<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13e-3 of the Securities Exchange Act of 1934)
SUPER 8 MOTELS NORTHWEST I
SEC File No. 2-67456
(Name of the Issuer)
Gerald L. Whitcomb
Maryanne Whitcomb
Columbus Motel Properties L.L.C.
(Name of Persons Filing Statement)
Limited Partnership Units
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
Gerald L. Whitcomb
General Partner
Super 8 Motels Northwest I
7515 Terminal Street, S.W.
Tumwater, Washington 98501
Telephone: (360) 943-8000
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Persons Filing Statement)
COPIES OF CORRESPONDENCE TO:
Marion V. Larson
William W. Barker
Graham & James LLP/Riddell Williams P.S.
1001 Fourth Avenue Plaza, 45th Floor
Seattle, Washington 98154-1065
Telephone: (206) 624-3600
Facsimile: (206) 389-1708
This statement is filed in connection with:
[X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
[ ] The filing of a registration statement under the Securities Act of 1933.
[ ] A tender offer.
[ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to above are preliminary copies: [N/A]
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
Transaction Valuation* Amount of Filing Fee
---------------------- --------------------
<S> <C>
$9,760,000 (*Based on purchase price of property) $2,715
[X] Check box if any part of the fee is offset as provided
by Rule 0-11(a) (2) and identify the filing with
which the offsetting fee was previously paid.
Identify the previous filing by registration statement number or the
Form or Schedule and the date of its filing.
Amount Previously Paid $2,715
Form or Registration No. Schedule 14A
Filing Party Registrant
Date Filed January 6, 1999
</TABLE>
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CROSS-REFERENCE SHEET SHOWING LOCATION IN
PRELIMINARY PROXY STATEMENT OF INFORMATION
REQUIRED BY ITEMS OF SCHEDULE 13E-3
The following is the cross reference sheet required pursuant to general
instruction "F" of Schedule 13E-3. It shows the location in the proxy statement
filed as Exhibit (d)(1) hereto of the responses of the filing persons to each
item and subparagraph of Schedule 13E-3.
<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
<S> <C> <C>
1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a).......................................................... Summary--Super 8 Motels Northwest I
(b).......................................................... Summary--Required Vote; Beneficial Ownership
(c).......................................................... Summary--Market Information
(d).......................................................... Summary--Market Information
(e).......................................................... Summary--Market Information
(f).......................................................... Summary--Market Information
2. IDENTITY AND BACKGROUND
(a) ......................................................... Summary--The Buyer
(b) ......................................................... Summary--The Buyer
(c) ......................................................... Summary--The Buyer
(d) ......................................................... Summary--The Buyer; Information About Northwest I-Directors
and Executive Officers of the Registrant
(e) ......................................................... None
(f) ......................................................... None
3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a)(1) ...................................................... Special Factors--Interests of Affiliates
(a)(2) ...................................................... None
(b) ......................................................... None
4. TERMS OF THE TRANSACTION
(a) ......................................................... Summary--Merger Consideration; The Merger Agreement
(b) ......................................................... None
</TABLE>
1
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<TABLE>
<S> <C> <C>
5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a) ......................................................... Special Factors--Plans or Proposals of Issuer or Affiliate
Following Merger
(b) ......................................................... Special Factors--Plans or Proposals of Issuer or Affiliate
Following Merger
(c) ......................................................... Special Factors--Plans or Proposals of Issuer or Affiliate
Following Merger; --Management and Operations of
Northwest I Following Merger
(d) ......................................................... Special Factors--Plans or Proposals of Issuer or Affiliate
Following Merger
(e) ......................................................... Special Factors--Plans or Proposals of Issuer or Affiliate
Following Merger
(f) ......................................................... Summary--Effect of Merger
(g) ......................................................... Summary--Effect of Merger
6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
(a) ......................................................... Special Factors--Source and Amounts of Merger
Consideration and Expenses
(b) ......................................................... Special Factors--Source and Amounts of Merger
Consideration and Expenses
7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a) ......................................................... Background of the Transaction; Summary--Effect of the
Merger
(b) ......................................................... Background of the Transaction
(c) ......................................................... Background of the Transaction
(d) ......................................................... Summary--Effect of Merger; Material Federal Income Tax
Consequences
8. FAIRNESS OF THE TRANSACTION
(a) ......................................................... Special Factors--Fairness of the Transaction
(b) ......................................................... Special Factors--Fairness of the Transaction
(c) Summary--Required Vote by Unitholders
(d) ......................................................... Special Factors--Conflicts of Interest; Procedural Fairness
(e) ......................................................... Special Factors--Conflicts of Interest; Procedural
Fairness; --Fairness of the Transaction
</TABLE>
2
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<TABLE>
<S> <C> <C>
(f) ......................................................... Background of the Merger--Attempted Sale to Unaffiliated
Third Party
9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a) ......................................................... Special Factors--Business Valuation of Exvere; --
Independent Appraisal of Motel Properties by McKee &
Schalka; -- Opinion of Financial Adviser; Opinion of
Financial Adviser--
(b) ......................................................... Special Factors--Business Valuation of Exvere; --
Independent Appraisal of Motel Properties by
McKee & Schalka; -- Opinion of Financial Adviser;
Opinion of Financial Adviser--
(c) ......................................................... Special Factors--Business Valuation of Exvere; --
Independent Appraisal of Motel Properties by McKee &
Schalka; -- Opinion of Financial Adviser; Opinion of
Financial Adviser--
10. INTEREST IN SECURITIES OF THE ISSUER
(a) ......................................................... Summary--Market Information
(b) ......................................................... Summary--Market Information
11. CONTRACTS, ARRANGEMENTS, OR UNDERSTANDINGS WITH
RESPECT TO THE ISSUER'S SECURITIES........................... None; Not applicable
12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE TRANSACTION
(a) ......................................................... Summary--Required Vote of Unitholders; Beneficial Ownership
(b) ......................................................... None
13. OTHER PROVISIONS OF THE TRANSACTION
(a) ......................................................... Dissenters' Rights of Appraisal
(b) ......................................................... Special Factors--Conflicts of Interest; Procedural
Safeguards
(c) ......................................................... Not applicable
14. FINANCIAL INFORMATION ....................................... Financial Statements; Selected Financial Data; Book Value
Per Share
</TABLE>
3
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<TABLE>
<S> <C> <C>
15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) .............................................. Special Factors--Conflict of Interest; Procedural
Fairness; Background of the Merger
(b) .............................................. Summary--Persons Making Solicitation
16. ADDITIONAL INFORMATION ........................... Where You Can Find More Information
17. MATERIAL TO BE FILED AS EXHIBITS
99.(a)*........................................... Loan commitment letters from U.S. Bank and rate lock agreement
99.(b)(1)+ ....................................... Exvere business valuation of Northwest I
99.(b)(2)* ....................................... McKee & Schalka appraisal of Sea-Tac motel property
99.(b)(3)* ....................................... McKee & Schalka appraisal of Federal Way motel property
99.(b)(4)* ....................................... Presentation of Financial Adviser, Ragen MacKenzie Incorporated
99.(b)(5) ....................................... Opinion of Financial Advisor Ragen MacKenzie Incorporated (included
in Exhibit (d)(1))
99.(c) ....................................... None
99.(d)(1)* ....................................... Proxy statement of Northwest I (as amended)
99.(e)(1)* ....................................... Detailed statement of appraisal rights (included in Exhibit (d)(1))
</TABLE>
- ---------------
* Filed herewith
+ Pursuant to the hardship exemption provided for in Rule 202 of
Regulation S-T, in lieu of filing this exhibit via EDGAR, this exhibit
has been filed in paper format with the Securities and Exchange
Commission.
4
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) The name and address of the issuer of the limited partnership
units which are subject to the Rule 13e-3 transaction and the
address of its principal executive offices is: Super 8 Motels
Northwest I, 7515 Terminal Street, S.W., Tumwater, Washington
98501.
(b) The relevant information set forth under the captions
"Summary--Required Vote" and "Beneficial Ownership" is
incorporated by reference herein.
(c) The relevant information set forth under the caption
"Summary--Market Information" is incorporated by reference
herein.
(d) The relevant information set forth under the caption
"Summary--Market Information" is incorporated by reference
herein.
(e) The relevant information set forth under the caption
"Summary--Market Information" is incorporated by reference
herein.
(f) The relevant information set forth under the caption
"Summary--Market Information" is incorporated by reference
herein.
ITEM 2. IDENTITY AND BACKGROUND
(a) The relevant information set forth under the caption
"Summary--The Buyer" is incorporated by reference herein.
(b) The relevant information set forth under the caption
"Summary--The Buyer" is incorporated by reference herein.
(d) The relevant information set forth under the captions
"Summary--The Buyer" and "Information About Northwest
I--Directors and Executive Officers of the Registrant" is
incorporated by reference herein.
(e) None of the relevant persons during the last five years has been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors).
(f) None of the relevant persons during the past five years was a
party to a civil proceeding of a judicial or administrative body
of competent jurisdiction resulting in a judgment, decree or
final order enjoining further violations of, or prohibiting
activities subject to, federal and state securities laws or
finding any violations of such laws.
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS
(a)(1) The relevant information set forth under the caption "Special
Factors--Interests of Affiliates" is incorporated by reference
herein.
(a)(1) None; Not applicable.
(b) None; Not applicable.
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ITEM 4. TERMS OF THE TRANSACTION
(a) The relevant information set forth under the captions
"Summary--Merger Consideration" and "The Merger Agreement" is
incorporated by reference herein.
(b) None; Not applicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a) The relevant information set forth under the caption "Special
Factors--Plans or Proposals of Issuer or Affiliate Following
Merger" is incorporated by reference herein.
(b) The relevant information set forth under the caption "Special
Factors--Plans or Proposals of Issuer or Affiliate Following
Merger" is incorporated by reference herein.
(c) The relevant information set forth under the captions "Special
Factors--Plans or Proposals of Issuer or Affiliate Following
Merger" and "Management and Operations of Northwest I Following
Merger" are incorporated by reference herein.
(d) The relevant information set forth under the caption "Special
Factors--Plans or Proposals of Issuer or Affiliate Following
Merger" is incorporated by reference herein.
(e) The relevant information set forth under the caption "Special
Factors--Plan or Proposals of Issuer or Affiliate Following
Merger" is incorporated by reference herein.
(f) The relevant information set forth under the caption
"Summary--Effective Date of Merger" is incorporated by reference
herein.
(g) The relevant information set forth under the caption
"Summary--Effective Date of Merger" is incorporated by reference
herein.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a) The relevant information set forth under the caption "Special
Factors--Source and Amount of Merger Consideration and Expenses"
is incorporated by reference herein.
(b) The relevant information set forth under the caption "Special
Factors--Source and Amount of Merger Consideration and Expenses"
is incorporated by reference herein.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a) The relevant information set forth under the captions "Background
of the Transaction" and "Summary--Effect of the Merger" is
incorporated by reference herein.
(b) The relevant information set forth under the caption "Background
of the Transaction" is incorporated by reference herein.
(c) The relevant information set forth under the caption "Background
of the Transaction" is incorporated by reference herein.
(d) The relevant information set forth under the caption
"Summary--Effect of Merger" and "Material Federal Income Tax
Consequences" is incorporated by reference herein.
6
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ITEM 8. FAIRNESS OF THE TRANSACTION
(a) The relevant information set forth under the caption "Special
Factors--Fairness of the Transaction" is incorporated by
reference herein.
(b) The relevant information set forth under the caption "Special
Factors--Fairness of the Transaction" is incorporated by
reference herein.
(c) The relevant information set forth under the caption
"Summary--Required Vote by Unitholders" is incorporated by
reference herein.
(d) The relevant information set forth under the captions "Special
Factors--Conflict of Interest" and "Procedural Fairness" is
incorporated by reference herein.
(e) The relevant information set forth under the captions "Special
Factors--Conflict of Interest; Procedural Fairness" and "--
Fairness of the Transaction" is incorporated by reference herein.
(f) The relevant information set forth under the caption "Background
of the Merger--Attempted Sale to Unaffiliated Third Party" is
incorporated by reference herein.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a) The relevant information set forth under the captions "Special
Factors--Business Valuation of Exvere"; "--Independent Appraisal
of Motel Properties by McKee and Shalka" "--Opinion of Financial
Advisors" and "Opinion of Financial Advisor--" is incorporated by
reference herein.
(b) The relevant information set forth under the captions "Special
Factors--Business Valuation of Exvere"; "--Independent Appraisal
of Motel Properties by McKee and Shalka" "--Opinion of Financial
Advisors" and "Opinion of Financial Advisor--" is incorporated by
reference herein.
(c) The relevant information set for under the captions "Special
Factors--Business Valuation of Exvere"; "--Independent Appraisal
of Motel Properties by McKee and Shalka" "--Opinion of Financial
Advisors" "Opinion of Financial Advisor--" is incorporated by
reference herein.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a) The relevant information set forth under the caption "Summary --
Market Information" is incorporated by reference herein.
(b) The relevant information contained under the caption "Summary --
Market Information" is incorporated by reference herein.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES
None; Not applicable.
7
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ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTIONS
(a) The relevant information set forth under the caption "Summary --
Required Vote of Unit Holders; Beneficial Ownership" is
incorporated by reference herein.
(b) None; Not applicable.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
(a) The relevant information set forth under the caption "Dissenters'
Rights of Appraisal" is incorporated by reference herein.
(b) The relevant information set forth under the caption "Special
Factors--Conflicts of Interest; Procedural Safeguards" is
incorporated by reference herein.
(c) Not applicable
ITEM 14. FINANCIAL INFORMATION.
(a) The relevant information set forth in the financial statements;
selected financial data; and book value per share is incorporated
by reference herein.
(b) Not applicable
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) The relevant information set forth under the captions "Special
Factors--Conflict of Interests; Procedural Fairness" and
"Background of the Merger" are incorporated by reference herein.
(b) The relevant information set forth under the caption
"Summary--Persons Making Solicitation" is incorporated by
reference herein
ITEM 16. ADDITIONAL INFORMATION
The relevant information set forth under the caption "Where You
Can Find More Information" is incorporated by reference herein.
In addition, the information set forth in Exhibit (d)(1)
consisting of the proxy statement of the registrant, is also
incorporated by reference herein.
8
<PAGE> 10
SIGNATURES
After due inquiry and to the best of our knowledge and belief, we certify
that the information set forth in this statement is true, complete and correct.
Dated the 10th day of February, 1999 GERALD L. WHITCOMB, AN INDIVIDUAL
/s/ Gerald L. Whitcomb
Gerald L. Whitcomb
MARYANNE WHITCOMB, AN INDIVIDUAL
/s/ Maryanne Whitcomb
Maryanne Whitcomb
COLUMBUS MOTEL PROPERTIES L.L.C.
/s/ Gerald L. Whitcomb
Gerald L. Whitcomb,
Its Manager
9
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
99.(a)* Loan commitment letters from U.S. Bank and rate lock agreement
99.(b)(1)+ Exvere business valuation of Northwest I
99.(b)(2)* McKee & Schalka appraisal of Sea-Tac motel property
99.(b)(3)* McKee & Schalka appraisal of Federal Way motel property
99.(b)(4)* Presentation of Financial Adviser, Ragen MacKenzie Incorporated
99.(b)(5) Opinion of Financial Advisor, Ragen MacKenzie Incorporated
(included in Exhibit (d)(1))
99.(c) None
99.(d)(1)* Proxy statement of Northwest I (as amended)
99.(e)(1)* Detailed statement of appraisal rights (included in Exhibit 99.(d)(1))
</TABLE>
- ---------------
* Filed herewith
+ Pursuant to the hardship exemption provided for in Rule 202 of
Regulation S-T, in lieu of filing this exhibit via EDGAR, this exhibit
has been filed in paper format with the Securities and Exchange
Commission.
10
<PAGE> 1
EXHIBIT 99.(a)
LOAN COMMITMENT LETTER FROM U.S. BANK
AND RATE LOCK AGREEMENT
<PAGE> 2
[LETTERHEAD OF U.S. BANK]
November 18, 1998
Mr. Gerald Whitcomb
Peninsula Motel Associates
7515 Terminal St., SW
Tumwater, Washington 98501
Dear Jerry:
U.S. Bank is pleased to offer Whitcomb Family, LLC, (successor to Peninsula
Motel Associates and related entities) the following commitment. This is a firm
commitment and, as such, this will facilitate quickly moving towards a closing.
BORROWER: Whitcomb Family, LLC, A Washington Liability
Company
GUARANTOR: Gerald Whitcomb & Maryanne Whitcomb (husband and
wife) (Limited to $25,000,000), Peninsula
Development Services and any management or
subsidiary companies, jointly and severally.
PURPOSE: Loan to consolidate ownership of Super 8 Motels
currently held in various partnerships, buy out
underlying leases, pay transaction costs and
refinance existing debt.
AMOUNT: 1) Maximum of 75% of appraised value of Super 8
Motel properties securing the loan (estimated
$66,500,000 credit facility) consisting of the
following:
a) $59,276,920 term loan ($30,000,000 to be
participated at closing) secured by 23 Super 8
properties.
b) Term loan for $2,500,000 secured by 1st D/T on
lacey Super 8
c) Term loan for $1,575,000 secured by 1st D/T on
Bremerton Super 8
<PAGE> 3
d) Term loan for $1,980,000 secured 1st D/T on
Yakima Super 8
e) Term loan for $1,168,080 secured by Peninsula
Office
2) $2,000,000 line of credit for future buy out
opportunities. (Existing unsecured lines total
$1,800,000 and will be replaced by the $2,000,000
line of credit)
INTEREST RATE: 1) Fixed Treasury plus 3.00%, minimum 7.5% rate
2) Prime Rate plus .25%.
FEES: 1) Bank fee of 1.0%.
2) 1/4% annually
Administrative Agent Fee of $10,000 annually for
first five (5) years.
PREPAYMENT PREMIUM: Yield maintenance agreement on fixed rate option.
None on floating option.
COMMITMENT DEADLINE: Acceptance required by November 20, 1998
AMORTIZATION/REPAYMENT: 1) a) Monthly principal and interest payments per
the following schedule:
<TABLE>
<CAPTION>
YEAR ANNUAL PAYMENTS MONTHLY PAYMENTS
--------------------------------------------
<S> <C> <C>
1-5 $5,760,000 $480,000
6-7 $6,600,000 $525,000
</TABLE>
b) Monthly principal and interest payments of about
$20,000.00 (20 year amortization).
c) Monthly principal and interest payments of about
$13,000.00 (20 year amortization).
d) Monthly principal and interest of about $16,000
(20 year amortization).
e) Monthly principal and interest payments of about
$9,500.00 (20 year amortization).
TERM: 1) a) Seven (7) maturity term, 20 year
amortization,
b-e) Five (5) year maturity with a 20 year
amortization.
2) One year with interest payable monthly.
COLLATERAL: 1) A First Deed of Trust on fee simple interest in
Super 8 Motel properties sufficient to generate a
value of real
3
<PAGE> 4
estate with a maximum loan to Bank accepted and
reviewed MAI appraisals of 75% on all notes and a
first security priority security interest in all
accounts, equipment, fixtures, improvements,
assignment of franchise rights and other personal
property associated with or relating to such Super
8 motel properties.
2) Unsecured, 30 day out of debt requirement.
CONDITIONS PRECEDENT: - ALTA Lender's Extended Coverage Title policy
insuring first lien position and adequate
property and casualty insurance on all
properties offered as collateral.
- Formal credit approval by Bank.
- Satisfactory review and approval by Bank of each
property's compliance with the Americans with
Disabilities Act.
- Execution and delivery of credit and security
documentation satisfactory to Bank.
- Acceptable financial statements and other
financial information from borrower and
guarantors.
- Review and acceptance of borrowing entity
documentation.
- No material adverse change in condition or
prospects of borrower or any guarantor.
- Satisfactory opinion of counsel for borrower and
guarantors.
- Environmental questionnaire and Level 1
environmental audit to be completed and reviewed
and accepted by Bank.
- FIRREA complaint MAI Appraisal with an
acceptable Bank review to be completed on all
properties offered as collateral.
- Commitments from loan participants for
$30,000,000 to be received prior to funding.
4
<PAGE> 5
COVENANTS: The usual and including but not limited to:
- Reporting requirements to include annual audited
statement within 120 days of the fiscal
year-end, monthly occupancy and ADR statistics
on all properties and other such information as
may reasonably be requested by the Bank. Also,
financial statements on the guarantors to be
provided annually.
- No sale of assets, merger, consolidation, change
of control, additional liens on properties or
future indebtedness secured by the real estate
collateral without the Bank's prior written
approval.
- The ratio of cash flow, (EBITDA less renovation
reserve of 5% of net revenues) to current
portion of long term debt plus interest expense
will not fall below 1.20 to 1.
- Renovation Reserve of 5% to be funded and
deposited with Bank on a monthly basis.
MISCELLANEOUS: - Whitcomb Family, LLC agrees to pay all legal
fees, appraisal fees and costs incurred in the
preparation of the documentation. A deposit of
$100,000 will be required upon acceptance of
this commitment. This deposit is earned upon the
signing of this commitment. This will also be
applied towards the overall fee collected at
closing.
- Washington law to apply.
- Ability to subdivide land on which SeaTac and
Kelso Super 8 motels, and Peninsula Office Park
are located, based on Bank acceptable MAI
appraised value.
- Provisions for deed releases of individual
properties providing LT is equal to or less than
75% (based on current appraisals acceptable to
Bank),. The remaining debt coverage ratio is 1.4
or greater on the remaining assets and no
existing default.
5
<PAGE> 6
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR
TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
Jerry, please sign acknowledging your acceptance and enclose the deposit.
Thanks.
Sincerely, Commitment Acceptance:
____________________________________
Carlos M. Guangorena Gerald Whitcomb, Manager
Vice President Whitcomb Family, LLC
6
<PAGE> 7
[LETTER OF THE PENINSULA GROUP]
December 2, 1998
Mr. Carlos Guangorena
Sr. Vice President
US Bank
Seattle, WA VIA Fax: 206-344-3737
Dear Carlos:
This letter will serve to notify you of our decision to do a forward rate lock
on the loans committed to our entitles as follows:
For the single large loan, please lock Six Million, seven hundred eighty-seven
thousand, five hundred dollars ($6,787,500) at today's rate of 5 year T-bills
plus 3%, but not less than 7.5%. Therefore the rate is 7.5% P/A.
The lock should be for a period of 4 months from today.
We have elected to finance the lock by adding 1 basis point (.01) per month for
the four month period. This arrangement will create a 7.55% annual rate on that
part of the 7 year loan on which we have placed the lock ($57,152,000) and a
7.54% annual rate on that part of the 5 year loan on which we have placed the
lock ($6,787,000).
It is understood that the remainder of the funds which will total not more than
75% of the appraised value of the properties being offered as security will be
taken either at a rate we may subsequently lock, or at the appropriate T-bill
rate plus 3 points.
This letter only serves to notify you of the lock and is in addition to the lock
commitment letter being completed by you and our counsel Bruce Bjerke.
Sincerely,
Gerald L. Whitcomb
President & CEO
cc: Bruce Bjerke
7
<PAGE> 8
[LETTER OF US BANK]
December 2, 1998
Mr. Gerald Whitcomb
Whitcomb Family, LLC
7515 Terminal St. SW
Tumwater, Washington 98501
Dear Jerry:
U.S. Bank is pleased to offer Whitcomb Family, LLC (successor to Pensinsula
Motel Associates and related entities) the following commitment to fix the rate
for the commitment letter dated 11/18/98.
BORROWER: Whitcomb Family, LLC, A Washington Limited
Liability Company
TERM LOAN AMOUNTS: 1) $59,276,920 secured by 1st D/T on 23 Super 8
properties
2) $2,500,000 secured by 1st D/T on Lacey Super 8
3) $1,575,000 secured by 1st D/T on Bremerton Super
8
4) $1,980,000 secured by 1st D/T on Yakima Super 8
5) $1,168,080 secured by Peninsula Office
INTEREST RATE: Fixed Treasury plus 3.00%, minimum 7.5% rate.
Current rate is 7.51% for 1) and 7.50% for 2-5).
FORWARD RATE LOCK: Costs of locking in current rates are 1bp or .01%
per month added to the loan rates above.
or a "Hedging Fee" (cash up front) of:
1) $33,000.00 per month ($132,000.00 for four
months).
2-5) $2,550.00 per month ($7,650.00) for four
months)
The Borrower may elect to set a fixed rate of
interest for the term loans. The Borrower may elect
to do so by agreeing with the Bank to a fee, to be
paid upon the setting of the rate, established by
the Bank (the "Hedging Fee"). As an example, the
Hedging Fee for fixing the rate at 7.51% for 1) and
7.50% for 2), had the Hedging Fee been paid on
December 2, 1998 would have been $132,000 for
8
<PAGE> 9
1) and $7,650 for 2) for the amount and
amortization indicated above. This is used as an
example, and amortization indicated above. This is
used as an example, and rates and applicable fees
may change due to market conditions.
