEMAND
Demand for hotel accommodations among the competitive hotels is
comprised of the following market segments:
Corporate demand is generated by the office, businesses, and
commercial activity in the nearby area. This form of demand exhibits
Monday to Thursday demand patterns and generally peaks on Tuesday
and Wednesday nights. Major employers and area businesses generate
both destination and transient commercial demand.
Commercial demand generates 50% to 60% of room nights sold in the
market area. Commercial demand is generated by the following
businesses.
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
- Diebold
- Hoover
- Timken
- Graphic Enterprises
- Frshmark
- Delta
Group demand is generated by corporate, commercial, or SMERF and
association groups that either meet at the individual competitive
hotels, or meet at company offices. While the length of stay varies
depending on the type of group, it is typically two or three nights
and can sometimes include a weekend night. Group demand can be
generated by area citywides for both corporate and leisure markets.
Group demand accounts for approximately 20% to 30% of RNS among the
competitive set.
Leisure demand occurs primarily on weekends and is comprised of
individual travelers, families and social groups. In the summer
transient demand also occurs during the week but is still strongest
on the weekends. The stay is typically one night, however, certain
social travelers stay two nights or more. In the subject area
leisure demand would include:
- Pro Football Hall of Fame
- Carousel Dinner Theater
- Firestone Country Club
- Blossom Music Center
- Harry London Tours
- McKinley Museum
- Various sports organizations
- NEC Classic
- Golf Packages
The leisure segment accounts for approximately 20% to 30% of RNS
among the competitive set.
Demand growth in the subject marketplace is impacted by several
factors including the following.
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
SOURCES OF DEMAND GROWTH
GENERAL LODGING INDUSTRY TRENDS
[Download Table]
TRAVEL INDUSTRY ASSOCIATION * 2000 2001 2002 2003F 2004F
Unemployment Rate (%) 4.0 4.8 5.8 5.9 5.7
Real GDP (%) 3.8 0.3 2.4 2.5 3.6
Consumer Price Index (CPI%) 3.4 2.8 1.6 2.3 1.6
Total U.S. resident travel expenditures 7.1 -5.8 -2.3 2.9 5.8
Total Domestic Person Trips (%) 1.0 2.0 0.3 1.9 3.2
Total International Visitors to the US (%) 4.9 -11.9 -6.7 0.7 6.6
[Download Table]
SMITH TRAVEL 1996 1997 1998 1999 2000 2001 2002
------------ ---- ---- ---- ---- ---- ---- ----
Supply Growth USA 2.4 3.6 4.2 4.1 3.1 2.4 1.8
Demand Growth USA 2.2 2.8 3.1 3.2 3.7 -3.4 0.8
[Enlarge/Download Table]
LOCAL SOURCES GROWTH RATE
Population Growth 0.8%/yr 1990 to 2000 (1 mile ring)
Population Projection 0.1%/yr thru 2008 (1 mile ring)
Household Growth 1.4%/yr 1990 to 2000 (1 mile ring)
Projected Household Growth 0.5%/yr thru 2008 (1 mile ring)
New Development Hilton Garden Inn and Suites
Traffic Volume 1%/yr per ODOT
Demonstrated Demand Growth Among -9.4% or 1.8% per year from 1997 to 2002
Competitive Set
Other Demand Generators 26% increase in enplanement and deplanement at Canton Akron
Airport for the first five months of 2003
Roadway Infrastructure A new airport exit is planned at Shuffle Road on I-77 to the north of
the subject
The above causes of demand change have been capitalized on by
significant additional new supply in the Canton/Akron area.
Significant demand growth for hotels is not expected given economic
conditions. However, highway related growth could occur due to
expected auto travel.
New supply has slowed, and occupancies should begin to stabilize in
the near future. The subject feeder markets include Pittsburgh,
Cleveland and Columbus. The full service facility is a positive
attribute for the subject. Meetings and banquets as well as social
gatherings are routine.
(IRR LOGO) Page 29
HOLIDAY INN CANTON MARKET AREA ANALYSIS
PRIMARY COMPETITORS
The primary hospitality competitors have been selected from the
subject market as follows
PRIMARY COMPETITORS
[Download Table]
ID# PROPERTY AGE # RMS
--- -------- --- -----
1 Holiday Inn Canton North 1970 194
2 Four Points Belden Village 1975 152
3 Hampton Inn Canton 1985 107
4 McKinley Grand 1986 170
5 Best Inns Suites Canton 1991 102
6 Comfort Inn Hall of Fame 1989 124
7 Fairfield Inn Canton 1995 62
TOTALS 911
Primary competitors total 911 rooms. Primary competitors were
interviewed, photographed and ranked on our lodging fundamentals
rating scale. Based on the score of each property, we have
determined the competitive position in the market of the lodging
alternatives including the subject property. Following is a summary
of primary competitors.
(IRR LOGO) Page 30
HOLIDAY INN CANTON MARKET AREA ANALYSIS
MOTEL SURVEY
COMPARABLE #1
TYPE: Full Service
PROPERTY: HOLIDAY INN CANTON NORTH
LOCATION: 4520 Everhard Road, Canton, (MAP)
Ohio 44718
Phone: 330-494-2770
Age: 1970
Renovation Plans: 1997
# Guest Rooms: 194
#Suites: None
# Function Rooms: 3,001 SF
Amenities: Restaurant, lounge, fitness
center, game room, swimming
pool, in-room coffee, HBO,
iron/ironing board
RATES: RACK: (PICTURE)
Single: $111.00
Double: $111.00
X Person:
Segmentation: Commercial 70%
Group Stay 15%
Leisure 15%
Extended Stay N/A
LODGING FUNDAMENTALS SCORECARD
[Download Table]
MAX. SCORE PROPERTY SCORE
---------- --------------
Property Affiliation: (1) 20 17
Age, Condition & Perceived Cleanliness: 10 8
Exposure: (2) 10 8
Access: (3) 10 8
Convenience to Support Services: 10 9
Location: (4) 10 8
Convenience to Demand Generators: 10 9
Security: (5) 10 9
Amenities: (6) 10 10
TOTAL 100 86
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY
2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC.
3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC.
4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC.
5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR
EXTERIOR ENTRY, LOCK SYSTEMS, ETC.
6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC.
(IRR LOGO) Page 31
HOLIDAY INN CANTON MARKET AREA ANALYSIS
MOTEL SURVEY
COMPARABLE #2
TYPE: Full Service
PROPERTY: FOUR POINT CANTON
LOCATION: 4375 Metro Circle NW, Canton, (MAP)
Ohio 44720
Phone: 330-494-6494
Age: 1975
Renovation Plans:
# Guest Rooms: 152
#Suites: Yes
# Function Rooms: 4
Amenities: Restaurant, lounge, in-room
coffee & hairdryer, high-speed
access, indoor & outdoor pool,
whirlpool, sauna, shuttle
RATES: RACK:
Single: $125 (PICTURE)
Double:
X Person:
Segmentation: Commercial N/A
Group Stay N/A
Leisure N/A
Extended Stay N/A
LODGING FUNDAMENTALS SCORECARD
[Download Table]
MAX. SCORE PROPERTY SCORE
Property Affiliation: (1) 20 15
Age, Condition & Perceived Cleanliness: 10 7
Exposure: (2) 10 9
Access: (3) 10 7
Convenience to Support Services: 10 8
Location: (4) 10 8
Convenience to Demand Generators: 10 9
Security: (5) 10 9
Amenities: (6) 10 9
TOTAL 100 81
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY
2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC.
3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC.
4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC.
5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR
EXTERIOR ENTRY, LOCK SYSTEMS, ETC.
6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC.
(IRR LOGO) Page 32
HOLIDAY INN CANTON MARKET AREA ANALYSIS
MOTEL SURVEY
COMPARABLE #3
TYPE: Limited Service
PROPERTY: HAMPTON INN
LOCATION: 5335 Broadmoor Circle NW, (MAP)
Canton, OH 44709
Phone: (330) 492-0151
Age: 1985
Renovation Plans:
# Guest Rooms: 107
#Suites:
# Function Rooms:
Amenities: Exercise gym, TV with cable
RATES: RACK: (PICTURE)
Single: $84
Double: $79
X Person: $5
Segmentation: Commercial
Group Stay
Leisure
Extended Stay
LODGING FUNDAMENTALS SCORECARD
[Download Table]
MAX. SCORE PROPERTY SCORE
Property Affiliation: (1) 20 19
Age, Condition & Perceived Cleanliness: 10 8
Exposure: (2) 10 10
Access: (3) 10 9
Convenience to Support Services: 10 7
Location: (4) 10 9
Convenience to Demand Generators: 10 9
Security: (5) 10 9
Amenities: (6) 10 7
TOTAL 100 87
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY
2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC.
3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC.
4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC.
5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR
EXTERIOR ENTRY, LOCK SYSTEMS, ETC.
6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC.
(IRR LOGO) Page 33
HOLIDAY INN CANTON MARKET AREA ANALYSIS
MOTEL SURVEY
COMPARABLE #4
TYPE: Full Service
PROPERTY: THE MCKINLEY GRAND HOTEL
LOCATION: 320 Market Avenue S., (MAP)
Canton, Ohio 44702
Phone: 330-454-5000
Age: April 1986
Renovation Plans: $1.5 mil - complete public
areas, some rooms
# Guest Rooms: 170
#Suites: 2 king suites
# Function Rooms: 7 - 10,500 SF total
Amenities: Dining, lounge, game room,
indoor pool, iron, coffee
RATES: RACK: (PICTURE)
Single: $159
Double: $159
X Person:
Segmentation: Commercial 20%
Group Stay 50%
Leisure 30%
Extended Stay
LODGING FUNDAMENTALS SCORECARD
[Download Table]
MAX. SCORE PROPERTY SCORE
Property Affiliation: (1) 20 14
Age, Condition & Perceived Cleanliness: 10 8
Exposure: (2) 10 6
Access: (3) 10 6
Convenience to Support Services: 10 8
Location: (4) 10 8
Convenience to Demand Generators: 10 8
Security: (5) 10 9
Amenities: (6) 10 9
TOTAL 100 76
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY
2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC.
3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC.
4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC.
5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR
EXTERIOR ENTRY, LOCK SYSTEMS, ETC.
6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC.
(IRR LOGO) Page 34
HOLIDAY INN CANTON MARKET AREA ANALYSIS
MOTEL SURVEY
COMPARABLE #5
TYPE: Limited Service
PROPERTY: BEST INNS SUITES
LOCATION: 4914 Everhard Road, Canton, [MAP]
OH 44718
Phone: (330) 499-1011
Age: 1991
Renovation Plans: Ongoing
# Guest Rooms: 102
#Suites: 102
# Function Rooms: 1 meeting room
Amenities: In room coffee maker, free
evening cocktails, indoor pool
w/hot tub, free parking
RATES: RACK: [PICTURE]
Single: $77.99
Double:
X Person: $10
Segmentation: Commercial
Group Stay
Leisure
Extended Stay
LODGING FUNDAMENTALS SCORECARD
[Download Table]
MAX. SCORE PROPERTY SCORE
Property Affiliation: (1) 20 12
Age, Condition & Perceived Cleanliness: 10 8
Exposure: (2) 10 7
Access: (3) 10 8
Convenience to Support Services: 10 8
Location: (4) 10 7
Convenience to Demand Generators: 10 9
Security: (5) 10 9
Amenities: (6) 10 8
--- --
TOTAL 100 76
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY
2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC.
3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC.
4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT, ETC.
5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR OR
EXTERIOR ENTRY, LOCK SYSTEMS, ETC.
6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC.
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
MOTEL SURVEY
COMPARABLE #6
[Download Table]
TYPE: Limited Service [MAP]
PROPERTY: COMFORT INN
LOCATION: 5345 Broadmoor Circle NW,
Canton, OH 44709
Phone: (330) 492-1331
Age: 1989
Renovation Plans: Ongoing
# Guest Rooms: 124
#Suites: 0
# Function Rooms: Meeting room
Amenities: Complimentary continental
breakfast, outdoor pool, free
weekday newspaper
RATES: RACK: [PICTURE]
Single: $94.95
Double: $90.95
X Person: $9
Segmentation: Commercial N/A
Group Stay N/A
Leisure N/A
Extended Stay N/A
LODGING FUNDAMENTALS SCORECARD
[Download Table]
MAX. SCORE PROPERTY SCORE
---------- --------------
Property Affiliation: (1) 20 15
Age, Condition & Perceived Cleanliness: 10 8
Exposure: (2) 10 10
Access: (3) 10 9
Convenience to Support Services: 10 7
Location: (4) 10 9
Convenience to Demand Generators: 10 9
Security: (5) 10 9
Amenities: (6) 10 8
--- --
TOTAL 100 84
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY
2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC.
3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC.
4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT,
ETC.
5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR
OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC.
6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC.
[IRR LOGO] PAGE 36
HOLIDAY INN CANTON MARKET AREA ANALYSIS
MOTEL SURVEY
COMPARABLE #7
[Download Table]
TYPE: Limited Service [MAP]
PROPERTY: FAIRFIELD INN
LOCATION: 5285 Broadmoor Circle NW,
Canton, OH 44709
Phone: (330) 493-7373
Age: 1995
Renovation Plans: None
# Guest Rooms: 62
#Suites: 8
# Function Rooms: 2
Amenities: Complimentary continental
breakfast, indoor pool, free cable
RATES: RACK: [PICTURE]
Single: $79.00
Double: $79.00
X Person:
Segmentation: Commercial N/A
Group Stay N/A
Leisure N/A
Extended Stay N/A
LODGING FUNDAMENTALS SCORECARD
[Download Table]
MAX. SCORE PROPERTY SCORE
---------- --------------
Property Affiliation: (1) 20 15
Age, Condition & Perceived Cleanliness: 10 9
Exposure: (2) 10 10
Access: (3) 10 9
Convenience to Support Services: 10 7
Location: (4) 10 9
Convenience to Demand Generators: 10 9
Security: (5) 10 9
Amenities: (6) 10 8
--- --
TOTAL 100 85
1) BASED ON J.D. POWER 2001 GUEST SATISFACTION SURVEY
2) SIGNAGE FRONTAGE, VISIBILITY, BUILDING HEIGHT, ETC.
3) EASE OF INGRESS, EGRESS, SIGNALIZATION, CONGESTION, ETC.
4) PERCEPTION OF AREA DEVELOPMENT QUALITY BY USE, AGE, MARKET SEGMENT,
ETC.
5) INCLUDES CONSIDERATION TO PARKING LOT LIGHTING & CONVENIENCE, INTERIOR
OR EXTERIOR ENTRY, LOCK SYSTEMS, ETC.
6) INCLUDES POOL, RESTAURANT, LOUNGE, MEETING SPACE, ETC.
[IRR LOGO] PAGE 37
HOLIDAY INN CANTON MARKET AREA ANALYSIS
Following is a ranking of primary competitors based on our scoring methodology.
This helps to reveal fill patterns and customer preferences among the
competitors. The properties scoring at the top are generally the most desirable,
and therefore would be expected to earn in excess of their natural market share.
Conversely, those near the bottom would likely earn below their market share.
This scale cannot account for dissimilar management, administrative, or sales
skill, but generally will denote the subject's relative position among its
competitive set.
RANKING SUMMARY OF PRIMARY COMPETITORS
[Download Table]
RANK PROPERTY COMPARABLE # SCORE
---- -------- ------------ -----
1 Hampton Inn 3 87
2 HOLIDAY INN 1 86
3 Fairfield Inn 7 85
4 Comfort Inn 6 84
5 Four Points 2 81
6 McKinley Grand 4 76
7 Best Inn Suites 5 76
The subject falls at 2 in the above list of 7 competitors. This property falls
within the beginning range of the set, indicating it should earn above its
natural market share. It is interesting to note that the subject's actual
penetration has exceeded its natural market share. This is due to the full
service use, which has resulted in its attraction to Diebold for contract
commercial business.
Market performance based on room nights sold among primary competitors is
summarized in the following chart. Data on selected primary competitors was
gathered by interviews of managers at these facilities along with data tracked
by Smith Travel. Total aggregate supply and demand is summarized on the
following chart.
PERFORMANCE OF PRIMARY COMPETITORS
[Enlarge/Download Table]
YEAR RNA CHG.% RNS CHG.% OCCUP.% CHG.% ADR CHG.% REVPAR CHG.%
---- ------- ----- ------- ----- ------- ----- --- ----- ------ -----
1997 332,515 221,238 66.5% $ 58.92 $ 39.20
1998 332,515 0.0% 225,337 1.9% 67.8% 1.9% $ 62.67 6.4% $ 42.47 8.3%
1999 332,515 0.0% 221,978 -1.5% 66.8% -1.5% $ 64.72 3.3% $ 43.21 1.7%
2000 332,515 0.0% 228,743 3.0% 68.8% 3.0% $ 65.94 1.9% $ 45.36 5.0%
2001 332,515 0.0% 202,092 -11.7% 60.8% -11.7% $ 67.67 2.6% $ 41.13 -9.3%
2002 332,515 0.0% 200,377 -0.8% 60.3% -0.8% $ 67.81 0.2% $ 40.86 -0.6%
YTD4/02 137,561 77,714 56.5% $ 66.16 $ 37.38
YTD4/03 137,561 0.0% 78,972 1.6% 57.4% 1.6% $ 66.96 1.2% $ 38.44 2.8%
From 1997 to 2002 demand decreased a total of 9.4% with the largest decline in
demand occurring in 2001 of 11.7%. Demand decline is largely due to the
significant general market growth of approximately 21.5% in the subject's tract.
Demand therefore leaked from the subject competitive set to newer hotels in the
general market area. The most
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
recent supply addition within the subject market is the Fairfield Inn, built in
1995. Demand decline was exacerbated in 2001 and 2002 by the economy and the
events of September 11. Prior to that demand had been relatively flat, showing
that new supply had been absorbed.
It is interesting to note that year to date April has shown demand growth of
1.6% over 2002. We have compared the subject's performance with the performance
of the primary competitors. The subject performance is shown as follows.
HISTORIC SUBJECT PERFORMANCE
[Download Table]
YEAR SUBJ. OCC. CHG.% SUBJ. ADR CHG.% SUBJ. RPAR CHG.%
---- ---------- ------ --------- ----- ---------- -----
1999 79.30% $63.08 $50.02
2000 80.70% 1.8% $65.57 3.9% $52.91 5.8%
2001 75.40% -6.6% $67.27 2.6% $50.72 -4.1%
2002 75.40% 0.0% $68.76 2.2% $51.85 2.2%
YTD4/02 74.49% $66.71 $49.69
YTD4/03 74.85% 0.5% $68.03 2.0% $50.92 2.5%
The subject property has experienced strong occupancies, though a decline of
6.6% occurred in 2001. Even then, the subject performed at 75.4% in comparison
to the market's average performance of 60.8%. The subject experienced a slight
occupancy increase of 0.5% year to date April from 2002. During its peak, the
subject performed at 80.5% in 2000 in comparison to the market's average
performance of 65.6%. Market share significantly in excess of the natural market
share is being earned due to its significant corporate and meeting business.
Historically, the subject's rate has continued to grow about $2 a year. Rate is
up 2% or $1.32 year to date 2003.
DEMAND GROWTH PROJECTIONS
Historically, demand decreased 9.4% or 1.8% annually among primary
competitors in the marketplace between 1997 and 2002. Demand is on the
rebound with an increase of 1.6% year to date April from 2002 for the
market. The property has maintained good stability due to the Diebold
contract. This base contract business allows the subject to drive rate
through its yield management system on the balance of the corporate and
rack rate business. Some induced demand due to the Hilton Garden
construction in 2005 is likely. We project additional demonstrated
demand growth of 4% in 2005. Demand growth of 2% is projected for 2003
and 2004. Added to the demonstrated demand of 2%, this indicates total
demand growth of 6% for 2005. Neither induced nor turn-away demand is
expected within the market area in the near term future.
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
NEW SUPPLY
Demand has been assessed. Average occupancy can be determined based on
room nights sold divided by room nights available. All hotels within
the competitive set have been in operation for at least one full year.