PREPAYMENT PREMIUM: If the borrower elects to set a fixed rate in this
manner, and then fails for any reason not to borrow
the term loans, whether voluntarily, or
involuntarily, or cannot comply with conditions
precedent, the following shall apply: (i) no amount
of the hedging fee shall be returned (and such fee
shall be retained by the Bank), and (ii) the
Borrower shall be required to pay to the Bank an
additional amount calculated by the Bank (see
attached) as its loss or damages resulting from the
Banks' reservation of funds, or hedging
arrangements entered into by the Bank, for the Bank
to have been able to make the term loans at the
fixed rate. The Bank may calculate such amount as
if the Bank had entered into hedging arrangements
for the amount of the tenor of the term loans,
whether or not the Bank hedged such loans on an
individual basis (or merely hedged its entire fixed
rate portfolio).
Yield maintenance agreement per example attached.
This is in effect if either a prepayment occurs,
less than the full amount of the loan is funded or
terms of the deal change materially.
AMORTIZATION/REPAYMENT: 1) Appropriate monthly principal and interest
payments per the following:
<TABLE>
<CAPTION>
YEAR ANNUAL PAYMENTS MONTHLY PAYMENTS
---------------------------------------------
<S> <C> <C>
1-5 $5,760,000 $480,000
6-7 $6,600,000 $525,000
</TABLE>
2) Monthly principal and interest payments of
$20,000
3) Monthly principal and interest payments of
$13,000
4) Monthly principal and interest of $16,000
5) Monthly principal and interest payments of
$9,500.
TERM: 1) Seven (7) maturity term, 20 year amortization,
2-5) Five (5) year maturity with a 20 year
amortization.
9
<PAGE> 10
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR
TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
Jerry, please sign the appropriate acceptance and enclose the lock fee if
applicable. Thanks.
<TABLE>
<S> <C> <C>
Sincerely, Loan Rate Increase Acceptance: Lock In Fee Acceptance:
Carlos M. Guangorena Gerald Whitcomb, Manager Gerald Whitcomb, Manager
Vice President Whitcomb Family, LLC Whitcomb Family, LLC
</TABLE>
10
<PAGE> 1
EXHIBIT 99.(b)(2)
Appraisal of
SUPER 8 MOTEL
3100 S. 192nd Street
SeaTac, Washington
[PICTURE OF SUBJECT PROPERTY]
<PAGE> 2
APPRAISAL
OF
SUPER 8 MOTEL
3100 South 192nd Street
SeaTac, Washington
AS OF:
January 1, 1999
AUTHORIZED BY:
Karl Schaffer
U.S. Bancorp Appraisal Division
Seattle, Washington
PREPARED BY:
E. Bates McKee, MAI
Heath Hake Woodside, Appraiser
MCKEE & SCHALKA
Real Estate Appraisal Services & Consultants, Inc.
701 Fifth Avenue, Suite 6750
Seattle, Washington 98104
REFERENCE NO. 8222
<PAGE> 3
McKEE & SCHALKA
REAL ESTATE APPRAISAL SERVICES & CONSULTANTS, INC.
701 Fifth Avenue, Suite 6750, Seattle, Washington 98104
Telephone (206) 348-8909 Fax (206) 386-5777
December 28, 1998
Karl Schaffer
Senior Income Property Appraiser
U.S. Bancorp, Appraisal Division
1301 Fifth Avenue, Mezzanine Level
Seattle, Washington
NAME: SEATAC SUPER 8 MOTEL
DESCRIPTION: 119-ROOM LIMITED SERVICE MOTEL
ADDRESS: 3100 SOUTH 192ND STREET
MUNICIPALITY: SEATAC, WASHINGTON
REAL PROPERTY DESCRIPTION: KING COUNTY APN NOS. 232304-9157, 815860-0010
OTHER PROPERTY
DESCRIPTION: PERSONAL PROPERTY TAX ACCOUNT NUMBER 25271958
MCKEE & SCHALKA REFERENCE
NO.: 8222
USBADW FILE NO.: A98-530
Dear Mr. Schaffer:
We have prepared the attached appraisal report for the subject property. The
subject is a 119-unit lodging facility which is located at 3100 South 192"d
Street in SeaTac, Washington. The purpose of this appraisal is to estimate the
Market Value of the fee simple interest of the subject property. The definition
of Market Value used in this appraisal is found in the Appraisal Description of
the attached report.
<PAGE> 4
Transmittal Letter
Super 78 Motel, SeaTac, WA
McKee & Schalka Reference No.: 8222
December 28, 1998
Page 2
The accompanying complete appraisal report has been prepared in conformity with
the Uniform Standards of Professional Appraisal Practice (USPAP) and the
Appraisal Standards implemented by the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRPEA). This appraisal has been prepared in
conformity with the requirements of the Code of Professional Ethics and the
Standards of Professional Appraisal Practice of the Appraisal Institute, and is
subject to the Assumptions, Certification & Limiting Conditions contained in
this report, as well as specific assumptions contained herein. This report has
also been prepared in accordance with the appraisal guidelines of U.S. Bancorp.
Mr. E. Bates McKee, MAI (Washington State Certificate No. 270-11
MC-KE-EE-B443RF) and Ms. Heather Hake Woodside, Appraiser (Washington State
Certificate No. 270-11 WO-OD-SH-H27810) are both Washington State Certified
General Real Estate Appraisers.
In the course of this appraisal we have both substantially participated in the
analysis and valuation. Ms. Heather Hake Woodside has personally inspected the
subject property. Significant information and assistance have been provided by
other sources, including sources cited herein, and by other associates of McKee
& Schalka, Inc. Specifically, Brian R. Ledbetter (Washington State Certificate
No. 27011-LE-DB-EB-R376QQ) participated in the inspection of the property. As a
result of our investigation and analysis, our conclusion is:
================================================================================
<TABLE>
<CAPTION>
Effective Value
Description Valuation Date Conclusion
- ----------- -------------- ----------
<S> <C> <C>
Market Value - Fee Simple Estate 1/1/99 $8,300,000
</TABLE>
===============================================================================
The above value estimate is commensurate with a reasonable marketing and
exposure time of one year. The market value includes furnishings, fixtures, and
equipment (F,F,&E), including both permanently affixed real estate, and personal
property. The contributory value of F,F,&E is estimated to be $260,000, which
includes personal property of $180,000.
Respectfully submitted,
E. Bates McKee, MAI Heather Hake Woodside, Appraiser
<PAGE> 5
CERTIFICATION, DISCLOSURE AND USE RESTRICTION
CERTIFICATION
I CERTIFY THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF:
o The statements of fact contained in this report are true and correct.
o The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions, and conclusions-
o I have no present or prospective interest in the property that @s the
subject of this report, and I have no personal interest or bias with
respect to the parties involved.
o My compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event.
o My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
o Ms. Heather Hake Woodside has made a personal inspection of the property
that is the subject of this report.
o Mr. Bates McKee has not made a personal inspection of the property that
is the subject of this report.
o No one provided significant professional assistance to the person(s)
signing this report, with the exception of other associates of McKee &
Schalka, Inc.
o The reported analyses, opinions and conclusions were developed, and this
report has been prepared, in conformity with the requirements of the
Code of Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
o The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
o As of the date of this report, Mr. E. Bates McKee, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
o The appraisal assignment was not based on a requested minimum valuation,
a specific valuation, or the approval of a loan.
RESTRICTION UPON DISCLOSURE & USE:
Disclosure of the contents of this appraisal report is governed by the By-Laws &
Regulations of the Appraisal Institute.
Neither all nor any part of the contents of this report (especially any
conclusions as to value, the identity of the appraiser or the firm with which
(s)he is connected, or any reference to the Appraisal Institute or to the MAI
designation) shall be disseminated to the public through advertising media,
public relations media, news media, sales media or any other public means of
communication without the prior written consent and approval of the undersigned.
No part of this report or any of the conclusions may be
i
<PAGE> 6
included in any offering statement, memorandum, prospectus or registration
without the prior written consent of the appraiser. This appraisal is intended
for use only by the client identified in the Transmittal Letter, and may not be
transmitted or communicated to any other party without the specific written
permission of McKee & Schalka, Inc.
- ----------------------------------- ------------------------------------
Signature of Appraiser Signature of Appraiser
ii
<PAGE> 7
GENERAL ASSUMPTIONS AND LIMITING CONDITIONS
The attached report may only be used or reviewed in its entirety. No individual
pages, portions, analyses or conclusions may be separated from the complete
report or verbally disseminated without transmittal of the entire report. The
report is intended solely for the review and use by the client identified in the
Transmittal Letter, and may not be transferred to any other party without the
specific written permission of McKee & Schalka, Inc. Certain aspects of the
report (including analysis methodology, spreadsheets, textual formatting and
content) are considered the exclusive intellectual property of McKee & Schalka,
Inc. All rights are reserved.
The following General Assumptions and Limiting Conditions are supplemented by
additional specific assumptions and limiting conditions identified in the
attached report.
It is assumed that there are no hidden or unapparent conditions of the property,
subsoil, structures, or environment (including asbestos, formaldehyde, radon,
soil contamination, structural conditions, legal compliance including zoning and
Americans With Disabilities Act compliance, title or legal conditions, mineral
or other valuable conditions or rights, or unknown soils, hydrological, or
environmental factors) that render it more or less valuable. We have no
expertise in any of these areas, and we specifically counsel the client to
perform additional investigation by qualified experts. No responsibility is
assumed for such conditions or for arranging the studies that may be required to
discover them.
The liability of McKee & Schalka, Inc. and its employees is limited to the
client only, and only to the extent of the fee actually contracted for.
The value conclusions are the result of integration of the entire appraisal
process, including multiple methodologies, approaches and analyses. Any specific
errors or omissions may or may not change the value conclusions.
The appraiser is not required to give further consultation, testimony or
attendance in court by reason of this appraisal unless arrangements have been
previously made.
The information furnished by others is believed to be reliable, but no warranty
is given for its accuracy.
The forecasts, projections and estimates contained in this report are based on
current market conditions, anticipated short-term supply and demand factors, and
a stable economy. These forecasts are, therefore, subject to changes with future
conditions. The analyses and conclusions are valid only as of the date of
transmittal of the report.
The appraiser has made no survey of the property and assumes no responsibility
in connection with such matters. Any sketch or identified survey of the property
included in this report, is only for the purpose of assisting the reader to
visualize the property.
No responsibility is assumed for the legal description or for matters including
legal or title considerations. The property is appraised free and clear of any
or all liens or
iii
<PAGE> 8
encumbrances, unless otherwise stated. Title to the property is assumed to be
good and marketable.
Responsible ownership and competent management are assumed.
The allocation of total value to land, buildings, or any fractional part or
interest as shown in this report, is invalidated if used separately or in
conjunction with any other appraisal.
iv
<PAGE> 9
TABLE OF CONTENTS AND INDEX
[Not included]
v
<PAGE> 10
LISTS OF MAPS AND FIGURES
[Not included]
vi
<PAGE> 11
SUMMARY OF IMPORTANT CONCLUSIONS
<TABLE>
<S> <C>
NAME OF SUBJECT PROPERTY: SUPER 8 MOTEL - SEATAC
ADDRESS: 3100 SOUTH 192ND STREET
MUNICIPALITY: SEATAC, WASHINGTON
KING COUNTY PARCEL NOS: 232304-9157-815860-0010
PROPERTY DESCRIPTION: 119-ROOM, 3-STORY LIMITED-SERVICE MOTEL
CONSTRUCTION: WOOD FRAME
SIZE: 46,674SF GBA
AGE: ORIGINAL CONSTRUCTION 1982; RENOVATED IN 1995
CURRENT STATUS: OPERATED AS FRANCHISE AFFILIATED SUPER 8 MOTEL
APPRAISER: E. BATES MCKEE, MAI
HEATH HAKE WOODSIDE, APPRAISER
MCKEE & SCHALKA REFERENCE NO.: 8222
USBADW REFERENCE NO.: A98-534
EFFECTIVE DATE OF APPRAISAL: 1/1/99
DATE OF REPORT PREPARATION: 12/28/98
PROPERTY RIGHTS APPRAISED; FEE SIMPLE ESTATE
PURPOSE AND USE OF APPRAISAL: ESTIMATE MARKET VALUE FOR ASSET EVALUATION
TYPE OF APPRAISAL: COMPLETE
TYPE OF REPORT: SELF-CONTAINED
SIGNED CERTIFICATION: ATTACHED
ASSUMPTIONS AND LIMITATIONS: ATTACHED
SCOPE OF APPRAISAL: COMPREHENSIVE DATA COLLECTION; SALE
COMPARISON AND INCOME APPROACHES USED
HIGHEST AND BEST USE: CONTINUED MAINTENANCE AND OPERATION AS
FRANCHISE-AFFILIATED LODGING FACILITY
SALE COMPARISON APPROACH VALUE: $8,200,000 (INCLUDES EXCESS LAND)
INCOME APPROACH VALUE: $8,400,000 (INCLUDES EXCESS LAND)
RECONCILED FEE SIMPLE VALUE ESTIMATE: $8,300,000 (INCLUDES EXCESS LAND)
RECONCILED VALUE/ROOM $69,748/ROOM
</TABLE>
COMMENTS
The subject of this appraisal is the 119-room Super 8 Motel located SeaTac,
Washington. This is a 3-story, wood frame, limited-service motel. The property
was originally constructed in 1982, and substantially renovated in 1995. This
included both upgrades to the interior and exterior of the building, including
replacement of most of the interior finishes and furnishings. The property has
been well maintained and managed. Typical of other Super 8 properties the
subject has fairly small rooms and limited common areas, and a functional layout
with an interior entrance configuration.
1
<PAGE> 12
The improvements are located on a 3.67-acre site which is considerably larger
than would be required to support the existing improvements. The site is
moderately sloping and has frontage along two streets, including International
Boulevard which is a major arterial. This location is in the central portion of
the main commercial strip associated with SeaTac International Airport. The
subject's location along International Boulevard 1/2 mile southeast of the
airport is a significant positive factor in its valuation.
This is part of the lodging market which includes the Kent Valley, Southcenter,
and SeaTac. The subject's market has exhibited strong growth over the past few
years, with a leveling out of the average daily rates and occupancies due to the
substantial new supply. This new supply is largely due to strong demand stemming
from usage of SeaTac International Airport, the primary demand generator for
this market. The subject is in a relatively strong position in its submarket. It
has an excellent location and is positioned slightly below its main competitors
in terms of quality and room rates.
As the basis for the valuation of the property we used the Sale Comparison and
Income Approaches and did not use a Cost Approach. For an existing established
motel property of this size and age, purchasers are primarily interested in the
income characteristics and the market price for similar properties. For the Sale
Comparison Approach we reviewed a wide variety of hotel transactions in
Washington and Oregon, and used five for direct comparison with the subject. The
subject would be marketable if available for sale, and we have placed some
emphasis on the indications from this approach. The Income Approach is
considered compelling, based on detailed income and expense history for the
subject property over the past several years and a reasoned local and regional
market analysis. In the end, we gave consideration to both approaches in our
final value estimate.
2
<PAGE> 13
SUBJECT PHOTOGRAPHS
[photo here]
SUBJECT PROPERTY, SEATAC SUPER 8, 3100 SOUTH 192ND STREET, SEATAC, WA
[photo here]
LOBBY AND RECEPTION AREA.
3
<PAGE> 14
[photo here]
TYPICAL DOUBLE GUEST ROOM.
[photo here]
HALLWAY SHOWING TYPICAL INTERIOR ENTRANCE CONFIGURATION, WITH GUEST ROOMS ON
EITHER SIDE OF A CENTRAL CORRIDOR.
4
<PAGE> 15
[photo here]
45-PERSON CONFERENCE ROOM.
[photo here]
REAR PARKING LOT.
5
<PAGE> 16
[photo here]
VIEW LOOKING EAST ON 192ND STREET.
[photo here]
VIEW LOOKING NORTH ALONG INTERNATIONAL BOULEVARD FROM WEST SIDE OF THE SUBJECT
SITE.
6
<PAGE> 17
APPRAISAL DESCRIPTION
IDENTITY OF PROPERTY
The subject is an existing 119-room lodging facility known as the SeaTac Super 8
Motel. It is located at 3100 South 192"d Street in SeaTac, Washington.
LEGAL DESCRIPTION
We have not been provided with a title report for the subject property. The
property can also be legally described as King County tax lots 232304-9157 and
815860-0010, and personal property account #25271958.
PURPOSE OF APPRAISAL
The purpose of this appraisal is to estimate the Market Value of the subject
property. following is the definition of Market Value according to OCC
Regulation 12 CFR Part 34.42:
"Market Value means 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:
(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and each acting
in what they consider their own best interests;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(5) 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."
FUNCTION OF APPRAISAL
It is our understanding that the function of this appraisal is to assist in
decisions regarding financing and asset valuation of the property.
PROPERTY RIGHTS APPRAISED
This is an appraisal of the fee simple interest of the subject property.
7
<PAGE> 18
UNAVAILABILITY OF INFORMATION
We have not been provided with an environmental report, title report, structural
inspection, report or a hydrologic or soils report. We are not expert in any of
these areas, and generally rely on the technical reports of qualified personnel.
We specifically assume that there are no unapparent conditions which affect the
value or utility of the property.
ADA COMPLIANCE
We have not been provided with any information regarding the compliance of the
building improvements with the Americans With Disabilities Act (ADA). We are not
experts in ADA compliance issues and specifically assume that there are no
unapparent conditions with regard to ADA compliance which affect the value or
utility of the property.
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal is subject to the General Assumptions and Limiting Conditions
found at the beginning of this report, as well as specific assumptions noted
above.
SCOPE OF APPRAISAL
This appraisal is not limited in scope, and uses both the Sale Comparison and
Income Approaches to value. The Cost Approach has not been employed in our
valuation process. Current purchasers of similar properties are primarily
interested in the income characteristics of the property, and focus on the
Income Approach and Sale Comparison Approach when determining an appropriate
purchase price. Also, the age of the improvements and subsequent renovation make
an exact estimation of accrued depreciation unreliable. Therefore the Cost
Approach has not been used, since it would not have had any bearing on the
reconciled market value for the property.
In the course of this appraisal Ms. Heather Hake Woodside has personally
inspected the subject property. In addition we have evaluated the local
neighborhood and surrounding areas; surveyed the competitive lodging facilities
within this market; and reviewed historical data and income and expenses for
other similar properties. We have also carefully reviewed and analyzed the
subject's income and expense history over the past several years. We have spoken
with the subject's owners, manager, and other property managers, owners, and
government officials within this market. We have researched and evaluated the
sales of other lodging facilities, both within King County and throughout the
Pacific Northwest. Overall, the scope of the research and analysis contained in
this appraisal is substantial, and in our opinion adequate to support the value
conclusion.
COMPETENCY
We are competent to appraise the subject property. We have considerable
experience in the analysis and valuation of lodging facilities throughout the
region, and have
8
<PAGE> 19
appraised several other lodging facilities in the subject's market area. Please
refer to the Scope of Appraisal, the Appraiser's Qualifications and Experience
Data in the Addenda, and the research and presentation embodied in this report
for verification of our competency.
HISTORY AND CURRENT STATUS OF PROPERTY
The subject improvements were built in 1982, and have been under the same
ownership and management since that time. The subject was offered for sale in
1998, along with a portfolio of about 25 other Super 8 properties located in
Washington, Oregon and Alaska, with an asking price of about $91 million. It is
our understanding that several parties expressed interest in the properties,
with the highest offer at about $81 million. There have been no transactions
involving the subject over the last five years and we are not aware of any other
current or recent purchase offers, listings, or agreements for the property.
Two significant changes have occurred at the property since the original
development. First was the demolition several years ago of a single-family
residence that previously existed on the southeast corner of the subject site.
This area is currently not developed, and is part of the unpaved eastern portion
of the site used for overflow airport parking. This portion of the site which
previously included the house has a single-family residential zoning
designation, unlike the commercial zoning for the rest of the site. Recently,
however, the property was designated in the City of SeaTac comprehensive plan to
be developed as commercial land. Therefore, it appears likely that a rezone of
this property would be possible.
The second significant change at the subject was the extensive renovation of the
property which occurred in 1995. This included the elimination of a
drive-through entrance which separated the two ground floor wings of the
improvements, and allowed for an expansion of the lobby area. It also included a
complete renovation of the guestrooms and near-complete replacement of room
furnishings. It is our understanding that this renovation had a total cost of
about $1,150,000.
REASONABLE EXPOSURE TIME AND MARKETING TIME
The value conclusion in this report is as of the effective date of this
appraisal, and assumes that a reasonable exposure time has preceded that
effective date. Thus the value is consistent with expected transaction on that
effective date after prior marketing. Exposure time is the period of time that
would reasonably have preceded transaction of the property at the appraised
value on the date of appraisal. The reasonable marketing time discussed in this
section is that period which would be expected to be incurred to market the
property in the current environment as of the date of the appraisal report, with
the marketing to occur subsequently. Thus the value conclusion is not
necessarily the subsequent value that would be anticipated for transaction of
the property after the future marketing period.
9
<PAGE> 20
It is our conclusion that the subject property would be marketable if available
for sale. The improvements range between about 3 and 16 years in age, and appear
to have been well maintained. The subject was significant renovated in 1995, and
should continue to be competitive within its market segment for the foreseeable
future. The quality and limited service orientation make it attractive to the
owner-operator segment, who continue to be active in the hotel market.
Regionally there continues to be significant sales activity for this property
type. Over the past several years the market activity of hotel properties
increased, as REITs and other entities had increased interest. More recently
this institutional interest declined over the last half-year. While interest
from this segment of purchasers declined, smaller income investors and owner
operators continue to be active. On a single-property basis this would be the
subject's primary market segment, and the subject improvements would be quite
marketable to this segment.
Positive factors include its location in a strong market with strong demand and
only a limited amount of new supply within SeaTac with a significant amount of
supply in the greater market area. The airport is scheduled to expand and
incorporate another runway which will only increase the passenger traffic
through SeaTac and therefore increase the demand for lodging. The subject has
strong, proven operations, and is well positioned with regards to other
properties in this market. This combined with the recent renovation makes
continued strong income prospects likely, and would tend to make the property
quite attractive to other owner-operators, or income investors. The subject's
market would also be viewed quite favorably in terms of a long-term investment,
with Seattle consistently ranked near the top in investor preference surveys.
After consideration of these factors we have estimated a marketing and exposure
time of one year or less, and the value conclusion is consistent with that
estimate.
DATE OF INSPECTION
December 17, 1998
DATE OF APPRAISAL PREPARATION
December 28, 1998
EFFECTIVE DATE OF VALUE ESTIMATE
January 1, 1999
10
<PAGE> 21
NEIGHBORHOOD MAP
[Not shown]
11
<PAGE> 22
NEIGHBORHOOD AND LODGING MARKET
REGIONAL OVERVIEW
The Seattle Metropolitan area is located in the middle of a 5-county area often
referred to as the Central Puget Sound Region. Seattle is the central focus of
economic activity for the entire Western Washington region. Seattle has a
reputation as a desirable place to live and work. It is located in King County
and is the largest city and metropolitan area in the state. Trends in the
Seattle area include record low unemployment, increasing retail sales and
significant economic growth. This is coupled with an increasing population which
shows Little signs of slowing in the near term future.
The two largest private employers in the region are Boeing and Microsoft.
Seattle is also a major medical center for health care, research, and biomedical
engineering firms. Although Boeing is planning to layoff about 24,000 employees
in the region over the next year, many of these layoffs will likely be through
attrition. Because the economy is so strong and the unemployment rate is so low,
the remainder of the Boeing layoffs are expected to be absorbed quickly. For
example, Microsoft announced in mid-1997 that they plan to hire about 3,000
workers over the next few years. Overall, the Seattle area economy is considered
quite strong and although the rate of growth is expected to For a more detailed
description of the area, please refer to the Seattle Metropolitan Area
Description found in the Addenda of the attached report.
NEIGHBORHOOD OVERVIEW
The subject is located in the city of SeaTac, in a neighborhood that is
dominated by uses associated with the Seattle-Tacoma International Airport. This
location is about 15 miles south of the Seattle CBD. Please refer to the subject
property photographs, and the neighborhood map on the facing page for
visualization of the subject's position within this neighborhood.
SeaTac became a municipality in 1990, and prior to that was a part of
unincorporated King County. It is considered to be a part of the greater Seattle
area, and is surrounded by other relatively small municipalities including
Tukwila, Kent, and Federal Way. The city of SeaTac spans a fairly broad area
from Interstate-5 on the east to Puget Sound on the west, and has a current
population of about 23,500 people. The subject's neighborhood is a narrow strip
of commercial uses located along International Boulevard (Highway-99) which is
the major north/south arterial which runs through the middle of SeaTac. This
commercial strip runs directly adjacent to the east of SeaTac International
Airport. The northern and central portions of International Blvd. have recently
been upgraded including more dividers and left turn lanes, repaving, and the
construction of sidewalks and landscaping. The neighborhood is effectively
bounded by SeaTac on the west, a single-family residential neighborhood on the
east, SR-518 to the north, and South 208th Street to the south. This is a
heavily developed commercial area, with most uses complimentary to the SeaTac
International Airport, which is located about @A mile directly northwest of the
subject in the middle of the strip. The
12
<PAGE> 23
neighborhood is dominated by hotels, motels, parking lots and restaurants, as
well as automobile rental agencies and other related airport uses.
SeaTac International Airport is the dominant land use, and its continued growth
is a strong positive factor for commercial activities in this neighborhood. The
airport occupies an area of about 2,400 acres on the west side of International
Boulevard, and currently includes two runways. A third runway has been under
consideration for several years, and the Port of Seattle intends to proceed with
this airport expansion in order to serve the continuing increase in air traffic
forecast for this large regional airport. Airport expansion has become a
politically very contentious issue, and given the lack of viable alternatives it
appears likely that this expansion will ultimately proceed. The addition of a
third runway would allow for continued expansion of both passenger traffic and
air cargo volume, and be a positive factor for neighborhood commercial uses such
as the subject.
In addition to the third runway, the airport is in the midst of a significant
modernization and upgrade of other facilities. This included construction of an
additional parking garage, expansion of the main terminal, and possibly a
planned 388-room hotel to be located directly adjacent to the airport terminal,
which will be discussed in the following section.
Other influences on this neighborhood include the surrounding population base in
the cities of SeaTac, Federal Way, Tukwila, and Kent. These are all suburban
communities located in the area about halfway between the cities of Seattle and
Tacoma. Other major influences include the Kent Valley industrial area, which is
located about one mile to the east of this neighborhood. This is also an area
that has undergone rapid expansion over the past two decades, the Kent Valley
farmland being replaced by the greater Seattle area's largest industrial
neighborhood. This area supports a wide variety of industrial uses, including
many newer warehouse/distribution facilities.
The subject's specific location is along the east side of International
Boulevard, in about the middle of the heavily developed commercial strip. It has
excellent access and good visibility and is about 1/2 mile southeast of the main
entrance to SeaTac International Airport. International Boulevard is a major
arterial with two lanes in each direction, plus a center left-turn lane. This
provides easy access both to the airport and to surrounding freeways, including
Interstate-5 located about one mile to the east, which has on and off-ramps both
at South 200th Street and South 188th Street. Immediate surrounding uses at the
subject property include primarily single-family residential developments to the
east, multi-family to the south, and a large parking lot and car rental facility
to the north. Along International Boulevard is also several restaurants, hotels
and motels.
In summary, the subject is located in a neighborhood heavily influenced by
SeaTac International Airport. This is the region's largest passenger and cargo
airport, which has undergone and will continue to undergo significant expansion
in the future. The neighborhood consists of a broad range of commercial uses
located along International Boulevard, a heavily
13
<PAGE> 24
[Hotel Market Area Map]
14
<PAGE> 25
developed commercial strip in the vicinity of the airport. The subject is
located near the middle of this densely developed commercial strip, about 1/2
mile south of SeaTac International Airport. Although there is very little vacant
land along the strip in the vicinity of the airport, continued development of
older properties with more intensive commercial activities will continue to
occur. With the likely continued future expansion of activity at the airport,
this neighborhood should continue to experience strong positive growth trends.
[International Boulevard Traffic Counts - CHART]
Overall the subject has a strong location within this neighborhood. The direct
highway visibility and good access are positive factors for a lodging facility,
as is the proximity to numerous restaurants and other services. Further, the
location near a major international airport that is expanding is also considered
a significant positive factor.
OVERVIEW OF LODGING MARKET
The lodging market in which the subject exists is fairly large, and is a
combination of the SeaTac Airport submarket, the Kent Valley submarket, and the
Southcenter submarket. These three markets are located in close proximity to
each other and are influenced by the same broad forces with some differences in
the demand components for each individual market. Please refer to the map on the
facing page, which shows the location of these three markets. A summary of the
competitive lodging facilities within these three submarkets is found on the
following page. This survey includes a total of 50 properties, which includes
all of the competitive facilities built since 1960 of larger than 50 rooms. This
is a total of about 7,757 rooms, of which the subject comprises about 1.5% of
the total inventory.
About 40% of the rooms in the market were constructed in the 1960s and 1970s,
with most of these being built along International Boulevard in the vicinity of
the airport. These include several of the largest full-service hotels, including
the Red Lion, the West Coast SeaTac, Holiday Inn, Radisson Hotel, and the
Airport Hilton. During the decade of the 1980s, the rapid expansion of the Kent
Valley industrial area resulted in the majority of the development shifting to
the other two submarkets. In the 1980's about 2,600 rooms were added to the
market. The subject was constructed in 1982, and was one of seven properties
constructed near SeaTac Airport during the 1980's. In total, the period from
1985 to 1992 saw 17 new hotels constructed in this market. A significant portion
of this addition of supply were properties with the extended stay orientation,
including the 152-room Hawthorne Suites (previously Home Court All Suite); the
144-room Residence Inn located just east of Southcenter; and the 106-room
Homewood Suites located north of Interstate-405. The other properties built
since 1990 include the 154-room Hampton Inn and 75-room Best Western Choice
located in the Kent
15
<PAGE> 26
[Kent Valley, Southcenter, Sea-Tac
Inventory of Hotels and Motels Chart]
16
<PAGE> 27
Valley, and the 146-room Best Western Gateway and 86-room Days Inn both located
in the airport submarket.
These large increases in supply over this time period caused considerable
distress in the hotel market, particularly in the Kent Valley submarkets. The
period in the early 1990s was one of falling occupancy levels, fierce
competitiveness from an increasing number of hotel rooms for a relatively stable
demand segment, and a resulting lack of increases in ADR which other markets
throughout the region experienced. This is particularly, the case for the Kent
Valley portion of the market, which experienced both a greater increase in
supply and a lack of a strong and increasing built-in airport demand segment. As
a consequence there were no new hotels constructed from 1992 to 1995. Demand
eventually increased to the point where additional supply was built from 1996
onward. About 1,037 rooms were constructed since 1992. The only hotel rooms
which have been constructed in the SeaTac submarket recently include a 55-room
addition to the Comfort Inn. We note that we have followed the operating
statistics of several of the properties in this greater market and have not
noted a significant decrease in either the occupancy rates or the Average Daily
Rates despite the significant increase in supply. However, if properties
continue to be developed, we would expect some oversupply which could result in
low occupancies and low Average Daily Rates which will be forced upon existing
facilities as they compete for business. Proposed supply will be discussed in a
following paragraph.
DEMAND SEGMENTS
The most important demand sector in this market is travelers associated with
SeaTac International Airport. A portion of this is related to the corporate
demand segment but is also strongly impacted by both destination and transient
tourism. SeaTac is the major airport in this region and last year handled about
25,000,000 passengers. As the exhibit on the following page shows, the airport
has experienced dramatic increase in usage over the past decade. From 1989 to
1997 the total number of annual passengers increased 62.3%, or an average annual
increase of 7.2%. The airport has the capacity for a total of 30,000,000 to
35,000,000 passengers per year which is expected to be met between the year 2005
and 2010. As the airport reaches capacity, this has resulted in considerable air
traffic congestion and increased delays, and has prompted repeated calls for a
third runway. A third runway is planned as part of a 10-year, $1.7 billion
airport expansion and renovation. This expansion/renovation also includes
construction of a new north terminal with 30-50 new gates, a parking garage
expansion, renovation of Concourse A and the airport's main terminal, seismic
upgrades, a new Westin Hotel, a new air traffic control tower, refurbishment of
the satellite transit system, upgrading concession areas and rebuilding airport
roads.
As the figures on the following page illustrate, about 93% of the passengers are
domestic, with the remaining 7% international. This level of growth has
substantial impact on the local lodging market, which is fueled in large part by
this demand segment. This is much more of a factor for the SeaTac submarket
which because of these recent increases has performed considerably stronger than
the other two submarkets. The full-service properties at the airport
17
<PAGE> 28
[Sea-Tac International Airport
Passenger Traffic Statistics Chart]
18
<PAGE> 29
are generally older and in only average condition, strong growth in SeaTac
passengers has resulted in increasing occupancy levels and fairly high ADRs for
the modem limited-service facilities. Many of these properties historically
relied on airline contract business however, at substantially reduced room
rates. Since the market has increased this business has become more of a mixed
blessing, with the competitive properties less willing to block out large blocks
of rooms at reduced rates.
For this market as a whole, the second largest demand segment is the surrounding
industrial base, which along with the service sector provides the primary
employment base for this area. A significant portion of the corporate business
includes Boeing and other related aircraft businesses, as well as management and
sales persons involved in other local businesses in the Kent Valley. Overall we
would estimate that corporate business (including airport corporate) accounts to
account for somewhat more than 50% of the room sales in this market. This
includes a relatively high proportion of repeat and contract business. Boeing is
the dominant space user in this area, including both the Renton manufacturing
plant, the central Kent Valley aerospace facility, and a significant portion of
the other office and industrial space in the Kent Valley. From 1992 to 1994
Boeing experienced a significant downturn in employment throughout the region,
as the result of canceled airplane contracts and options, and a decrease in
aerospace and military business. The latter two segments represent long-term
structural changes that are unlikely to see significant rebound in the
foreseeable future. The commercial airplane sector is more cyclical in nature
however, with Boeing expecting 48,000 job by the year 2000. This is due to the
consolidation of its Defense and Space Systems operations in California,
Missouri and other plants in Washington. Further, the Asia economic crisis has
lead to cancelled orders. Economists predict that the downsizing of Boeing will
be much milder than Boeing predicts with only about half of the layoffs that are
predicted. Since our economy is more diversified now than it was in the past,
the impact of this downturn is only expected to have a minimal impact on the
overall economy in the Puget Sound area.
According to the management at the subject, the subject's room sales are
approximately 60% commercial, 30% leisure, with a small proportion of
government, group, and other. Of these room sales, between 70% and 75% are
airport-related in some way. About 10% of the guests are foreign, a percentage
which has increased substantially over the last year. A total of about 40% to
45% of room nights are booked through the Super 8 central reservation system,
which underscores the value and importance of the franchise affiliation.
Further, about 90% to 96% of the room sales are VIP sales at the subject. Guests
pay a one time fee of $3.50 to become a VIP member and then have the opportunity
to save 10% for each nights stay. The subject Super 8 has been the number one in
VIP sales for the past three years in all the Super 8 Motels owned by the
ownership group. The other significant demand generator for the subject is the
result of a group and convention spillover from the Red Lion. This 850-room
facility is located one block north of the subject on the east side of
International Blvd., and caters primarily to group and convention business.
Subsequent to the subject's renovation a few years ago, Red Lion has begun
steering guests to the subject during times when their facility is full.
19
<PAGE> 30
The final important component of subject room sales that differs from most Super
8 properties relates to airport parking. As previously mentioned, the subject
site contains parking
20
<PAGE> 31
[Current Proposed Properties Chart]
21
<PAGE> 32
substantial in excess of that which is required to support the 119 rooms. The
extra site area is used for airport parking by both motel guests and the general
public. In order to boost room sales, the subject offers four nights free
parking for guests that stay at least one night in the motel. Given the high
parking rates in the vicinity of SeaTac (currently $8/day at the subject lot),
this represents a significant financial incentive for potential guests, and
receives substantial utilization. Roughly half of the park and fly parking at
the subject is from hotel guests versus drive up parkers. The financial details
of the parking operations will be discussed in more detail later in this report.
NEW SUPPLY
Please note the exhibit on the facing page, which summarizes our understanding
of current proposals for new lodging facilities in this market. In formulating
this list we have had discussions with the permit and planning departments in
the cities of Renton, Tukwila, Auburn, Kent, and SeaTac. In addition we have
researched and investigated planned properties from numerous other sources
including hotel brokers, managers, and developers. The exhibit on the facing
page represents our understanding of the properties most likely to be developed
in the near future. We note that many of these properties do not have permit
approval or financing in place, and still represent a fairly broad spectrum in
terms of the probability of near term construction. Several are very likely to
begin construction within the next six months, while others represent less
definitive plans for development within the next 12 to 24 months. We note that
all but one of these properties represent hotels with a limited-service format
which is favored in the current environment. There are currently about 3 hotels
proposed that would likely compete with the subject. The Mainstay & Sleep Inn
site is being prepared for construction which will likely be completed by late
1999. The Swiss Hotel and SeaTac Hotel II are only in the planning phases with
the Swiss Hotel more likely at this point than the SeaTac Hotel II where this
project is currently stalled. More to the point is the recent completion of the
Comfort Inn addition which involved a total of 55 additional rooms being added
to this market recently. The Comfort Inn is located just one block south of the
subject and is considered a direct competitor. The addition of these rooms will
likely have some impact on the subject occupancy rates in the short term.
The Airport Hilton Hotel Addition is in environmental review and also appears
fairly likely to come online in the following year. This room addition, however,
would likely not compete directly with the subject as the Hilton is a
full-service hotel targeting a different market sector. As discussed in the
Neighborhood section the Port of Seattle is proposing to develop a large
high-rise Westin hotel on the airport grounds directly north of the main
terminal. The site had previously been used for the old United Airlines
building, with demolition of this structure recently completed. Westin Hotels
has been in negotiations with the Port of Seattle for a considerable time, and
discussions with Port officials indicated that the negotiations are continuing
with no current resolution. Significant planning and financing issues remain,
and it is likely that, if it occurs, the property would not open for at least
another year or so. Whatever happens with the current Westin proposal it is
likely that the Port of Seattle will proceed with a hotel development on this
site in the future. Given the recent strengthening of this market we
22
<PAGE> 33
[15 year History of Hotel/Motel Room Sales Chart]
23
<PAGE> 34
would expect that within the next several years there will be a large new
property positioned at the top end of the full-service market. This would likely
reduce the achievable room sales to both the overnight airport stay segment and
the airport-related corporate segment to a certain extent. While not competing
with the subject, a new large hotel on the airport grounds could reduce
occupancies at the older full-service hotels to a certain extent, filtering down
to the limited-service properties like the subject. Given the time frame and
likely continued increases in demand however, the effects from this proposal are
likely to be fairly minimal.
In total, the 2,713 new hotel rooms proposed market-wide represents about 35% of
the currently existing supply. The impact is likely to be significantly less
than this however as all of these proposed properties will not ultimately be
constructed. Given the strong historical and likely future increases in demand
for rooms in this market, it is likely that within the next three years the
market will be able to absorb an increase in supply in about the 15% range
without dramatic negative impacts on the occupancy overall.
HISTORY OF HOTEL/MOTEL ROOM SALES
Please note the figures on the facing page, which summarize the gross room sales
from 1983 through 1997 for both King County and Washington State as a whole.
These figures provide an indication of total growth in the hotel market, based
on the payment of the 2% lodging tax for all the properties within the state.
Given the lack of collection or reporting by individual cities within King
County, however, these figures represent only broad indications of area-wide
trends.
Overall, the tax collection shows strong historical growth over the last eight
years which have averaged 8.6% for King County and 7.6% for the state as a
whole. The growth was particularly strong in the period from 1987 to 1991 when
there was both a strong increase in ADRs and substantial increases in supply of
hotel rooms overall. 1995 and ].996 were also strong years. Since that time
growth trends have continued to be positive but more modest overall.
We have also reviewed more specific information with regards to recent
historical trends in this lodging market. These include confidential figures
retained in our files for several competitive properties in this market, as well
as specific indications from recent ADRs and occupancies at properties which
compete directly with the subject. We have also reviewed results from a
publication called Trends in the Hotel Industry which was prepared by PKF
Consulting and dated October 1998. This survey, summarized on the following
page, includes 140 Washington properties that total 20,129 rooms, and is divided
by sub-areas for the Washington market. The "SeaTac and Southcenter" lodging
market had an average occupancy of 77.4% for the first 10 months of 1998,
virtually the same as the 76.4% occupancy the year before. The average daily
room rate increased to $86.09 from $81.16 the previous year. Thus, the average
revenue per available room (RevPar) was $66.63 up from $62.01. In general, the
urbanized areas show increases, while the more rural markets were flat to
slightly declining. By size and rate, the smaller and lower-rate properties had
the lowest increases. In summary, on a same facility
24
<PAGE> 35
[Hotel Room Revenue History History in the Pacific Northwest Chart]
25
<PAGE> 36
basis, properties in the subject location, size and rate classification were
amongst the lowest performing properties in Washington.
NORTHWEST SUPER 8 STATISTICS
Please refer to the figures at the end of this section which show the operating
statistics for 22 Washington and Oregon Super 8 properties under the same
management as the subject. The exhibit shows the occupancies, ADR, and RevPar
for the period Nov. 1997-Oct. 1998, and also compares these with the previous 12
months. These chain-wide statistics show an average RevPar of $28.37 over the
past 12 months, which is down 1.1% over the previous figures. The average
chain-wide occupancy was 56.8%, which is much lower than the subjects occupancy
over this period of 67.6%. The ADR at the subject was much higher than average
at $65.63. The RevPar from the year prior and this analysis year increased about
6.8%. This is likely attributable to the limited new supply of rooms in the
subject market and the recent renovation of the subject.
CONCLUSION AND FORECAST OF SUBJECT ROOM REVENUE
In forecasting the average daily rate (ADR) and occupancy at the subject, we
have considered a wide variety of evidence. This includes broader trends
regarding supply and demand forces within the SeaTac lodging market as
previously discussed. In addition, we have considered specific confidential
information regarding trends and operating statistics at several of the
subject's direct competitors in this market, including the actual ADRs and
occupancies achieved. We have analyzed the subject's historical ADR and
occupancy on a monthly basis over the last several years, and have carefully
considered the impact of the recent renovations on the historical figures, as
well as the impact on future room sales due to the upgrades at the property.
Finally, we have considered likely future trends with regards to various demand
segments, future ADRs, and impacts of both the recently constructed and likely
future rooms in this market.
In the short-term, the prospects are quite positive in terms of both ADRs and
occupancies. The factors which have influenced growth in room sales in this
market are likely to continue, including primarily increases in usage of SeaTac
Airport. There is some short-term prospects for increases in supply, in addition
to the stabilization period for the recently completed Comfort Inn addition. New
construction in this market is inevitable given the high occupancies and ADRs
the existing competitive facilities are achieving. Therefore the long-term
future income prospects for the subject are not as a strong, which has been
factored into our selection of an appropriate capitalization rate. However, the
addition of a third runway is a significant factor in this market where much of
the business is related to the airport.
In consideration of these factors, we have forecast a Year I occupancy of 66.0%.
This represents a slight decrease over the 67.6% the property achieved over the
last 12 months. This decrease is due to the new addition of the nearby Comfort
Inn and future proposed supply that is either under construction or is late in
the planning stages. The average daily room rate has been
26
<PAGE> 37
[Washington and Oregon Super 8 Motels
1997-1998 Operating Statistics Chart]
27
<PAGE> 38
forecast at $65.00 which represents a fairly modest decrease over the most
recent 12-month figures. It seems likley that the subject rooms rate will
decrease as a result of competition with new supply in this market.
28
<PAGE> 39
[Site Map]
29
<PAGE> 40
Site Description
<TABLE>
<S> <C>
LAND AREA AND SHAPE Please refer to the site map on the facing page for a
visualization of the subject site. A copy of the site
plan, prepared by Richert & Associates is shown facing
the beginning of the next section of the report. The
site is irregular in shape but generally resembles a
rectangle. It measures about 158,500sf.
ACCESS & STREET FRONTAGE International Boulevard, adjacent to the west of the
subject property, is a 4-lane major arterial roadway
with a center turn lane. There is now a left turn signal
onto South 192na Street improving access to the subject.
Primary access to the subject is provided from South
192"d Street, a two lane roadway providing access to a
residential neighborhood to the east. The subject has
three separate curb-cuts along 192nd, each leading to
one of the three parking areas at the subject. The
subject has about 500 lineal feet of frontage on South
192nd Street and about 345 lineal feet of frontage on
International Boulevard. The portion of International
Boulevard in front of the subject was recently upgraded
including repaving, underground utilities, and
construction of curbs, gutters, sidewalks, and
landscaping. Some lighting was also added as well as
additional pedestrian crosswalks. This project was
publicly funded and required no LID assessment. The
subject neighborhood has two full interchanges with
Interstate 5, about one mile to the east. Access is
therefore considered good.
TOPOGRAPHY & SOIL CONDITIONS The subject site slopes moderately from east to west,
and is generally flat from north to south. The central
portion of the site on which the improvements are
located has been graded to be fairly flat, and is
generally at-grade with the main entrance along South
192nd Street. The eastern parking area is at a slightly
higher elevation, while the additional parking area to
the west of the site has been graded flat at about a 15
foot lower elevation. This western parking area is
adjacent to International Blvd., and is about 10 feet
above the grade of the adjacent arterial. In total, the
elevation change across the entire site is about 35
feet. We have not been provided with a soils report for
the subject property. We assume that the sub-surface
soils are adequate to support the existing
</TABLE>
30
<PAGE> 41
<TABLE>
<S> <C>
improvements, and that there are no unapparent drainage
or soil problems.
ENVIRONMENTAL CONDITIONS We have not received any information regarding
environmental conditions at the subject site. We are not
experts in these areas, and it is a specific assumption
of this report that there are no unusual environmental
conditions which materially impact the value or utility
of the property.
It is our understanding that there was an
underground storage tank underneath a single
family residence that once existed on the
southeast portion of the subject. This tank
was reportedly removed a few years ago as
was much of the soil around the tank. We
assume that the site is clean.
UTILITIES The subject property is fully serviced by
public utilities including water, sewer,
electricity, telephone, natural gas, storm
sewer and cable television.
ZONING The majority of the subject site is zoned CB, a city of
SeaTac community business zoning designation. This is a
fairly unrestricted designation which allows a wide
variety of potential uses. It includes office,
warehouse, automotive-related uses, fast-food and
sit-down restaurants, and nearly all forms of retail use
Multi-family residential is allowed in conjunction with
ground floor retail. There is no minimum lot size, with
a 10 foot front but no side or rear setback. Maximum lot
coverage is 75%. Parking requirements vary with use, but
are 1/unit for motels. The height restrictions in this
area are essentially dependent on FAA requirements, and
vary depending on the specific location and elevation of
the individual site. In this instance, the city of
SeaTac zoning officials indicated that the allowed
height would likely be between 200 and 225 feet.
Overall, this fairly unrestricted zoning designation is
a significant factor in a potential utilization of the
excess development potential of the subject site.
The parcel at the southeast comer of the site is zoned
UL-7200, a single family residential zone that is in the
comprehensive plan as CB. Therefore, this portion of the
property could be easily rezoned for commercial
</TABLE>
31
<PAGE> 42
<TABLE>
<S> <C>
use. The subject property appears to fully conform with
the zoning code.
ASSESSMENT AND TAXES Land $1,959,500
Improvements: $2,200,000
Personal Property: $115,270
--------
Total: $4,274,770
1998 Property Taxes: $55,687.55
Average Tax Rate: 1.304%
</TABLE>
SUMMARY The subject site is a fully functional commercial site.
32
<PAGE> 43
SITE PLAN
[not included]
33
<PAGE> 44
IMPROVEMENTS DESCRIPTION
GENERAL DESCRIPTION
The following description of improvements is based on our inspection of the
subject improvements, as well as review of available plans and discussions with
the subject property owners and managers. The Site Plan on the facing page shows
the lay out of the improvements on the subject site. Please refer to the subject
photographs at the beginning of this report which also show these Improvements.
Copies of the available building plans are provided at the end of this section.
OPERATOR
The subject property is operated as a Super 8 Motel franchise.
GENERAL DESCRIPTION OF THE IMPROVEMENTS:
The SeaTac Super 8 Motel is a 119-room, three-story, average class motel. The
building was constructed in 1982 and was substantially renovated in 1995. The
total gross building area is 43,874sf for an average area per room of 369sf. The
building includes an exercise room and small meeting rooms, but has limited
amenities. Typical of other Super 8 properties, the subject has fairly small
rooms and limited common areas, and a functional layout with an interior
entrance configuration. On-site parking is paved for approximately 270 cars,
substantially in excess of what would be required to support the motel operation
only.