New supply additions are not expected in the near future. The 116 room
Hilton Garden Inn will be available for occupancy in 2005. We project
opening in 2005, which will likely result in some induced demand. It
has therefore not been included in our analysis as new supply over the
next two years.
MARKET PENETRATION
Market penetration is the relationship between the earned market share
and the natural market share of properties competing in the
marketplace. Natural market share is calculated based on room nights
available of the individual property compared to room nights available
for the market total. Earned market share is based on room nights sold
for individual properties compared to total room nights sold in the
marketplace. A penetration rate of above 100% indicates the individual
property is earning more than its natural market share due to some
perceived superior factor such as affiliation, age, room condition or
quality, management expertise, special market segmentation, etc. Market
penetration of less than 100% suggests that a property is earning less
than its natural market share. Factors impacting poorly performing
properties include improper affiliation, poor locational attributes,
inferior management policies, older, dated or poor room condition, etc.
Our competitive ranking scale shows the subject ranked at 2 out of a
total of 7 competitors. Penetration, assuming competitive pricing,
should exceed the natural market share of 100%.
Market penetration and ADR are related. For instance in general, the
lower the ADR the higher the occupancy level. The pricing of rooms can
skew the penetration rate if an imbalance exists. For instance, an
otherwise high scoring property (based on competitive ranking) can earn
a low penetration rate if pricing is too high. A balance is typically
sought by a specific property between penetration and yield.
Historic subject penetration is summarized as follows.
HISTORIC SUBJECT PENETRATION
[Download Table]
YEAR SUBJ. OCC. CHG.% MKT. OCC. CHG.% PEN.%
---- ---------- ----- --------- ----- ------
1999 79.30% 66.8% -1.5% 118.8%
2000 80.70% 1.8% 68.8% 3.0% 117.3%
2001 75.40% -6.6% 60.8% -11.7% 124.1%
2002 75.40% 0.0% 60.3% -0.8% 125.1%
YTD4/02 74.49% 56.5% 131.9%
YTD4/03 74.85% 0.5% 57.4% 1.6% 130.4%
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
The subject's historical penetration ranged from 118.8% in 1999, 117.3%
in 2000, 124.1% in 2001, and 125.1% in 2002. The subject's increase in
penetration is likely due to its base Diebold business at 40% of its
occupancy when the balance of the transient, corporate, leisure and
group business fell off nationwide. In our opinion, on a stabilized
basis, market penetration of say 125% is projected.
Based on supply and demand changes along with the above penetration
projections, the following occupancy is projected.
SUBJECT OCCUPANCY PROJECTIONS
[Download Table]
YEAR RNA CHG.% RNS CHG.% OCCUP.% CHG.% PENN. SUBJ. OCC CHG
---- ------- ----- ------- ------ ------- ----- ------ --------- -----
1999 332,515 0.0% 221,978 -1.5% 66.8% -1.5% 118.8% 79.3%
2000 332,515 0.0% 228,743 3.0% 68.8% 3.0% 117.3% 80.7% 1.8%
2001 332,515 0.0% 202,092 -11.7% 60.8% -11.7% 124.1% 75.4% -6.5%
2002 332,515 0.0% 200,377 -0.8% 60.3% -0.8% 125.1% 75.4% 0.0%
2003 332,515 0.0% 204,385 2.0% 61.5% 2.0% 125.0% 76.8% 1.9%
2004 332,515 0.0% 208,473 2.0% 62.7% 2.0% 125.0% 78.4% 2.0%
2005 374,855 12.7% 220,891 6.0% 58.9% -6.0% 125.0% 73.7% -6.0%
Foot Note:
116 room Hilton Garden Inn to be built at Canton/Akron airport
includded in supply for 2005
Based on anticipated market behavior over the next few years, subject
occupancy should range from 74% to 78%. Stabilized occupancy in 2003 is
projected in this analysis at 75%.
AVERAGE DAILY RATE
The average daily rate yield is similar to the penetration rate in that
it compares the subject's average daily rate to market averages.
The average daily rate is obviously related to occupancy levels.
Assuming market penetration of 125%, a complementary rate posture is
expected at the subject property. Historical average daily rate yield
is summarized as follows.
ADR YIELD
[Download Table]
YEAR SUBJ. ADR CHG.% MKT. ADR CHG.% YIELD
---- --------- ----- -------- ----- ------
1999 $63.08 $64.72 3.3% 97.5%
2000 $65.57 3.9% $65.94 1.9% 99.4%
2001 $67.27 2.6% $67.67 2.6% 99.4%
2002 $68.76 2.2% $67.81 0.2% 101.4%
YTD4/02 $66.71 $66.16 100.8%
YTD4/03 $68.03 2.0% $66.96 1.2% 101.6%
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HOLIDAY INN CANTON MARKET AREA ANALYSIS
Rate growth in the marketplace has indicated 15.1% since 1997 through
2002. It increased more in earlier years, but averaged approximately 3%
a year. The subject also experienced rate growth of 9% since 1999
through 2002. Year to date, market rate and subjects rate growth is up.
The subject's yield ranged from 97.5% in 1999 to 101.4% in 2002. A
slight increase in ADR yield is noted year to date to 101.6%, likely
due to the based business from Diebold bolstering rate. The subject's
top corporate accounts, room nights sold and rate for 2003 compared to
2002 year to date May are as follows.
[Download Table]
USER RN 2002 RATE RN 2003 RATE
---- ------- ---- ------- ----
Diebold 1,621 $58 1,394 $60
Hoover 18 $68 30 $68
Fresh Mark 7 $68 21 $69
Golf Packages 270 $85 149 $89
United Express 93 $59 48 $59
Delta 93 $56 96 $56
McKinley 22 $59 29 $59
Graphic Enter. 25 $68 5 $69
In our opinion, going forward, a 1% increase in rate is expected in
2003 with subsequent 2% rate increases in 2004 and 2005. Based on a
100% yield, average daily rate for the market and the subject are
projected as follows.
ADR YIELD
[Download Table]
YEAR SUBJ. ADR CHG.% MKT. ADR CHG.% YIELD SUBJ. ADR CHG.%
---- --------- ----- -------- ----- ----- --------- -----
1999 $ 63.08 $64.72 3.3% 97.5% $63.08
2000 $ 65.57 $65.94 1.9% 99.4% $65.57 3.9%
2001 $ 67.27 2.6% $67.67 2.6% 99.4% $67.27 2.6%
2002 $ 68.76 2.2% $67.81 0.2% 101.4% $68.76 2.2%
2003 $68.49 1.0% 100.0% $68.49 -0.4%
2004 $69.86 2.0% 100.0% $69.86 2.0%
2005 $71.26 2.0% 100.0% $71.26 2.0%
Based on the previous analysis an average daily rate of from $68 to $71
is expected over the next few years. In the Direct Capitalization
ProForma we have utilized a $69 ADR.
CONCLUSION
Given the above analysis we have projected stabilized occupancy and
rates as follows.
[Download Table]
YEAR ADR OCCUPANCY
---- --- ---------
2003 $69 75%
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HOLIDAY INN CANTON PROPERTY ANALYSIS
PROPERTY ANALYSIS
DESCRIPTION AND ANALYSIS OF THE LAND
The subject site is summarized in the following tables. The description
is based on our inspection as well as information provided by Stark
County. A copy of the site plan is presented following this section.
PHYSICAL FEATURES
[Download Table]
LAND AREA Approximately 4.81 acres, or 209,524 square feet.
CONFIGURATION Irregular (See site/plat plan following this section).
TOPOGRAPHY Level at road grade
DRAINAGE Adequate.
FLOOD PLAIN
COMMUNITY PANEL # 390780 0085B, effective September 1, 1983.
FLOOD ZONE Zone C; area of minimal flooding
FLOOD INSURANCE Not typically required within this zone.
ENVIRONMENTAL HAZARDS
Environmental evaluation is beyond our scope of expertise. A
qualified engineer should be consulted on this matter. There
is some plumbing leakage in the boiler room with wrapped
piping, which is reported by facilities to be asbestos
wrapping. No bid has been received as to the cost of repair or
whether abatement is necessary.
A PHASE I AUDIT IS RECOMMENDED.
GROUND STABILITY
We were not furnished a soil analysis to review but predicate
that the soil's load bearing capacity is sufficient to support
the existing structure. We did not observe any evidence to the
contrary during our inspection of the property.
STREETS, ACCESS, FRONTAGE
[Download Table]
STREET DRESSLER ROAD EVERHARD ROAD
FRONTAGE 352'+/- 896'+/-
PAVING Asphalt Asphalt
CURBS/GUTTERS Yes Yes
SIDEWALKS Yes Yes
LANES 4 4
DIRECTION OF TRAFFIC North/south East/west
CONDITION Average Average
SIGNALS/TRAFFIC CONTROL Yes Yes
ACCESS 2 curb cuts 2 curb cuts
VISIBILITY Good Good
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--------------------------------------------------------------------------------
LEGAL
[Download Table]
ZONING
DESIGNATION B-3, Commercial Business District
PERMITTED USES A variety of retail service, administrative
establishments, medical/dental offices,
banks, office, hospital, retail,
restaurants, gasoline service stations,
theaters and lodging. Minimum lot area
required is 20,000 SF with an 80' height
restriction.
CONFORMANCE Based on our discussion with the zoning official, the current
use of the site constitutes a legally permissible use that
conforms to the current zoning code.
EASEMENTS, ENCUMBRANCES, AND MORATORIA
We were not provided a current title report to review and are
not aware of any easements, encumbrances, or restrictions that
would adversely affect the use of the site. A title search is
recommended to determine whether any adverse conditions exist.
We are not aware of any moratoria on development that would
affect the property. Cross easements are assumed to exist
across a retail center to the south allowing access to a curb
cut. This is not considered a negative impact on the subject
improvements.
ENCROACHMENTS
We were not provided a survey. However, an inspection of the
site revealed no apparent encroachment(s).
UTILITIES
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UTILITY PROVIDER
WATER All public
SEWER All public
ELECTRICITY All public
NATURAL GAS All public
LOCAL TELEPHONE All public
SUMMARY OF LAND DESCRIPTION
Overall, the physical characteristics of the subject site are
suitable for the existing development. Most factors, including
its topography, location, and accessibility, are positive
attributes. The subject site is more than adequate for uses
such as those permitted by zoning, including lodging use, and
the available utilities adequately service the site.
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HOLIDAY INN CANTON PROPERTY ANALYSIS
Site plan
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HOLIDAY INN CANTON PROPERTY ANALYSIS
DESCRIPTION AND ANALYSIS OF THE IMPROVEMENTS
The following description is based on our inspection of the property, a
discussion with the manager, and a review of county property record cards.
EXTERIOR DESCRIPTION
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NAME OF PROPERTY Holiday Inn Canton
GENERAL PROPERTY TYPE Lodging
SPECIFIC PROPERTY USE Hotel
SIZE
GROSS BUILDING AREA (GBA) 104,260 square feet
NUMBER OF ROOMS 194
FLOOR AREA RATIO .50
SOURCE OF SQUARE FOOTAGE
INFORMATION Courthouse
NUMBER OF BUILDINGS 3
STORIES 2 and 3
CONFIGURATION Irregular in shape
FLOOR PLATE The first floor measures 55,573 square feet
and features a lobby, 100 seat restaurant
and 70 seat lounge area, kitchen, general
office, laundry room, outdoor pool, meeting
rooms, public restrooms.
YEAR BUILT 1970 and 1973
ESTIMATED EFFECTIVE AGE 30 years
ESTIMATED PHYSICAL LIFE 50 years (per Marshall Valuation Service)
TYPE/QUALITY OF CONSTRUCTION Class C, masonry building, average quality
(per Marshall Valuation Service)
FOUNDATION Poured, reinforced concrete
footings, slab on grade.
STRUCTURAL FRAME Masonry
EXTERIOR WALLS/WINDOWS Drivit over masonry insulated windows
ROOF* A 20 year warranty is reportedly in place on
the rubber roof portion of the building. The
roof is reportedly okay on the 3 story
building. Reportedly roof is a built up
type.
SPECIAL FEATURES A 3 story addition was added in 1973 and has
an elevator.
* Our 2002 appraisal noted some roof repair required on the first
floor. We have assumed the repairs have been made in this report.
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HOLIDAY INN CANTON PROPERTY ANALYSIS
ROOM MIX
[Download Table]
ROOM TYPE TOTAL NUMBER
--------- ------------
SINGLES 8
DOUBLES 124
KINGS 62
TOTALS 194
Standard rooms measure approximately 12 square feet wide.
INTERIOR DESCRIPTIONS
[Download Table]
INTERIOR PARTITIONING A combination of drywall, masonry, and ceramic tile.
Firewalls are per code.
CEILING COVER Ceilings consist of a
combination of drywall and suspended
acoustical ceiling panels and sprayed
concrete panel.
WALL COVER Vinyl wall coverings and painted drywall with variations.
FLOOR COVER Primarily commercial grade
carpet in the general office,
corridors, hotel rooms, meeting rooms,
and restaurant. Tile floor in the
bathrooms and lobby.
LIGHTING A combination of suspended and
recessed fluorescent and incandescent
lighting.
BATHROOM FIXTURES Bathrooms include a bathtub
with showerhead, toilet, and vanity
cabinet with a lay-in sink; fixtures
are vitreous china. Solid surface
vanity top, ceramic flooring,
fiberglass unit tub surround.
BANQUET/MEETING ROOMS The grand ballroom contains a total area of 3,001 SF.
Additionally there are 3 other meeting
rooms, the Village, Massillon and
Louisville Room. These have 853 SF,
325 SF and 304 SF respectively.
OTHER SPECIAL The subject has an outdoor swimming pool, second phone
FEATURES line, high speed internet access and airport transportation.
CONDITION Average to good
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HOLIDAY INN CANTON PROPERTY ANALYSIS
EQUIPMENT AND MECHANICAL SYSTEMS
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HVAC HVAC in the guest rooms consist of
through-the-wall electric units.
Public space has roof mounted
units.
ELECTRICAL 3 phase 4 wire circuit breaker type system
PLUMBING Domestic boilers, storage tank, copper supplies
FIRE PROTECTION Hard wired smoke detectors located throughout.
ELEVATORS/STAIRWELLS 1 elevator for the 3 story section;
stairwells are conveniently located
at the end of each corridor.
SECURITY SYSTEM Card key systems for the individual rooms
FURNITURE, FIXTURES Each room includes chairs, lamps, framed prints, two
& EQUIPMENT double or king size beds, bureau, and nightstand.
(FF&E) Additionally, each room includes a 25" color
television with remote and housekeeping linens and
blankets. Additional FF&E items include lobby area
furniture and framed prints, and furniture and
televisions in the restaurant/lounge area.
CONDITION Mechanical systems are reportedly
in average condition. A total of 50
HVAC units have been replace. The
property needs to replace 48 more
HVAC units.
SITE IMPROVEMENTS
PARKING
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NUMBER OF SPACES Adequate for market constraints
SURFACE TYPE/CONDITION Asphalt, average condition (reportedly being re-
sealed on June 30th)
ADEQUACY The subject has adequate parking
LANDSCAPING
Average
DRAINAGE AND RETENTION
Adequate; storm sewer drainage systems allow site water to be
collected and drained through surface drains located in the parking
lot areas.
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HOLIDAY INN CANTON PROPERTY ANALYSIS
IMPROVEMENTS ANALYSIS
[Download Table]
CONDITION The condition of the improvements is average
to good. The property has been reasonably
well maintained. Some renovations conducted
have included room carpet, furniture, TVs,
mattresses, some wallcoverings, soft goods.
The most recent quality inspection was in
May 23, 2002. The subject property scored a
97.5% and received a passing grade. A copy
of the summary report is in the Addendum.
DEFERRED MAINTENANCE The property appears to have been well
maintained. Some items will likely be
necessary for franchise maintenance. The
following list of items is used to determine
an approximate As Is Value. Final costs of
replacement or renovations is subject to a
transfer PIP and contractor estimate.
ITEM
----
HVAC replacement in 50 rooms
Replace carpet, vinyl, and
cabinets in banquet rooms
50 microfridge units
60 restaurant chairs
Relaminate front desk cabinets
Replace pool chlorinator
Seal, repair and stripe parking
lot (supposed to take place on
June 30th)
The cost estimate of these items, subject to a
contractor bid is $100,000.
HISTORY OF MAINTENANCE The historic maintenance expenses reported
to us are consistent with the expenses of
comparable properties.
QUALITY OF CONSTRUCTION The quality of construction is average.
FUNCTIONAL UTILITY Our inspection did not reveal any
significant items of functional
obsolescence.
ADA COMPLIANCE Unknown
ENVIRONMENTAL We are neither considered experts nor
competent to assess environmental issues.
Upon physical inspection of the site and
improvements, no indication "to the
untrained eye" of environmental hazard was
found. Unless stated otherwise, we assume no
hazardous conditions exist on or near the
subject. We recommend the client consider
retaining an expert in this area.
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HOLIDAY INN CANTON PROPERTY ANALYSIS
PRODUCT IMPROVEMENT PLAN
The report is subject to a transfer PIP necessary to maintain Holiday
Inn affiliation.
[PICTURE]
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HOLIDAY INN CANTON PROPERTY ANALYSIS
floor plan
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HOLIDAY INN CANTON PROPERTY ANALYSIS
REAL ESTATE TAX ANALYSIS
Real estate tax assessments are a function of the Auditors Office on a
county basis. The property is located in Stark County, Ohio. Real
estate taxes in this state and this jurisdiction represent ad valorem
taxes, meaning a tax applied in proportion to value. The real estate
taxes for an individual property may be determined by dividing the
assessed value for a property by $1,000, then multiplying the estimate
by the composite rate. The composite rate is based on a tax rate
determined by the local taxing district.
The assessed values are based upon the current conversion assessment
rate of 35% of assessor's market value.
For reference purposes, the subject has been assigned a property tax
identification numbers as follows: 1607045 and 7046.
The combined current land, building, market and assessed values are
summarized as follows:
[Download Table]
TAX YEAR LAND IMPROVEMENTS FULL CASH VALUE ASSESSED VALUE
-------- ----------- ------------ --------------- --------------
2002 $1,202,700 $3,386,200 $4,588,900 $1,606,115
Real estate taxes are paid in semi-annual, equal installments. The tax
rate in the subject's tax district is $74.15. The effective tax rate
after the reduction for commercial property is $53.30 per $1,000.
Taxes are paid a year in arrears. The 2002 taxes, payable 2003, are
calculated at $77,045.34. First half has been paid, second half is due
on July 18th. There are no special assessments. Real estate taxes could
potentially increase upon a sale.
This report assumes an ultimate increase in taxes based on the current
market value as determined by the Sales Comparison Approach at say
$8,000,000. In Stark County, the School Board monitors transfers as in
most metropolitan Ohio communities. If a sale occurs that exceeds a
property's county "appraised" value, a complaint will be filed.
Conversely, a lower sale price would enable the buyer to contest taxes.
Based on the assumption that the definition of value assumes a sale
occurs, the buyer would expect taxes to increase as a result.
Calculations are as follows.
[Download Table]
MARKET VALUE $8,000,000
LESS FF&E/BUSINESS VALUE $ 550,000
----------
REAL ESTATE $7,450,000
ASSESSMENT @ 35% $2,607,500
EFFECTIVE RATE/$1,000 @ $53.30 $ 138,980
LESS 10% ROLLBACK (13,898)
NET TAX $ 125,082
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HOLIDAY INN CANTON PROPERTY ANALYSIS
PERSONAL PROPERTY TAXES
Personal property taxes are also charged for lodging properties that
maintain furniture, fixtures and equipment in their operation. Personal
property required in the operation of the subject would include
furniture, fixtures and equipment in rooms as well as office and food
and beverage equipment. Actual personal property taxes for 2003 are
$9,509.74. First half of $4,750 have been paid. The total taxable value
was $128,250. Listed value is $138,250, indicating True Value
(depreciated) at $553,000, rounded at $550,000.
Combined real estate and personal property taxes subsequent to the sale
are estimated at $134,591.