GUEST ROOMS
There are two basic room sizes at the subject, with smaller rooms of about 250sf
and larger rooms of about 265sf. There are a total of 64 single rooms and 55
double rooms, with the larger rooms generally located on the east side of the
building and the smaller rooms on the west side. This mix of singles and doubles
results in an average room size of about 257sf. This would be considered typical
for a property of this type, with the subject having moderately small average
room sizes but a fairly large proportion of double rooms. All of the guest rooms
have either one or two queen beds.
INTERNAL LAYOUT, PUBLIC CIRCULATION & FACILITIES
The building has a fairly standard interior entrance configuration, with
guestrooms situated on either side of a central corridor. The main entrance and
lobby/reception area is in the central part of the building adjacent to the
western parking lot. Entrances are through double-glassed doors and lobby areas
are somewhat more spacious than typically found at other Super 8 Motels. The
finishes include a tiled and carpeted floor, recessed fluorescent lighting, and
the lobby area also includes a small separate seating/breakfast area. The lobby
area includes 2,500-pound Otis elevators serving all three guest floors, which
was installed during the renovations in 1995. The three floors of guestrooms are
all accessed via entrances and stairways in the north and south ends of the
building.
34
<PAGE> 45
Other common areas in the building include a small exercise room located
adjacent to the lobby which includes exercise equipment, fluorescent lighting,
and windows facing east. There are also two conference rooms, one of which seats
50 theater style and 30 conference style, as well as a 10-person boardroom
STRUCTURE
The foundation and subsurface structure is steel-reinforced, 4" concrete slab on
mat and spread footing, over a 2" sand base on a 6-millimeter plastic covering.
The building is wood frame. The floors consist of a finished flooring material
over 1- 1/2" lightweight concrete poured over 5/8" plywood, set on internal
joists with 3" thermal blanket insulation.
EXTERIOR WALLS
Masonite "stuccato" hardboard siding and 1" by 4" wood trim on 1/2" gypsum
wallboard, on 1/2" plywood, with internal batt insulation.
INTERIOR WALLS & PARTITIONS
The plumbing walls (between the corridors and the rooms) consist of 1/2" gypsum
wallboard over 1/2" soundboard covered with 1/8" thin wall plaster, with a 3"
thermal blanket on one side. The party walls (between the rooms) consist of 1/2"
gypsum wallboard on 1/2" soundboard, covered with 1/8" thin wall plaster.
FLOOR COVERINGS, CEILINGS & LIGHTING
Average quality wall-to-wall carpet in guest rooms and public areas, including
the lobby and registration area, stairs and hallways, and meeting rooms. Given
the recent renovation, the carpeting and other finishes are in better than
average condition for a property of this type. There is vinyl flooring in the
guest bathrooms, laundry rooms, and other motel service areas. The ceilings on
the first and second floors are gypsum wallboard, with thin plaster covering in
most areas. Lighting is ceiling-mounted fluorescent lighting in the common area
hallways. Lighting fixtures are generally incandescent in the guest rooms, with
both incandescent and fluorescent lighting in the public areas.
ROOF
The building has a tile roof over wood sheathing and insulation. The roof is
pitched.
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<PAGE> 46
DOORS & WINDOWS
Entrance doors are self-closing plate glass doors at the front entrance, and
solid core wood doors at the other entrances. All interior doors are solid core,
wood doors with metal frames. All interior doors include hydraulic closers.
Exterior windows are double-paned glass in aluminum frames, with the exception
of vinyl windows in the remodeled lobby area. All of the guest rooms were
retro-fitted with Ving key-card lock systems during a recent renovation.
FIRE PROTECTION
Heat sensors connected to a central alarm system, with individual smoke
detectors in each guest room. The building is sprinklered.
HEATING, VENTILATION & AIR-CONDITIONING
Guest rooms are provided with heating and air-conditioning by General Electric
individual electric through-wall heat pumps.
ROOM FURNISHINGS
Typical room furnishings include beds with frames and headboards, a
straight-back seat, one or two armchairs, a combination vanity unit with two to
three dresser drawers, a color television set with remote, fixed and movable
lights, artwork, and an oak-framed mirror. The single rooms also include a
table. As previously discussed, 56 rooms were partially renovated in 1994, and
the remaining 63 rooms were essentially fully renovated in 1995. This included
replacement of carpet, re-painting, and new case and soft goods. Items remaining
to be renovated include case goods in the 56 rooms renovated in 1994, the
bathtubs and hanging lamps in all of the units, and countertops in some of the
units. Overall, the rooms furnishings and finish quality is above standard for
this class of facility. However, some of the F,F & E is reaching the end of it's
useful life. The manager reported that about half of the rooms are scheduled for
renovation this winter.
OTHER FEATURES
The parking areas adjacent to the east and west of the building are paved and
landscaped, and generally in fairly good condition. This includes curbs,
lighting, and planting areas, as well as steps leading down to the western
parking lot. The eastern and western parking area is not paved however, although
they do have lighting.
Signage for the property includes a large lighted sign along the western
property boundary, oriented towards International Boulevard, as well as a
smaller sign adjacent to the main entrance along S. 192nd St.
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<PAGE> 47
The other significant improvement at the property is a security system,
including 8 cameras with monitoring capabilities behind the front desk. This
includes a camera on the first floor adjacent to each of the stairways as well
as one in the lobby. The other 4 cameras are located facing the parking areas,
as a deterrent in this relatively high-crime area. The personal property also
includes a passenger van for transporting people to the airport. This van is a
1996 Ford E350 15 Passenger Van with 130,000 miles.
RENOVATION AND CAPITAL IMPROVEMENT HISTORY
The subject improvements appear to be in very good condition and we are not
aware of any areas of deferred maintenance. The property underwent a significant
renovation in 1995 and therefore many of the furnishings and are only three or
four years old. We have been provided with a summary of expenditures on the
property over the last four years. The following table summarizes these amounts.
<TABLE>
<CAPTION>
--------------------- -------------------
YEAR AMOUNT
--------------------- -------------------
<S> <C>
1995 $1,090,784
--------------------- -------------------
1996 $201,182
--------------------- -------------------
1997 $0
--------------------- -------------------
1998 $2,226
------
--------------------- -------------------
Total $1,294,192
--------------------- -------------------
Per Room $10,876
--------------------- -------------------
</TABLE>
Based on our analysis of cost new and the information above, we have estimated
the contributory value of F,F&E at $260,000 or about $2,200/Room, including
$180,000 in personal property value.
EFFECTIVE AGE/REMAINING ECONOMIC LIFE
The improvements were constructed and opened for business in 1982. The property
was extensively renovated in 1995, with the rehab lasting nearly 12 months. This
included new carpeting and case goods for 63 rooms, with the remaining 56 rooms
having been re-carpeted in 1994. The renovations also included interior and
exterior painting, and replacement of most soft goods and all of the televisions
and A/C units in the guest rooms. It also included renovations to the bathrooms
including new floors and countertops in many of the rooms, although the tubs are
still original.
The renovation also included a small expansion of the building, which consisted
of merging the two wings. Previously, the ground floor had been separated by a
drive-through entrance in the central portion of the building, which also
provided the access to the eastern parking area. This new space that was created
was used for a new front entrance and lobby/reception area, as well as an
exercise room. Other improvements to the property included re-paving of about
50% of the paved parking area. Overall, these renovations had a cost of
approximately $1,150,000, or almost $9,700/unit. This did not include the cost
of the televisions or A/C units which were leased and not owned.
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<PAGE> 48
After considering the average quality of the improvements, we have estimated the
effective age of the property at 12 years, and the remaining economic life at 23
years.
SUMMARY
The improvements consist of a Super 8 Motel with an average effective age of
about 12 years. The property has a fairly standard configuration for a
limited-service motel, with three floors of guest rooms on either side of a
central corridor. The property is generally attractive in exterior appearance
and includes a large amount of parking. Guest rooms have a standard
configuration and moderately small sizes which are typical for a property with
this orientation. The property appears to be in good condition for a motel of
this age which was significantly upgraded a few years ago. This would result in
an expectation of an average expenditure on short-lived items. With ongoing
maintenance, the property should continue to be functional and competitive
within its market segment.
[FOLLOWING HERE WERE 3 PAGES OF "FLOOR PLANS", 1 PAGE ENTITLED "SECTIONS", AND 2
PAGES OF "ELEVATIONS"]
38
<PAGE> 49
HIGHEST AND BEST USE
"Highest & Best Use" is defined by the Appraisal Institute as:
1) The reasonable and probable use that supports the highest present
value of vacant land or improved property, as defined, as of the
date of the appraisal.
2) The reasonably probable and legal use of land or sites as though
vacant, found to be physically possible, appropriately supported,
financially feasible, and that results in the highest present
land value.
3) The most profitable use.
The concept of Highest and Best Use is based on the most profitable and valuable
use. The Highest and Best Use must meet four criteria: it must be physically
possible, legally permissible, financially feasible, and maximally productive.
HIGHEST AND BEST USE AS IF VACANT AND UNIMPROVED
The subject site is a generally rectangular, 3.64 acre site which is moderately
sloping but fully usable. A small portion of the site is residentially zoned,
but the majority of the site has an unrestricted BC zoning designation which
allows a wide variety of potential uses. This includes lodging, office, retail,
restaurant including drive-through, service, automotive, and other uses.
Multi-family is allowed over ground floor retail. This is a comer site with
access and visibility on both streets, one of which is a major arterial.
Further, there is a signaled intersection onto South 192nd Street off of the
arterial providing excellent access to the subject. Therefore, both the physical
site characteristics and zoning would accommodate nearly all forms of potential
uses for the subject site if vacant.
This property is located along International Blvd., which is the major
north/south arterial in the SeaTac area. The subject is located in the central
portion of this heavily developed commercial strip, about 1/2 mile southeast of
SeaTac International Airport. Surrounding uses include hotels and motels,
fast-food and family restaurants, car rental agencies and parking lots, and a
variety of older commercial uses. Recent development in this area includes
several limited-service lodging facilities within the past few years, and the
subject's specific location and size of the site generally warrant this land use
type. This is also consistent with the recent trends within the SeaTac area
lodging market. Strong increases in demand coupled with very limited new supply
(in the city of SeaTac) have resulted in a substantial rise in both occupancy
levels and ADR that has significantly exceeded the increases for the lodging
market in the region as a whole. It is therefore our conclusion that
construction in this market is feasible, particularly in the limited-service
sector. A significant amount of new hotel rooms have been constructed in the
greater Kent Valley and Southcenter submarkets over the past two years. This
surrounding new supply competes to the subject to some degree, however, many of
the guest staying at the subject desire to be staying in close proximity to the
airport.
39
<PAGE> 50
Given these facts and the specific physical and locational characteristics of
the subject, it is our conclusion that the highest and best use as if vacant and
unimproved is for the development of one or two limited-service lodging
facilities.
HIGHEST AND BEST USE AS CURRENTLY IMPROVED
The site is currently improved with a !19-room, 3-story limited-service lodging
facility. The improvements are about 17 years old, although the property was
extensively renovated in 1995. This included a near complete renovation of the
rooms, as well as other interior and exterior improvements. Overall we have
estimated the effective age of the property at about 12 years with a substantial
remaining economic life of 23 years. The property has strong operating
statistics currently, and given its position within this market, should continue
to remain very competitive within its market segment for the foreseeable future.
The value of the improvements are greatly in excess of the value of the site
associated with the improvements, and it is our conclusion that the highest and
best use as currently improved is for continued maintenance and operation as a
franchise affiliated lodging facility.
As previously discussed, the site is considerably larger than that which is
required to support the existing improvements. This excess land is located in
the eastern and western portions of the site, while the subject improvements and
primary parking are located in the central portion of the site. These eastern
and western parking areas are partially used for parking by SeaTac Airport
travelers, including both the general public and motel guests. The additional
parking revenue generated is substantial at about $60,000 annually, as will be
discussed in the subsequent Income Approach section of this report. The
existence of this extra parking also supports additional room sales to a certain
extent. Overall, this additional parking area is not nearly fully used for this
use, and a large portion of the land could be used for other purposes with only
a relatively modest impact on the achievable parking revenue.
The southeast corner of the site is residentially zoned, and the current zoning
does not allow commercial uses, nor can it be used to satisfy the parking
requirements for associated commercial uses. The remainder of this eastern
portion can be used for either commercial uses or parking, and this portion of
the site contains very limited visibility and more distant access, due partly to
the location of the current improvements. In contrast to this, the western
portion of the site is a high-visibility location with a large amount of
frontage along International Blvd. This is in the central portion of the main
commercial strip in SeaTac, which has been intensively developed and has very
little vacant land. This would be considered a prime site for a variety of uses,
including restaurants, service stations, lodging facilities, or other uses. The
amount of excess is constrained to a certain extent by topography, although an
effective area of about 40,000sf could likely be achieved with a modest amount
of re-grading and a retaining wall.
The excess site area has numerous potential uses that would likely be feasible.
This could include the development or sale to an outside user of the
high-visibility western portion of the site, for an alternative use such as a
restaurant. The high visibility also
40
<PAGE> 51
make this an excellent site for a lodging facility. This represents the highest
and best use for the site as if vacant, and there are very few suitable sites
available for development in this market currently. The small size of this
portion of the site does represent a significant constraint however, and would
likely require relatively expensive under-building parking to be developed. More
importantly, the development of a limited-service format hotel with a similar
orientation to the subject could have a substantial negative impact on the value
of the existing improvements. In terms of the contributory value for the current
operations, the family-style restaurant would likely be the ideal use of this
excess land, although the value of the site for this use is probably slightly
lower than the value as a hotel site. The final feasible alternative is for
development of additional units for operation in conjunction with the existing
facility. The advantages of this include lower development costs, coordination
and integration as opposed to competition within an adjacent facility, and
greater operational efficiency as a result of a larger number of units operated.
It also likely reduces the difficulty in determining an appropriate layout of
the improvements and parking since separate parcels would not be required.
After consideration of these various aspects, we believe there are several
alternatives that could potentially represent the highest and best use for the
site as currently improved. Foremost among these are the sale of a portion of
the site (likely the western portion) for the development of a restaurant or
other improvements, or the future development of additional motel units to be
operated in conjunction with the current Super 8 Motel.
[FOLLOWING HERE ARE 3 PAGES OF "SALE COMPARISON PHOTOGRAPHS" AND A 1-PAGE "SALE
COMPARISON MAP", ON THE BACK OF WHICH IS A CHART SHOWING "SEATAC SUPER 8 SALE
COMPARISON SUMMARY"]
41
<PAGE> 52
SALE COMPARISON APPROACH
The Sale Comparison Approach uses analysis of sales of comparable improved
properties to derive units of comparison that are then used to indicate value
for the subject. Our search for sales was broad, including most major markets in
Washington State. Our selection of comparisons included considerable emphasis
and understanding from the sales of properties we have previously appraised. The
primary units of comparison in this analysis are price per room, price per
square foot, and gross income multiplier. In addition, we have analyzed the
capitalization rates for these transactions, which will be used in the
subsequent Income Approach analysis.
Please refer to the exhibit on the facing page, which summarizes five
transactions involving Washington State hotel properties. All of these
transactions occurred in 1997 or 1998, and all represent transactions of limited
service motels. All are highway-oriented properties that bracket the subject in
terms of size, although the subject's age is towards the upper end of the range.
Photographs of these comparisons and a map showing their location is found on
the preceding pages, and additional details regarding these transactions is
included in the Addenda.
At the end of this section, we estimate the value of the excess land area at the
subject property and will add it to the value of the subject as indicated by the
sale comparisons.
SALE COMPARISONS
Comparison No. 1 is the mid-1997 transaction of the Best Western Landmark hotel
located north of the subject in Lynnwood. This property was a 20-year old,
5-story reinforced concrete hotel. The property was purchased in July 1997 by
Sunstone Hotel Investors, who were very active in acquiring properties
throughout the Pacific Northwest at this time. This property was purchased for
$7,200,000, which is the equivalent of about $70,000 per hotel room. This
property had considerable excess land, however, and is located in an intensively
developed retail location in Lynnwood with a high land value component. The
purchasers of the property intend to demolish about 20,000sf of meeting space at
this property and construct additional hotel rooms. It is our understanding that
this will include the near-term construction of 150-room Courtyard by Marriott
hotel, a mid-price business oriented limited-service facility. Subsequent to the
demolition the purchasers valued this excess land at $2,000,000, which is the
equivalent of about $14/sf of excess land. After considering the demolition
costs and contribution to overall property value, we have estimated the
contributory value of this excess at $1,750,000. This is the equivalent of about
$12/sf of land area, or about $11,700 per hotel room. Deducting this results in
a value for the hotel improvements only at $5,450,000, or about $52,900/room.
Although this is a full-service facility, subsequent to this transaction the
purchasers closed the restaurant and lounge area, which had historically never
been profitable. It is not unlikely that at some point in the future this
property would be renovated and reflagged to a different franchise affiliation.
The current owners have an extensive network of Holiday Inns.
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<PAGE> 53
At the time of sale this property had a similar occupancy as the subject at
66.4%. Combining this with a slightly lower ADR results in a 1996 revenue per
room about 10% higher than the subject's most recent 12 months. Overall, because
of the lower achievable income, we believe the $52,900/room indicated by this
comparison is considerably lower than the value for the subject.
Sale Comparison No. 2 is the June 1998 sale of the Best Western Turnwater
located south of the subject property in a secondary market. This property is
89-units and was constructed in 1992. It measures 42,900sf or about 482sf per
room on average. This property is a limited service facility with a spa, meeting
room and exercise room, but few other amenities. The property was not being
actively marketed for sale when the purchaser approached the seller about the
property. At the time of sale, the property had an occupancy rate of about 65%
and had an average daily rate of $58. This results in a RevPar of $37.70, much
lower than is achieved at the subject. While public record indicated that the
sales price was $5,050,000, the seller reported that the sales price was
actually $5,150,000. This equates to $57,865/room or about $120/sf of gross
building area.
Primary adjustments to the indications of this sale include upward adjustments
for market conditions since mid-1998 and the lower income potential. This is
partially offset by downward adjustments for the newer age of the property.
After a net upward adjustment, this property provides a compelling indication of
value for the subject.
Sale Comparison No. 3 represents the June 1998 sale of two hotel properties
located north of the subject property adjacent to the airport. The property was
formerly known as the Quality Inn and the Radisson Hotel and consisted of three
two story buildings and one three story building. After the purchase, the entire
property was renamed the Radisson Hotel. There are a total of 306 rooms between
the two properties. The property was developed in the late 1950s and early 1960s
and has been renovated several times including once recently. The property was a
full-service facility prior to the sale with a fine dining restaurant, however,
the purchasers closed this restaurant. The amenities at this property include a
fitness center, sauna, gift shop, salon and meeting rooms. There is also a
limited menu restaurant. The property was purchased by a REIT in June of 1998.
The total acquisition price was $21,350,000 or about $69,771/room. Because of
the higher level of amenities at this property, the achievable room rates are
superior to that of the subject. The reported trailing income was over
$2,000,000 while the pro forma income for the following year is $2,300,000.
Further, this property has a superior location to that of the subject being
adjacent to the airport.
Primary adjustments required to the indications of this sale include upward
adjustments for market conditions since mid-1998 and the age of the property.
These adjustments are more than offset by downward adjustments necessary for the
superior income potential of this property and the superior location relative to
that of the subject. This is a good comparison, however, because it has a
similar overall location near the airport and within this overall market.
43
<PAGE> 54
Sale Comparison No. 4 represents the January 1997 sale of a Motel 6 property
located north of the subject property in SeaTac. This property is located north
of the SeaTac Airport several blocks. It was developed in 1979 and contains 112
rooms. The facility is a two story property with exterior entrances. The total
building area is 28,800sf for an average area per room of 257sf, indicative of
the lower end budget-motels. This property was reportedly part of a bulk
purchase of about 71 properties. The recorded sales price is $5,749,959 or about
$51,339/room.
The indications of this sale represents the minimum price that would be paid for
a hotel in the SeaTac market. Primary adjustments required to the indications of
this sale include significant upward adjustments for market conditions from
almost two years ago, the lower quality and inferior location. Further upward
adjustment is needed for the lower income potential of this property.
Sale Comparison No. 5 represents the recent sale of a Howard Johnson hotel
located in Auburn southeast of the subject property. This property is a two
story limited service hotel in a secondary location. The property is inferior to
the subject in that it has exterior corridors and was constructed in 1979. This
property does however have a sauna and heated pool. The property was purchased
by a private party from a major hotel group who had purchased the property just
months earlier. The selling party is an experienced hotel operator in the area
who had purchased the facility inn May 1997 for $2,775,000 and affiliated it
with the Howard Johnson franchise. The owner then received an unsolicited offer
he could not refuse which was the $3,700,000 sales price or $56,061/room. We do
not have good income information on the property as the seller had only held the
property for a few months in which he was renovating it. Primary adjustments
required to the indications of this sale include slight upward adjustments for
the inferior location and age of the property. A slight upward adjustment for
market conditions since September 1998 is also needed.
FEE SIMPLE SALE COMPARISON APPROACH CONCLUSIONS
The subject property is a relatively modem limited service property in a good
location near an international airport. It has a well-established income with
higher than typical rates for Super 8s due to the high demand in this market.
Most recent purchasers of limited service hotels have been individual
owner-operators, who may own one or several facilities. They often buy
properties based on the gross income characteristics, and subsequently
self-operate and manage the properties, sometimes with and sometimes without
franchise affiliation. Thus a motel property represents an employment
opportunity and a business venture of a manageable scale. Individually, the
subject would more likely appeal to an institutional investor because of the
overall value magnitude. Although the interest from the institutional and REIT
segments in purchasing hotels has diminished substantially in the last year,
other market interest in smaller lodging properties has remained fairly strong
resulting in a stable and active market throughout 1998. Based on all of this
evidence we have concluded that the subject would be marketable if available for
sale.
44
<PAGE> 55
The sale transactions bracket the property in terms of physical characteristics,
market characteristics and income characteristics. Sale Comparison Nos 2, 4 and
5 are all dearly inferior to the subject and require significant upward
adjustment for factors such as a secondary location, lower income potential and
lower overall quality. On the other hand, Sale Comparison No. I is fairly
similar to the subject but is located in an inferior market and needs
significant upward adjustment for market conditions since mid-1997. Finally,
Sale Comparison No. 3 is far superior to that of the subject with a superior
location adjacent to the airport, and higher income potential.
The unadjusted sale price per room ranged from $51,339 to $69,771. After
adjustment, we have concluded that these sales indicated a value of about
$62,000/room. This equates to about $7,378,000 or about $7,400,000. This equates
to $168/sf which is also well bracketed by the sale comparison indications. Most
hotel owners are concerned about Gross Income Multipliers (GIM), as they are
most interested in the gross income characteristics. In urbanized areas, newer
limited service properties are purchased on a GIM of about 4.2. Properties of
about 10 years old may have a value of about 4.0 GIM, while properties older
than 15 or 20 years may have a GIM of 3.7 or less. Older properties require a
greater level of maintenance, and often require immediate capital expenditure
for deferred maintenance, and thus the gross income is than less valuable than
for a new property. Finally, in secondary non-urbanized locations, the GIM may
be reduced by .2 - .5. At the sale comparison approach conclusion, this
indicates a 3.8 GIM which is consistent with our expectations for a property of
this age.
In summary, the value indicated by the Sale Comparison Approach value without
consideration of excess land is $7,400,000. We now consider the contributory
value of the excess land.
CONTRIBUTORY VALUE OF EXCESS DEVELOPMENT POTENTIAL
The subject site is considerably larger than that which would be required to
support a typical motel operation of this size. In this section we will provide
an estimate of the amount of which this excess land contributes to the overall
property value. This contributory value is then added to the value conclusions
from both the Sale Comparison Approach and Income Approaches.
Please refer to the Highest and Best Use section for a complete discussion
regarding the various alternative uses for the site, and positives and negatives
associated with each potential use. Refer also to the site plan found in the
Site Description section, which shows the arrangement of the current
improvements on the site. Essentially, the current improvements are located in
the central portion of the site with the excess land located at the eastern and
western ends of the site. The improvements have been extensively renovated
recently and generate substantial revenue, and will likely contribute
significantly to overall property value for the foreseeable future.
The two portions of the site which could be considered excess have somewhat
different characteristics and constraints. The eastern portion is effectively
larger, particularly
45
<PAGE> 56
given the constraint that the main entrance is on the west side of the current
motel; and the west parking lot would likely need to be retained. In addition,
the western portion contains more topography and has been extensively graded,
effectively dividing this portion into two tiers. The lower or western tier
could be expanded slightly by further grading and the creation of a retaining
wall; likely increasing this effective usable area to about 40,000sf. The
eastern area has the significant constraint of the residential zoning at the
southeast corner of the site however. The site is in the comprehensive plan to
be converted a commercial zoning consistent with the remainder of the site. If
the zoning is changed to a commercial designation, parking would be permitted on
this site. In addition, the eastern portion contains no street visibility from
International Blvd., which is a significant negative factor for its value for
most potential uses. The western part by contrast, has a large amount of
frontage along this major arterial and, although set somewhat above the grade of
street level, would have good visibility and access.