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HOLIDAY INN CANTON PROPERTY ANALYSIS
HIGHEST AND BEST USE ANALYSES
PROCESS
Before a property's value can be concluded, the highest and best use
of the property must be determined for both the subject site as
though vacant, and for the property as currently improved (if
applicable). The highest and best use must be:
- Legally permissible under the zoning laws and other
restrictions that apply to the site.
- Physically possible for the site.
- Economically feasible.
- Capable of producing the highest net return on investment
(i.e. highest value) from among the possible, permissible, and
economically feasible uses.
AS THOUGH VACANT
LEGALLY PERMISSIBLE
Zoning codes, land use plans, easements, and private deed
restrictions often restrict permitted uses. The site is zoned for
business uses. Permitted uses include retail and hotel. Given
prevailing land use patterns in the area, and recognizing the
principle of conformity, only commercial use has been given further
consideration in determining highest and best use of the site, as
though vacant.
PHYSICALLY POSSIBLE
The physical characteristics of the site should reasonably
accommodate any use that is not restricted by its size of 4.81
acres, or 209,524 square feet. Big Box or high volume retail would
be unlikely due to size. Given frontage on two roads, mixed use,
retail, restaurant, or other commercial use could occur.
FINANCIALLY FEASIBLE
Based on the information discussed in the Lodging Market Analysis
section of this report, there is currently a fairly low demand for
hotel rooms. If vacant, new hotel development is unlikely.
Additionally, the site size would accommodate a more mixed use type
development. Most new hotels are built on much smaller sites. This
would permit development of a hotel, or multiple hotels,
restaurants, etc. Financial feasibility does not currently appear to
exist.
MAXIMALLY PRODUCTIVE
Ultimate hotel or commercial use is the only use that meets the
previous three tests. Accordingly, it is concluded to be maximally
profitable, and the highest and best use of
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HOLIDAY INN CANTON PROPERTY ANALYSIS
the site, as though vacant. While immediate development is not
considered feasible, a buyer may land bank the site for future
lodging or commercial use.
AS IMPROVED
The subject site has been developed with a 2 and 3 story, full
service, masonry-building hotel containing 194 rooms; the common
area includes a restaurant, outdoor pool, vending areas, and a total
of 3,001 square feet of meeting space, and registration area. The
improvements were constructed in 1970 and 1973; the gross building
area is approximately 104,260 square feet.
The existing use produces a significant positive cash flow and this
can reasonably be expected to continue. Accordingly, the existing
use is concluded to be feasible.
There are no alternative uses that could reasonably be expected to
provide a higher present value than the current lodging use. The
value produced by the existing improvements exceeds the value of the
site, as if vacant. For these reasons, the existing use is concluded
to be maximally productive, and the highest and best use of the
property as improved.
[IRR LOGO] PAGE 55
HOLIDAY INN CANTON VALUATION ANALYSIS
VALUATION ANALYSIS
VALUATION METHODOLOGY
The traditional methods of processing market data into a value indication
include:
- Cost Approach;
- Sales Comparison Approach; and
- Income Capitalization Approach.
The cost approach assumes that the informed purchaser would pay no more
than the cost of producing a substitute property with the same utility.
This approach is particularly applicable when the improvements being
appraised are relatively new and represent the highest and best use of the
land, or when the property has unique or specialized improvements for
which there is little or no sales data from comparable properties. Given
the age of the subject improvements, significant accrued depreciation has
occurred. A Cost Approach is not considered to yield a reliable estimate
of value. It has therefore not been processed.
The sales comparison approach assumes that an informed purchaser would pay
no more for a property than the cost of acquiring another existing
property with the same utility. This approach is especially appropriate
when an active market provides sufficient reliable data that can be
verified from authoritative sources. The sales comparison approach is less
reliable in an inactive market, or when estimating the value of properties
for which no real comparable sales data is available. It is also
questionable when sales data cannot be verified with principals to the
transaction.
The income capitalization approach reflects the market's perception of a
relationship between a property's potential income and its market value, a
relationship expressed as a capitalization rate. This approach converts
the anticipated benefits (dollar income or amenities) to be derived from
the ownership of property into a value indication through capitalization.
This approach is widely applied when appraising income-producing
properties.
We have used two approaches to value (the Sales Comparison and Income
Capitalization Approaches) in the preparation of this report. The
reconciliation at the end of this appraisal report discusses the relative
strengths and weaknesses of each approach.
[IRR LOGO] PAGE 56
HOLIDAY INN CANTON VALUATION ANALYSIS
SALES COMPARISON APPROACH
In the sales comparison approach to value, the following steps have been
taken in estimating market value.
- Research recent sales of comparable improved properties;
- Select the most comparable sales and present the pertinent
data on these sales;
- Adjust the sales for differences in the various elements of
comparison; and,
- Summarize the analysis and conclude a value indication based
upon the adjusted sale prices of the comparables.
In performing the sales comparison approach, we surveyed sales activity
for similar hotel properties in the area. Relying upon sales that occurred
recently as the best indication of current investor attitudes and market
behavior, we have selected seven improved sales as most comparable and as
best indicators of value for the subject.
The seven selected sales are summarized in a following table; the sale
prices identified in the table have been adjusted for cash-equivalency,
when appropriate. We have also included individual comparable data along
with photographic exhibit and a location map. Pertinent data is summarized
in the comparable sheet. Our adjustment process is based on revenue per
available room (RevPar). RevPar accounts for occupancy and rate at each
hotel and is a primary determinant of value for buyers and sellers in the
marketplace. The RevPar of a hotel accounts for physical and economic
factors.
In analyzing the sales data, we have selected the price per guest unit as
the unit of comparison. We have also considered a room revenue multiplier
as a secondary analysis. Most buyers, sellers and brokers utilize price
per room and room revenue multipliers when making an initial estimate of
subject value. This is the unit of comparison most commonly quoted by
brokers, sellers, and purchasers when discussing sales transactions and is
considered the most relevant for the subject.
[IRR LOGO] PAGE 57
HOLIDAY INN CANTON VALUATION ANALYSIS
SALE #1
[Download Table]
NAME: HOLIDAY INN [MAP]
LOCATION: 615 East Front Street,
Traverse City, Michigan
GRANTOR: Bay Area Ltd.
GRANTEE: Castrop Wolfe Development
DATE OF SALE: June 20, 2001
TERMS: Cash to new mortgage
VERIFICATION E. Belfrage to Buyer
PROPERTY DATA
AGE: 1970s
NO. OF RMS: 179
SALES PRICE: $14,700,000 + $400,000 = $15,100,000
ROOMS INCOME: $4,900,000
NET OPERATING INCOME: $1,7775,000
RATIOS OF COMPARISON
PRICE/ROOMS: $84,358
ROOM REVENUE
MULTIPLIER: 3.1
OVERALL RATE: 11.75%
COMMENTS: PIP list for Holiday Inn was an additional
$400,000. Guest rooms have electronic
locks for optimum security. In room
amenities include data ports. Income data
is actual as of 2000. 1999 actual income
was ADR: $93.47 occupancy of 75.74%, NOI
of $1,571,844. Buyer expects 75% @ $100.
[PICTURE]
[IRR LOGO] PAGE 58
HOLIDAY INN CANTON VALUATION ANALYSIS
SALE #2
[Download Table]
NAME: TRUEMAN CLUB HOTEL [MAP]
LOCATION: 900 E. Dublin Granville Rd.
Columbus, OH
GRANTOR: Red Roof Inn Inc.
GRANTEE: Govind Hospitality
DATE OF SALE: 8/8/2001
TERMS: Cash to seller
VERIFICATION E. Belfrage to Buyer
PROPERTY DATA
AGE: 1973
NO. OF RMS: 182
SALES PRICE: $4,000,000 + Renovation + Profit
$2,500,000 = $6,500,000
ROOMS INCOME: $2,869,776
NET OPERATING INCOME: $800,000 est.
RATIOS OF COMPARISON
PRICE/ROOMS: $35,714
ROOM REVENUE
MULTIPLIER: 2.3
OVERALL RATE: 12.3%
COMMENTS: Buyer projects $72 at 60% occupancy for
rooms department subsequent to conversion
to Clarion. Buyer originally expected
Doubletree conversion. Operates food and
beverage.
[PICTURE]
[IRR LOGO] PAGE 59
HOLIDAY INN CANTON VALUATION ANALYSIS
SALE #3
[Download Table]
NAME: COURTYARD HOTEL [MAP]
LOCATION: 3695 Orange Place
Cleveland, Oh
GRANTOR: Wyndham International
(PAH Beachwood 1 LLC)
GRANTEE: Winston Concord LLC
DATE OF SALE: 6/28/2002
TERMS: Cash equivalent
VERIFICATION E. Belfrage to Buyer
PROPERTY DATA
AGE: 1986
NO. OF RMS: 113
SALES PRICE: $3,050,000 + renovations $5,800,000 + profit
(10% or $900,000 = $9,750,000
ROOMS INCOME: $2,928,395 est.
NET OPERATING INCOME: $1,100,000 est.
RATIOS OF COMPARISON
PRICE/ROOMS: $86,283
ROOM REVENUE
MULTIPLIER: 3.3
OVERALL RATE: 11.3%
COMMENTS: Hotel closed at purchase for mold
remediation and renovation for conversion
to Courtyard. Buyer planned on $5.8
million in renovation costs. Expected
stabilized room revenue based on 71%
occupancy at a $100 ADR. A small seat
restaurant and 1,700 SF meeting area
exist.
[PICTURE]
[IRR LOGO] PAGE 60
HOLIDAY INN CANTON VALUATION ANALYSIS
SALE #4
[Download Table]
NAME: EMBASSY SUITES [MAP]
LOCATION: 2700 Corporate Exchange
Columbus, OH
GRANTOR: Connecticut General Life Ins.
GRANTEE: Minerva Park Partners LLC
DATE OF SALE: 3/18/2003
TERMS: Cash equivalent
VERIFICATION E. Belfrage to Westmont
Hospitality
PROPERTY DATA
AGE: 1984
NO. OF RMS: 217
SALES PRICE: $13,000,000 + $3,000,000 renov. = $16,000,000
ROOMS INCOME: $5,900,000 est.
NET OPERATING INCOME: $1,900,000
RATIOS OF COMPARISON
PRICE/ROOMS: $73,733
ROOM REVENUE
MULTIPLIER: 2.7
OVERALL RATE: 11.9
COMMENTS: 2002 performance 73,4% at $99.47.
Projected revenue subsequent to
renovations est. at 70% and $106. Total
revenue estimated at $7,900,000. Buyer to
complete an approximate $3,000,000 PIP to
comply with Embassy Standards.
[PICTURE]
[IRR LOGO] PAGE 61
HOLIDAY INN CANTON VALUATION ANALYSIS
SALE #5
[Download Table]
NAME: CLARION RIVERVIEW (TO BE CONVERTED TO RADISSON [MAP]
RIVERVIEW)
LOCATION: 668 W 5th St.
Covington, KY
GRANTOR: Frisch's Restaurants
GRANTEE: Remington Hotel Corp.
DATE OF SALE: 11/21/2000
TERMS: Cash equivalent
PROPERTY DATA
AGE: 1972
NO. OF RMS: 236
SALES PRICE: $12,000,000
ROOMS INCOME: $5,000,000 est.
NET OPERATING INCOME: $1,550,000 est.
RATIOS OF COMPARISON
PRICE/ROOMS: $50,847
ROOM REVENUE
MULTIPLIER: 2.4
OVERALL RATE: 12.9%
COMMENTS: Subsequent to sale, the property was
converted to a Radisson Hotel. Minimal PIP
costs were necessary, due to $11 million
renovation in 1999. The seller paid a
$200,000 termination fee to Choice to
cancel Clarion affiliation. This landmark
high-rise 18-story circular hotel is on
the Ohio River. The top floor is a
restaurant and lounge that revolves, and
generates approximately $2 million in
sales last year. Room revenue based on $65
at $90.
[PICTURE]
[IRR LOGO] PAGE 62
HOLIDAY INN CANTON VALUATION ANALYSIS
SALE #6
[Download Table]
NAME: HOTEL ST. REGIS [MAP]
LOCATION: 3071 West Grand Boulevard,
Detroit, Michigan
GRANTOR: Atlantic Hospitality
GRANTEE: Pastelle Co.
DATE OF SALE: June 27, 2001
TERMS: Cash equivalent
VERIFIED: E. Belfrage appraised for
buyer's lender
PROPERTY DATA
AGE: 1968/1989
NO. OF RMS: 223
SALES PRICE: $10,000,000
ROOMS INCOME: $3,849,984 (ProForma); Total Revenue
$5,974,664 (ProForma)
NET OPERATING INCOME: $1,249,162 (ProForma)
RATIOS OF COMPARISON
PRICE/ROOMS: $44,843
ROOM REVENUE
MULTIPLIER: 2.6
OVERALL RATE: 12.5%
COMMENTS: Completed $3,000,000 PIP for Holiday Inn
conversion in early 2001. Subsequent to
conversion a dispute between Bass and
ownership resulting in removal of
affiliation. Property will be run as
independent by buyer. 2 million SF of
office space is attached by walkway. Old
GM facility is 1.0 million and will be
occupied by the State of Michigan. Buyer
to lease 80 car lot to east at $4,000 per
month.
[PICTURE]
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HOLIDAY INN CANTON VALUATION ANALYSIS
SUMMARY OF COMPARABLE SALES
[Enlarge/Download Table]
TOTAL YEAR SALE PRICE/
NO. NAME/ADDRESS SALE DATE ROOMS BUILT PRICE UNIT RRM
------------------------------------------------------------------------------------------------------------------------------------
Holiday Inn
1 615 E. Front Street 6/20/2001 179 1970s $15,300,000 $85,475 3
Traverse City, MI
------------------------------------------------------------------------------------------------------------------------------------
Truman Club Hotel
2 900 E. Dublin Granville 8/8/2001 182 1973 $ 6,500,000 $35,714 2.3
Columbus, OH
------------------------------------------------------------------------------------------------------------------------------------
Courtyard Hotel
3 Cleveland, OH 6/28/2002 113 1986 $ 9,750,000 $86,283 3.3
------------------------------------------------------------------------------------------------------------------------------------
Embassy Suites
4 2700 Corporate Exchange 3/18/2003 217 1984 $16,000,000 $73,733 2.7
Columbus, OH
------------------------------------------------------------------------------------------------------------------------------------
Clarion Riverview
5 668 W 5th St. 11/21/2000 236 1972 $12,000,000 $50,847 2.4
Covington, KY
------------------------------------------------------------------------------------------------------------------------------------
Hotel St. Regis
6 3071 W. Grand 6/27/2001 223 1963/89 $10,000,000 $44,843 2.6
Detroit, MI
------------------------------------------------------------------------------------------------------------------------------------
The price per unit and room revenue multiplier (RRM) are relied upon by market
participants. We have considered that due to the income producing nature of the
subject, all aspects of a property's investment appeal are incorporated in
revenue per available room. This obviously assumes comparable net income ratios
as would be found in properties with similar physical attributes. The following
adjustment grid compares the comparables to the subject based on dissimilarities
in RevPar.
[IRR LOGO] PAGE 64
HOLIDAY INN CANTON VALUATION ANALYSIS
SALES COMPARISON CHART
[Enlarge/Download Table]
1 2 3 4 5 6
SUBJECT HOLIDAY INN TRUEMAN CLUB COURTYARD HOTEL EMBASSY CLARION RV ST. REGIS,
PROPERTY TRAVERSE CITY, MI COLUMBUS, OH CLEVELAND, OH COLUMBUS, OH COVINGTON, KY DETROIT, MI
Sale Price $2,500,000 $6,500,000 $9,750,000 $116,000,000 $12,000,000 $10,000,000
# of Rooms 194 179 182 113 217 236 223
Date of Sale 6/20/01 8/8/2001 6/28/2002 3/18/2003 11/21/2000 6/27/01
Year Opened 1973 1970s 1973 1986 1984 1972 1963/89
---------- ------------ ----------- ----------- ------------ ----------- -----------
Property Rights Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple
Conveyed
Adjustment
Adjusted Unit Price $ 85,475 $ 35,714 $ 86,283 $ 73,733 $ 50,847 $ 44,843
---------- ------------ ----------- ----------- ------------ ----------- -----------
Conditions of Sale Arm's Length Arms Length Arms Length Arms Length Arms Length Arms Length
Adjusted Unit Price $ 85,475 $ 35,714 $ 86,283 $ 73,733 $ 50,847 $ 44,843
---------- ------------ ----------- ----------- ------------ ----------- -----------
RevPar * $51.75 $ 76.53 $ 43.20 $ 71.00 $ 74.49 $ 58.05 $ 47.30
Adjustment -32% 20% -27% -30% -11% 4%
Adjusted Unit Price $ 58,123 $ 42,857 $ 62,987 $ 51,613 $ 45,254 $ 46,637
* Based on first full year, or stabilized year revenue
[IRR LOGO] PAGE 65
HOLIDAY INN CANTON VALUATION ANALYSIS
After consideration of the RevPar adjustment to the price per room
indication, a range of from $42,857 to $62,987 is offered. Sales 6, 5
and 2 required the lowest adjustment and indicate a range from $42,857
to $46,637. None of these occurred subsequent to September 11. A
conclusion at mid range indication would appear reasonable. A mid range
conclusion at $43,000 per room is utilized. Calculations are as
follows:
[Download Table]
UNIT PRICE X # UNITS = VALUE
$43,000 194 $8,342,000
ROUNDED $8,300,000
A room revenue multiplier offers a close range indication of from 2.3
to 3.3 times. The most comparable sales indicated a low range of 2.3 to
2.6. A low room revenue multiplier appears appropriate. Using a
multiplier of 2.4 times stabilized room gross as used in the Direct
Capitalization Approach, calculations of value are as follows.
[Download Table]
ROOM SALES X RRM = VALUE
$3,664,418 2.4 $8,794,685
ROUNDED $8,800,000
The Sales Comparison Approach conclusion is $8,300,000 to $8,800,000.
The subject was purchased by the prior owner for $5,454,250 by Janus
Hotels. This transfer occurred in 1998, prior to the capital market
disruption. Significant supply additions and the recession have
resulted in declining hotel values. This transfer may have represented
a non-market related allocation, as multiple hotels were purchased by
the buyer.
The indication of value by the Sales Comparison Approach does not
consider the cost of the Product Improvement Plan needed to maintain
the Holiday Inn affiliation or deduction of maintenance items cited in
the Improvements Description, or resulting from due diligence
inspections.
[IRR LOGO] PAGE 66
HOLIDAY INN CANTON VALUATION ANALYSIS
INCOME CAPITALIZATION APPROACH
INTRODUCTION
The income capitalization approach uses one or more techniques in which
the subject's anticipated net operating income is capitalized into a
value indication. The validity of this value indication depends on the
quality of the data available to estimate income, vacancy, and expenses
and to select a capitalization rate. Other important factors concern the
characteristics of the income stream, its economic life span, and the
method used to convert the net income into value.
Following is an overview of the steps used in the income capitalization
approach.
- Estimate potential gross income. This involves multiplying the number
of rooms by the average daily rate (ADR) multiplied by a projected
average annual occupancy. The ADR and occupancy are typically based
upon historical experience in the subject and data extracted from the
marketplace. Additional revenues from other operating departments are
then considered.
- Estimate expenses.
- Calculate the reconstructed net operating income.
- Select a capitalization rate from the market to use in direct
capitalization.
- Perform a discounted cash flow analysis to estimate value through
yield analysis.
- Reconcile a value indication for the income capitalization approach.
INCOME ESTIMATE
Economic rent is market rent or the average room rate a potential patron
is warranted in paying and the motel operator is warranted in receiving
for services. Forecasting of the subject's economic income involves an
analysis of room sales. This is best accomplished by stabilized
historical operation in conjunction with comparison with other similar
motel properties available within the subject's effective market area.
This was conducted in the Market Analysis section of this report.
Average daily rate and occupancy levels on a stabilized basis as
determined in the Market Analysis section cited stabilized ADR and
occupancy in 2003 at $69 and 75%.