Other factors which have been considered in estimating this contributory value
include the negative impact these potential uses would have on the value of the
existing property. This would be particularly true for use of the western
portion of the site, which could substantially impact the street visibility for
the existing motel. In addition, uses inconsistent with the current use would
negatively impact the subject's operations. In particular, development of a
competing motel would substantially impact the financial operations, while the
use of the front portion of the site as a restaurant could be a positive
influence for the subject. Other important considerations include the fact that
the subject is not legally divided into separate tax parcels. While there does
not appear to be any significant zoning or planning issues hindering this, the
time, uncertainty, and opportunity costs all indicate the contributory value
would be somewhat less than the value for a stand-alone parcel once divided. The
other issue that has been considered in the valuation is the impact that the
reduced site area would have on the airport parking revenue that the subject
generates. Subsequent to the renovations, this parking by the general public has
decreased, partly due to the reconfiguration that eliminated the entrance to the
eastern parking lot underneath the building. The parking area now has a separate
entrance along South 192nd Street, with a perception of a less secure parking
situation. This factor in conjunction with increases in parking rates has
resulted in significantly decreased use of the parking by the general public,
partly offset by increased use by room guests in the Park and Fly Program. With
a decline in the use of the on-site parking, it appears that there could be a
significant reduction in site area with only a modest impact on parking or rooms
revenue. All these factors have been considered in the estimation of
contributory value of the excess development potential of the site.
As the Highest and Best Use section details, we believe feasible alternative
uses include development of a stand-alone site on the western portion of the
subject property adjacent to International Blvd. This could include a use such
as a family restaurant or an additional motel. Alternatively, existing
operations at the subject could be expanded by adding a new wing of hotel rooms
on the western portion of the site. There is a setback requirement specific to
the subject property to buffer the adjacent homeowners to the east. Creating an
addition to the existing hotel would offer the advantage of integration rather
than competition with the existing facility, and the larger project size
46
<PAGE> 57
would allow greater operational efficiency and economies of scale. It appears
that continued increases in this market would make expansion of this type
feasible. While the value of this site on a per unit basis is somewhat lower
than the western portion of the site, this use contributes to, other than
detracts from the value of the current operations.
Please refer to the exhibit on the facing page which summarizes land sale
transactions in the area which have been used for direct comparison to the
subject. A map showing the location of these comparisons relative to the subject
is found on the following page.
Land Sale Comparison No. 1 is the September 12, 1997 transaction of a hotel
site. This sale involved a 76,300sf parcel located to the north of the subject,
on the east side of Pacific Highway S. The site is L-shaped with a majority of
the site set back off a Pacific Highway S. It has a total of 125' of frontage,
and has sloping topography from west to east. This site is zoned CB-C. The site
was purchased for development of a Swiss Hotel, which will include approximately
160 rooms at construction completion. This property has similar zoning as the
subject, but is much larger than the excess land area at the subject. We have
adjusted the sale upwards however, due to the date of the transaction which was
approximately 15 months ago, as well as for significantly less frontage on
Pacific Highway S. In general, the this property would be considered inferior to
the subject because of the larger frontage on the arterial. We would therefore
adjust this transaction, which closed for an analysis price of $1,222,288, or
$16.02/sf, significantly upwards. This transaction also provides a good
indication of highest and best use for the subject as if vacant and unimproved.
Comparison No. 2 is the November 1997 purchase of a 3.0 acre parcel. This
property is located a few blocks south of the subject, on the eastern side of
Pacific Highway S. The property has approximately 380' of frontage on Pacific
Highway S. This property was originally purchased for a City Hall site.
Apparently the development plans have been put on hold. It appears as though the
property will be either developed into a city park or listed for sale in the
future. This property is much larger in overall size to the excess land portion
of the subject. It is located in the same general neighborhood, however. We have
adjusted this sale upward due to the age of the transaction last September, as
well as the overall difference in size. The property sold for an analysis price
of $2,789,052, or $21.34/sf.
Sale Comparison No. 3 is a confidential purchase and sale agreement of a 2.41
acre site in SeaTac. This site is under contract to sell for $28.59/sf. This
site has a superior location relative to that of the subject and has another
feature which makes it very valuable relative to many other sites in the area.
Therefore, we would adjust the indications of this transaction downward.
Sale Comparison No. 4 is a dated sale of a small site located at the corner of
188th Street and International Boulevard. Both of these streets are arterials
which is a superior situation to that of the subject. The corner site was
purchased in 1992 for a Taco Bell restaurant, and transacted for approximately
$22.96/sf. The comparison is somewhat smaller than the excess land area of the
subject. This would indicate
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<PAGE> 58
downward adjustment relative to the subject as would the location of this site
on two arterials. Based on the transaction date however, we would expect
significant upward adjustment relative to the subject as an indication of value.
[ON THE REVERSE OF THIS PAGE IS A MAP ENTITLED "LAND SALE COMPARISON MAP"]
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<PAGE> 59
Sale Comparison No. 5 is the May 15, 1997 transaction of a vacant site located
at 14600 Pacific Highway S. The transaction involved a 27,160sf site, which was
level and had all utilities available. The site has approximately 261' of
frontage, is located on the eastern side of Pacific Highway S. The land was
purchased for development of a 2,600sf Chevron gas station, with convenience
store. It has good visibility from the arterial, is near the intersection of the
corner of Pacific Highway S. and S. 146th Street. The property transacted for
$995,000, which translates to a dollar per sf value of $36.63/sf. We adjusted
this sale upwards due to the May 1997 transaction date, but have made downward
adjustments due to the smaller, as well as this comparison having a high amount
of frontage to the total overall area.
After consideration of all of this evidence, it is our conclusion that the
contributory value of the excess development potential is $800,000. This equates
to about $20/sf of excess land area. The table below shows the total Sale
Comparison Approach value conclusion after this contributory value has been
added:
<TABLE>
<S> <C>
SALE COMPARISON APPROACH VALUE INC. PRIMARY SITE 7,400,000
PLUS CONTRIBUTORY VALUE OF EXCESS DEVELOPMENT POTENTIAL $800,000
----------
TOTAL SALE COMPARISON APPROACH VALUE $8,200,000
</TABLE>
CAPITALIZATION RATE
In the subsequent Income Approach analysis, the value has been estimated based
on a capitalization of forecast year 1 net operating income (NOI). The
capitalization rate expresses the relationship between the property's NOI and
sale price. For determining the appropriate capitalization rate for the subject
we have considered the indications from the sale comparisons as previously
described.
The appropriate capitalization rate to be applied to a specific property depends
on a wide variety of factors. These include the age of the property and expected
near-term future capital costs, which are not reflected in any one year's net
operating income. These rates are also affected by longer term income
characteristics relative to the actual or forecast income at the time of sale.
In addition, the required capitalization rate is strongly impacted by a
potential purchaser's perception of volatility or risk in the future income
characteristics, as well as the likely future marketability of the property.
For the subject, positive factors include the location in near an international
airport that is expanding. There continues to be very strong demand from this
market segment, and the subject would likely be quite marketable to this segment
if available for sale. This is due to the strong physical characteristics, good
specific location, and mid-priced limited service orientation. Other positive
factors include the subject's substantial renovations and lack of deferred
maintenance. This should result in relatively low required near-term capital
expenditures for the property. Another positive factor for the subject is the
low-to-mid priced orientation of this facility in this market. Demand for these
facilities is currently high.
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Negative factors which would tend to increase the required capitalization rate
include the high overall dollar value which is too high for many owner-operators
to consider. In addition, the potential large increase in the supply this market
could be considered a negative factor in the short term until these properties
stabilize.
In specific terms, the sale comparisons have indicated capitalization rates in a
range from about 10.0% to 12.1%. The bottom of the range is represented by a
sale to an owner-operator with the lowest overall property value, while the top
of the range represent the purchases of the largest magnitude. In conjunction
with this appraisal we have also reviewed extensive sales information from about
20 recent lodging facility transactions throughout the Pacific Northwest. As a
data set these had a somewhat higher typical capitalization rate relative to the
specific comparisons utilized in this appraisal.
After consideration of all of these factors, we have estimated 11.5% as the
appropriate capitalization rate to be applied to the subject's income before
reserves.
[FOLLOWING HERE ARE 3 PAGES OF "RENTAL COMPARISON PHOTOGRAPHS" AND A 1-PAGE
"RENT COMPARISON MAP" ON THE BACK OF WHICH IS A TABLE ENTITLED "SEATAC SUPER 8
MOTES RENTAL COMPARISON SUMMARY"]
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INCOME APPROACH
The purpose of the Income Approach is to value an income property by analyzing
likely future income and expenses to the property. In this case we have employed
a Direct Capitalization Analysis, by dividing an annual forecast Year 1 net
operating income (NOI) by an appropriate capitalization rate.
We have relied on a variety of sources as the basis of the forecast of NOI,
including an analysis of the subject's historical income and expense. Please
refer to exhibits on the following pages, which summarize the detailed expenses
for the subject over the past two years, as well as a breakdown of the income on
a month-by-month basis from 1994 to the present. We have also specifically
compared the subject's operations with other properties in this market. We have
also used expense comparisons for forecasting individual expense items, which
are also summarized in an exhibit on a following page. Finally, we have
considered the broader supply and demand forces at work within this specific
lodging market and throughout the region. Please refer to the Lodging Market
section for a detailed discussion regarding the factors which influence room
sales, as well as historic and likely future trends in this area. Based on this
evidence we have made a forecast of income and individual expense items for the
subject property, which is found at the end of this section.
Please refer to the exhibit on the facing page. This shows the relevant details
regarding the five other properties we have used for direct comparison. All of
these properties are located within the immediate subject market Photographs of
these properties as well as a map showing their location relative to the subject
are found on the previous pages.
RENTAL COMPARISONS
Comparison No. I is the Comfort Inn SeaTac, located one block southwest of the
subject on the west side of International Blvd. This property was built in 1987
and has just completed a new addition. It is similar in terms of overall
amenities with a spa and exercise room and two small conference rooms, but not
pool. It has relatively good quality finishes overall compared with typical
Comfort Inn motels and has a much larger lobby area with superior furnishings to
the subject. The property has somewhat larger average room sizes and better room
furnishings. The Comfort Inn does a significant contract business, including a
major contract with the Union Pacific Railroad, as well as Alaska and United
Airlines, and several of the cruise lines. The property has a similar
orientation to the subject and a single rack rate of $69 with double rack rate
of $74, and a $68 commercial rate. These rates are about 10% to 15% higher than
the subject, and commensurate with a difference in quality between the
properties. It is our understanding that contract business accounts for a
significant amount of the room sales at this property, which has a reported
occupancy level of 50% (likely due to the new addition that has not yet been
absorbed).
Comparison No. 2 is the La Quinta Inn, a renovated facility that is located a
few blocks north of the subject on the east side of International Boulevard.
This facility has superior amenities with a heated pool, exercise room,
conference rooms and a free
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<PAGE> 62
continental breakfast. The basic single rack rate is $99/night while the double
rack rate is $89/night. The single commercial rate is $84.55/night. The
occupancy at this property is reported to be high.
Comparison No. 3 is the relatively new Holiday Inn Express located a few blocks
south of the subject. This property has 149 rooms and has amenities including a
30-person conference room, indoor pool, spa, jacuzzi, exercise room, and free
continental breakfast. The park and fly rate is $99 for one person and $109 for
two people and includes 10 days of parking.
Comparison No. 4 is the Econo Lodge located directly across International Blvd.
from the subject. This property was previously known as the Sandstone Inn and
includes 98 guestrooms built in 1956. It has had periodic renovations and
recently changed to this budget-oriented franchise affiliation without
performing any major upgrades. It also includes a restaurant and lounge, but no
other significant guest amenities. It has a multi-building exterior entrance
configuration, and small, fairly basic rooms lower in quality than the subject.
During the winter the rack rates are relatively low at $49 for single and $59
for a double, both of which are lower than the subject's rates. There are no
corporate rates at this property. The park and fly rate is $79 and includes one
week of parking.
The final comparison is the 131-room Hampton Inn, which was built in 1988 1/4
mile southwest of the subject. This business-oriented property has amenities
including a large lobby, outdoor pool, and exercise room. Like most of the
properties in this market it offers a free continental breakfast. Rack rates are
slightly lower than that of the Holiday Inn. This is a primarily
business-oriented hotel that also does a significant amount of contract
business, particularly with Horizons Airlines. This property had a reported
occupancy of about 80%, considerably higher than that of the subject. _The
property is being renovated at the present.
SUBJECT ROOM RATES
The subject property currently has rack rates at $64.88 single and $76.88
double. The only discount offered is the VIP plan, which results in a 10%
discount off rack rates to a rate of $58.39 single. These rates are moderately
higher than the Econo Lodge or other older properties in this market, and lower
than the other superior rental comparisons. Overall, the magnitude of the price
differential between the subject and the Comfort Inn, La Quinta Inn, Holiday Inn
Express and Hampton Inn appears appropriate given the quality differences. We
note that the subject has more differential between single and double rates than
the other properties.
MONTHLY ROOMS REVENUE HISTORY
The figures on the following page indicate the average occupancy, average daily
rate, and revenue per available room on a month-by-month basis for the property
since January 1994. Below each table are the figures for the one-year period
November 1997 through October 1998 as well as for the previous 12-month period.
Over the last year,
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<PAGE> 63
the subject averaged 67.6% occupancy at an ADR of $65.63, with a calculated
RevPar of $44.36. For a 119-room limited service property in a primary market in
the Northwest, these figures are about typical and economic. We have seen a
trend of increasing occupancies from about 60% in 1994 to the current 67.6%.
Because of the limited new supply over this time period, the average daily rate
has also increased from $54 to $65.63. Some new supply has recently been added
to the market and we expect to see some additional supply in the market over the
next year. However, new construction generally requires higher rates to be
economically feasible and will likely not represent direct competition, however,
these rooms are expected to have a modest impact on the subject.
FORECAST OF ADR AND OCCUPANCY
Please refer to the Market Analysis, in which the broader supply and demand
forces and factors which influence room sales in this market are discussed. The
current rates and recent history of the subject are consistent with these forces
and with the empirical indications from other similar properties. After
considering the specific history at the subject property, supply and demand
forces within this market, evidence from other Super 8 motels, and indications
from the competitors, we have made the forecast of Year I ADR and occupancy for
the subject as follows; For the year 1999 we have forecast the subject's ADR at
$65.00. This represents a 1% decrease over the most recent 12 months figures. We
have forecast occupancy for this time period at 66%. This represents a slightly
reduction from the current most recent 12 months occupancy at 67.6%. This is due
to the fact that the other properties are expected to approach stabilization
during this period, specifically the Comfort Inn and other properties that will
likely open in the near term future. This combination of factors results in a
RevPar of $42.90, slightly lower than that indicated last year.
INCOME AND EXPENSE FORECAST
Please note the figures on the following page which summarize the income and
expenses for the subject over the past two years. An exhibit on a subsequent
page summarizes individual income and expense items for two other similar Super
8 motels, and an average for a survey of similar properties in the United States
in 1997. These properties are similar to the subject in terms of ADR and
occupancy, as well as in terms of age and overall quality. Together, these
indications and the preceding discussion form the basis for our income and
expense estimate for 1999.
The subject history is summarized from detailed accounting provided by
management. Expenses exclude interest, depreciation, and professional fees
(generally accounting and legal), which are related to ownership and not real
estate interests. The subject property is essentially owned and managed by a
central organization that also operates about 25 other Super 8 Motels in the
Northwest. Thus it is not only part of the Super 8 franchise chain, but is also
centrally operated and locally managed along with other properties. Certain
expense items, such as many administrative expenses, marketing, and professional
management are incurred off-site, and directly charged to the subject
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<PAGE> 64
property and to the other properties under the same management. This allows for
the good and cost-effective central administration, and quality control of
operations.
The subject history and the comparison properties are analyzed not only on total
dollars, but also on S/room, S/Room Sold, and % of Total Income. All of these
units of comparison are considered and used m our following forecast. As
previously discussed, we have forecast an ADR of $65.00 and a 66% occupancy,
which results in a 1999 rooms revenue forecast of $1,863,362. Telephone income
has been forecast at $0.55/room sold, while telephone expense has been estimated
at $0.35/room sold, for a slight gain for this operated department. Other Income
includes parking, vending income, faxes; guest laundry, etc., and represents
about $3.00/rooms sold.
Rooms expenses accounts for cleaning, supplies and front desk labor. Although
this expense category is mostly variable with occupancy, larger properties are
more efficient in this category because of the fixed cost of front desk labor.
Also, some hotels account for on-site management and other labor in this
category instead of in Administrative and General, where we have accounted for
on-site management. These two expense categories should be viewed and analyzed
together for full understanding of operations. We have forecast Rooms expenses
at $2,600/room, or about $10.79/room sold. Administrative and General expenses
include on-site managers, credit card discounts, supplies, business taxes, and
direct reimbursement charges for offsite administration, training, hotel
accounting quality control and other charges. Some of these offsite expenses
relate to ownership accounting and would be expected to decline under generic
individual ownership. The level of quality control and administrative management
for the subject is somewhat higher than typical. Although this maintains the
long-term viability of the property, many purchasers would plan on incurring
less expense in the short term, and our slightly diminished forecast at 12% of
total income considers these issues. The combined total of Rooms and
Administrative & General appears reasonable and consistent with other
properties.
Franchise fees are currently 5% of Rooms revenue. However, current fees for
Super 8 and other similar franchises are higher, and the rates at the subject
are "grandfathered" at a historically lower level. A new purchaser would incur a
total franchise fee of 8% of Rooms, which is our forecast. A strong franchise
affiliation is important in order to maintain market share in this competitive
lodging market. Much of the subject's room sales come from the central
reservations system, and the subject's strong name recognition and repeat
business are significant factors that would not be possible without such
affiliation. The forecast income implicitly assumes that such affiliation will
continue, and would be lower if this expense item were reduced or eliminated.
Marketing has been estimated at $175/room, or $20,825 in total. This is very
consistent with the recent historical expenses of the subject at about
$20,000/year. Given the increased competition in this market, it is our opinion
that the subject will have to maintain their marketing efforts in order to
maintain their market share. Operations and Maintenance have been estimated at
$1,000/room. This is an item which varies considerably from property to property
and from year to year. This expense forecast assumes ongoing maintenance on a
stabilized basis, and accounts for the effective age
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<PAGE> 65
of the property and the current condition of the improvements. Because of the
good condition and recent renovation of the subject, a new purchaser may
forecast less maintenance in the near term, but this stabilized forecast is
consistent with a longer-term perspective. Energy and Utilities have been
estimated at $725/room.
Management is forecast at 4.0% of effective gross income, or about $78,605
annually. This accounts for professional management on top of direct charges,
and is considered to be a typical level required for competent professional
management for a property of this size and complexity. Taxes for real and
personal property have been estimated based on the current tax assessment.
Insurance for property has been estimated at $546/room, or $65,000.
The sum total of this expense forecast is $1,088,898, or $7,363/room. This is
about 7.2% higher than the reported expenses for the property in the last 12
months. Overall, the expense ratio is about 55.4%, which is fairly low for this
type of property.
NET OPERATING INCOME
Please note the exhibit on tile following page, which summarizes the forecast of
income and expenses for the property as previously discussed. The Year 1 net
operating income is forecast at $876,232.
CAPITALIZATION ANALYSIS - FEE SIMPLE ESTATE
The anticipated net operating income is divided by a capitalization rate which
has been derived from an analysis of the sale comparisons. This rate as
previously derived in the Sale Comparison Approach is 11.5%. Applying this rate
to the forecast NOI results in an indicated Income Approach value of $7,619,405.
Rounded, this is equivalent to $7,600,000.
REPLACEMENT RESERVES
Although net income from motel properties is often capitalized prior to
deductions for replacement reserves, reserves are an important factor in motel
ownership and requires careful consideration as it significantly impacts net
cash flow. Reserves are required to replace items with shorter lives than the
building itself. In the case of motels it relates primarily to the replacement
of the furnishings, fixtures, and equipment (F,F,&E), carpet and flooring. A
large portion of this takes the form of rooms furnishings which have a
relatively short economic life span. In order for facilities to remain
competitive, the economic life of these components would generally be considered
to be in the range of five to ten years. The remainder of the F,F,&E costs
involve items such as common area furnishings, front desk and administrative
equipment, pool and spa equipment, etc. These items generally have a longer
economic life than the room furnishings, but shorter than the building as a
whole. Other required reserve items include roof replacement, parking lot
re-paving, and HVAC equipment. In consideration of these factors we have
estimated required replacement reserves at 3% of total income, or $58,954
initially. This is the equivalent of about $495/room annually. Subtracting this
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figure from the forecast net operating income would result in a net cash flow of
$817.
[ON THE BACK OF THE PREVIOUS PAGE WAS A TABLE ENTITLED: "SEATAC SUPER 8 INCOME
AND EXPENSE FORECAST & CAPITALIZATION ANALYSIS"]
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We note that based on the Income Approach fee simple value conclusion, the
capitalization rate after reserves have been deducted is 10.8%
INCOME APPROACH CONCLUSION
In conclusion, the value indicated for the fee simple estate of the subject
property by the income approach is $7,600,000 before consideration of the
contributory value of excess development potential. We have therefore added our
previously derived estimated value of the excess development potential at about
$800,000. This results in a total Income Approach Value after consideration of
excess land of $8,400,000.
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RECONCILIATION AND FINAL VALUE ESTIMATE
The values indicated by the two approaches used in this report are as follows:
<TABLE>
===============================================================================
<S> <C>
SALE COMPARISON APPROACH - FEE SIMPLE ESTATE $8,200,000
INCOME APPROACH - FEE SIMPLE ESTATE $8,400,000
===============================================================================
</TABLE>
Reconciliation is the process of assigning different weight or emphasis to each
of the approaches to valuation used in the report to arrive at a final value
estimate. The primary considerations are the reliability of the data and the
applicability of each method for valuing the particular property.
In this case we had fairly good information regarding the sales of numerous
lodging facilities to use for comparison. These included five sales of
limited-service properties that are generally similar physically to the subject.
All of these transactions occurred in 1997 or 1998. The sales resulted in a
fairly wide range in each of the units of comparison. After adjustment, the
indications from this approach are considered fairly compelling with the subject
within the range indicted by the comparisons. An additional adjustment to the
Sale Comparison Approach was required for the excess development potential at
the subject. Overall, we have given this approach significant weight in the
final value conclusion. This approach also provides indications of general
marketability and required income characteristics.
For lodging facilities, investors typically place a great deal of emphasis on
the income producing capabilities of the property. This is particularly true as
the properties get larger and the nature of likely purchasers tend to become
more institutional. In this instance the income characteristics of the subject
would place it at the higher end of this spectrum with more likley desirability
to institutional investors. We have excellent detailed information regarding the
subject's historical operating performance. This factor combined with
confidential information from other similar properties and analysis of the
broader supply and demand forces in this market results in a fairly reliable
forecast of future net operating income. This, combined with strong information
regarding required capitalization rates from the sale comparisons results in a
fairly reliable Income Approach value estimate as well. Because of the
reliability of the information considered in this approach as well as the
relevance of the approach to many potential purchasers of the property we have
placed a significant amount of weight on the indications of this approach in the
final value conclusion.
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In the final analysis we believe that both approaches were relevant and
compelling, and have placed a considerable weight on the indications of each.
<TABLE>
<CAPTION>
==============================================================================
EFFECTIVE VALUE
DESCRIPTION VALUATION DATE CONCLUSION
----------- -------------- ----------
<S> <C> <C>
MARKET VALUE - FEE SIMPLE ESTATE 1/1/99 $8,300,000
==============================================================================
</TABLE>
The above value estimate is commensurate with a reasonable marketing and
exposure time of one year. The market value includes furnishings, fixtures, and
equipment (F,F,&E), including both permanently affixed real estate, and personal
property. The contributory value of F,F,&E is estimated to be $260,000, which
includes personal property of $180,000.
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ADDENDA
AUTHORIZATION LETTER
HOTEL SALE COMPARISON DETAILS
SEATTLE METROPOLITAN AREA DESCRIPTION
APPRAISERS' EXPERIENCE & QUALIFICATIONS
MCKEE & SCHALKA
REAL ESTATE APPRAISAL SERVICES & CONSULTANTS. INC.
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AUTHORIZATION LETTER
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[U.S. BANCORP LETTERHEAD]
December 9, 1998
E. Bates McKee, M.A.I.
McKee and Schaika
701 Fifth Avenue, Suite 5750
Seattle, WA 98104
RE: Super 8 Motels
USBADW Files 98-529 through 534
Dear Mr. McKee,
This letter will confirm our telephone conversation in which you agreed to
prepare complete self-contained appraisal reports on the captioned properties.