Total room revenue is calculated as follows.
[IRR LOGO] PAGE 67
HOLIDAY INN CANTON VALUATION ANALYSIS
[Download Table]
ROOMS X DAYS OF THE YEAR = ROOM NIGHTS AVAILABLE
194 365 70,810
[Download Table]
RNA X PROJECTED OCCUPANCY = ROOM NIGHTS SOLD
70,810 75% 53,108
[Download Table]
RNS X AVERAGE DAILY RATE = ROOM SALES
53,108 $69 $3,664,418
ESTIMATION OF NET OPERATING INCOME
The subject property was originally built as a Holiday Inn Hotel. It has
historically been operated and is currently operated as a Holiday Inn.
Integra Realty Resources has been provided with historical operating
statements which have been compiled in a comparative statement on the
following page.
We have studied industry standard Experience Exchange Reports published
by both Smith Travel Research (the Host Report) and PKF Consulting (the
Trend Report). These industry trend reports identify full service hotels
by price, category, size and region.
Smith Travel Research has prepared a custom Host Report for 34
midmarket, full service hotels in Ohio, Indiana, Michigan and Kentucky.
This study was conducted for Integra Realty Resources, specifically for
this assignment. This data is also presented for determination of
stabilized operating expenses for the subject property.
[IRR LOGO] PAGE 68
HOLIDAY INN CANTON VALUATION ANALYSIS
HOLIDAY INN NORTH CANTON
HISTORICAL OPERATING STATEMENTS
[Enlarge/Download Table]
DESCRIPTION 2000 %REV PAR POR 2001 %REV PAR POR 2002 %REV PAR POR
INCOME:
ROOMS 194 $3,747,604 70.57% $19,318 $65.57 $3,590,024 70.36% $18,505 $67.27 $3,670,367 72.46% $18,919 $68.76
FOOD & BEVERAGE $1,439,797 27.11% $ 7,422 $25.19 $1,396,368 27.37% $ 7,198 $26.17 $1,287,776 25.42% $ 6,638 $24.12
TELEPHONE $ 69,706 1.31% $ 359 $ 1.22 $ 61,982 1.21% $ 319 $ 1.16 $ 49,432 0.98% $ 255 $ 0.93
OTHER $ 53,716 1.01% $ 277 $ 0.94 $ 54,207 1.06% $ 279 $ 1.02 $ 58,044 1.15% $ 299 $ 1.09
TOTAL REVENUE $5,310,823 100.00% $27,375 $92.93 $5,102,581 100.00% $26,302 $95.62 $5,065,619 100.00% $26,111 $94.90
EXPENSE:
OPERATED DEPT.
ROOMS $ 867,117 23.14% $ 4,470 $15.17 $ 879,427 24.50% $ 4,533 $16.48 $ 882,796 24.05% $ 4,550 $16.54
FOOD & BEVERAGE $1,237,253 85.93% $ 6,378 $21.65 $1,220,136 87.38% $ 6,289 $22.86 $1,145,028 88.92% $ 5,902 $21.45
TELEPHONE $ 36,782 52.77% $ 190 $ 0.64 $ 25,602 41.31% $ 132 $ 0.48 $ 25,929 52.45% $ 134 $ 0.49
OTHER OPERATED DEPT. $ 0 0.00% $ 0 $ - $ 0 0.00% $ 0 $ - $ 0 0.00% $ 0 $ -
TOTAL OPER. DEPT. EXPENSE $2,141,152 40.32% $11,037 $37.46 $2,125,165 41.65% $10,954 $39.82 $2,053,753 40.54% $10,586 $38.47
UNDISTRIBUTED EXPENSE
ENERGY $ 245,651 4.63% $ 1,266 $ 4.30 $ 257,107 5.04% $ 1,325 $ 4.82 $ 243,441 4.81% $ 1,255 $ 4.56
MARKETING $ 278,819 5.25% $ 1,437 $ 4.88 $ 330,101 6.47% $ 1,702 $ 6.19 $ 360,827 7.12% $ 1,860 $ 6.76
REPAIR & MAINTENANCE $ 250,245 4.71% $ 1,290 $ 4.38 $ 235,814 4.62% $ 1,216 $ 4.42 $ 247,136 4.88% $ 1,274 $ 4.63
ADMIN. & GENERAL $ 435,889 8.21% $ 2,247 $ 7.63 $ 454,579 8.91% $ 2,343 $ 8.52 $ 431,013 8.51% $ 2,222 $ 8.07
TOTAL UNDISTRIBUTED EXP. $1,210,604 22.80% $ 6,240 $21.18 $1,277,601 25.04% $ 6,586 $23.94 $1,282,417 25.32% $ 6,610 $24.02
MANAGEMENT $ 0 0.00% $ 0 $ - $ 0 0.00% $ 0 $ - $ 0 0.00% $ 0 $ -
FRANCHISE FEES $ 359,687 6.77% $ 1,854 $ 6.29 $ 332,911 6.52% $ 1,716 $ 6.24 $ 340,241 6.72% $ 1,754 $ 6.37
FIXED EXPENSE
INSURANCE $ 15,700 0.30% $ 81 $ 0.27 $ 27,115 0.53% $ 140 $ 0.51 $ 25,055 0.49% $ 129 $ 0.47
REAL ESTATE TAX $ 63,903 1.20% $ 329 $ 1.12 $ 93,342 1.83% $ 481 $ 1.75 $ 88,642 1.75% $ 457 $ 1.66
LEASE / RENT $ 35,537 0.67% $ 183 $ 0.62 $ 43,446 0.85% $ 224 $ 0.81 $ 44,816 0.88% $ 231 $ 0.84
RESERVES $ 0 0.00% $ 0 $ - $ 0 0.00% $ 0 $ - $ 0 0.00% $ 0 $ -
TOTAL FIXED EXPENSE $ 115,140 2.17% $ 594 $ 2.01 $ 163,903 3.21% $ 845 $ 3.07 $ 158,513 3.13% $ 817 $ 2.97
TOTAL EXPENSE $3,826,583 72.05% $19,725 $66.96 $3,899,580 76.42% $20,101 $73.08 $3,834,924 75.70% $19,768 $71.84
NET OPERATING INCOME $1,484,240 27.95% $ 7,651 $25.97 $1,203,001 23.58% $ 6,201 $22.54 $1,230,695 24.30% $ 6,344 $23.06
ROOMS SOLD 57,151 53,364 53,380
OCCUPANCY 80.7% 75.4% 75.4%
AVERAGE DAILY RATE $ 65.57 $ 67.27 $68.76
AVE F&B PER OCCUPIED ROOM $ 25.19 $ 26.17 $24.12
[IRR LOGO] PAGE 69
HOLIDAY INN CANTON VALUATION ANALYSIS
TRENDS IN THE HOTEL INDUSTRY
SUMMARY OF FULL SERVICE HOTELS
FULL SERVICE HOTELS
RATIOS TO REVENUES AND DOLLARS PER AVAILABLE ROOM
[Enlarge/Download Table]
ALL FULL-SERVICE AVERAGE FOR TOP
HOTELS 25%(3) NORTH CENTRAL 125 to 200 ROOMS Under $70.00
-------------------------------------------------------------------------------------
(%) ($) (%) ($) (%) ($) (%) ($) (%) ($)
REVENUES:
Rooms 65.9 23,837 63.9 35,814 63.5 20,161 74.8 20,325 69.9 13,302
Food - Including Other Income 23.6 8,526 23.8 13,362 26.6 8,434 17.0 4,609 22.3 4,237
Beverage 4.6 1,670 5.1 2,863 4.8 1,525 3.3 885 4.0 759
Telecommunications 1.8 654 2.2 1,212 1.7 535 1.7 456 1.3 247
Other Operated Departments 3.0 1,069 3.7 2,088 2.5 780 2.4 654 1.4 264
Rentals and Other Income 1.2 417 1.4 755 1.1 335 0.9 255 1.1 213
-------------------------------------------------------------------------------------
Total Revenues 100.0 36,174 100.0 56,094 100.0 31,770 100.0 27,183 100.0 19,022
DEPARTMENTAL COSTS AND EXPENSES:
Rooms 17.3 6,269 15.9 8,934 16.4 5,214 19.4 5,275 20.3 3,854
Food 19.0 6,875 19.0 10,673 20.5 6,502 14.5 3,929 18.1 3,441
Beverage 2.4 861 2.4 1,370 2.2 705 1.9 521 2.5 467
Telecommunications 1.0 370 1.0 557 1.1 332 1.0 270 1.1 216
Other Operated Departments 1.7 603 2.1 1,194 1.2 394 1.6 435 0.7 131
-------------------------------------------------------------------------------------
Total Costs and Expenses 41.4 14,978 40.5 22,729 41.4 13,146 38.4 10,429 42.6 8,110
-------------------------------------------------------------------------------------
Total Operated Departmental Income 58.6 21,195 59.5 33,365 58.6 18,623 61.6 16,754 57.4 10,912
UNDISTRIBUTED OPERATING EXPENSES:(2)
Administrative and General 9.1 3,274 7.9 4,404 9.0 2,847 10.1 2,733 10.7 2,042
Franchise Fees - Including Marketing Fees 2.9 1,041 2.1 1,191 3.0 960 4.0 1,099 4.7 886
Marketing 5.6 2,034 5.1 2,858 5.7 1,813 5.9 1,591 6.4 1,216
Property Operation and Maintenance 5.0 1,796 4.2 2,341 5.4 1,703 5.6 1,513 6.1 1,157
Utility Costs 4.1 1,493 3.2 1,817 4.3 1,363 4.4 1,191 5.5 1,053
Other Unallocated Operated Departments - 2 - 1 - - - - - 1
-------------------------------------------------------------------------------------
Total Undistributed Expenses 26.7 9,640 22.5 12,611 27.3 8,686 29.6 8,127 33.4 6,356
-------------------------------------------------------------------------------------
Income before Fixed Charges 31.9 11,555 37.0 20,753 31.3 9,938 31.7 8,627 24.0 4,556
MANAGEMENT FEES, PROPERTY TAXES, AND
INSURANCE:(2)
Management Fees 2.6 930 2.4 1,354 2.6 838 2.7 732 2.9 558
Property Taxes and Other Municipal Charges 3.7 1,352 3.6 2,033 4.7 1,483 3.8 1,036 3.7 694
Insurance 1.0 374 0.9 483 0.9 292 1.2 320 1.4 274
-------------------------------------------------------------------------------------
Total Management Fees, Property Taxes,
and Insurance 7.3 2,656 6.9 3,869 8.2 2,613 7.7 2,087 8.0 1,527
-------------------------------------------------------------------------------------
Income before Other Fixed Charges(1) 24.6 8,899 30.1 16,884 23.1 7,325 24.1 6,539 15.9 3,030
=====================================================================================
Source: Trends 2003
* Average based on total groups, although not all establishments reported data.
** Income before deducting Depreciation, Rent, Interest, Amortization, and
Income Taxes.
[IRR LOGO] PAGE 70
HOLIDAY INN CANTON VALUATION ANALYSIS
HOST REPORT
FULL SERVICE HOTELS
[Enlarge/Download Table]
EAST NORTH CENTRAL ECONOMY 150 TO 300 ROOMS
% $ POR $PAR % $ POR $PAR % $ POR $PAR
REVENUE
Rooms 63.1% $116.47 $25,481 69.0% $ 74.99 $16,101 64.3% $106.07 $30,170
Food 19.8% $ 36.51 $ 7,987 16.8% $ 18.27 $ 3,923 18.4% $ 30.42 $10,211
Beverage 4.9% $ 9.10 $ 1,991 4.1% $ 4.49 $ 964 4.3% $ 7.16 $ 2,195
Other Food & Beverage 5.0% $ 9.17 $ 2,007 4.8% $ 5.16 $ 1,108 3.7% $ 6.12 $ 2,964
Telecommunications 2.0% $ 3.74 $ 818 1.6% $ 1.72 $ 369 1.8% $ 2.89 $ 988
Other Operated Departments 3.1% $ 5.68 $ 1,244 2.0% $ 2.22 $ 477 5.9% $ 9.73 $ 2,263
Rentals & Other Income 2.0% $ 3.60 $ 788 1.5% $ 1.64 $ 353 1.6% $ 2.58 $ 934
Cancellation Fee .1% $ .24 $ 53 .1% $ .08 $ 18 .1% $ .21 $ 132
TOTAL REVENUES 100.0% $184.51 $40,369 100.0% $108.57 $23,313 100.0% $165.18 $49,857
DEPARTMENTAL EXPENSES
Rooms 25.3% $ 29.51 $ 6,457 29.5% $ 22.15 $ 4,755 25.7% $ 27.26 $ 7,466
Food & Beverage 73.0% $ 39.99 $ 8,750 80.0% $ 22.33 $ 4,795 77.4% $ 33.84 $11,359
Telecommunications 50.7% $ 1.90 $ 415 79.6% $ 1.37 $ 293 54.7% $ 1.58 $ 514
Other Operated Departments 2.4% $ 4.52 $ 988 1.4% $ 1.49 $ 321 2.8% $ 4.63 $ 1,795
TOTAL EXPENSES 41.1% $ 75.92 $16,610 43.6% $ 47.34 $10,164 40.7% $ 67.31 $21,134
TOTAL DEPARTMENTAL PROFIT 58.9% $108.59 $23,759 56.4% $ 61.23 $13,149 59.3% $ 97.87 $28,723
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 8.9% $ 16.39 $ 3,586 9.0% $ 9.79 $ 2,101 9.1% $ 15.02 $ 4,234
Marketing 6.8% $ 12.48 $ 2,731 7.3% $ 7.94 $ 1,706 7.0% $ 11.61 $ 3,419
Utility Costs 3.6% $ 6.62 $ 1,448 5.9% $ 6.44 $ 1,382 4.2% $ 6.89 $ 1,830
Property Operating & Maintenance 5.1% $ 9.48 $ 2,075 6.1% $ 6.62 $ 1,422 4.9% $ 8.15 $ 2,284
TOTAL UNDISTRIBUTED OPERATING EXPENSES 24.4% $ 44.97 $ 9,840 28.4% $ 30.79 $ 6,611 25.2% $ 41.67 $11,767
GROSS OPERATING PROFIT 34.5% $ 63.62 $13,919 28.0% $ 30.44 $ 6,538 34.1% $ 56.20 $16,956
Franchise Fees (Royalty) .7% $ 1.24 $ 271 1.1% $ 1.25 $ 267 1.3% $ 2.07 $ 229
Management Fees 3.4% $ 6.22 $ 1,360 3.0% $ 3.23 $ 693 2.8% $ 4.59 $ 1,657
INCOME BEFORE FIXED CHARGES 30.4% $ 56.16 $12,288 23.9% $ 25.96 $ 5,578 30.0% $ 49.54 $15,070
SELECTED FIXED CHARGES
Property Taxes 5.1% $ 9.37 $ 2,050 1.9% $ 2.06 $ 442 2.8% $ 4.59 $ 1,590
Insurance .6% $ 1.10 $ 240 1.0% $ 1.06 $ 228 .8% $ 1.30 $ 350
Reserve for Capital Replacement 1.6% $ 2.92 $ 639 2.1% $ 2.24 $ 482 1.6% $ 2.65 $ 916
AMOUNT AVAILABLE FOR DEBT SERVICE & OTHER
FIXED CHARGES * 23.1% $ 42.77 $ 9,359 18.9% $ 20.60 $ 4,426 24.8% $ 41.00 $12,214
OCCUPANCY 61.2% 64% 62.5%
ROOMS 277 217 215
AVERAGE RATE $166.47 $ 74.99 $106.08
Source: Smith Travel Research 2002
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HOLIDAY INN CANTON VALUATION ANALYSIS
CUSTOM HOST REPORT
2001 FULL-SERVICE: SELECTED PROPERTIES
[Download Table]
34 PROPERTIES RATIO TO AMOUNT PER AMOUNT/OCCUPIED
6,935 TOTAL ROOMS SALES AVAILABLE ROOM ROOM NIGHT
REVENUE
Rooms 66.4% $17,126 $ 80.93
Food 20.1% $ 5,174 $ 24.45
Beverage 5.0% $ 1,278 $ 6.04
Other Food & Beverage 4.7% $ 1,202 $ 5.68
Telecommunications 1.5% $ 399 $ 1.89
Other Operated Departments 1.6% $ 413 $ 1.95
Rentals & Other Income .6% $ 164 $ .78
Cancellation Fee .1% $ 35 $ .17
TOTAL REVENUES 100.0% $25,791 $121.89
DEPARTMENTAL EXPENSES
Rooms 25.2% $ 4,317 $ 20.40
Food & Beverage 74.8% $ 5,724 $ 27.05
Telecommunications 60.2% $ 240 $ 1.14
Other Operated Departments 1.8% $ 459 $ 2.16
TOTAL EXPENSES 41.6% $10,740 $ 50.75
DEPARTMENTAL PROFITS
Rooms 74.8% $12,809 $ 60.53
Food & Beverage 25.2% $ 1,930 $ 9.12
Telecommunications 39.8% $ 159 $ .75
Other Operated Departments 98.2% $ 118 $ .57
TOTAL DEPARTMENTAL PROFIT 58.4% $15,051 $ 71.14
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 9.4% $ 2,433 $ 11.50
Marketing 7.8% $ 2,007 $ 9.48
Utility Costs 5.1% $ 1,320 $ 6.24
Property Operating & Maintenance 6.4% $ 1,652 $ 7.81
TOTAL UNDISTRIBUTED OPERATING EXPENSES 28.7% $ 7,412 $ 35.03
GROSS OPERATING PROFIT 29.7% $ 7,639 $ 36.11
Franchise Fees (Royalty) 2.6% $ 666 $ 3.15
Management Fees 2.9% $ 752 $ 3.56
INCOME BEFORE FIXED CHARGES 24.1% $ 6,221 $ 29.40
SELECTED FIXED CHARGES
Property Taxes 3.0% $ 764 $ 3.61
Insurance 1.1% $ 272 $ 1.29
Reserve for Capital Replacement .3% $ 78 $ .37
AMOUNT AVAILABLE FOR DEBT SERVICE &
OTHER FIXED CHARGES * 19.7% $ 5,107 $ 24.13
OCCUPANCY 58.1%
AVERAGE RATE $80.93
Source: Smith Travel Research 2003
* Other fixed charges include depreciation and amortization, interest, rent
and equipment leases
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HOLIDAY INN CANTON VALUATION ANALYSIS
REVENUES
ROOMS REVENUE
Room revenue was projected at the beginning of this section at
$3,664,418. This is supported by a detailed penetration and yield study
within the Market Analysis section.
RESTAURANT INCOME
The food and beverage division has been operated by the hotel.
Historically, food and beverage revenue per occupied room has ranged
from $24.12 to $26.17. Integra Realty Resources has appraised many full
service restaurants in hotel operations with food and beverage revenue
ranging from $24.11 to $62.14 per occupied room. The Custom Host Report
shows $36.17. PKF Report is not applicable. Trend Reports for 2002
publish the following:
FOOD & BEVERAGE PER OCCUPIED ROOM
[Download Table]
REPORT ECONOMY ENC REGION 150-300 RMS
Host $27.92 $54.78 $43.70
The projected stabilized food and beverage revenue including banquet
room rental is projected at $1,381,000, which indicates $26.00 per
occupied room.
TELEPHONE INCOME
Telephone revenue historically has ranged from $255 to $359 per
available room. This is equivalent to annual revenue of $49,432 to
$69,706. This is also equivalent to $0.93 to $1.22 per occupied room.
Telephone revenue is declining due to cellular usage. We have estimated
total telephone revenue at $50,000.
OTHER INCOME
Other revenue includes guest laundry, vending revenue, lease, no-show,
amusement park, game room, etc. Total other revenue ranged from $277 to
$299 per available room, or $53,716 to $58,044. This is equivalent to
$0.94 to $1.09 per occupied room. We have projected stabilized other
revenue at $60,000, or $1.13 per occupied room.