These reports should comply with Regulation I2 CFR Part 34 of the Office of the
Comptroller of the Currency titled Real Estate Appraisals as revised in Federal
Register Vol. 59, No. 108, dated June 7, 199__ [sic: off bad photocopy], and
must comply at a minimum to the current Uniform Standards of Professional
Appraisal Practice of the Appraisal Standards Board, which the regulation adopts
in full.
Please note that your timely responses to issues raised in the review process is
considered part of this appraisal assignment.
The subject property consists of existing Super 8 Motels located Federal Way,
Sea-Tac, Bremerton, and Yakima, Washington and Portland, Oregon.
The purpose of this appraisal is to estimate market value for mortgage lending
purposes.
Your report should provide the following values of the subject's fee simple and
leasehold values as appropriate:
Market Value "as-is"
A copy of this engagement letter must be included within the addenda of the
appraisal report. Please include the license or certification numbers of all
signatory appraisers on the letter of transmittal. Additionally, please state
the registration .number of any appraisal assistants who provide significant
contribution to the analysis in the report.
If your appraisal report includes a Discounted Cash Flow model, please provide
the name of your program and include a copy of your computer disk as part of
your submission.
For additional subject property information please contact the following
individuals:
<TABLE>
<CAPTION>
Name Phone Number
---- ------------
<S> <C> <C>
Property Background: Karl Schaffer 206-344-4551
Access Instructions Jerry Whitcomb 360-943-8000
(Owner)
</TABLE>
You agreed to deliver the completed appraisal report by December 31, 1998 and
you estimated your fee not to exceed
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Please inform me within five business days from the date of this letter if any
subject property information needed to complete the assignment is not available.
If you do not contact me within five business days, it will be assumed that you
hay. all the required subject property information needed.
The placement of this appraisal assignment was partially based on your agreed
delivery date. The Appraisal Division reserves the right to impose a penalty of
$100 per day for each business day the appraisal is late. This penalty may be
incurred unless you receive advance written authorization revising the delivery
date.
Your fee will be paid upon the satisfactory review of the submitted appraisal
report. If the appraisal report is cancelled at any time, you will be paid for
your services to date,
Please send 10 original copies of the appraisal report, along with your invoice
to rile address shown below:
U.S.BANCORP APPRAISAL DEPARTMENT
I301 Fifth Avenue, Mezzanine Level, WWH-411
Seattle, WA 98101
You are not authorized to release any information regarding the content or
conclusion of the appraisal report to anyone without prior written approval from
U.S. Bancorp.
Any modification of this agreement, or necessary, deviation, must be
specifically approved by the Appraisal Division.
As confirmation of receipt of this package and agreement with the aforementioned
terms, please sign below and return to my attention.
Sincerely,
/s/ ________________________
Karl Schaffer
Senior Review Appraiser
U.S. BANCORP APPRAISAL DEPARTMENT
cc: Don Henry, WWH-784
Agreed and approved:
___________________________ __________
(Signature) (Date)
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HOTEL SALE COMPARISON DETAILS
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<TABLE>
<S> <C>
HOTEL SALE COMPARISON NUMBER: 1
Name: Best Western Landmark Hotel - 4300 200th St. SW
City: Lynnwood County: King State: WA
Location: 1 block west of I-5 at 44th St freeway interchange in Lynnwood
Legal Desc: APN #3726-007-021-0601, 022-0105, 023-0005
Rooms: 103 Gross SF Area: 54,144
Age: 1977 Stories: 5
Description: 5 story concrete hotel with interior entrance
configuration. Also includes restaurant, lounge,
extensive meeting space. Guest rooms in average
condition at time of sale.
Income Data: 1996 ADR $60.48 at 66.4% occupancy.
Total 1996 revenue $1,646,000, reported NOI including 3.5%
management fee prior to reserves was $726,890.
Document Price: $7,200,000 Analysis Price $5,450,000
Date: 07-17-97 Document No: 97071-70338
Buyer: Sunstone Hotel Investors
Seller: Markland Hotel Inc.
Source: Craig Schaefer, seller
Sales Data: Buyer intends to demolish 20,000sf of meeting space (excluded from GBA)
, which will result in about 3.4 acres of excess land on site. Buyer
intends to construct 150 room Courtyard by Marriott Hotel, and placed a
value on this site of $2,000,000. After consideration of demolition
costs we have estimated current contributory value of $1,750,000, which
is the equivalent of about $12.00/sf of land area, or $11,666/room.
Per Room: $52,913 Per sf GBA: $100.66
Cap. Rate: 10.1% EGIM: 3.5
Remarks: Restaurant and lounge had not been profitable
historically, and were shut down subsequent to
transaction. Estimate of achievable NOI after removal of
meeting space is $656,890, which results in capitalization
rate after exclusion of contributory land value of 12.1%.
97155-1
</TABLE>
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<TABLE>
<S> <C>
HOTEL SALE COMPARISON NUMBER: 2
Name: Best Western Tumwater -- 5188 Capitol Blvd
City: Tumwater County: Thurston State: WA
Location: Located on the east side of Interstate-5 about two miles south of the
Olympia CBD.
Legal Desc: Thurston Co APN 0908005300 and personal property account no. 990017339
Rooms: 89 Gross SF Area: 42,900
Age: 1992 Stories: 2
Description: Z-shaped, 2-story, wood frame, limited service lodging
facility. There are 63 singles, 20 doubles, and 3
handicapped rooms and three suites. The rooms have an
average area of about 341sf. Amenities include a meeting
room, fairly large lobby, exercise room and spa, and
laundry areas. Interior entrance configuration. Parking is
provided for 85 vehicles. The site is 85,378sf.
Income Data: Reported 65% occupancy at ADR of $58 in year prior to sale. RevPar
calculated at $37.70.
Document Price: $5,050,000 Analysis Price: $5,150,000
Date: 06-30-98 Document No: 2605370
Buyer: Yim Sang Kil/Chan Sook
Seller: Bill An
Source: Bill An
Sales Data: The property was not marketed for sale when the owner was approached by
the purchaser. All cash sale. At the time of sale, the property had a
reported 65% occupancy rate over the prior year and an average daily
rate of $58, indicating RevPar of $37.70. Following Cap. Rate based on
assumed 5% growth and 60% Expense ratio.
Per Room: $57,865 Per sf GBA: $120.05
Cap. Rate: 10.0% EGIM: 4.21
Remarks:
98222-1
</TABLE>
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<TABLE>
<S> <C>
HOTEL SALE COMPARISON NUMBER: 3
Name: Radisson Hotel, 17001 International Blvd.
City: SeaTac County: King State: WA
Location: Located on the west side of International Blvd just east
of the SeaTac International Airport a few blocks. This
commercial strip is heavily developed with hotels, car
rental and parking places, restaurants and other service
uses focused around the Airport.
Legal Desc: APN 282304-9053
Rooms: 306 Gross SF Area: 181,112
Age: 1959 Stories: 2+
Description: There is three two story buildings, and one three story
building. At the time of sale there was a fine dining
restaurant that the purchasers closed. The space had
been renovated recently including the lobby and
corridors. At the time of sale, this property was two
hotels, the Quality Inn and the Radisson Hotel. After
the purchase, the entire property was renamed the
Radisson Hotel. The property has a heated outdoor pool.
The buildings have interior corridors.
Income Data: According to a representative of the buyer, the trailing income was
over $2 million. The pro-forma income is $2.3 million.
Document Price: $21,350,000 Analysis Price: $21,350,000
Date: 06-05-98 Document No: 9806051733
Buyer: CHIP REIT, 25 SeaTac (Ltd)
Seller: Sea-Tac Hospitality Inc
Source: Rob O'Neil of buying party.
Sales Data: The property was purchased by a REIT. All cash sale.
Per Room: $69,771 Per sf GBA: $117.88
Cap. Rate: 10.8% EGIM:
Remarks: The group is leasing some land from the Port for parking.
98222-3
</TABLE>
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<TABLE>
<S> <C>
HOTEL SALE COMPARISON NUMBER: 4
Name: Motel 6, 16500 International Blvd.
City: SeaTac County: King State: WA
Location: Located north of the SeaTac Airport on east side of International Blvd
across from the Washington Memorial Cemetery.
Legal Desc: APN 282304-9190
Rooms: 112 Gross SF Area: 28,800
Age: 1979 Stories: 2
Description: Two story wood frame exterior entry hotel on an 85,377sf site. There
are 32 units in one building, 28 units in another building and 52 units
in the final building.
Income Data: Single rates are $44.55/night and double rates are $51.23/night.
Document Price: $5,749,959 Analysis Price: $5,749,959
Date: 02-28-97 Document No: 9702281516
Buyer: Glasjar Funding LP
Seller: Allstar inns, Inc.
Source: Public record. Tried to confirm with parties to transaction
Sales Data: This sale was one of 71 properties that transferred [sic] throughout the
United States.
Per Room: $51,339 Per sf GBA: $199.65
Cap. Rate: EGIM:
Remarks:
98222-4
</TABLE>
68
<PAGE> 79
<TABLE>
<S> <C>
Hotel Sale Comparison Number: 5
Name: Howard Johnson, 1521 "D" Street NE
City: Auburn County: King State: WA
Location: Property is located .3 miles east of SR-167 off of the 15th Street NW
exit near Auburn municipal airport and Emerald Downs Racetrack.
Legal Desc: APN 000080-0025
Rooms: 66 Gross SF Area: 25,388
Age: 1979 Stories: 2
Description: Two story exterior entry hotel with a sauna and heated pool. Building
is situated on a 62,275sf site. Each room is equipped with a microwave
and refrigerator [sic].
Income Data: Room rates are $75 for a single and $85 for a double
peak season and $10/room less in non-peak season. No real
income information was provided as the seller had only
owned the property four months prior to selling to another
party.
Document Price: $3,515,000 Analysis Price: $3,700,000
Date: 09-19-97 Document No: 9709191393
Buyer: M/M Jong Soo & Kyung Ho Lee
Seller: 85th Street Associates LP, c/o Lawrence Horowitz
Source: Laura C!eman, Director of Assets for seller.
Sales Data: Although the document price was $3,515,000, the
seller reported that the sales price was $3,700,000. The
seller is a major hotel renovator who purchased the
property in May 1997 for $2,775,000. The purchaser then
affiliated the property with the Howard Johnson name and
received an unsolicited offer to purchase the property for
the sales price.
Per Room: $56,061 Per sf GBA: $145.74
Cap. Rate: EGIM:
Remarks:
98222-2
</TABLE>
69
<PAGE> 80
SEATTLE METROPOLITAN AREA DESCRIPTION
70
<PAGE> 81
[FOLLOWING PREVIOUS ADDENDUM TITLE PAGE WAS McKEE & SCHALKA'S PUGET SOUND AREA
MAP WITH A POINTER INDICATING THE "SUBJECT" PROPERTY, ON THE BACK OF WHICH WAS A
MAP ENTITLED "1990-2010 POPULATION FORECAST BY COMMUNITY PLANNING AREA - KING
COUNTY"]
71
<PAGE> 82
SEATTLE METROPOLITAN AREA DESCRIPTION
INTRODUCTION
The Seattle Metropolitan Area is located in the middle of a 5-county area often
referred to as the Central Puget Sound Region. Seattle is the central focus of
economic activity for the entire Western Washington region. Seattle has a
reputation as a desirable place to live and work. It is located in King County
and is both the largest city and largest metropolitan area in the state.
Washington marked its 15'h straight year of economic expansion leading the
Northwest region (Oregon, Idaho, Nevada, Utah, Northern California, and
Washington). The major force behind this growth is the Seattle Metropolitan
area.
In the Seattle area unemployment is down, retail sales are up, and the economy
is experiencing significant growth. As of August 1998 unemployment,, [sic] for
the Seattle PMSA was 2.8 percent this is a 30 year low. Retail sales in 1997 for
King County are up 10.2% over 1996. And in the first 6 months of 1998 retail
sales in King County are up 7.1% over the first 6 months in 1997. Office vacancy
rates are as low as 2 percent in Bellevue and Seattle CBDs, with asking rents
increasing significantly and industrial and other commercial vacancy rates not
much higher. Residential housing costs are increasing at 7-10 percent a year.
The rental market, with vacancies ranging from 1-2 percent in many areas to as
high as 6-8 percent in other areas, is experiencing rent increase from 5-12
percent per year. This is the same economic boom that the county is experiencing
but at a larger magnitude.
POPULATION
The population history and the State Office of Financial Management estimates of
the current populations of the five counties in the Central Puget Sound Region
are shown in the table below. King, Snohomish and Island Counties make up the
Seattle/Bellevue/Everett Primary Metropolitan Statistical Area (PMSA) as
designated by the U.S. Department of Labor. Kitsap County makes up the Bremerton
PMSA and Pierce County the Tacoma PMSA. Island County was added to the
Seattle/Bellevue/Everett PMSA in 1994 because of the large number of Island
County residents who commute to jobs in King and Snohomish Counties.
===============================================================================
[ABOVE REFERENCED TABLE HERE]
===============================================================================
[ON THE BACK OF THIS PAGE WERE TABLES AND A GRAPH SHOWING (1) "CENSUS
INFORMATION AND POPULATION ESTIMATES", (2) "POPULATION GROWTH BY DECADE"
[TABLE], AND (3) "POPULATION GROWTH BY DECADE" [GRAPH]]
72
<PAGE> 83
Most of the growth that has occurred in King County has been in the communities
and unincorporated areas surrounding the incorporated City of Seattle. The
population in the City of Seattle declined from 530,831 in 1970 to 493,846 in
1980. In the 1980s, this trend reversed, and the 1990 census was 516,259. The
1998 estimate is 539,700.
A population forecast for King, Snohomish, Pierce, and Kitsap, Counties was done
in August of 1995 by the Puget Sound Regional Council, and can be found on the
facing page. This shows the 4 County region is experiencing continued population
growth through the end of the decade then slowing and stabilizing growth for the
next 20 years. The largest percentage of growth will focus in areas outside of
the Seattle City limits, due to the lower cost and availability of housing.
EMPLOYMENT
The Seattle metropolitan area is experiencing the lowest unemployment rate in 30
years at 2.8 percent. This is mainly due the high-tech and aerospace industries.
The Seattle area is a regional center for the Pacific Northwest and should
remain in that position. This translates into regional offices for the federal
government, as well as for businesses and financial institutions. The Seattle
area is a major medical center for health care, research, and biomedical
engineering firms. Seattle and Tacoma also have major seaports. Together the
Port of Seattle and Tacoma operates two of the country's largest containerized
cargo ports.
An employment forecast for King, Snohomish, Pierce, and Kitsap, Counties was
done in August of 1995 by the Puget Sound Regional Council, and can be found on
the following page. This shows the 4 County region is experiencing a slowing in
job growth as a percentage, but the total new jobs creation over the next two
decades will be only slightly less than the new jobs created over the past two
decades. The growth of new jobs is spread evenly as a growth percentage through
out the 4 counties, but as a raw number King County will create nearly 60% of
the new jobs in the 4 County region.
The local economy is strong, driven to a degree by rapid employment in the high
tech industries. Boeing is the largest economic engine in the area, directly and
indirectly accounting for one fifth of the regional economy. Non-aircraft
manufacturing is widely distributed over a number of industries, with no
one-industry group with more than 15,000 employees. Aircraft and Parts jobs make
up the largest category of manufacturing employment at about 107,400 jobs.
Boeing is currently experiencing a slowing in airplane orders and production due
to several factors. In 1996, Boeing hired an estimated 21,000 employees. Boeing
also recently acquired McDonnell Douglas, its only remaining U.S. competitor.
The demand for jets domestically is increasing due to airline passenger growth
and the need to replace aging jets that fail to meet new federal noise standards
that go into effect at the end of 1999. Internationally Boeing is seeing slowing
of orders cancellations of existing orders. This is due to the economic problems
in Asia. Boeing is expected to cut 48,000 jobs by year-end 2000. The job cuts
are due to several factors including mergers and acquisitions, production
problems, and the Asian economic downturn. The Seattle
73
<PAGE> 84
[ON THE REVERSE OF THE PREVIOUS PAGE WERE 2 TABLES AND A GRAPH SHOWING (1)
"TOTAL JOBS AND ESTIMATES", (2) "JOB GROWTH PERCENTAGE BY DECADE", AND (3) "JOB
GROWTH BY DECADE" [GRAPH]]
74
<PAGE> 85
metropolitan area will see about 24,000 jobs lost due to these factors. Of the
24,000 jobs lost 10,000 will be through attrition and the other 14,000 will be
actual job losses. With the extremely low unemployment rate these workers are
predicted to be absorbed into the work force quickly.
Boeing is the largest commercial airplane manufacture in the world. Boeing sells
about 60 %of the world's airplanes, with about 70% of those sold to
international customers. According to state economist, the economic troubles in
the Asia Pacific region will impact the state of Washington to the tune of
36,000 jobs over the next two years.
23,000 of these jobs will come from the Seattle area focusing on the aerospace
and wood products industries. This is projected to level off Boeing employment
over the few years. Overall, Boeing is expected to play a decreasing roll in the
economy as the primary engine in the Seattle area economy.
Microsoft is the regions second largest private employer with 13,300 employees
in Washington State and 25,000 worldwide. In the middle of 1997 Microsoft
announced that they pLan to hire 3000 employees over the next two years. They
are have hired approximately 1300 and have another 1700 more to hire over the
next 14 months. According to Microsoft spokesman John Pinnate each Microsoft job
will create an additional 2.3 jobs in the area. With wages and benefits
averaging $58,860 per employee, this addition to Microsoft will add $176.6
million annually to the regional economy. Microsoft's net income for 1997 was
$3.45 billion. Their net income has grown over 50% annually for the previous 2
years.
Seattle is also home to many other expanding small to medium size high-tech and
biotech companies. WRQ and Adobe are a few of the medium sized high-tech
companies headquartered in the Seattle area. Fred Hutchinson, Immunex and the
University of Washington have some of the leading biotech research facilities in
the world and all are located in the city of Seattle.
The port of Seattle is a major economic force for the Seattle metropolitan area
as well as the state of Washington and the West Coast. In a study done by Martin
O'Connell Associates in 1994 they found that the waterfront and airport
activities support or benefit more that 275,000 local jobs. Specifically 90,000
jobs were directly supported by the marine and airport activity at the Port's
marine terminals and Seattle-Tacoma International Airport. The majority of the
foreign trade done with the port of Seattle is done with Asian countries. The
Port recently announced that exports to Asia are up for the first time in two
years. Exports to Asia rose 13% in the first 10 month of 1998 over the same
period in 1997. The Port has also announced that is going to spend $140 million
on the marine division for capital improvements for 1999. Overall, The Port is
expecting increase in port activity over the long haul.
Overall, aircraft and aircraft parts manufacturing jobs make up about 8.1% of
the total non-agricultural jobs in the Seattle/Bellevue/Everett PMSA and make up
about 48% of the total manufacturing jobs. These percentages have been
increasing recently although other sectors are continuing to grow and the
regional economy is diversifying.
75
<PAGE> 86
Aside from the general growth in the "service" and "trade" sectors, future
expansion of the manufacturing base is also likely.
[ON THE REVERSE OF THE PREVIOUS PAGE WAS A TWO-COLUMN TABLE SHOWING "TAXABLE
RETAIL SALES - SIC CODES 52-59" FOR SEATTLE AND FOR KING COUNTY]
76
<PAGE> 87
Taiwan Semiconductor is considering a new chip-manufacturing plant in Thurston
County, with other high-tech industrial facilities likely to be attracted to the
region over the next several years, Washington State's new tax laws that went
into effect in 1996 fuel this likely expansion. These changes exempt factory
investment from sales tax of about 8.0%, which results in Washington becoming a
much more competitive location for manufacturing plants.
Unemployment increased in the Seattle PMSA from 1990-1994, as the rate of job
growth slowed but the population continued to increase at fairly strong rates.
This trend reversed in 1995, and unemployment has declined since that time.
Current unemployment rates are at a very low rate compared to the previous 6
years. The recent history of average annual unemployment rates is:
<TABLE>
<CAPTION>
AUGUST
1990 1991 1992 1993 1994 1995 1996 1997 1998
-------- -------- --------- ------- --------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3.7% 5.1% 6.5% 6.4% 6.7% 5.3% 5.0% 3.5% 2.8%
</TABLE>
The statewide not seasonally adjusted August 1998 preliminary figures are 4.2%.
The Seattle metro area is much lower that the state. Unemployment over the last
two years has decreased drastically. Last year the state saw a 5 percent growth
in employment, according to Sohn Washington's chief economist, employment is
expected to grow between 2.5% and 3% in 1998 statewide. This is a total of
100,000 new jobs in the state, the majority of which are the Seattle
metropolitan area.
On the facing page we have summarized the recent taxable retail sales history
for Seattle and King County. The region experienced very strong retail sales
increases in the years 1989 and 1990, then slowed dramatically in 1991. From
1992 to the present retail sales have grown in King County except for a slight
dip in 1995. 1997 was the strongest year since 1989. The fist [sic] 6 months of
1998 show a 7.2% gain from the same period in 1997. Economic researcher and
consultant Dick Conway recently stated that the retail sales growth would drop
off sharply to five percent for 1999. In general, the sales growth figures have
been somewhat higher in King County as a whole than for the city of Seattle.
This is partly a reflection of the continued population growth, which has
occurred primarily in the areas outside of Seattle where there is greater
availability of residential land.
TRENDS
The greater Seattle area is likely to continue to experience increases in both
population and economic activity. The strong net in-migration that has recently
been experienced is likely to continue, due to the attractiveness of the region
for both workers and companies. Continued employment growth is expected which
will generally keep pace with the population increases, leaving unemployment
close to or slightly above their current structural levels. Much of this job
growth will come in the high technology,
77
<PAGE> 88
computer software, and biotech fields, as well as the lower paying, high-tech
manufacturing sector.
The Seattle metropolitan area is projected to have both population and
employment growth. The population growth will be focused in areas outside of the
city limits of Seattle. The growth will be focused in the areas with available
land. Some of the areas are south central Snohomish County from the King
Snohomish county line North to Marysville and Lake Stevens, the central part of
King County from the King Snohomish County line south to Issaquah and as far
east as Carnation, the southern part of King County from Renton south to
Enumclaw, the northeastern parts of Pierce county (Buckley, Bonney Lake, and
Orting) will experience high population growths. On the Peninsula eastern Kitsap
county, with efficient transportation to Seattle via the ferry system, will also
experience rapid population growth.
The employment growth will focus primarily in the Seattle and Bellevue CBD for
office and retail space. Both Seattle and Bellevue had multiple office buildings
planned for the future. The industrial expansion will focus in the Kent valley
from Kent to Auburn. This area has industrial sites still available, but the
supply is running out and is expected to become very tight within the next 10
years.
Overall the Seattle metropolitan area has a finite amount of buildable area
available. This points to the inevitable fact of increasing land values due to
the unavailability of more land. Along with high land values is a strong
redevelopment trend for urban locations.
Other trends in the area are also positive, including the current revitalization
of the downtown Seattle area. Several major retailing projects have recently
been finished and more are currently underway, the downtown area appears to be
succeeding and re-establishing itself as a primary retailing location for the
region. Other positive factors include numerous planned downtown hotel and
residential developments, as well as the tight Seattle and Bellevue CBD office
market
The largest challenges for the region will be affordable housing and
transportation. The housing market has been increasing at 5-12 percent over the
past 2 years, for both purchase and rentals. Increase are expected, but at
slightly lower levels. Areas outside of the city limits of Seattle are seeing
the greatest growth because there is more residential land available. The
available land is shrinking rapidly with only 14,000 buildable lots in the
pipeline for King County. Seattle has been combating the housing crunch with
redevelopment of older properties to properties with higher densities. The
density issue will also need to be addressed in cities outside of Seattle.
Seattle metro area has the 6th worst traffic congestion in the nation. On
November 5th 1997 the citizens in the Puget Sound area approved a $3.9 billion,
10-year transit plan. This plan includes using 81 miles of existing rail to
serve the areas from Everett to South Tacoma. As well as building 25 miles of
light rail from Northgate to the Seattle-Tacoma airport. Improving the bus
system in the greater King county area, HOV lanes and HOV access for carpools
and buses, and improving the scheduling of the bus system.
78
<PAGE> 89
Overall, prospects for growth in the local economy appear very strong, with
continued increases in population and employment likely and corresponding
strength in real estate markets in the near to medium term future. Housing and
transportation as well as other infrastructure requirements will need to be
addressed in the coming years. The current expected strength of the economy
suggest that these needs will be met with a minimal impact on the economy.
[ON THE REVERSE OF THE PREVIOUS PAGE WAS A TABLE ENTITLED "NONAGRICULTURAL WAGE
AND SALARY WORKERS EMPLOYED IN THE SEATTLE-BELLEVUE-EVERETT PMSA (KING,
SNOHOMISH AND ISLAND COUNTIES)". THIS TABLE WAS CONTINUED ONTO THE FRONT OF THE
NEXT PAGE]
79
<PAGE> 90
APPRAISERS' EXPERIENCE AND QUALIFICATIONS
80
<PAGE> 91
[McKEE & SCHALKA LETTERHEAD]
EXPERIENCE & QUALIFICATIONS
----------------------
E. BATES MCKEE, MAI
Mr. McKee graduated from the Massachusetts Institute of Technology in Cambridge,
Massachusetts, in 1979. He received a Bachelor of Science Degree in Geology,
with a Minor in Writing. He additionally completed the O-Degree program in
Geology at Edinburgh University, Scotland, in 1978.
Mr. McKee received the MAI (Member of Appraisal Institute) designation in 1988.
Mr. McKee founded the firm of McKee & Schalka in 1990. McKee & Schalka is a
comprehensive commercial appraisal company currently employing ten professional
appraisers. Mr. McKee previously joined the Seattle office of Shorett & Riely as
a commercial appraiser in 1984. In 1989 he co-founded and managed the Shorett &
Riely office in Bellevue, Washington.
Mr. McKee was previously employed as a Geologist with Roger Lowe Associates,
Bellevue, Washington, from 1979 to 1980. His work included site evaluation of
geologic and hydrologic conditions and hazards, economic feasibility analysis,
and construction inspection. Mr. McKee was employed as an investment manager and
analyst from 1981 to 1983. During this time he authored Optival, a computer
program for analyzing stock options. Mr. McKee was subsequently employed as an
investment software designer with Expert Systems, Inc., Redmond, Washington, in
1983. This position entailed design of software for analysis of real estate,
stocks, bonds, options, annuities and insurance.
Mr. McKee is a Certified General Real Estate Appraiser (Washington State
Certificate No. 270-11 MCKE-EE-B443RF). Mr. McKee has aiso completed the
requirements of the continuing education program of the Appraisal Institute. In
his appraisal experience, Mr. McKee has appraised and analyzed a wide variety of
commercial property types, and provided critical consultation and litigation
services to a diversified range of clients.
81
<PAGE> 92
[McKEE & SCHALKA LETTERHEAD]
EXPERIENCE & QUALIFICATIONS
----------------------
HEATHER HAKE WOODSIDE
Ms. Woodside joined McKee & Schalka in 1995. She obtained her Bachelor's Degree
in Business Administration with an option in Real Estate from Washington State
University. Course work has been successfully completed in a variety of
appraisal and real estate-related courses including: Real Estate Valuation, Real
Estate Principles, Real Estate Finance and Investments, Real Estate Investment
and Analysis, Real Estate Law, Real Estate Administration, and Theory of Urban
Design and Development, Real Estate Principles of Maintenance and Repair, and
Standards of Professional Practice, Part A. During her college career she was
awarded an Appraisal Institute scholarship, the Outstanding Undergraduate in
Finance Award and she graduated summa cure laude. Prior to joining McKee &
Schalka, Ms. Woodside was employed at the Washington Center for Real Estate
Research as a research technician. Ms. Woodside is a Certified General Real
Estate Appraiser (Washington State Certificate No. 270-11 WO-OD-SHH278JO).
82
<PAGE> 1
EXHIBIT 99.(b)(3)
Appraisal of
SUPER 8 MOTEL
1688 South 348th St.
Federal Way, Washington
[PICTURE OF SUBJECT PROPERTY]
<PAGE> 2
APPRAISAL
OF
SUPER 8 MOTEL
1688 South 348th St.
Federal Way, Washington
AS OF:
January 1, 1999
AUTHORIZED BY:
Karl Schaffer
U.S. Bancorp Appraisal Division
Seattle, Washington
PREPARED BY:
E. Bates McKee, MAI
Heath Hake Woodside, Appraiser
MCKEE & SCHALKA
Real Estate Appraisal Services & Consultants, Inc.
701 Fifth Avenue, Suite 6750
Seattle, Washington 98104
REFERENCE NO. 8222
<PAGE> 3
McKEE & SCHALKA
REAL ESTATE APPRAISAL SERVICES & CONSULTANTS, INC.
701 Fifth Avenue, Suite 6750, Seattle, Washington 98104
Telephone (206) 348-8909 Fax (206) 386-5777
December 28, 1998
Karl Schaffer Senior
Income Property, Appraiser
U.S. Bancorp, Appraisal Division
1301 Fifth Avenue, Mezzanine Level
Seattle, Washington 98101
NAME: FEDERAL WAY SUPER 8 MOTEL
DESCRIPTION: 90-ROOM LIMITED SERVICE MOTEL
ADDRESS: 1688 SOUTH 348TH ST.
MUNICIPALITY: FEDERAL WAY, WASHINGTON
REAL PROPERTY DESCRIPTION: KING COUNTY APN NO. 212104-9078
OTHER PROPERTY DESCRIPTION: PERSONAL PROPERTY TAX ACCOUNT NUMBER
McKee & Schalka Reference No.: 25275454
USBADW File No.: 8221
A98-529
Dear Mr. Schaffer:
We have prepared the attached appraisal report for the subject property. The
subject is a 90-unit lodging facility which is located at 1688 South 348th
Street in Federal Way, Washington. The purpose of this appraisal is to estimate
the Market Value of the fee simple interest of the subject property. The
definition of Market Value used in this appraisal is found in the Appraisal
Description of the attached report.
The accompanying complete appraisal report has been prepared in conformity with
the Uniform Standards of Professional Appraisal Practice (USPAP) and the
Appraisal Standards implemented by the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREAL). This appraisal has been prepared in
conformity with the requirements of the Code of Professional Ethics and the
Standards of Professional Appraisal Practice of the Appraisal Institute, and is
subject to the Assumptions, Certification & Limiting Conditions contained in
this report, as well as specific assumptions contained herein. This report has
also been prepared in accordance with the appraisal guidelines of U.S. Bancorp.
Mr. E. Bates McKee,
<PAGE> 4
Transmittal Letter
Super 8 Motel, Federal Way, WA
McKee & 5chalka Reference No. 8221
December 25, 1998
Page 2
MAI (Washington State Certificate No. 270-11 MC-KE-EE-B443RF) and Ms. Heather
Hake Woodside, Appraiser (Washington State Certificate No. 270-1i
WO-OD-SH-H278JO) are both Washington State Certified General Real Estate
Appraisers.
In the course of this appraisal we have both substantially participated in the
analysis and valuation. Ms. Heather Hake Woodside has personally inspected the
subject property. Significant information and assistance have been provided by
other sources, including sources cited herein, and by other associates of McKee
& Schalka, Inc. specifically, Brian R. Ledbetter (Washington State Certificate
No. 27011-LE-DB-EB-R376QQ) participated in the inspection of the property. As a
result of our investigation and analysis, our conclusion is:
<TABLE>
<CAPTION>
Effective Value
Description Valuation Date Conclusion
- ----------- -------------- ----------
<S> <C> <C>
Market Value - Fee Simple Estate 1/1/99 $4,000,000
</TABLE>
The above value estimate is commensurate with a reasonable marketing and
exposure time of one year. The market value includes furnishings, fixtures, and
equipment (F,F,&E), including both permanently affixed real estate, and personal
property. The contributory value of F,F,&E is estimated to be $300,000, which
includes personal property of 3,210,000.
Respectfully submitted,
E. Bates McKee, MAI Heather Hake Woodside, Appraiser
<PAGE> 5
CERTIFICATION, DISCLOSURE AND USE RESTRICTION
CERTIFICATION
I CERTIFY THAT, TO THE BEST OF MY KNOWLEDGE AND BELIEF:
- - The statements of fact contained in this report are true and correct.
- - The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions, and conclusions-
- - I have no present or prospective interest in the property that @s the
subject of this report, and I have no personal interest or bias with
respect to the parties involved.
- - My compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event.
- - My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
- - Ms. Heather Hake Woodside has made a personal inspection of the property
that is the subject of this report.
- - Mr. Bates McKee has not made a personal inspection of the property that
is the subject of this report.
- - No one provided significant professional assistance to the person(s)
signing this report, with the exception of other associates of McKee &
Schalka, Inc.
- - The reported analyses, opinions and conclusions were developed, and this
report has been prepared, in conformity with the requirements of the
Code of Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
- - The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
- - As of the date of this report, Mr. E. Bates McKee, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
- - The appraisal assignment was not based on a requested minimum valuation,
a specific valuation, or the approval of a loan.
RESTRICTION UPON DISCLOSURE & USE:
Disclosure of the contents of this appraisal report is governed by the By-Laws &
Regulations of the Appraisal Institute.
Neither all nor any part of the contents of this report (especially any
conclusions as to value, the identity of the appraiser or the firm with which
(s)he is connected, or any reference to the Appraisal Institute or to the MAI
designation) shall be disseminated to the public through advertising media,
public relations media, news media, sales media or any other public means of
communication without the prior written consent and approval of the undersigned.
No part of this report or any of the conclusions may be
<PAGE> 6
included in any offering statement, memorandum, prospectus or registration
without the prior written consent of the appraiser. This appraisal is intended
for use only by the client identified in the Transmittal Letter, and may not be
transmitted or communicated to any other party without the specific written
permission of McKee & Schalka, Inc.
- ------------------------------- -------------------------------------
Signature of Appraiser Signature of Appraiser
<PAGE> 7
GENERAL ASSUMPTIONS AND LIMITING CONDITIONS
The attached report may only be used or reviewed in its entirety. No individual
pages, portions, analyses or conclusions may be separated from the complete
report or verbally disseminated without transmittal of the entire report. The
report is intended solely for the review and use by the client identified in the
Transmittal Letter, and may not be transferred to any other party, without the
specific written permission of McKee & Schalka, Inc. Certain aspects of the
report (including analysis methodology, spreadsheets, textual formatting and
content) are considered the exclusive intellectual property of McKee & Schalka,
Inc. All rights are reserved.
The following General Assumptions and Limiting Conditions are supplemented by
additional specific assumptions and limiting conditions identified in the
attached report.
It is assumed that there are no hidden or unapparent conditions of the property,
subsoil, structures, or environment (including asbestos, formaldehyde, radon,
soil contamination, structural conditions, legal compliance including zoning and
Americans With Disabilities Act compliance, title or legal conditions, mineral
or other valuable conditions or rights, or unknown soils, hydrological, or
environmental factors) that render it more or less valuable. We have no
expertise in any of these areas, and we specifically counsel the client to
perform additional investigation by qualified experts. No responsibility is
assumed for such conditions or for arranging the studies that may be required to
discover them.
The liability of McKee & Schalka, Inc. and its employees is limited to the
client only, and only to the extent of the fee actually contracted for.
The value conclusions are the result of integration of the entire appraisal
process, including multiple methodologies, approaches and analyses. Any specific
errors or omissions may or may not change the value conclusions.
The appraiser is not required to give further consultation, testimony or
attendance in court by reason of this appraisal unless arrangements have been
previously made.
The information furnished by others is believed to be reliable, but no warranty
is given for its accuracy.
The forecasts, projections and estimates contained in this report are based on
current market conditions, anticipated short-term supply and demand factors, and
a stable economy. These forecasts are, therefore, subject to changes with future
conditions. The analyses and conclusions are valid only as of the date of
transmittal of the report.
The appraiser has made no survey of the property and assumes no responsibility
in connection with such matters. Any sketch or identified survey of the property
included in this report, is only for the purpose of assisting the reader to
visualize the property.
No responsibility is assumed for the legal description or for matters including
legal or
<PAGE> 8
title considerations. The property is appraised free and clear of any or all
liens or encumbrances, unless otherwise stated. Title to the property is assumed
to be good and marketable.
Responsible ownership and competent management are assumed.
The allocation of total value to land, buildings, or any fractional part or
interest as shown in this report, is invalidated if used separately or in
conjunction with any other appraisal.
<PAGE> 9
[TABLE OF CONTENTS AND INDEX]
<PAGE> 10
LIST OF MAPS AND FIGURES
<PAGE> 11
SUMMARY OF IMPORTANT CONCLUSIONS
<PAGE> 12
COMMENTS
The subject of this appraisal is the 90-room Super 8 Motel located in Federal
Way, Washington. This is a 3-story, wood frame, limited-service motel. The
property, was originally constructed in 1982, and subsequently renovated in the
mid 1990s. It has been well maintained and managed. Typical of other Super 8
properties the subject has fairly small rooms and limited common areas, and a
functional layout with an interior entrance configuration. The property does not
have a pool or sauna or any other significant amenities.
The improvements are located on a 2.91-acre site which is moderately sloping but
is a fully usable site. The site is located directly adjacent to the west side
of Interstate-5, at the South 348th Street interchange in Federal Way. This is
one of two Federal Way freeway interchanges, and the subject has excellent
visibility from this major arterial. The subject does not have freeway
visibility or legal access from South 348th Street. It does have access via a
minor road adjacent to the north of the subject. The site is considerably larger
than that which would be required for typical hotel improvements of this size.
The excess land is located in the eastern end of the site, is used for truck
parking which can accommodate approximately 30 trucks. This is extensively used
in the operation of the subject, with approximately 26% of the subject's room
sales coming from this segment. We have investigated land sale transactions in
this area in order to determine whether this is the highest and best use of this
portion of the site. After considering the likely contributory value of this
excess land relative to the amount that the truck parking contributes to net
operating income, we have concluded that the highest and best use is for
continued use for this area as truck parking.
As the basis for the valuation of the property we used the Sale Comparison and
Income Approaches and did not use a Cost Approach. For an existing established
motel property of this size and age, purchasers are primarily interested in the
income characteristics and the market price for similar properties. For the Sale
Comparison Approach we reviewed a wide variety of hotel transactions in
Washington and Oregon, and used five for direct comparison with the subject. The
subject would be marketable if available for sale, and we have placed some
emphasis on the indications from this approach. The Income Approach is
considered compelling, based on detailed income and expense history for the
subject property over the past several years and a reasoned local and regional
market analysis. In the end, we gave consideration to both approaches in our
final value estimate.
<PAGE> 13
[SUBJECT PHOTOGRAPHS]
<PAGE> 14
[SUBJECT PHOTOGRAPHS]
<PAGE> 15
[SUBJECT PHOTOGRAPHS]
<PAGE> 16
[SUBJECT PHOTOGRAPHS]
<PAGE> 17
APPRAISAL DESCRIPTION
IDENTITY OF PROPERTY
The subject is an existing 90-room lodging facility known as the Federal Way
Super 8 Motel is located at 1888 South 3484 Street m Federal Way, Washington.
LEGAL DESCRIPTION
We have not been provided with a title report for the subject property. A legal
description for the subject property is contained in the Addenda. The property
can also be legally described as King County tax lot 212104-9078, as well as
Personal Property Tax Account No.
420025275454.
It is our understanding that there is a non-exclusive roadway easement for South
347th Place shared by several adjacent property owners. This is a minor two-lane
paved road which leads from South 16th Street, and provides the access to the
subject property. We specifically assume that there are no other unusual or
unapparent easements, legal, or title considerations which impact the value or
utility of the property.
PURPOSE OF APPRAISAL
The purpose of this appraisal is to estimate the Market Value of the subject
property. The following is the definition of Market Value according to OCC
Regulation 12 CFR Part 34.42:
"Market Value means 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:
(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and each acting
in what they consider their own best interests;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
<PAGE> 18
(5) he 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."
FUNCTION OF APPRAISAL
It is our understanding that the function of this appraisal is to assist in
decisions regarding financing and asset valuation of the property.
PROPERTY RIGHTS APPRAISED
This is an appraisal of the fee simple interest of the subject property.
UNAVAILABILITY OF INFORMATION
We have not been provided with an environmental report, title report, structural
inspection report, or a hydrologic or soils report. We are not expert in any of
these areas, and generally rely on the technical reports of qualified personnel.
We specifically assume that there are no unapparent conditions which affect the
value or utility of the property.
ADA COMPLIANCE
We have not been provided with any information regarding the compliance of the
building improvements with the Americans With Disabilities Act (ADA). We are not
experts m ADA compliance issues and specifically assume that there are no
unapparent conditions with regard to ADA compliance which affect the value or
utility of the property.
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal is subject to the General Assumptions and Limiting Conditions
found at the beginning of this report, as well as specific assumptions noted
above.
SCOPE OF APPRAISAL
This appraisal is not limited in scope, and uses both the Sale Comparison and
Income Approaches to value. The Cost Approach has not been employed in our
valuation process. Current purchasers of similar properties are primarily
interested in the income characteristics of the property, and focus on the
Income Approach and Sale Comparison Approach when determining an appropriate
purchase price. Also, the age of the improvements and subsequent renovations
make an exact estimation of accrued depreciation unreliable. Therefore the Cost
Approach has not been used, since it would not have had any bearing on the
reconciled market value for the property.
In the course of this appraisal Ms. Heather Hake Woodside has personally
inspected the subject property. In addition we have evaluated the local
neighborhood and surrounding areas; surveyed the competitive lodging facilities
within this market; and
<PAGE> 19
reviewed historical data and income and expenses for other similar properties.
We have also carefully reviewed and analyzed the subject's income and expense
history over the past several years. We have spoken with the subject's owners,
manager, and other property managers, owners, and government officials within
this market. We have researched and evaluated the sales of other lodging
facilities, both within King County and throughout the Pacific Northwest
Overall, the scope of the research and analysis contained in this appraisal is
substantial, and in our opinion adequate to support the value conclusion.
COMPETENCY
We are competent to appraise the subject property. We have considerable
experience in the analysis and valuation of lodging facilities throughout the
region, and have appraised several other lodging facilities in the subject's
market area. Please refer to the Scope of Appraisal, the Appraiser's
Qualifications and Experience Data in the Addenda, and the research and
presentation embodied in this report for verification of competency.
HISTORY AND CURRENT STATUS OF PROPERTY
The property was originally developed in 1982, and has been under continuous
ownership by the same entity since that time. The subject was offered for sale
in 1998, along with a portfolio of about 25 other Super 8 properties located in
Washington, Oregon and Alaska, with an asking price of about $91 million. It is
our understanding that several parties expressed interest in the properties,
with the highest offer at about $81 million. This interest did not result in
either transaction or indications for individual properties, and the interested
parties bidding on the portfolio are different than the likely purchaser profile
for the subject property individually. The properties are not currently offered
for sale, and we are not aware of any current or pending purchase offers,
listings, or agreements.
REASONABLE EXPOSURE TIME AND MARKETING TIME
The value conclusion in this report is as of the effective date of this
appraisal, and assumes that a reasonable exposure time has preceded that
effective date. Thus the value is consistent with expected transaction on that
effective date after prior marketing. Exposure time is the period of time that
would reasonably have preceded transaction of the property at the appraised
value on the date of appraisal. The reasonable marketing time discussed in this
section is that period which would be expected to be incurred to market the
property, in the current environment as of the date of the appraisal report,
with the marketing to occur subsequently. Thus the value conclusion is not
necessarily the subsequent value that would be anticipated for transaction of
the property after the future marketing period.
It is our conclusion that the subject would be quite marketable if available for
sale. The improvements are about 16 years old and appear to have been reasonably
well maintained, with no major items of deferred maintenance noted. The property
has had
<PAGE> 20
periodic renovations over the years, including 20 rooms in August of 1995, 26
rooms renovated in 1992 and 42 rooms in 1998. Thus, about two-thirds of the
rooms have had significant renovations within the last four years. The quality
and limited-service orientation make it attractive to the owner-operator
segment, who continue to be active in the hotel market.
Regionally there continues to be significant sales activity for this property
type. Over the past several years the market activity of hotel properties
increased, as RElTs and other entities had increased interest. More recently
this institutional interest declined over the last half-year. While interest
from this segment of purchasers declined, smaller income investors and owner
operators continue to be active. On a single-property basis this would be the
subject's primary market segment, and the subject improvements would be quite
marketable to this segment.
Negative factors include a fair amount of new supply of rooms being added to the
market recently as well as several projects under construction or planned. This
is somewhat mitigated by the growing population in the region as will be
discussed in the market analysis section. Positive factors include a good
location off of Interstate-5 near the beginning of Highway 18, a major trucker
route. The subject also has excess land in a truck oriented neighborhood which
provides truck parking.
After consideration of these factors we have estimated a marketing and exposure
time of one year or less, and the value conclusion is consistent with that
estimate.
DATE OF INSPECTION
December 17, 1998
DATE OF APPRAISAL PREPARATION
December 28, 1998
EFFECTIVE DATE OF VALUE ESTIMATE JANUARY, 1, 1999
<PAGE> 21
[NEIGHBORHOOD MAP]
<PAGE> 22
NEIGHBORHOOD AND LODGING MARKET
REGIONAL OVERVIEW
The Seattle Metropolitan area is located in the middle of a 5-county area often
referred to as the Central Puget Sound Region. Seattle is the central focus of
economic activity for the entire Western Washington region. Seattle has a
reputation as desirable place to live and work. It is located in King County and
is the largest city and metropolitan area in the state. Trends in the Seattle
area include record low unemployment, increasing retail sales and significant
economic growth. This is coupled with an increasing population which shows
little signs of slowing m the near term future.
The two largest private employers in the region are Boeing and Microsoft.
Seattle is also a major medical center for health care, research, and biomedical
engineering firms. Although Boeing is planning to layoff about 24,000 employees
in the region over the next year, many of these layoffs will likely be through
attrition. Because the economy is so strong and the unemployment rate is so low,
the remainder of the Boeing layoffs are expected to be absorbed quickly. For
example, Microsoft announced in mid-1997 that they plan to hire about 3,000
workers over the next few years. For a more detailed description of the area,
please refer to the Seattle Metropolitan Area Description found in the Addenda
of the attached report.
NEIGHBORHOOD OVERVIEW
The subject is located in the incorporated city of Federal Way, in the southwest
portion of King County, Washington. The city of Federal Way is generally a
triangular-shaped municipality, bordered by Interstate-5 to the east and south,
Pierce County to the south and west, and Puget Sound to the north and west.
Federal Way is located about 20 males south of downtown Seattle, and eight miles
northeast of Tacoma. Please refer to the map on the facing page for
visualization of this neighborhood.
Federal Way has experienced a substantial growth in development over the past
decade, as part of the broader in-filling which occurred in suburban locations
between the major metropolitan centers of Seattle, Everett, and Tacoma. Until
recently, the Federal Way area was part of unincorporated King County, and
Federal Way does not have a well-defined city center or municipal identity. Much
of the development which has occurred has been along Interstate-5 and Pacific
Highway South (Highway-99) corridors, including a substantial amount of retail
and commercial growth along South 320th and 348th Streets. There has also been
significant residential increases of both multi and single family residential
uses, primarily in the western and previously less-intensive developed southern
portions of Federal Way.
Federal Way is one of the most populated cities in Washington state, with a
residential population estimated to be 71,610 in 1998. This represents an
increase of about 88.6% over the 1990 population figures. According to the Puget
Sound Council of Governments, the population is expected to increase to 79,000
persons by the year 2000.
<PAGE> 23
Local population, increases in general growth in the region fielded major office
and retail developments in Federal Way recently. The largest of these is the
West Campus area, which is a large single and multi-tenant office development
located about one mile northwest of the subject. The West Campus development was
initiated in the 1970's when the Weyerhaeuser Corporation relocated their
corporate headquarters from downtown Tacoma into a new complex located on the
eastern side of Interstate-5. Other office developments followed and Quadrant
Corporation, a subsidiary of Weyerhaeuser developed the project known as West
Campus. This development currently contains about 40% of all of the office space
in Federal Way. In contrast to most of the other office development, West Campus
is a large, master planned mixed-use area, characterized by a high level of
amenities. West Campus currently serves as the civic center for Federal Way,
housing the city hall, police department, a library, and a major hospital.
Retail activity is a primary component of the Federal Way economy, and has
historically been centered around the Sea-Tac Mall. This is located at the
corner of Pacific Highway South and South 320th Street, about two miles north of
the subject. This regional mall was constructed in 1975 and contains about
775,000sf of retail space. There has been a variety of multi-tenant shopping
centers, strip malls, and stand-alone retail buildings, which have been
concentrated around the South 320th/Pacific Highway South area. More recently, a
significant amount of retail development has occurred in the vicinity of the
subject's South 348th Street/Interstate-5 interchange, which had previously been
considered the secondary freeway interchange in Federal Way. Over the past few
years however, this neighborhood has been developed with several "big-box"
retail stores, particularly in the area just to the south of 348th. Developments
include Costco, Eagle Hardware, Home Depot, GI Joe's, and Circuit City. Due to
the greater availability of land in the 348th neighborhood, this is likely to
continue to experience a substantial amount of development pressure as a
secondary retail location to the intensively developed Sea-Tac Mall area to the
north.