DEPARTMENTAL EXPENSES
ROOMS EXPENSE
Rooms expense includes wages for front desk and housekeeping personnel,
payroll taxes, guest supplies, cleaning supplies and laundry, linens,
advertising, and miscellaneous expenses. Rooms also should include all
franchise reservation fees such as Holidex Systems, etc.
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HOLIDAY INN CANTON VALUATION ANALYSIS
ROOMS EXPENSE
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SUBJECT HISTORY CUSTOM SUBJECT
2000/01/02 HOST PKF HOST STABILIZED YR
RATIO TO DEPT. REVENUE 23.1%/24.5%/24.1% 25.3%-29.5% NA 25.2% 25%
$ PER OCCUPIED RM $15.17/$16.48/$16.54 $22.15-$29.51 NA $20.40
$ PER AVAIL ROOM/YR $4,470/$4,533/$4,550 $4,755-$7,466 $3,854-$8,934 $4,317
On a stabilized basis, a rooms expense of 25% is utilized, which
includes Holiday Inn reservation costs. This equates to approximately
$17.25 per occupied room.
FOOD AND BEVERAGE
Food and beverage expense includes all costs of labor, food costs,
liquor costs, table and glass services, etc. Banquet expenses are also
considered.
FOOD AND BEVERAGE EXPENSE
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SUBJECT HISTORY CUSTOM SUBJECT
2000/01/02 HOST PKF HOST STABILIZED YR
RATIO TO DEPT. REVENUE 85.9%/87.4%/88.9% 73%-80% NA 74.8% 85%
$ PER OCCUPIED RM $21.65/$22.86/$21.45 $22.33-$39.99 NA $27.05
$ PER AVAIL ROOM/YR $6,378/$6,289/$5,902 $4,795-$11,359 NA $5,724
Given historical expenses and trend data, we have utilized 85% for
food and beverage expense.
TELEPHONE EXPENSE
Telephone expense includes local and long distance calls and line
charges. The phone system has call accounting. This is a Mitel unit
with voice mail.
TELEPHONE EXPENSE
[Download Table]
SUBJECT HISTORY CUSTOM SUBJECT
2000/01/02 HOST PKF HOST STABILIZED YR
RATIO TO DEPT. REVENUE 52.8%/41.3%/52.5% 50.7-79.6% NA 60.2% 53%
$ PER OCCUPIED RM $0.64/$0.48/$0.49 $1.37-$1.90 NA $1.14
$ PER AVAIL ROOM/YR $190/$132/$134 $293-$514 NA $240
In this analysis we have utilized 53% telephone expense in line with
operations history.
OTHER EXPENSE
Costs associated with other revenue have historically reflected net
revenue.
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HOLIDAY INN CANTON VALUATION ANALYSIS
UNDISTRIBUTED EXPENSES
ENERGY COSTS
Energy costs include all heat, light and power costs.
ENERGY EXPENSE
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SUBJECT HISTORY CUSTOM SUBJECT
2000/01/02 HOST PKF HOST STABILIZED YR
RATIO TO DEPT. REVENUE 4.6%/5%/4.8% 3.6%-5.9% 3.2%-5.5% 5.1% 5%
$ PER OCCUPIED RM $4.30/$4.82/$4.56 $6.44-$6.89 N/A $6.24
$ PER AVAIL ROOM/YR $1,266/$1,325/$1,255 $1,382-$1,830 $1,053-$1,817 $1,320
We have concluded to 5% for energy expense.
MARKETING
MARKETING EXPENSE
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SUBJECT HISTORY CUSTOM SUBJECT
2000/01/02 HOST PKF HOST STABILIZED YR
RATIO TO DEPT. REVENUE 5.3%/6.5%/7.1% 6.8%-7.3% 5.1-6.4% 7.8% 8%
$ PER OCCUPIED RM $4.88/$6.19/$6.76 $7.94-$12.48 N/A $9.48
$ PER AVAIL ROOM/YR $1,437/$1,702/$1,860 $1,706-$3,419 $1,216-$2,858 $20.07
The Holiday Inn marketing fee is 1.5% of room revenue which was
previously allocated under franchise fees. We have concluded to 8%
in this analysis.
FRANCHISE FEES
The subject is a Holiday Inn Hotel. Maintenance of the affiliation
is crucial to continued operation at the projected performance.
Holiday Inn's royalty costs are 5% of rooms revenue, which equates
to 3.6% of total revenue. Various chain franchise affiliation costs
are summarized on the following pages.
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HOLIDAY INN CANTON VALUATION ANALYSIS
FRANCHISE FEES CHART
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HOLIDAY INN CANTON VALUATION ANALYSIS
REPAIR AND MAINTENANCE
Repair and maintenance expenses include exterior building
maintenance and repair, parking lot maintenance, lawn care,
landscaping, minor room repair and maintenance costs.
REPAIR AND MAINTENANCE EXPENSE
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SUBJECT HISTORY CUSTOM SUBJECT
2000/01/02 HOST PKF HOST STABILIZED YR
RATIO TO DEPT. REVENUE 4.7%/4.6%/4.9% 4.9%-6.1% 4.2%-6.1% 6.4% 5%
$ PER OCCUPIED RM $4.38/$4.42/$4.63 $6.62-$9.48 N/A $7.81
$ PER AVAIL ROOM/YR $1,290/$1,216/$1,274 $1,422-$2,284 $1,157-$2,341 $16.52
We have concluded to 5% in this analysis, recognizing that a
separate reserve for replacement is considered.
ADMINISTRATIVE AND GENERAL
ADMINISTRATIVE AND GENERAL EXPENSE
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SUBJECT HISTORY CUSTOM SUBJECT
2000/01/02 HOST PKF HOST STABILIZED YR
RATIO TO DEPT. REVENUE 8.2%/8.9%/8.5% 8.9%-9.1% 7.9%-10.7% 9.4% 8.5%
$ PER OCCUPIED RM $17.63/$8.52/$18.07 $9.79-$16.39 N/A $11.50
$ PER AVAIL ROOM/YR $2,247/$2,343/$2,222 $2,101-$4,234 $2,042-$4,404 $24.33
Administrative and general expense of 8.5% is projected in this
analysis.
MANAGEMENT
Management fees historically have not been recorded. Management
companies often charge an incentive management fee in addition to a
base. Total fees of between 2% and 5% are customary. The Korpacz
Investor Survey cites the following chart.
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HOLIDAY INN CANTON VALUATION ANALYSIS
RESERVES FOR REPLACEMENT
AND MANAGEMENT FEES
(% OF TOTAL REVENUE)
FIRST QUARTER 2003
[Download Table]
RESERVES FOR MANAGEMENT
LODGING SEGMENT REPLACEMENT FEES
--------------- ----------- ----
FULL - SERVICE
RANGE 3.00%-8.00% 1.00%-4.00%
AVERAGE 4.39% 2.81%
ECONOMY/LIMITED SERVICE
RANGE 3.00%-6.00% 2.00%-5.00%
AVERAGE 4.44% 3.56%
LUXURY
RANGE 3.00%-7.00% 1.00%-5.00%
AVERAGE 4.36% 2.77%
EXTENDED STAY
RANGE 3.00%-5.00% 2.00%-5.00%
AVERAGE 4.30% 3.40%
Source: PWC 1st Qtr 2003
The existing management contract is cancelable upon default. We have considered
market management fees in this analysis as the purpose of this report is to
determine Fee Simple Market Value. We have utilized 3% of total revenue as the
management fee for the subject property.
INSURANCE
INSURANCE EXPENSE
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SUBJECT HISTORY CUSTOM SUBJECT
2000/01/02 HOST PKF HOST STABILIZED YR
---------- ---- --- ---- -------------
RATIO TO DEPT. REVENUE 0.3%/0.5%/0.5% 0.6%-1% 0.9%-1.4% 1.1% 0.8%
$ PER OCCUPIED RM $0.27/$0.51/$0.47 $1.06-$1.30 N/A $1.29
$ PER AVAIL ROOM/YR $81/$140/$129 $228-$350 $274-$483 $2.72
We have concluded to 0.8% for insurance expense in this analysis.
REAL ESTATE TAXES
Real and personal property taxes were discussed in the Site Description
section. We have estimated taxes at $134,591.
RESERVES
A 4% reserve for replacement is included in our analysis to account for
short-term replacement of items such as paving, carpeting, furniture, fixtures
and equipment. FF&E appears to be in good condition. HVAC systems are in working
order. A 4% reserve account is based on current market conditions. Discussions
with buyers
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HOLIDAY INN CANTON VALUATION ANALYSIS
regarding their parameters indicate reserves at predominantly 4%. A 2000 study
published by the International Society of Hotel Consultants suggests that cap ex
for full service hotels averaged 6.1% between 1988 and 1998. However, until
market participants recognize an increased deduction from NOI and adjust
corresponding purchase parameters, a lower reserve is utilized. The Korpacz
Survey cited under the management fee discussion indicated average full service
reserves at 4.38%.
The following is a summary of the pro forma operating expenses anticipated for
the coming year on a stabilized basis or stabilized ProForma for 2003 year. This
assumes renovations are complete as required by the Franchisor.
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HOLIDAY INN CANTON VALUATION ANALYSIS
HOLIDAY INN NORTH CANTON
PROFORMA INCOME EXPENSE STATEMENT
[Download Table]
DESCRIPTION TOTAL % SALES $ / RM. POR
----------- ----- ------- ------- ---
INCOME:
ROOMS 194 $ 3,664,418 71.08% $ 18,889 $ 69.00
FOOD & BEVERAGE $ 1,381,000 26.79% $ 7,119 $ 26.00
TELEPHONE $ 50,000 0.97% $ 258 $ 0.94
OTHER $ 60,000 1.16% $ 309 $ 1.13
TOTAL REVENUE $ 5,155,418 100.00% $ 26,574 $ 97.07
EXPENSE:
OPERATED DEPT.
ROOMS $ 916,105 25.00% $ 4,722 $ 17.25
FOOD & BEVERAGE $ 1,173,850 85.00% $ 6,051 $ 22.10
TELEPHONE $ 26,500 53.00% $ 137 $ 0.50
OTHER OPERATED DEPT. $ 0 0.00% $ 0 $ --
TOTAL OPER. DEPT. EXPENSE $ 2,116,455 41.05% $ 10,910 $ 39.85
UNDISTRIBUTED EXPENSE
ENERGY $ 257,771 5.00% $ 1,329 $ 4.85
MARKETING $ 412,433 8.00% $ 2,126 $ 7.77
FRANCHISE FEES $ 185,595 3.60% $ 957 $ 3.49
REPAIR & MAINTENANCE $ 257,771 5.00% $ 1,329 $ 4.85
ADMIN. & GENERAL $ 438,211 8.50% $ 2,259 $ 8.25
TOTAL UNDISTRIBUTED EXP. $ 1,551,781 30.10% $ 7,999 $ 29.22
MANAGEMENT $ 154,663 3.00% $ 797 $ 2.91
FIXED EXPENSE
INSURANCE $ 41,243 0.80% $ 213 $ 0.78
TAXES $ 134,591 2.60% $ 694 $ 2.53
OTHER $ 0 0.00% $ 0 $ --
RESERVES $ 206,217 4.00% $ 1,063 $ 3.88
TOTAL FIXED EXPENSE $ 382,051 7.41% $ 1,969 $ 7.19
TOTAL EXPENSE $ 4,204,949 81.56% $ 21,675 $ 79.18
NET OPERATING INCOME $ 950,469 18.44% $ 4,899 $ 17.90
ROOMS SOLD 53,108
OCCUPANCY 75.00%
AVERAGE DAILY RATE $ 69.00
AVE F&B PER OCCUPIED ROOM $ 26.00
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HOLIDAY INN CANTON VALUATION ANALYSIS
CAPITALIZATION
There are two forms of capitalization, which can be utilized to process
income into value. These are direct and yield capitalization techniques.
In direct capitalization a stabilized net operating income can be
processed into value by utilization of an overall rate. This process
requires the projection of stabilized net operating income. Direct
capitalization is the most fundamental approach and accounts for market
conditions as they are anticipated in the near future. Direct
capitalization is typically the most reliable indication for stabilized
hotels.
In yield capitalization factors can be accounted for such as demand
growth, changes in average daily rate, operating expense changes, start up
of new or renovated projects, etc. The subject is existing and has
reached/will be stabilized. A discounted cash flow has been processed in
this analysis to reflect anticipated changes expensed in the industry over
the next few years.
DIRECT CAPITALIZATION
Direct capitalization involves the processing of a stabilized year
net operating income into value. This relationship is best derived
from recent sales of comparable properties. Overall rates of
capitalization are determined by dividing net operating income into
the sale price. This relationship is applied to the subject net
operating income calculated above. As a crosscheck to market derived
overall rates we have utilized a band of investment technique. This
analysis utilizes typical mortgage variables available today as well
as equity returns in the marketplace.
Historical indications of overall rates from market sales for
comparable quality properties indicate a range of from 11.3% to
12.9% as follows:
[Download Table]
SALE PROPERTY OVERALL RATE
1 Holiday Inn Traverse City 11.75%
2 Trueman Club, Columbus 12.3%
3 Courtyard, Cleveland 11.3%
4 Embassy, Columbus 11.9%
5 Clarion, Covington 12.9%
6 St. Regis, Detroit 12.5%
BAND OF INVESTMENT TECHNIQUE
Mortgage financing in this analysis assumes the investor/buyer seeks
the best available loan in order to maximize leverage. We have had
discussions with brokers, operators and owners indicating that motel
loan criteria has become quite restrictive. Many lenders are very
cautious regarding hotel property due to fears of oversupply,
recession and declines in travel. This has resulted in lower loan to
value and higher debt coverage ratio requirements.
Realtyrates.com indicates lodging interest rates at 5.83% to 16.58%
with an average of 8.01%. Spreads over 10 year treasuries are 1.49%
to 12.24%, with an average of 3.67% shown as follows.
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HOLIDAY INN CANTON VALUATION ANALYSIS
RealtyRates.com INVESTOR SURVEY - 2nd Quarter 2003
PERMANENT FINANCING
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Health RV/Camp
Senior Mfg Hsg Self Special
Apt. Golf Housing Ind. Lodging MH Park Office Restaurant Retail Storage Purpose
--------------------------------------------------------------------------------------------------------------------------------
Spread Over Base*
--------------------------------------------------------------------------------------------------------------------------------
Minimum 1.25% 2.17% 1.40% 1.44% 1.49% 1.30% 1.40% 2.25% 1.40% 1.49% 2.25%
Maximum 3.95% 6.00% 4.50% 4.55% 12.24% 4.30% 4.80% 7.60% 4.55% 4.80% 10.04%
Average 2.11% 3.41% 2.67% 2.37% 3.67% 2.24% 2.60% 4.06% 2.49% 3.58% 4.25%
--------------------------------------------------------------------------------------------------------------------------------
Interest Rate
--------------------------------------------------------------------------------------------------------------------------------
Minimum 5.59% 6.51% 5.74% 5.78% 5.83% 5.64% 5.74% 6.59% 5.74% 10.08% 6.59%
Maximum 8.29% 10.34% 8.84% 8.89% 16.58% 8.64% 9.14% 11.94% 8.89% 8.89% 14.38%
Average 6.45% 7.75% 7.01% 6.71% 8.01% 6.58% 6.94% 8.40% 6.83% 6.83% 8.59%
--------------------------------------------------------------------------------------------------------------------------------
Debt Coverage Ratio
--------------------------------------------------------------------------------------------------------------------------------
Minimum 1.15 1.25 1.10 1.20 1.30 1.20 1.20 1.30 1.20 1.20 1.25
Maximum 1.85 1.80 2.00 1.80 2.10 1.80 1.80 2.10 1.80 2.30 2.40
Average 1.51 1.50 1.54 1.40 1.64 1.42 1.50 1.61 1.39 1.52 1.70
--------------------------------------------------------------------------------------------------------------------------------
Loan-to-Value Ratio
--------------------------------------------------------------------------------------------------------------------------------
Minimum 50% 50% 50% 50% 50% 60% 50% 50% 50% 80% 50%
Maximum 85% 80% 95% 80% 80% 80% 80% 75% 80% 50% 80%
Average 74% 66% 72% 72% 67% 73% 68% 66% 72% 69% 67%
--------------------------------------------------------------------------------------------------------------------------------
Amortization (Yrs.)
--------------------------------------------------------------------------------------------------------------------------------
Minimum 20 15 20 20 15 20 20 15 20 20 15
Maximum 35 30 35 30 30 30 30 25 30 30 30
Average 27 21 25 26 23 26 28 19 27 28 21
--------------------------------------------------------------------------------------------------------------------------------
Term (Yrs.)
--------------------------------------------------------------------------------------------------------------------------------
Minimum 3 5 3 3 5 5 3 3 3 3 3
Maximum 40 30 25 30 30 30 30 15 10 10 20
Average 21.50 9.25 13.75 11.67 8.00 9.25 8.00 7.50 6.25 6.25 8.00
--------------------------------------------------------------------------------------------------------------------------------
*10 Year Treasury
--------------------------------------------------------------------------------------------------------------------------------
Copyright 2003 RealtyRates.com
Based on discussions with hotel lending professionals, mortgage rate
spreads for hotel properties comparable to the subject generally fall in
the range of 300 to 450 basis points over the corresponding 7 to 10 year
treasuries.
A treasury bill rate of 3.2% is applicable as of June 15, 2003. A 400
basis point spread would indicate an interest rate of 7.2%. A mortgage
constant based on 20 year amortization period is .0945.
EQUITY RETURN
A Band of Investment analysis will be completed to determine an
appropriate overall rate incorporating the above mortgage variables. The
Band of Investment analysis includes consideration of both debt and equity
capital.
Representatives of Integra Realty Resources attend various industry
conferences and events. Our discussions with active hotel brokers, buyers
and analysts have yielded typical equity return ranges.
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HOLIDAY INN CANTON VALUATION ANALYSIS
Current equity requirements for existing stabilized hospitality property
range from approximately 11% to 12% on the low end to a high of
approximately 18% to 20%. Obviously the lower equity requirements would be
for stabilized properties at excellent operating levels in good condition
and excellent locations. The upper range requirements would be for more
poorly operating properties, older properties, poorly located properties
or those requiring some level of renovation. In our opinion, an equity
dividend rate for the subject property considering stabilized operation
and completion of any needed renovations of 15% appears realistic. The
Band of Investment technique is calculated as follows.
BAND OF INVESTMENT TECHNIQUE
[Download Table]
POSITION PERCENTAGE X RATE = PRODUCT
-------- ---------- ------ ---------
Mortgage .6 .0945 .0567
Equity .4 .15 .06
Total .1167
Say 11.7%
NATIONAL STUDIES
Several organizations in addition to Integra Realty Resources
maintain data on investor requirements for rate of return on various
property types. Some include hotel as a classification. Following
are investment criteria for hotel properties.
TABLE 5
2002 CAP RATE RANKS
[Download Table]
2002 2002 2002 HIGH 2002
RANK PROPERTY TYPE LOW (%) (%) AVG. (%)
1 Suburban Multi Family 7.0% 10.0% 8.6%
2 Urban Multi Family 7.0% 10.5% 8.6%
3 Regional Mall 7.0% 9.8% 8.7%
4 Community Mall 8.0% 10.0% 9.3%
5 CBD Office 8.0% 10.8% 9.4%
6 Bulk 8.3% 11.5% 9.4%
7 Neighborhood Strip 8.5% 10.5% 9.5%
8 Suburban Office 8.8% 10.5% 9.5%
9 Office/Warehouse 8.5% 10.5% 9.5%
10 Manufacturing 8.5% 12.0% 9.7%
11 R&D 8.8% 11.0% 9.8%
12 CBD Lodging 9.5% 12.5% 11.0%
13 Suburban Lodging 10.0% 13.0% 11.3%
14 Airport Lodging 9.5% 13.0% 11.3%
TABLE 7
2002 DISCOUNT RATE RANKS
[Download Table]
2002 2002 2002 HIGH 2002
RANK PROPERTY TYPE LOW (%) (%) AVG. (%)
---- ------------- ------- --- --------
1 Regional Mall 9.5% 12.0% 10.8%
2 Suburban Multi Family 9.5% 12.0% 10.8%
3 Urban Multi Family 9.5% 14.0% 10.9%
4 Community Mall 10.0% 12.5% 11.2%
5 CBD Office 10.5% 12.5% 11.3%
6 Neighborhood Strip 10.0% 13.0% 11.3%
7 Suburban Office 10.0% 13.0% 11.4%
8 Bulk 10.0% 14.0% 11.4%
9 Office/Warehouse 10.0% 13.0% 11.4%
10 Manufacturing 10.0% 14.0% 11.7%
11 R&D 10.0% 13.0% 11.7%
12 CBD Lodging 11.0% 15.0% 13.1%
13 Suburban Lodging 11.5% 15.5% 13.3%
14 Airport Lodging 12.0% 15.0% 13.4%
(IRR LOGO) Page 83
HOLIDAY INN CANTON VALUATION ANALYSIS
RERC REAL ESTATE REPORT - SPRING 2003
[Download Table]
HOTEL
LOW HIGH
PRE-TAX YIELD (IRR) (%)
Range** 13.0% 14.5%
AVERAGE 13.7%
GOING IN CAP RATE (%)
Range** 10.8% 11.5%
AVERAGE 11.0%
TERMINAL CAP RATE (%)
Range** 11.5% 12.0%
AVERAGE 11.6%
RENTAL GROWTH
Range** -5.0% 3.0%
AVERAGE 0.3%
EXPENSE GROWTH
Range** 3.0% 3.2%
AVERAGE 3.1%
SOURCE: REAL ESTATE RESEARCH CORPORATION
PWc National Full-Service Lodging Market - First Quarter 2003
[Download Table]
CURRENT THIRD QUARTER
KEY INDICATORS QUARTER 2003 YEAR AGO
-------------- ------- ---- --------
Discount Rate (IRR)(a)
RANGE 11.50%-15.00% 11.50%-15.00% 11.50%-17.00%
AVERAGE 13.51% 13.51% 13.85%
CHANGE (Basis Points) -- 0 -34
Overall Cap Rate IOAR)(a)
RANGE 8.00%-13.00% 7.00%-13.00% 8.50%-13.00%
AVERAGE 10.64% 10.61% 10.77%
CHANGE (Basis Points) -- +3 -13
Residual Cap Rage
RANGE 9.00%-13.00% 9.00%-13.00% 9.00%-14.00%
AVERAGE 10.67% 10.67% 10.91%
CHANGE (Basis Points) -- 0 -24
Average Daily Rate Chg. Rate(a)
RANGE -5.00%-10.00% -5.00%-10.00% -5.00%-10.00%
AVERAGE 2.30% 2.30% 1.85%
CHANGE (Basis Points) 0 +45
Operating Expense Chg. Rate(a)
RANGE 1.00%-4.00% 1.00%-4.00% 1.00%-4.00%
AVERAGE 2.90% 2.90% 2.88%
CHANGE (Basis Points) -- 0 +2
Average Marketing Time (in months)
RANGE 2.00%-12.00% 2.00%-12.00% 2.00%-12.00%
AVERAGE 7.00% 7.00% 7.90%
CHANGE (Basis Points) -- 0 -11.39
(a) Rate on unleveraged, all-cash transactions (b) Initial rate of change
SOURCE: THE KORPACZ REAL ESTATE INVESTOR SURVEY, 1ST QUARTER 2003
(IRR LOGO) Page 84
HOLIDAY INN CANTON VALUATION ANALYSIS
RealtyRates.com INVESTOR SURVEY - 2nd Quarter 2003
LODGING FACILITIES - FULL SERVICE
[Enlarge/Download Table]
ITEM INPUT OAR
MINIMUM
Spread Over 10-Year Treasury 1.49% DCR TECHNIQUE 1.30 0.070640 0.80 7.35
Debt Coverage Ratio 1.30 BAND OF INVESTMENT TECHNIQUE
Interest Rate 5.83% Mortgage 80% 0.070640 0.056512
Amortization 30 Equity 20% 0.097500 0.019500
Mortgage Constant 0.070640 OAR 7.60
Loan-to-Value Ratio 80% SURVEYED RATES 7.75
Equity Dividend Rate 9.75%
MAXIMUM
Spread Over 10-Year Treasury 11.09% DCR TECHNIQUE 1.85 0.171499 0.60 18.88
Debt Coverage Ratio 1.85 BAND OF INVESTMENT TECHNIQUE
Interest Rate 15.43% Mortgage 60% 0.171499 0.102042
Amortization 15 Equity 41% 0.188000 0.076140
Mortgage Constant 0.171499 OAR 17.82
Loan-to-Value Ratio 60% SURVEYED RATES 18.17
Equity Dividend Rate 18.80%
AVERAGE
Spread Over 10-Year Treasury 6.29% DCR TECHNIQUE 1.38 0.117127 0.70 11.27
Debt Coverage Ratio 1.38 BAND OF INVESTMENT TECHNIQUE
Interest Rate 10.63% Mortgage 70% 0.117127 0.081696
Amortization 23 Equity 30% 0.138225 0.041813
Mortgage Constant 0.117127 OAR 12.35
Loan-to-Value Ratio 70% SURVEYED RATES 12.66
Equity Dividend Rate 13.82%
SOURCE: REALTYRATES.COM INVESTOR SURVEY 2ND QTR 2003
SURVEY RANGES (OVERALL CAPITALIZATION RATES)
[Download Table]
STUDY RATE RANGE AVERAGE
----- ---------- -------
Integra Realty Resources (1) 10% - 13% 11.3%
RERC(2) 10.8% - 11.5% 11.0%
PWc(3) 8% - 13% 10.64%
Realty Rates(3) 7.75% - 18.17% 12.66%
(1) Suburban
(2) All hotel types
(3) For full service hotel product only
(IRR LOGO) Page 85
HOLIDAY INN CANTON VALUATION ANALYSIS
OVERALL RATE CONCLUSION
The applicable techniques used to estimate overall rates indicate a range
of 11% to 12.9% as reasonable. In the final analysis, the quality,
quantity, and durability of the subject's income must be considered when
calculating an appropriate overall rate. The subject property should
compete effectively, given its condition, location and affiliation. Our
direct capitalization assumes that PIP renovations are complete and the
subject is stabilized.
The net income estimate includes full expenses with management and
reserves. Therefore, the NOI projection appears reasonable. In our
opinion, a mid capitalization rate of 11.75% appears reasonable.
Calculations are as follows.
[Download Table]
NET OPERATING INCOME / OVERALL RATE = VALUE INDICATION
$950,469 .1175% $8,089,098
Rounded $8,000,000
(IRR LOGO) Page 86
HOLIDAY INN CANTON VALUATION ANALYSIS
INTRODUCTION - DISCOUNTED CASH FLOW ANALYSIS
We have used Argus software to develop a projection of periodic cash flows
from the property over an anticipated investment holding period based on
contract rents in place and anticipated future changes in market rent and
operating expenses. This analysis considered current market conditions and
our interpretation of the attitudes of informed investors concerning
future trends. The table below sets forth the basic assumptions and
projections utilized in this analysis and is followed by a summary of our
cash flow model.
DISCOUNTED CASH FLOW ASSUMPTIONS AND PROJECTIONS
YEAR ONE August 2003 - July 2004
PROJECTION PERIOD 10 years
PROGRAM Argus Software V-10
[Enlarge/Download Table]
INCOME
YEAR 2003 2004 2005 2006
OCCUPANCY 77% 78% 74% 75% (stabilized)
AVERAGE DAILY RATE $68 $70 $71 -
OCCUPANCY CHANGE Stated through 2005, stabilized through
holding period
ADR GROWTH RATE Stated through 2005 2% thereafter
OTHER INCOME
OTHER INCOME Increases at 2% annually
EXPENSES
OPERATING EXPENSES Based on stable % of revenue
REVERSION
REVERSION YEAR Year 11
REVERSION CAPITALIZATION RATE 12%
REVERSION SELLING EXPENSES 2%
DISCOUNT RATE (SEE RANGES BELOW) 13.5% - 15.5%
VALUE CONCLUSION (ROUNDED) $7,200,000 - $8,100,000
DISCOUNT RATES
Internal rate of return rounded to 13.5% to 15.5% based on the following.
[Download Table]
STUDY RATE RANGE AVERAGE
IRR Viewpoint 11.8% - 16% 13.4%
RERC 13% - 14.5% 13.7%
Korpacz 11.5% - 15% 13.51%
(IRR LOGO) Page 87
HOLIDAY INN CANTON VALUATION ANALYSIS
Software: ARGUS Ver. 10.0.0 Date: 7/23/03
File: Holiday Inn Canton Time: 17:19
Property Type: Hotel/Motel Ref#: AAR
Portfolio: Janus Properties Page: 1
SCHEDULE OF PROSPECTIVE CASH FLOW
In Inflated Dollars for the Fiscal Year Beginning 8/1/2003
[Enlarge/Download Table]
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
For the Years Ending Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 Jul-2009
-------------------- -------- -------- -------- -------- -------- --------
GROSS REVENUE
Room Revenue $3,707,612 $3,866,226 $3,720,357 $3,846,045 $3,922,966 $4,001,425
Food & Beverage 1,381,000 1,408,620 1,436,792 1,465,528 1,494,839 1,524,736
Telephone 50,000 51,000 52,020 53,060 54,122 55,204
Other 60,000 61,200 62,424 63,672 64,946 66,245
---------- ---------- ---------- ---------- ---------- ----------
TOTAL GROSS
REVENUE 5,198,612 5,387,046 5,271,593 5,428,305 5,536,873 5,647,610
---------- ---------- ---------- ---------- ---------- ----------
DEPARTMENTAL
EXPENSES
Room Expense 926,903 966,557 930,089 961,511 980,742 1,000,356
Food & Beverage 1,173,850 1,197,327 1,221,273 1,245,699 1,270,613 1,296,026
Telephone 26,500 27,030 27,571 28,122 28,685 29,258
---------- ---------- ---------- ---------- ---------- ----------
TOTAL DEPARTMENTAL
EXPENSES 2,127,253 2,190,914 2,178,933 2,235,332 2,280,040 2,325,640
---------- ---------- ---------- ---------- ---------- ----------
DEPARTMENTAL PROFIT 3,071,359 3,196,132 3,092,660 3,192,973 3,256,833 3,321,970
---------- ---------- ---------- ---------- ---------- ----------
UNDISTRIBUTED
EXPENSES
Administrative
& General 441,882 457,899 448,085 461,406 470,634 480,047
Marketing 415,889 430,964 421,727 434,264 442,950 451,809
Property Oper.
& Maint. 259,931 269,352 263,580 271,415 276,844 282,381
Energy &
Utilities 259,931 269,352 263,580 271,415 276,844 282,381
Management Fee 155,958 161,611 158,148 162,849 166,106 169,428
Franchise Fee 185,381 193,311 186,018 192,302 196,148 200,071
---------- ---------- ---------- ---------- ---------- ----------
TOTAL UNDISTRIBUTED
EXPENSES 1,718,972 1,782,489 1,741,138 1,793,651 1,829,526 1,866,117
---------- ---------- ---------- ---------- ---------- ----------
GROSS OPERATING
PROFIT 1,352,387 1,413,643 1,351,522 1,399,322 1,427,307 1,455,853
---------- ---------- ---------- ---------- ---------- ----------
FIXED EXPENSES
& COSTS
Real Estate
Taxes 134,591 137,283 140,028 142,829 145,686 148,599
Insurance 41,589 43,096 42,173 43,426 44,295 45,181
Reserves 207,944 215,482 210,864 217,132 221,475 225,904
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FIXED
EXPENSES & COSTS 384,124 395,861 393,065 403,387 411,456 419,684
---------- ---------- ---------- ---------- ---------- ----------
NET OPERATING
INCOME 968,263 1,017,782 958,457 995,935 1,015,851 1,036,169
---------- ---------- ---------- ---------- ---------- ----------
CASH FLOW BEFORE
DEBT SERVICE &
INCOME TAX $ 968,263 $1,017,782 $ 958,457 $ 995,935 $1,015,851 $1,036,169
========== ========== ========== ========== ========== ==========
[Download Table]
Year 7 Year 8 Year 9 Year 10 Year 11
For the Years Ending Jul-2010 Jul-2011 Jul-2012 Jul-2013 Jul-2014
-------------------- -------- -------- -------- -------- --------
GROSS REVENUE
Room Revenue $4,081,454 $4,163,083 $4,246,345 $4,331,272 $4,417,897
Food & Beverage 1,555,230 1,586,335 1,618,062 1,650,423 1,683,431
Telephone 56,308 57,434 58,583 59,755 60,950
Other 67,570 68,921 70,300 71,706 73,140
---------- ---------- ---------- ---------- ----------
TOTAL GROSS
REVENUE 5,760,562 5,875,773 5,993,290 6,113,156 6,235,418
---------- ---------- ---------- ---------- ----------
DEPARTMENTAL
EXPENSES
Room Expense 1,020,364 1,040,771 1,061,586 1,082,818 1,104,474
Food & Beverage 1,321,946 1,348,385 1,375,353 1,402,860 1,430,916
Telephone 29,843 30,440 31,049 31,670 32,304
---------- ---------- ---------- ---------- ----------
TOTAL DEPARTMENTAL
EXPENSES 2,372,153 2,419,596 2,467,988 2,517,348 2,567,694
---------- ---------- ---------- ---------- ----------
DEPARTMENTAL PROFIT 3,388,409 3,456,177 3,525,302 3,595,808 3,667,724
---------- ---------- ---------- ---------- ----------
UNDISTRIBUTED
EXPENSES
Administrative
& General 489,648 499,441 509,430 519,618 530,011
Marketing 460,845 470,062 479,463 489,052 498,833
Property Oper.
& Maint. 288,028 293,789 299,665 305,658 311,771
Energy &
Utilities 288,028 293,789 299,665 305,658 311,771
Managment Fee 172,817 176,273 179,799 183,395 187,063
Franchise Fee 204,073 208,154 212,317 216,564 220,895
---------- ---------- ---------- ---------- ----------
TOTAL UNDISTRIBUTED
EXPENSES 1,903,439 1,941,508 1,980,339 2,019,945 2,060,344
---------- ---------- ---------- ---------- ----------
GROSS OPERATING
PROFIT 1,484,970 1,514,669 1,544,963 1,575,863 1,607,380
---------- ---------- ---------- ---------- ----------
FIXED EXPENSES
& COSTS
Real Estate
Taxes 151,571 154,603 157,695 160,849 164,066
Insurance 46,084 47,006 47,946 48,905 49,883
Reserves 230,422 235,031 239,732 244,526 249,417
---------- ---------- ---------- ---------- ----------
TOTAL FIXED
EXPENSES & COSTS 428,077 436,640 445,373 454,280 463,366
---------- ---------- ---------- ---------- ----------
NET OPERATING
INCOME 1,056,893 1,078,029 1,099,590 1,121,583 1,144,014
---------- ---------- ---------- ---------- ----------
CASH FLOW BEFORE
DEBT SERVICE &
INCOME TAX $1,056,893 $1,078,029 $1,099,590 $1,121,583 $1,144,014
========== ========== ========== ========== ==========
(IRR LOGO) Page 88
HOLIDAY INN CANTON VALUATION ANALYSIS
Software: ARGUS Ver. 10.0.0 Date: 7/23/03
File: Holiday Inn Canton Time: 17:19
Property Type: Hotel/Motel Ref#: AAR
Portfolio: Janus Properties Page: 2
SCHEDULE OF SOURCES & USES OF CAPITAL
Equity is Based on Property Value, Leverage and Operating Requirements
[Enlarge/Download Table]
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
For the Years Ending Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 Jul-2009
-------- -------- -------- -------- -------- --------
SOURCES OF CAPITAL
Net Operating Gains $ 968,263 $1,017,782 $958,457 $995,935 $1,015,851 $1,036,169
Initial Equity Contribution 7,216,865
Net Proceeds from Sale
---------- ---------- -------- -------- ---------- ----------
TOTAL SOURCES OF CAPITAL $8,185,128 $1,017,782 $958,457 $995,935 $1,015,851 $1,036,169
========== ========== ======== ======== ========== ==========
USES OF CAPITAL
Property Present Value $7,216,865
---------- ---------- -------- -------- ---------- ----------
DEFINED USES OF CAPITAL 7,216,865
---------- ---------- -------- -------- ---------- ----------
CASH FLOW DISTRIBUTIONS 968,263 1,017,782 958,457 995,935 1,015,851 1,036,169
---------- ---------- -------- -------- ---------- ----------
TOTAL USES OF CAPITAL $8,185,128 $1,017,782 $958,457 $995,935 $1,015,851 $1,036,169
========== ========== ======== ======== ========== ==========
UNLEVERAGED CASH ON CASH RETURN
Cash to Purchase Price 13.42% 14.10% 13.28% 13.80% 14.08% 14.36%
NOI to Book Value 13.42% 14.10% 13.28% 13.80% 14.08% 14.36%
[Enlarge/Download Table]
Year 7 Year 8 Year 9 Year 10
For the Years Ending Jul-2010 Jul-2011 Jul-2012 Jul-2013
-------- -------- -------- --------
SOURCES OF CAPITAL
Net Operating Gains $1,056,893 $1,078,029 $1,099,590 $ 1,121,583
Initial Equity Contribution
Net Proceeds from Sale 9,342,781
---------- ---------- ---------- -----------
TOTAL SOURCES OF CAPITAL $1,056,893 $1,078,029 $1,099,590 $10,464,364
========== ========== ========== ===========
USES OF CAPITAL
Property Present Value
---------- ---------- ---------- -----------
DEFINED USES OF CAPITAL
---------- ---------- ---------- -----------
CASH FLOW DISTRIBUTIONS 1,056,893 1,078,029 1,099,590 10,464,364
---------- ---------- ---------- -----------
TOTAL USES OF CAPITAL $1,056,893 $1,078,029 $1,099,590 $10,464,364
========== ========== ========== ===========
UNLEVERAGED CASH ON CASH RETURN
Cash to Purchase Price 14.64% 14.94% 15.24% 15.54%
NOI to Book Value 14.64% 14.94% 15.24% 15.54%
(IRR LOGO) Page 89
HOLIDAY INN CANTON VALUATION ANALYSIS
Software: ARGUS Ver. 10.0.0 Date: 7/23/03
File: Holiday Inn Canton Time: 17:19
Property Type: Hotel/Motel Ref#: AAR
Portfolio: Janus Properties Page: 3
PROSPECTIVE PROPERTY RESALE
[Enlarge/Download Table]
Year 1 Year 2 Year 3 Year 4 Year 5
For the Years Ending Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008
-------------------- -------- -------- -------- -------- --------
RESALE AMOUNT
Gross Proceeds from Sale $8,481,517 $7,987,142 $8,299,458 $8,465,425 $8,634,742
Commissions & Other Costs -169,630 -159,743 -165,989 -169,309 -172,695
---------- ---------- ---------- ---------- ----------
NET PROCEEDS FROM SALE $8,311,887 $7,827,399 $8,133,469 $8,296,116 $8,462,047
========== ========== ========== ========== ==========
[Enlarge/Download Table]
Year 6 Year 7 Year 8 Year 9 Year 10
For the Years Ending Jul-2009 Jul-2010 Jul-2011 Jul-2012 Jul-2013
-------------------- -------- -------- -------- -------- --------
RESALE AMOUNT
Gross Proceeds from Sale $8,807,442 $8,983,575 $9,163,250 $9,346,525 $9,533,450
Commissions & Other Costs -176,149 -179,672 -183,265 -186,931 -190,669
---------- ---------- ---------- ---------- ----------
NET PROCEEDS FROM SALE $8,631,293 $8,803,903 $8,979,985 $9,159,594 $9,342,781
========== ========== ========== ========== ==========
(IRR LOGO) Page 90
HOLIDAY INN CANTON VALUATION ANALYSIS
Software: ARGUS Ver. 10.0.0 Date: 7/23/03
File: Holiday Inn Canton Time: 17:19
Property Type: Hotel/Motel Ref#: AAR
Portfolio: Janus Properties Page: 4
PROSPECTIVE PRESENT VALUE
Cash Flow Before Debt Service plus Property Resale
Discounted Annually (Endpoint on Cash Flow & Resale) over a 10-Year Period
[Enlarge/Download Table]
For the P.V. of P.V. of P.V. of P.V. of P.V. of
Analysis Year Annual Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow
Period Ending Cash Flow @ 13.50% @ 14.00% @ 14.50% @ 15.00% @ 15.50%
------ ------ --------- -------- -------- -------- -------- --------
Year 1 Jul-2004 $ 968,263 $ 853,095 $ 849,354 $ 845,645 $ 841,968 $ 838,323
Year 2 Jul-2005 1,017,782 790,066 783,150 776,325 769,589 762,941
Year 3 Jul-2006 958,457 655,518 646,931 638,493 630,201 622,052
Year 4 Jul-2007 995,935 600,133 589,673 579,441 569,429 559,632
Year 5 Jul-2008 1,015,851 539,325 527,602 516,181 505,058 494,220
Year 6 Jul-2009 1,036,169 484,681 472,064 459,831 447,964 436,454
Year 7 Jul-2010 1,056,893 435,572 422,374 409,631 397,326 385,441
Year 8 Jul-2011 1,078,029 391,438 377,913 364,910 352,409 340,388
Year 9 Jul-2012 1,099,590 351,778 338,133 325,074 312,572 300,603
Year 10 Jul-2013 1,121,583 316,135 302,540 289,585 277,238 265,467
---------- --------- --------- --------- --------- ---------
Total Cash Flow 10,348,552 5,417,741 5,309,734 5,205,116 5,103,754 5,005,521
Property Resale @ 12% Cap Rate 9,342,781 2,633,404 2,520,157 2,412,244 2,309,393 2,211,344
---------- ---------- ---------- ---------- ----------
Total Property Present Value $8,051,145 $7,829,891 $7,617,360 $7,413,147 $7,216,865
========== ========== ========== ========== ==========
Rounded to Thousands $8,051,000 $7,830,000 $7,617,000 $7,413,000 $7,217,000
========== ========== ========== ========== ==========
Per Room 41,501 40,360 39,265 38,212 37,200
PERCENTAGE VALUE DISTRIBUTION
Prospective Income 67.29% 67.81% 68.33% 68.85% 69.36%
Prospective Property Resale 32.71% 32.19% 31.67% 31.15% 30.64%
========== ========== ========== ========== ==========
100.00% 100.00% 100.00% 100.00% 100.00%
(IRR LOGO) Page 91
HOLIDAY INN CANTON VALUATION ANALYSIS
Software: ARGUS Ver. 10.0.0 Date: 7/23/03
File: Holiday Inn Canton Time: 17:19
Property Type: Hotel/Motel Ref#: AAR
Portfolio: Janus Properties Page: 5
PROPERTY SUMMARY REPORT
TIMING & INFLATION
Analysis Period: August 1, 2003 to July 31, 2013; 10 years
Inflation Method: Fiscal
General Inflation Rate: 0.00%
PROPERTY SIZE & OCCUPANCY
Property Size: 194 rooms
Alternate Size: 1 room
PROPERTY PURCHASE & RESALE
Purchase Price: -
Resale Method: Capitalize Net Operating Income
Cap Rate: 12.00%
Cap Year: Year 11
Commission/Closing Cost: 2.00%
Net Cash Flow from Sale: $9,342,781
PRESENT VALUE DISCOUNTING
Discount Method: Annually (Endpoint on Cash Flow & Resale)
Unleveraged Discount Rate: 13.50% to 15.50%, 0.50% increments
Unleveraged Present Value: $7,216,865 at 15.50%
(IRR LOGO) Page 92
HOLIDAY INN CANTON VALUATION ANALYSIS
VALUE INDICATION - DISCOUNTED CASH FLOW ANALYSIS
Application of the DCF methodology resulted in an overall property
value indication of $7,200,000 TO $8,100,000
VALUE INDICATION - INCOME CAPITALIZATION APPROACH
Our analysis in the Income Capitalization Approach has resulted in
the following value indications.
[Download Table]
DIRECT CAPITALIZATION $8,000,000
DISCOUNTED CASH FLOW ANALYSIS $7,200,000 - $8,100,000
The two methods provide value indications that overlap; they are
considered mutually supportive. The two methods may differ slightly
in estimated amounts, and this is due to the use of the direct
capitalization method as a "snapshot" of the property, whereas the
discounted cash flow method reflects the anticipated cash flow over
a longer holding period. The direct capitalization method is the
technique most preferred by investors for properties similar to the
subject. The discounted cash flow method is better suited to
evaluating properties which are not stabilized. For these reasons,
we have placed primary reliance on the direct capitalization. Based
on the preceding analysis, the most reasonable and well-supported
value indication by the income capitalization approach is
$8,000,000.
VALUE INDICATION BY THE INCOME CAPITALIZATION APPROACH: $8,000,000
(IRR LOGO) Page 93
HOLIDAY INN CANTON VALUATION ANALYSIS
RECONCILIATION
Reconciliation involves the analysis of alternative value indications to
determine a final value conclusion. Reconciliation is required because
different value indications result from the use of multiple approaches and
within the application of a single approach. The values indicated by our
analyses are as follows.
[Download Table]
COST APPROACH Not Developed
SALES COMPARISON APPROACH $8,300,000 to $8,800,000
INCOME CAPITALIZATION APPROACH $8,000,000
COST APPROACH
The cost approach is most reliable for newer properties that have no
significant level of accrued depreciation. The subject was constructed in
1970 and 1973 and exhibits significant accrued depreciation. In addition,
purchasers of investment properties such as the subject do not typically
rely upon the cost approach. Accordingly, this approach is not relied upon
in this analysis.
SALES COMPARISON APPROACH
The sales comparison approach is most reliable in an active market when a
number of similar properties have recently sold. In this case, an adequate
number of sales were located, however few truly comparable assets occurred
subsequent to September 11. Due to shifting lodging trends given the
recession and events of 2001, this approach may be considered less
applicable than the Income Analysis. It does, however, provide a
supportive conclusion.
INCOME CAPITALIZATION APPROACH
The income capitalization approach is often given primary reliance when
evaluating investment properties. The value derived in the income
capitalization approach is supported by a relatively large quantity of
market data regarding room rates, occupancies, expenses and capitalization
rates, and is considered to be consistent with market indications. An
investor is the most likely purchaser of the appraised property and a
typical investor would place greatest reliance on the income
capitalization approach. For these reasons, the income capitalization
approach is given the greatest weight in this analysis.
FINAL CONCLUSION OF VALUE
The two indications from the income capitalization approach fall within a
relatively narrow range, and the sales comparison approach is considered
supportive of the indication from the income capitalization approach.
Based on the analyses and conclusions in the accompanying report, and
subject to the definitions, assumptions, and limiting conditions expressed
in this report, it is our
(IRR LOGO) Page 94
HOLIDAY INN CANTON VALUATION ANALYSIS
opinion that the prospective market value of the Fee Simple estate of the
subject as a going concern, as of January 1, 2004 (or completion of
deferred maintenance) is:
EIGHT MILLION DOLLARS
($8,000,000).
The preceding value conclusion is subject to the following Extraordinary
Assumptions and Limiting Conditions.
1. The subject is currently operating as a franchised Holiday Inn
hotel. This appraisal implicitly assumes a sale, at which point the
Franchisor will prepare a Product Improvement Plan (PIP) as one of
the items required for transfer of the franchise. Our analysis
assumes continued, uninterrupted affiliation with the existing
franchise. Any PIP requirements necessary are assumed complete under
the As Stabilized Value above.
2. We assume any leased items including furniture, fixtures and
equipment are paid off at closing. Therefore we have not deducted
any lease balances. We further assume accounts receivable and
accounts payable are reconciled at closing.
3. The subject is an existing Holiday Inn hotel that was constructed in
1970/73. The most recent evaluation score was 97.5%, and the
property received a passing score. No Product Improvement plan has
reportedly been completed by Intercontinental Hotels and Resorts for
a transfer of this asset. The definition of Market value assumes a
sale. A Product Improvement plan will be conducted at the time of
application for a franchise transfer. Integra Realty resources has
assumed continued affiliation with Holiday Inn Hotels. The
stabilized value assumes that any product improvement items are
completed. Therefore, the "As Is" market value could be LESS THAN
reported above. Any PIP requirements should be deducted from the
above Stabilized value. Our report, and value indication is subject
to all transfer requirements of the affiliation, including a product
improvement plan.
SEGREGATION OF GOING CONCERN VALUE
The value estimate reflects the going concern of the lodging operation,
including the contributory value of: land; building improvements;
furniture, fixtures and equipment (FF&E); and business value, the latter
including intangibles. The contributory value of the personal property is
estimated to be $550,000 based on the personal property tax paid to the
county.
Business value exists based on three components: 1) franchise affiliation;
2) management expertise and 3) service. In our analysis we projected 125%
market penetration and continued affiliation with Holiday Inn. This
suggests business or going concern value exists. Principles of Integra
Realty Resources have authored an article published in the Appraisal
Journal. This article indicates an appropriate allocation of business
value at 15% to 25%. Stabilized occupancy reflects 14% reservations driven
by the affiliation, including central reservations and global distribution
systems. This percentage is low in comparison to other Holiday Inns
because of the significant
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HOLIDAY INN CANTON VALUATION ANALYSIS
amount of Diebold business (approximately 40%) of subject's room nights which do
not go through Holiday Inn reservation system. The General Manager believes the
benefit of the Holiday Inn allows him to drive rate on the remaining room nights
available. Therefore the total business value does not appear to be completely
reflected in the percentage of room nights driven by affiliation. Franchise
costs are approximately 8%, assuming 15% is ultimately resulting from
affiliation, 7% of rooms revenue remains as business revenue. The Management
contribution is less empirically quantifiable. At a 18.44% NOI ratio and 11.75%
OAR, business value of $402,556 is indicated, rounded $400,000.
We have allocated $400,000 of the subject's total going concern value as the
business value allocation in this analysis. After deduction of FF&E and business
value, the remainder is attributed to real estate including land and
improvements. This allocation is summarized as follows.
[Download Table]
FF&E $ 550,000
Business Value $ 400,000
Real Estate $7,050,000
----------
TOTAL $8,000,000
As Is Value is estimated by deducting deferred maintenance. A Product
Improvement Plan will also be necessary to retain Holiday Inn affiliation.
Preliminary costs of deferred maintenance are estimated in the Improvements
Description at $100,000. Therefore, As Is Value as of the date of inspection,
June 20, 2003, is estimated at.
SEVEN MILLION NINE HUNDRED THOUSAND DOLLARS
$7,900,000
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HOLIDAY INN CANTON CERTIFICATION
CERTIFICATION
We certify that, to the best of our knowledge and belief:
1. The statements of fact contained in this report are true and
correct.
2. The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our
personal, impartial, and unbiased professional analyses, opinions,
and conclusions.
3. We have no present or prospective interest in the property that is
the subject of this report and no personal interest with respect to
the parties involved.
4. We have no bias with respect to the property that is the subject of
this report or the parties involved with this assignment.
5. Our engagement in this assignment was not contingent upon developing
or reporting predetermined results.
6. Our compensation for completing this assignment is not contingent
upon the development or reporting of a predetermined value or
direction in value that favors the cause of the client, the amount
of the value opinion, the attainment of a stipulated result, or the
occurrence of a subsequent event directly related to the intended
use of this appraisal.
7. Our analyses, opinions, and conclusions were developed, and this
report has been prepared, in compliance with the requirements of the
Code of Professional Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute, in conformity with the Uniform
Standards of Professional Appraisal Practice (USPAP).
8. Eric E. Belfrage, MAI, CRE, ISHC has made a personal inspection of
the property that is the subject of this report on June 20, 2003.
Robin Lorms has not personally inspected the subject.
9. John Dehner has provided research assistance to the person(s)
signing this certification.
10. This appraisal is not based on a requested minimum valuation, a
specific valuation, or the approval of a loan.
11. We have not relied on unsupported conclusions relating to
characteristics such as race, color, religion, national origin,
gender, marital status, familial status, age, receipt of public
assistance income, handicap, or an unsupported conclusion that
homogeneity of such characteristics is necessary to maximize value.
12. It is our opinion that the subject does not include any enhancement
in value as a result of any natural, cultural, recreational or
scientific influences retrospective or prospective.
13. We have experience in appraising properties similar to the subject
and are in compliance with the Competency Rule of USPAP.
14. The use of this report is subject to the requirements of the
Appraisal Institute relating to review by its duly authorized
representatives.
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HOLIDAY INN CANTON CERTIFICATION
15. As of the date of this appraisal, Eric E. Belfrage, MAI, CRE, ISHC
has and Robin M. Lorms, MAI, CRE has not completed the requirements
of the continuing education program of the Appraisal Institute.
Qualifications of the Appraiser(s) are in Addendum A.
Eric E. Belfrage, MAI, CRE, ISHC Robin M. Lorms, MAI, CRE
Certified General Real Estate Certified General Real Estate
Appraiser Appraiser
OH Certificate #383767 OH Certificate #383772
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HOLIDAY INN CANTON ASSUMPTIONS AND LIMITING CONDITIONS
ASSUMPTIONS AND LIMITING CONDITIONS
In conducting this appraisal, we have assumed, except as otherwise noted
in our report, as follows:
1. The title is marketable and free and clear of all liens,
encumbrances, encroachments, easements and restrictions. The
property is under responsible ownership and competent management and
is available for its highest and best use.
2. There are no existing judgments or pending or threatened litigation
that could affect the value of the property.
3. There are no hidden or undisclosed conditions of the land or of the
improvements that would render the property more or less valuable.
4. The revenue stamps placed on any deed referenced herein to indicate
the sale price are in correct relation to the actual dollar amount
of the transaction.
5. The property is in compliance with all applicable building,
environmental, zoning, and other federal, state and local laws,
regulations and codes.
Our appraisal report is subject to the following limiting conditions,
except as otherwise noted in our report.
6. An appraisal is inherently subjective and represents our opinion as
to the value of the property appraised.
7. The conclusions stated in our appraisal apply only as of the
effective date of the appraisal, and no representation is made as to
the affect of subsequent events.
8. No changes in any federal, state or local laws, regulations or codes
(including, without limitation, the Internal Revenue Code) are
anticipated.
9. No environmental impact studies were either requested or made in
conjunction with this appraisal, and we reserve the right to revise
or rescind any of the value opinions based upon any subsequent
environmental impact studies. If any environmental impact statement
is required by law, the appraisal assumes that such statement will
be favorable and will be approved by the appropriate regulatory
bodies.
10. We are not required to give testimony or to be in attendance in
court or any government or other hearing with reference to the
property without written contractual arrangements having been made
relative to such additional employment.
11. We have made no survey of the property and assume no responsibility
in connection with such matters. Any sketch or survey of the
property included in this report is for illustrative purposes only
and should not be considered to be scaled accurately for size. The
appraisal covers the property as described in this report, and the
areas and dimensions set forth are assumed to be correct.
12. No opinion is expressed as to the value of subsurface oil, gas or
mineral rights, if any, and we have assumed that the property is not
subject to surface entry for the exploration or removal of such
materials, unless otherwise noted in our appraisal.
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HOLIDAY INN CANTON ASSUMPTIONS AND LIMITING CONDITIONS
13. We accept no responsibility for considerations requiring expertise
in other fields. Such considerations include, but are not limited
to, legal descriptions and other legal matters, geologic
considerations, such as soils and seismic stability, and civil,
mechanical, electrical, structural and other engineering and
environmental matters.
14. The distribution of the total valuation in this report between land
and improvements applies only under the reported highest and best
use of the property. The allocations of value for land and
improvements must not be used in conjunction with any other
appraisal and are invalid if so used. This appraisal report shall be
considered only in its entirety. No part of this appraisal report
shall be utilized separately or out of context.
15. Neither all nor any part of the contents of this report (especially
any conclusions as to value, the identity of the appraisers, or any
reference to the Appraisal Institute) shall be disseminated through
advertising media, public relations media, news media or any other
means of communication (including without limitation prospectuses,
private offering memoranda and other offering material provided to
prospective investors) without prior written consent from Integra
Realty Resources.
16. Information, estimates and opinions contained in this report,
obtained from sources outside of the office of the undersigned, are
assumed to be reliable and have not been independently verified.
17. Any income and expense estimates contained in this appraisal report
are used only for the purpose of estimating value and do not
constitute predictions of future operating results.
18. If the property is subject to one or more leases, any estimate of
residual value contained in the appraisal may be particularly
affected by significant changes in the condition of the economy, of
the real estate industry, or of the appraised property at the time
these leases expire or otherwise terminate.
19. No consideration has been given to personal property located on the
premises or to the cost of moving or relocating such personal
property; only the real property has been considered.
20. The current purchasing power of the dollar is the basis for the
value stated in our appraisal; we have assumed that no extreme
fluctuations in economic cycles will occur.
21. The value found herein is subject to these and to any other
assumptions or conditions set forth in the body of this report but
which may have been omitted from this list of Assumptions and
Limiting Conditions.
22. The analyses contained in this report necessarily incorporate
numerous estimates and assumptions regarding property performance,
general and local business and economic conditions, the absence of
material changes in the competitive environment and other matters.
Some estimates or assumptions, however, inevitably will not
materialize, and unanticipated events and circumstances may occur;
therefore, actual results achieved during the period covered by our
analysis will vary from our estimates, and the variations may be
material.
23. The Americans with Disabilities Act (ADA) became effective January
26, 1992. We have not made a specific survey or analysis of this
property to determine
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HOLIDAY INN CANTON ASSUMPTIONS AND LIMITING CONDITIONS
whether the physical aspects of the improvements meet the ADA
accessibility guidelines. In as much as compliance matches each
owner's financial ability with the cost to cure the non-conforming
physical characteristics of a property, we cannot comment on
compliance to ADA. Given that compliance can change with each
owner's financial ability to cure non-accessibility, the value of
the subject does not consider possible non-compliance. Specific
study of both the owner's financial ability and the cost to cure any
deficiencies would be needed for the Department of Justice to
determine compliance.
24. This appraisal report has been prepared for the exclusive benefit of
Murray Devine & Co. It may not be used or relied upon by any other
party. All parties who use or rely upon any information in this
report without our written consent do so at their own risk.
25. No studies have been provided to us indicating the presence or
absence of hazardous materials on the site or in the improvements,
and our valuation is predicated upon the property being free and
clear of any environment hazards.
26. We have not been provided with any evidence or documentation as to
the presence or location of any flood plain areas and/or wetlands.
Wetlands generally include swamps, marshes, bogs, and similar areas.
We are not qualified to detect such areas. The presence of flood
plain areas and/or wetlands may affect the value of the property,
and the value conclusion is predicated on the assumption that
wetlands are non-existent or minimal.
22. The reader is advised a lodging facility is a labor-intensive retail
business that depends on customer acceptance and highly specialized
management skill. This analysis assumes that the subject will have
competent, professional management, responsible ownership, and that
the existing franchise, if any, will be maintained throughout the
projection period. A fully-funded reserve for replacement is one of
the essential elements of competent management and responsible
ownership.
The value conclusion is subject to the following Extraordinary Assumptions
and Limiting Conditions.
1. The subject is currently operating as a franchised Holiday Inn
hotel. This appraisal implicitly assumes a sale, at which point the
Franchisor will prepare a Product Improvement Plan (PIP) as one of
the items required for transfer of the franchise. Our analysis
assumes continued, uninterrupted affiliation with the existing
franchise. Any PIP requirements necessary are assumed complete under
the As Stabilized Value above.
2. We assume any leased items including furniture, fixtures and
equipment are paid off at closing. Therefore we have not deducted
any lease balances. We further assume accounts receivable and
accounts payable are reconciled at closing.
3. The subject is an existing Holiday Inn hotel that was constructed in
1970/73. The most recent guest satisfaction score was 97.5%, and the
property received a passing score. No Product Improvement plan has
reportedly been completed by Intercontinental Hotel and Resorts for
a transfer of this asset. The definition of Market value assumes a
sale. A Product Improvement plan will be conducted at the time of
application for a franchise transfer. Integra Realty resources has
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HOLIDAY INN CANTON ASSUMPTIONS AND LIMITING CONDITIONS
assumed continued affiliation with Holiday Inn Hotels. The
stabilized value assumes that any product improvement items are
completed. Therefore, the "As Is" market value could be LESS THAN
reported above. Any PIP requirements should be deducted from the
above Stabilized value. Our report, and value indication is subject
to all transfer requirements of the affiliation, including a product
improvement plan.
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HOLIDAY INN CANTON
ADDENDUM A
QUALIFICATIONS OF APPRAISER(S)
[IRR LOGO]
PROFESSIONAL QUALIFICATIONS OF
ERIC E. BELFRAGE, MAI, CRE, ISHC
[Download Table]
EXPERIENCE: Managing Director for INTEGRA REALTY RESOURCES, COLUMBUS,
OHIO. Mr. Belfrage is also the NATIONAL DIRECTOR OF IRRS
HOSPITALITY SPECIALTY PRACTICE. He has been actively
engaged in real estate valuation and consulting since the
mid 1970's. Background includes 25 years of independent
fee appraisal. Experience has largely focused on
consulting, evaluating and appraising lodging property.
Valuations have been performed on various properties
including, but not limited to, neighborhood and community
shopping centers, apartment complexes, single and
multi-tenanted industrial buildings, low to high-rise
office buildings, mixed use facilities and vacant land
for various uses. Specialized real estate valued includes
hotels, rehab facilities, and churches. Clients served
include accountants, investment firms, law firms,
lenders, private and public agencies. Valuations have
been performed for real estate tax, estates, financing,
equity participation and due diligence support. Market
studies, feasibility studies, and valuations have been
done on proposed, partially completed, renovated, and
existing structures.
PROFESSIONAL Designated Member: Appraisal Institute (MAI No. 7436)
ACTIVITIES: SRA Member
Past Chapter President Cardinal Ohio
AI chapter 2001
Member: The International Society of Hospitality
Consultants (ISHC Designation)
Member: The Counselors of Real Estate (CRE Designation)
Member: Columbus Board of Realtors (25 years)
Member: The National Association of Realtors (25 years)
Allied The Ohio Hotel & Lodging Association
Member: (1998 Allied Member of the year)
Licensed: Ohio General Appraiser License No. 383767
Licensed: Ohio Real Estate Salesperson
Author: "The Columbus Lodging Overview" (published annually)
"Business Value Allocation in Lodging Valuation"
(Published in The Appraisal Journal - August 2001)
EDUCATION: B.S. Degree, Business Administration, Franklin University,
Columbus, Ohio (1984). Successfully completed numerous
real estate related courses & seminars sponsored by the
Appraisal Institute, accredited universities & others.
Currently certified by the Appraisal Institute's
voluntary program of continuing education for its
designated members.
QUALIFIED BEFORE Franklin County Court of Common Pleas, Columbus, Ohio
COURTS AND United States Federal Bankruptcy Court, Columbus, Ohio
ADMINISTRATIVE State of Ohio Board of Tax Appeals
BODIES Franklin County Board of Revision
APPRAISER DISCLOSURE STATEMENT
IN COMPLIANCE WITH OHIO REVISED CODE SECTION 4763:12 (C)
[Enlarge/Download Table]
1. NAME OF APPRAISER: ERIC E. BELFRAGE
2. Class of Certification/Licensure: [X] Certified General
[ ] Licensed Residential
[ ] Temporary [ ] General [ ] Licensed
Certification/Licensure Number: 383767
3. Scope: This report [X] Is within the scope of my Certification or License.
[ ] Is not within the scope of my Certification of License.
4. Service provided by: [X] Disinterested & Unbiased Third Party
[ ] Interested & Biased Third Party
[ ] Interested Third Party on Contingent Fee Basis
5. Signature of person preparing and reporting the appraisal:
/s/ ERIC E. BELFRAGE
--------------------
This form must be included in conjunction with all appraisal assignments or
specialized services performed by a state-certified or state licensed real
estate appraiser.
PROFESSIONAL QUALIFICATIONS OF
ROBIN M. LORMS, MAI, CRE
[Download Table]
EXPERIENCE: Principal for Integra Lorms & Belfrage of Columbus, Ohio.
Actively engaged in real estate valuation and consulting
experience includes investment decision making in regard
to acquisitions, development, property management,
leasing and value decisions for third party owners, as
well as internal to existing but not limited to,
neighborhood and community shopping centers, apartment
complexes, single and multi-tenanted industrial
buildings, low to high-rise office buildings, mixed use
facilities and vacant land for different uses.
Specialized real estate valued includes developers,
regional mall, institutional facilities and churches.
Clients served include accountants, investment firms, law
firms, and lenders, private and public agencies.
Valuations have been performed for real estate tax,
estates, financing, equity participation and due
diligence support. Valuations and market studies have
been done on proposed, partially completed, renovated and
existing structures.
PROFESSIONAL
ACTIVITIES: Member: Appraisal Institute
Member: The Counselors of Real Estate
Member: The International Council of Shopping Centers
Member: The Columbus Board of Real Estate
Member: Ohio Association of Realtors
Licensed: Ohio General Appraiser License No. 383772
Licensed: Ohio Real Estate Salesperson
EDUCATION: B.A. Degree, Marquette University (1965). Successfully
completed numerous real estate related courses & seminars
sponsored by the Appraisal Institute, accredited
universities & others.
QUALIFIED BEFORE Franklin County Court of Common Pleas, Columbus, Ohio
COURTS AND United States Federal Bankruptcy Court, Columbus, Ohio
ADMINISTRATIVE BODIES State of Ohio Board of Tax Appeals
Franklin County Board of Revision
APPRAISER DISCLOSURE STATEMENT
IN COMPLIANCE WITH OHIO REVISED CODE SECTION 4763:12 (C)
[Enlarge/Download Table]
1. NAME OF APPRAISER: ROBIN M. LORMS
2. Class of Certification/Licensure: [X] Certified General
[ ] Licensed Residential
[ ] Temporary [ ] General [ ] Licensed
Certification/Licensure Number: 383772
3. Scope: This report [X] Is within the scope of my Certification or License.
[ ] Is not within the scope of my Certification of License.
4. Service provided by: [X] Disinterested & Unbiased Third Party
[ ] Interested & Biased Third Party
[ ] Interested Third Party on Contingent Fee Basis
5. Signature of person preparing and reporting the appraisal:
/s/ ROBIN M. LORMS
------------------
This form must be included in conjunction with all appraisal assignments or
specialized services performed by a state-certified or state licensed real
estate appraiser.
INTEGRA REALTY RESOURCES, INC.
CORPORATE PROFILE
Integra Realty Resources, Inc., is the largest property valuation and counseling
firm in the United States, with 50 offices in 30 states. Integra was created for
the purpose of combining the intimate knowledge of well-established local
offices with the powerful resources and capabilities of a national company.
Integra's local offices have an average of 20 years of service in the local
market. A Managing Director leads each office, with an average of 25 years of
local market valuation and counseling experience.
Integra Realty Resources, Inc., has 140 professionals who hold the Appraisal
Institute's MAI designation, of which 26 are CRE members of The Counselors of
Real Estate. In addition to having expertise in the standard commercial property
types, the firm has an extensive track record in specialty property classes
including regional malls, hotels, health care facilities, golf courses, and
pipeline rights-of-way. Integra also has a wealth of experience in market and
feasibility studies, property tax consulting, litigation support, and machinery
and equipment and business valuation.
A listing of Integra's local offices and their Managing Directors follows:
ATLANTA, GA - J. Carl Schultz, Jr., MAI, SRA, CRE
ATLANTIC COAST NJ - Anthony S. Graziano, MAI, CRE
AUSTIN, TX - Randy A. Williams, MAI
BALTIMORE, MD - Patrick C. Kerr, MAI, SRA
BOSTON, MA - DAVID L. CARY, MAI, SRA, CRE
CHARLOTTE, NC - FITZHUGH L. STOUT, MAI, CRE
CHICAGO, IL - GARY K. DECLARK, MAI, CRE
CHICAGO, IL - J. Scott Patrick, MAI
CINCINNATI, OH - GARY S. WRIGHT, MAI, SRA
COLUMBIA, SC - MICHAEL B. DODDS, MAI, CCIM
COLUMBUS, OH - ERIC E. BELFRAGE, MAI, CRE, ISHC
DALLAS, TX - MARK R. LAMB, MAI, CPA
DAYTON, OH - MARK L.MIDDLETON, MAI, SRA
DENVER, CO - BRAD A. WEIMAN, MAI
DETROIT, MI - ANTHONY SANNA, MAI
FORT MYERS, FL - WOODWARD S. HANSON, MAI, CRE, CCIM
FORT WORTH, TX - DONALD J. SHERWOOD, MAI
HARTFORD, CT - MARK F. BATES, MAI, CRE
HOUSTON, TX - DAVID R. DOMINY, MAI
INDIANAPOLIS, IN - MICHAEL C. LADY, MAI, SRA, CCIM
KANSAS CITY, MO/KS - KEVIN K. NUNNINK, MAI
LAS VEGAS, NV - SHELLI L. LOWE, MAI, SRA
LOS ANGELES, CA - JOHN G. ELLIS, MAI
LOUISVILLE, KY - GEORGE M. CHAPMAN, MAI, SRA, CRE
MEMPHIS, TN - J. WALTER ALLEN, MAI
MIAMI, FL - MICHAEL Y. CANNON, MAI, SRA, CRE
MILWAUKEE, WI - SEAN REILLY, MAI
MINNEAPOLIS, MN - ALAN P. LEIRNESS, MAI, CCIM
MORGANTOWN, WV - THOMAS A. MOTTA, MAI, CRE
NAPLES, FL - JULIAN STOKES, MAI, CRE, CCIM
NASHVILLE, TN - R. PAUL PERUTELLI, MAI, SRA
NEW YORK, NY - RAYMOND T. CIRZ, MAI, CRE, DOV E. GOLDMAN, MAI, CRE
NORTHERN NJ - BARRY J. KRAUSER, MAI, CRE
ORANGE COUNTY, CA - LARRY WEBB, MAI
ORLANDO, FL - GEORGE L. GOODMAN, MAI
PHILADELPHIA, PA - JOSEPH D. PASQUARELLA, MAI, CRE
PHOENIX, AZ - WALTER WINIUS, JR., MAI, CRE
PITTSBURGH, PA - PAUL D. GRIFFITH, MAI
PORTLAND, OR - BRIAN A. GLANVILLE, MAI, CRE
PROVIDENCE, RI - GERARD H. MCDONOUGH, MAI
RICHMOND, VA - ROBERT E. COLES, MAI, CRE
SACRAMENTO, CA - Scott Beebe, MAI
SAN ANTONIO, TX - Martyn C. Glen, MAI, CRE, FRICS
SAN DIEGO, CA - LANCE W. DORE, MAI
SAN FRANCISCO, CA - JAN KLECZEWSKI, MAI
SAVANNAH, GA - J. CARL SCHULTZ, JR., MAI, SRA, CRE
SEATTLE, WA - ALLEN N. SAFER, MAI
TAMPA, FL - BRADFORD L. JOHNSON, MAI
TULSA, OK - ROBERT E. GRAY, MAI
WASHINGTON, DC - PATRICK C. KERR, MAI, SRA
CORPORATE OFFICE
Raymond T. Cirz, MAI, CRE, President/CEO
Kevin K. Nunnink, MAI, Chairman
George G. Ward, MAI, Vice President
3 Park Avenue, 39th Floor, New York, NY 10016-5902
P: (212) 255-7858; F: (646) 424-1869; E-Mail: Integra@irr.com
VISIT OUR WEB SITE AT HTTP://WWW.IRR.COM
HOLIDAY INN CANTON DEFINITIONS
ADDENDUM B
DEFINITIONS
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HOLIDAY INN CANTON DEFINITIONS
DEFINITIONS
These definitions have been extracted, solely or in combination, from
definitions and descriptions printed in:
- Uniform Standards of Professional Appraisal Practice, 2002 Edition
(USPAP);
- The Dictionary of Real Estate Appraisal, Third Edition,
Appraisal Institute, Chicago, Illinois, 1993 (Dictionary);
- The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute,
Chicago, Illinois, 2001 (Twelfth Edition);
- Income/Expense Analysis, 2001 Edition - Conventional Apartments,
Institute of Real Estate Management, Chicago, Illinois, 2001 (IREM);
- Marshall Valuation Service, Marshall & Swift, Los Angeles,
California, (Marshall).
ACCRUED DEPRECIATION
The difference between the reproduction or replacement cost of the
improvements on the effective date of the appraisal and the market value
of the improvements on the same date. (Dictionary)
AMENITY
A tangible or intangible benefit of real property that enhances its
attractiveness or increases the satisfaction of the user, but is not
essential to its use. Natural amenities may include a pleasant location
near water or a scenic view of the surrounding area; man-made amenities
include swimming pools, tennis courts, community buildings, and other
recreational facilities. (Dictionary)
APPRAISAL
The act or process of developing an opinion of value; an opinion of value.
(USPAP)
BUSINESS VALUE
A value enhancement that results from items of intangible personal
property such as marketing and management skill, an assembled work force,
working capital, trade names, franchises, patents, trademarks, contracts,
leases, and operating agreements (Dictionary).
DEFERRED MAINTENANCE
Curable, physical deterioration that should be corrected immediately,
although work has not commenced; denotes the need for immediate
expenditures, but does not necessarily suggest inadequate maintenance in
the past. (Dictionary)
DISCOUNTED CASH FLOW (DCF) ANALYSIS
The procedure in which a discount rate is applied to a set of projected
income streams and a reversion. The analyst specifies the quantity,
variability, timing, and duration of the income streams as well as the
quantity and timing of the reversion and discounts each to its present
value at a specified yield rate. DCF analysis can be applied with any
yield capitalization technique and may be performed on either a
lease-by-lease or aggregate basis. (Dictionary)
[IRR LOGO] PAGE B1
HOLIDAY INN CANTON DEFINITIONS
EFFECTIVE DATE OF THE APPRAISAL
The date at which the value opinion is an appraisal applies, which may or
may not be the date of inspection; the date of the market conditions that
provide the context for the value opinion. Current appraisals occur when
the effective date of the appraisal is contemporaneous with the date of
the report. Prospective value opinions (effective date of the appraisal
subsequent to the date of the report) are intended to reflect the current
expectations and perceptions along with available factual data.
Retrospective value opinions are likely to apply as of a specific historic
date; the opinions are intended to reflect the expectations and
perceptions of market participants at the specified date, along with
available factual data. Data subsequent to the effective date may be
considered in estimating a retrospective value as a confirmation of
trends. (Dictionary and USPAP)
ENTREPRENEURIAL INCENTIVE
A market-derived figure that represents the amount an entrepreneur expects
to receive as compensation for providing coordination and expertise and
assuming the risks associated with the development of a project. (Twelfth
Edition)
ENTREPRENEURIAL PROFIT
A market-derived figure that represents the amount an entrepreneur
receives for his or her contribution to a project and risk; the difference
between the development cost of a property and its market value upon
completion and stabilization, which represents the entrepreneur's
compensation for the risk and expertise associated with development.
Entrepreneurial profit is an amount earned, estimated after completion,
while entrepreneurial incentive is an amount anticipated, prior to
development. (Twelfth Edition)
EXPOSURE TIME
Exposure time is the estimated length of time the property interest being
appraised would have been offered on the market prior to the hypothetical
consummation of a sale at market value on the effective date of the
appraisal. Exposure time differs from the marketing period in that
exposure time is assumed to precede the effective date of the appraisal.
(USPAP and Dictionary)
FEE SIMPLE ESTATE
Absolute ownership unencumbered by any other interest or estate, subject
only to the limitations imposed by the governmental powers of taxation,
eminent domain, police power, and escheat. (Dictionary)
GOING-CONCERN VALUE
The value created by a proven property operation; considered as a separate
entity to be valued with a specific business establishment. (Dictionary)
GROSS BUILDING AREA (GBA)
The total floor area of a building, including below-grade space but
excluding unenclosed areas; measured from the exterior of the walls.
(Dictionary)
HIGHEST AND BEST USE
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the
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HOLIDAY INN CANTON DEFINITIONS
highest value. The four criteria the highest and best use must meet are
legal permissibility, physical possibility, financial feasibility, and
maximum profitability. (Dictionary)
INSURABLE VALUE
Value used by insurance companies as the basis for insurance. Often
considered to be replacement or reproduction cost less deterioration and
non-insurable items. Sometimes cash value or market value but often
entirely a cost concept. Non-insurable items (also known as exclusions)
are a matter of underwriting policy, not valuation. (Marshall)
INVESTMENT VALUE
The specific value of an investment to a particular investor or class of
investors based on individual investment requirements; distinguished from
market value, which is impersonal and detached. (Dictionary)
LEASED FEE ESTATE
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the
leased fee owner) and the leased fee are specified by contract terms
contained within the lease. (Dictionary)
LEASEHOLD ESTATE
The interest held by the lessee (the tenant or renter) through a lease
conveying the rights of use and occupancy for a stated term under certain
conditions. (Dictionary)
MARKET VALUE
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title
from seller to buyer under conditions whereby:
- buyer and seller are typically motivated;
- both parties are well informed or well advised, and acting in what
they consider their best interests;
- a reasonable time is allowed for exposure in the open market;
- payment is made in terms of cash in United States dollars or in
terms of financial arrangements comparable thereto; and
- the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale. (USPAP, according to the
Federal Register, CFR 34.43(F))
MARKETING PERIOD
The amount of time it might take to sell an interest in real property at
its estimated market value during the period immediately after the
effective date of the appraisal. Marketing period is a function of price,
time, use, and anticipated market conditions. (Dictionary and USPAP)
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HOLIDAY INN CANTON DEFINITIONS
RENTABLE FLOOR AREA (RFA)
An area computed by measuring the inside finish of permanent outer
building walls or from the glass line where at least 50% of the outer
building wall is glass. Rentable floor area also includes all areas within
outside walls less stairs, elevator shafts, flues, pipe shafts, vertical
ducts, air conditioning rooms, fan rooms, janitor closets, electrical
closets, balconies and such other rooms not actually available to the
tenant for his furnishings and personnel and their enclosing walls. No
deductions are made for columns and projections necessary to the building.
(IREM)
REPLACEMENT COST
The estimated cost to construct, at current prices as of the effective
date of the appraisal, a building with utility equivalent to the building
being appraised, using modern materials and current standards, design and
layout. (Dictionary and USPAP)
REPRODUCTION COST
The estimated cost to construct, at current prices as of the effective
date of the appraisal, an exact duplicate or replica of the building being
appraised, using the same materials, construction standards, design,
layout, and quality of workmanship and embodying all the deficiencies,
superadequacies, and obsolescence of the subject building. (Dictionary)
ROOM COUNT
The number of rooms in a building; a unit of comparison used primarily in
residential appraisal. No national standard exists on what constitutes a
room. The Federal Housing Administration counts an alcove opening off the
living room as one-half room, but does not count dining space within a
kitchen. The generally accepted method is to consider as separate rooms
only those rooms that are effectively divided and to exclude bathrooms.
(Dictionary)
STABILIZED OCCUPANCY
Occupancy at that point in time when abnormalities in supply and demand or
any additional transitory conditions cease to exist and the existing
conditions are those expected to continue over the economic life of the
property; the optimum range of long-term occupancy which an
income-producing real estate project is expected to achieve under
competent management, after exposure for leasing in the open market for a
reasonable period of time at terms and conditions comparable to
competitive offerings. (Dictionary)
USE VALUE
The value a specific property has for a specific use. (Dictionary)
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ADDENDUM C
SUBJECT PHOTOGRAPHS
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ADDENDUM D
FINANCIALS AND PROPERTY INFORMATION
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HOLIDAY INN CANTON
ADDENDUM E
LETTER OF AUTHORIZATION
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Dates Referenced Herein and Documents Incorporated by Reference
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