Major access to Federal Way area is from northbound and southbound Interstate-5,
via the South 320th Street and South 348th Street interchanges. Both of these
freeway interchanges have been heavily developed with retail and service
oriented uses. These include a wide variety of fast-food restaurants, service
stations, family restaurants, and other service establishments, in addition to
the larger retail developments which have previously been described. In some
respects this has supplanted the older "commercial strip" along Highway-99,
particularly the corridor between 320th Street and 348th. This previously had
contained the majority of the commercial development in the Federal Way area,
and includes most of the older motels and retail buildings. All three of these
arterials (South 320th Street, South 348th Street, and Highway-99) carry high
traffic volumes and experience substantial traffic congestion. Interstate-5 just
north of the subject's interchange has an average daily traffic count of
approximately 149,000. SR-18 (South 348th Street) also cames a high volume of
traffic for a surface street at over 39,000 vehicles/day in the vicinity of the
subject. Finally, Highway 161 had traffic counts of about 27,000 vehicles per
day in front of the subject in 1997.
<PAGE> 24
IMMEDIATE SURROUNDING USES
The subject is located along the north side of South 348th Street, one block
west of Interstate-5. South 348th Street contains a major cloverleaf
Interstate-5 interchange, with two lanes in each direction. The subject does not
have direct access from 348th but is accessible via a minor two-lane paved road
(South 347th Place) which leads directly to the east from SR-161. The
intersection of 348th and SR-161 is signalized including signal-controlled
center left turn lanes. While not having direct freeway visibility, the subject
has excellent access from Interstate-5 in both directions via two right turns,
along with good visibility from the adjacent 348th Street. Immediately to the
west of the subject is a Denny's restaurant, as well as a Shari's restaurant
located adjacent to the southwest across 348th. Directly to the east of the
subject is the Interstate-5 exit ramp right-of-way, while the area to the north
includes a large, undeveloped land parcel with commercial zoning that had been
previously proposed as a hotel site. The only other development along 347th
Place is a Dairy Queen restaurant located 1/2 block to the northwest. Across
SR-161 to the west are a variety of older automotive-oriented uses, as well as a
Texaco service station and McDonald's restaurant. South of the subject across
348th is a large shopping center with major tenants including Costco, Home
Depot, and Circuit City. Further to the west is a large truck service center,
and there are a variety of older automotive-oriented uses along both 348th and
Pacific Highway South.
Overall, the subject has a strong location with regards to other immediate
surrounding uses and motel demand generators. Positive factors include the
location directly adjacent to Interstate-5, with good visibility from 348th as
well as reasonably good access. Other positive factors include a location near
the recent "big-box" retail developments in Federal Way, as well as proximity to
a major truck servicing center which represents a significant demand sector for
the subject. Other services are also readily available in close proximity, and
including most importantly, several family and fast-food restaurants within
walking distance.
[TABLE]
Overall the subject has a strong location within this neighborhood. The good
highway access and the proximity to numerous restaurants and other services is
considered a positive factor. The emergence of this area as a primary retail
location and it's continued use as a trucker location is also a positive factor.
OVERVIEW OF LODGING MARKET
The subject lodging market is part of a larger lodging market which includes a
combination of the SeaTac Airport submarket, the Kent Valley submarket, and the
Southcenter submarket.
<PAGE> 25
[GREATER HOTEL MARKET AREA MAP]
<PAGE> 26
These three markets are located in close proximity to each other and are
influenced by the same broad forces with some differences in the demand
components for each individual market. Please refer to the map on the facing
page, which shows the location of these three markets relative to the subject
property. A summary of the competitive lodging facilities within these three
submarkets is found on the following page. This survey includes a total of 50
properties, which includes all of the competitive facilities built since 1960 of
larger than 50 rooms. This is a total of about 7,757 rooms in this market.
About 40% of the rooms in the market were constructed in the 1960s and 1970s,
with most of these being built along International Boulevard in the vicinity of
the airport. These include several of the largest full-service hotels, including
the Red Lion, the West Coast SeaTac, Holiday Inn, Radisson Hotel, and the
Airport Hilton. During the decade of the 1980s, the rapid expansion of the Kent
Valley industrial area resulted in the majority of the development shifting to
the other two submarkets. In the 1980's about 2,600 rooms were added to the
market. In total, the period from 1985 to 1992 saw 17 new hotels constructed in
this market. A significant portion of this addition of supply were properties
with the extended stay orientation, including the 152-room Hawthorne Suites
(previously Home Court All Suite); the 144-room Residence Inn located just east
of Southcenter; and the 106-room Homewood Suites located north of
Interstate-405. The other properties built since 1990 include the 154-room
Hampton Inn and 75-room Best Western Choice located in the Kent Valley, and the
146-room Best Western Gateway and 86-room Days Inn both located in the airport
submarket.
These large increases in supply over this time period caused considerable
distress in the hotel market, particularly in the Kent Valley submarkets. The
period in the early 1990s was one of falling occupancy levels, fierce
competitiveness from an increasing number of hotel rooms for a relatively stable
demand segment, and a resulting lack of increases in ADR which other markets
throughout the region experienced. This is particularly the case for the Kent
Valley portion of the market, which experienced both a greater increase in
supply and a lack of a strong and increasing built-in airport demand segment. As
a consequence there were no new hotels constructed from 1992 to 1995. Demand
eventually increased to the point where additional supply was built from 1996
onward. About 1,037 rooms were constructed since 1992. We note that we have
followed the operating statistics of several of the properties m this greater
market and have not noted a significant decrease in either the occupancy rates
or the Average Daily Rates despite the significant increase in supply. However,
if properties continue to be developed, we would expect some oversupply which
could result in low occupancies and low Average Daily Rates which will be forced
upon existing facilities as they compete for business.
Please refer to the Current Proposed Properties Summary found on a following
page. Here we have Listed the current proposed hotel and motel properties in
this greater market area. In formulating this list we have had discussions with
the permit and planning departments in the cities of Renton, Tukwila, Auburn,
Kent, and SeaTac. In addition we have researched and investigated planned
properties from numerous other sources including hotel brokers, managers, and
developers. The exhibit represents our
<PAGE> 27
understanding of the properties most likely to be developed in the near future.
We note that many of these properties do not have permit approval or financing
in place, and still represent a fairly broad spectrum in terms of
<PAGE> 28
[KENT VALLEY, SOUTHCENTER, SEA-TAC
INVENTORY OF HOTELS AND MOTELS** TABLE]
<PAGE> 29
the probability of near term construction. Several are very likely to begin
construction within the next six months, while others represent less definitive
plans for development within the next 12 to 24 months. We note that all but one
of these properties represent hotels with a limited-service format which is
favored in the current environment. In all, a total of 2,713 rooms are proposed
or an additional 35% to the existing supply of hotel rooms. The impact is likely
to be significantly less than this however as all of these proposed properties
will not ultimately be constructed. Given the strong historical and likely
future increases in demand for rooms in this market, it is likely that within
the next three years the market will be able to absorb an increase m supply in
about the 15% range without dramatic negative impacts on the occupancy overall.
In conclusion, the significant increase in supply to the greater market area
from 1996 onward is about 1,037 rooms or a 13% increase. Occupancies and room
rates have not been negatively impacted by this new supply as demand has
remained strong due to the growing economy and population. Not all of the
proposed properties will be constructed, however, as many of these projects will
become unfeasible because of the growing supply and limited new demand.
While the subject is part of this larger market area, it is better defined as
being part of the local Federal Way lodging market. As will be discussed m great
detail later, there are very few competitive lodging facilities in this market
currently, however, significant new supply is proposed. The subject has somewhat
of a niche market providing lodging to truckers and loyal Super 8 customers.
The single largest demand segment at the subject property is the trucking
business. The subject has truck parking on-site for about 30 vehicles. In
addition, there is some parking available along the little-used South 347th
Place as well as at a truck service center located two blocks to the southwest.
These long-established truck service centers, as well as excellent freeway
access and a full range of restaurants and services, has resulted in South 348th
historically being a major trucking stopping point in the Puget Sound region.
This location is just south of the Kent Valley industrial area, which contains
the majority of the Puget Sound region's distribution warehouse space. The Kent
Valley experiences massive traffic congestion during peak times, and the
subject's position along Interstate-5 on the route to California makes it
logical stopping point when leaving the metropolitan area, or while waiting to
be loaded or unloaded. Other factors which have contributed to this demand
segment include relatively modest room rates compared with other greater Seattle
area locations, which is a significant factor for this segment.
Since opening in 1982, the subject has experienced strong, steady trucker
business. This is the only competitive facility in Federal Way that offers any
significant level of truck parking, and subsequently has developed a loyal
repeat business from this market segment. Often this can account for up to half
of room sales in the winter, with many truckers having regular schedules which
brings them to the motel every one to two weeks. Given the continued growth in
the Kent Valley and moderate increases in Interstate-5 traffic, it is likely
that this market segment would continue to be strong at the subject for the
foreseeable future. None of the other currently existing properties have
<PAGE> 30
[CURRENT PROPOSED PROPERTIES TABLE]
<PAGE> 31
enough land to effectively service this segment. In addition, economics dictate
that newly constructed facilities generate room rates above that typically paid
by truckers in order to be feasible. Therefore, it is unlikely that there will
be any substantial change in the foreseeable future that would erode this
segment, aside from continued increases in room rates. This is a particularly
price-sensitive segment however, the continued inclusion of which will limit to
a certain extent achievable ADR increases at this property.
The second most important demand segment is corporate business. This includes
both local traffic serving the needs of the surrounding businesses and retail
centers, as well as transient Interstate-5 traffic. The local commercial
business does not _____ up a large portion of the subject's overall room sales,
but is likely to continue to show increases due to recent retail developments in
this neighborhood. The transient commercial traffic is a significant factor
however, and due to price inconvenience issues, this interchange receives a
significant amount of transient commercial traffic. The modest room rates
relative to other Seattle area locations, location between Seattle and Tacoma,
and convenience and availability of restaurants and other services are all
positive factors. For this segment the subject competes with a broader range of
properties at different Interstate-5 locations. Primary among these is the Fife
area to the south at the outskirts of Tacoma, as well as to a lesser extent,
closer-in suburban Seattle markets. The nearest of these is the SeaTac market,
although strong airport demand forces resulted in much higher room rates than
Federal Way has experienced. Thus, this Federal Way market effectively
represents the nearest modestly-priced alternative in the greater Seattle area,
and effectively competes with other Interstate-5 interchanges to the south more
than to the north.
Other demand segments of lesser importance include family travelers along
Interstate-5, which is a significant component only during the summer and
particularly on weekends. Serving the needs of the surrounding population base
also represents a small portion of the overall room sales in this market. Events
such as the Puyallup Fair also have a strong impact on room sales for a two-week
period during early fall. Most important of the local demand generators is the
King County, Aquatics Center which is located a few miles directly west of the
subject. This facility was developed in conjunction with the hosting of the
Goodwill Games, and has since become a major location for amateur swimming and
diving tournaments, high school meets, as well as a lesser number of
international meets. The subject is one of only two lodging facilities located
in proximity to this facility,, and it generates a significant amount of room
sales on a sporadic basis when larger events are held here. There is also demand
from Wild Waves Water Park and the Seattle International Raceway events which
draw significant crowds in the summer months.
COMPETITION
Please refer to the Income Approach section for further discussion of the
specific facilities, room rates, and amenities for properties that are found in
this market. Despite the size and recent growth in Federal Way, there is a very
limited amount of lodging facility rooms in modern facilities that would be
considered competitive. Aside from the subject's 90 rooms, the only other
competitive properties in Federal Way are the 112-
<PAGE> 32
room Best Western Executel, the 54 room Holiday Inn Express and the recently
completed Comfort Inn. The Best Western Executel was constructed in 1984 and
includes a full restaurant, lounge, outdoor pool, and meeting space. It is
oriented primarily towards business travelers, and includes relatively large
rooms and more extensive facilities. This property is located in the Sea-Tac
Mall area north of the South 320th interchange, and is the only modem,
full-service property in Federal Way. As would be expected, rack and corporate
rates are considerably higher than that at the subject property, and this
facility essentially caters to different market segment:
The Holiday Inn Express is a 2-story, exterior entrance facility was completed
in 1994. The small number of rooms and exterior entrance are both negative
factors, and this property is also located further from the freeway interchange,
about 1/2 mile southwest of the subject. Like the subject, it has very limited
common areas but is a newer property, superior on both exterior appearance and
room furnishings, and has somewhat higher rates than the subject. During the
slow winter months, these properties compete to some extent, although the lack
of any truck parking reduces the competition for the subject's primary market
segment.
Finally, the newly constructed Comfort Inn is expected to be another major
competitor. This facility is located at the intersection of South 3204 Street
and Highway 99, northwest of the subject. It is located left of the South 3204
Street interchange, but is more removed from the interchange than the subject.
This facility has amenities including a pool, hot tub, jacuzzi, exercise room
and a conference room. The property opened in early December 1998 and is
expected to compete with the subject in the winter months when rates are lower
at this property and to a lesser extent in the summer when rates are higher at
this property.
The other lodging facilities in Federal Way all consist of older, inferior
quality facilities generally built in the 1950's, 1960's, and 1970's. Most of
these are located along Pacific Highway South and are 1-story or 2-story
exterior entrance facilities none of which are directly competitive with the
subject. These properties have significantly lower room rates and lack freeway
interchange locations, with substantially lower occupancy levels than the four
competitive facilities enjoy.
The subject is in a fairly strong position relative to other existing lodging
facilities in this market. The only substantially higher quality, full-service
facility is located at the other freeway interchange, and is primarily oriented
to a different market segment than the subject. The other competitive properties
are also located at freeway interchanges, however, both are located further from
the interchange than the subject. These facilities have somewhat higher room
rates and will compete primarily with the subject during the slower months when
room rates and occupancies are lower. Because the subject has truck parking and
relatively low room rates, occupancies should continue to remain fairly stable
as this is a significant source of business. This is a relatively modest room
rate market however; particularly compared with other Puget Sound are locations.
<PAGE> 33
NEW SUPPLY
We are aware of a significant amount of new lodging facilities which are under
construction or nearing the point of beginning construction at this time. There
are currently three hotels under construction at this time including a 160-room
Courtyard Marriott in the Gateway Center near 320th Street across from the
SeaTac Mall. Also, the second floor of the Holiday Inn is under construction at
322nd just west of I-5. This hotel will be about 165 rooms. There is also a 36-
[ON THE REVERSE OF THIS PAGE IS A CHART]
<PAGE> 34
[15 YEAR HISTORY OF HOTEL/MOTEL ROOM SALES TABLE]
<PAGE> 35
unit TravelLodge that is about 80% complete located at 10th Avenue South and
South 335th Street near Pacific Highway South. These three facilities contain a
combined 361 rooms which almost doubles the number of existing competitive rooms
in this market (372). While this new construction would have some negative
impact on the subject, the fact that most of it is located at the other freeway
interchange and likely would have a higher room rate structure mitigates the
possible effects. Further, as illustrated in the greater Kent Valley,
Southcenter and SeaTac Market, the new supply added in this area between 1996
and the present has not significantly affected the room rates or the occupancies
at several of these properties. The limited supply of rooms existing at the
subject market also tends to decrease the possible impacts of new supply. While
the projects under construction represent an almost 100% addition to existing
supply, it really only represents 361 rooms or three hotels. There is also a
101-room Extended Stay America Hotel that has been permitted west of Highway 99
along South 320"' Street. Finally, Days Inn has applied for a permit to build
52-units in this market, however, the specifics of this project are not known
and are described as being preliminary. It appears likely that the projects that
are currently under construction will be completed and the projects that have
not broken ground yet are possible. In total, an additional 153 rooms could be
added between the Extended Stay America and the Days Inn.
In broad terms, the greater Seattle area has continued to expand in terms of
both population and employment. This has resulted in a larger number of room
sales, as well as increases of average daily rates for facilities at somewhat
greater than inflationary levels. Please refer to the exhibit on the facing
page, which summarizes the history over the past 15 years of hotel/motel room
sales both for King County and for Washington State as a whole. These figures
provide an indication of total sales in the lodging market, based on the payment
of the 2% lodging tax for the properties within the state. Given the lack of
collection or reporting by individual cities within King County however, these
figures represent only broad indications of area-wide trends. In addition, there
is sometimes individual variations from period to period due to nonpayment of
taxes in a certain year, which is subsequently credited in the following year.
Therefore, these figures are best viewed in the broader historical context
showing longer term trends in the area. As the figures show, there has been
strong average annual growth in rooms revenue both for the county and for the
state as a whole. Over the last eight years this has averaged about 8.6%
county-wide and 7.6% state-wide. From 1987 to 1990 and from 1995 to 1996, King
County has shown significant increases which is generally consistent with
statewide figures. It is clear that the broad trends will remain positive for
this region, and economic and population growth is likely to continue to result
in increased rooms revenue collection.
NORTHWEST SUPER 8 STATISTICS
Until recently there has also been a very Limited new supply of hotel rooms due
to low economic rents and a lack of availability of financing. This situation
has changed considerably over the past year, and there has recently been a great
deal more activity in lodging facility construction and financing. The increase
in growth trends along with limited historical supply increases, has increased
ADRs to the point where feasibility is
<PAGE> 36
[WASHINGTON AND OREGON SUPER 8 MOTELS
1997-1998 OPERATING STATISTICS TABLE]
<PAGE> 37
being approached, particularly in the limited-service, budget, and mid-priced
market segments. Please refer to the figures on the following page which show
the operating statistics for 22 Washington and Oregon Super 8 properties under
the same management as the subject. The exhibit shows the occupancies,
<PAGE> 38
ADR, and RevPar for the period Nov. 1997 - Oct. 1998, and also compares these
with the previous 12 months. These chain-wide statistics show an average RevPar
of $28.37 over the past 12 months, which is down 1.1% over the previous figures.
The average chain-wide occupancy was 56.8%, which is lower than the subjects
64.4(degree),'0 occupancy over this period. Despite this high occupancy, the ADR
at the subject was slightly lower than average at $47.64, with the subject
showing a nominal decline from the prior year of -.2%. This is a direct result
of relatively flat growth in total market revenue.
HISTORY OF HOTEL/MOTEL ROOM SALES
Other indications of regional trends comes from a review of Trends in the Hotel
Industry, a publication by PKF Consulting most recently dated October 1998. This
survey, summarized on the facing page, includes 140 Washington properties that
total 20,129 rooms, and is divided by sub-areas for the Washington market. The
"SeaTac and Southcenter" lodging market had an average occupancy of 77.4% for
the first 10 months of 1998, virtually the same as the 76.4% in the previous
year. The average daily room rate increased from $81.16 to $86.09. Thus the
average Revenue per Available Room (RevPar) was $66.63, up 7.5% from the same
period in 1997. The "Tacoma and Pierce County" lodging market had an average
occupancy of 65.3% for the first 10 months of 1998, lower than the 71.5% in the
previous year. The average daily room rate increased from $70.49 to $77.82. Thus
the average Revenue per Available Room (RevPar) was $50.82, up .83% from the
same period in 1997. In general, the urbanized areas showed increases, while the
more rural markets were flat to slightly declining. By size and rate, the
smaller and lower-rate properties had the lowest increases. In summary, on a
same facility basis, properties in the subject location, size and rate
classification were amongst the lowest performing properties in Washington
State.
CONCLUSION AND FORECAST OF SUBJECT ROOM REVENUE
In forecasting the average daily rate (ADR) and occupancy at the subject, we
have considered a wide variety of evidence. This includes broader trends
regarding supply and demand forces within the lodging market. We have also
analyzed the subject's historical ADR and occupancy trends on a monthly basis
over the last several years, and likely future trends with regards with the most
important demand segments at the subject. We have considered the subject s room
rates and positioning relative to other competitors in this market, and the ADR
and occupancy trends for the region as a whole. After considering this
information, we have forecast a Year 1 occupancy and ADR for the subject. We
have estimated occupancy at 64.0%, which represents a very slight decrease from
the most recent 12 months occupancy at 64.9%. This is because of the significant
new supply recently added to the market and the projects that are under
construction. We have forecast a Year 1 ADR at $49.00. This represents a modest
2.9% increase from the most recent 12-month figures. This increase similar to
inflation reflects the room rates that could be achieved at the subject
considering the alternatives in the market. In addition, we recognize that the
trucker segment in which the subject is dependent on is relatively price
sensitive and will likely not allow a large
<PAGE> 39
increase as other sectors. This is particularly true given the strong repeat
business at the subject, which is largely responsible for the occupancy gains.
[HOTEL ROOM REVENUE HISTORY IN THE PACIFIC NORTHWEST TABLE]
<PAGE> 40
In total, the Year 1 forecast results in a revenue/room of $11,446, which is a
slight increase over the figures for the previous year.
<PAGE> 41
[SITE MAP]
<PAGE> 42
SITE DESCRIPTION
<TABLE>
<S> <C>
LAND AREA AND SHAPE Please refer to the site map on the facing page for a
visualization of the subject site. The boundaries of
the subject are outlined. According to the King County
Assessor's folio, this property has a total site area of
126,820sf (2.91 acres). Please refer also to the site
plan in the following section for visualization of the
location of the improvements and parking areas on the
site. The site is essentially rectangular, with
approximate dimensions of 743 feet x 170 feet.
ACCESS & STREET FRONTAGE The subject is bounded on the south by South 348th
Street, with a total of 743 feet of frontage and is
bounded in the east by the Interstate-5 southbound
freeway off-ramp, but the subject has no legal access
from either of these roads. Access is from South 347th
Place, which is located adjacent to the subject's
northern property, boundary. This minor paved street
runs east for approximately two blocks from 16th Avenue
South and serves only the subject and adjacent parcels.
It is our understanding that there is a roadway easement
for shared use of this road by four property owners
including the subject, which allows non-exclusive
ingress, egress, and curb side parking. South 347th
Place dead-ends adjacent to the subject's truck parking
area.
TOPOGRAPHY & SOIL CONDITIONS The site slopes moderately from east to west, and gently
from north to south. The improvements are situated in
the west/central portion of the site, which has been
graded to provide a relatively flat building pad for the
improvements. Due to the slope of the site however, the
main entrance in the center of the building is at-grade
with the first floor, while the secondary entrance at
the east end of the building is at-grade with the upper
floor.
We have not been provided with a soils
report for the subject site. We assume the
subsurface soils are adequate for support of
the existing building improvements, and that
there are no unusual drainage or slope
stability problems.
ENVIRONMENTAL CONDITIONS We have not reviewed an environmental report for the
subject property. We specifically assume that there
</TABLE>
<PAGE> 43
<TABLE>
<S> <C>
are no adverse environmental factors that
would negatively impact the value or utility
of the property.
UTILITIES All utilities are available to the subject
site, including electricity, gas, water,
sewer, storm sewer, and telephone. Utilities
are available either along the eastern
boundary, to South 348th Street, or the
western boundary adjacent to South 347th
Place.
ZONING The subject site is zoned BC, a city of Federal Way
Community Business zoning designation. This is a fairly
unrestrictive commercial zone which allows a wide
variety of uses. Outright allowed uses include most
forms of retail, office, restaurants including
drive-through, schools, churches, and numerous other
uses. Residential development is only allowed over
ground- floor retail. There is a 35 foot allowed height
limit in this zone, as well as development credits which
allow administrative plan approval for up to 55 foot
structures. There is no minimum lot size, and the
setback requirements for all but large retail
developments are effectively constrained only by
landscaping requirements. Parking varies with use and
is one/unit for lodging facilities, with greater parking
required if the proposed development contains
significant meeting space. It appears that the existing
improvements conform with the BC zoning requirements.
ASSESSMENT AND TAXES Land $887,700.00
Improvements: $2,458,000.00
Personal Property $91,800.00
Total: $3,333,900.00
1998 Property Taxes: $49,806.66
Average Tax Rate: 1.49%
</TABLE>
The 1999 land assessment is $1,114,500 while the improvement assessment remained
$2,458,000. The assessed value of personal property for 1999 is $86,331. We have
estimated 1999 taxes at about $50,000 as assessments are increasing and levy
rates are decreasing.
<TABLE>
<S> <C>
SUMMARY The subject site is a fully functional commercial site.
</TABLE>
<PAGE> 44
[SITE PLAN MAP]
<PAGE> 45
IMPROVEMENTS DESCRIPTION
GENERAL DESCRIPTION
The following description of improvements is based on our interpretation of
plans prepared by Richert & Associates, Architects, dated January 9, 1982. The
description is also based on our personal inspection of the subject property.
The site plan change facing page indicates the specific site layout with the
site boundaries and the location of the improvements outlined. Reference is made
to the subject photographs at the beginning of this report as an aid in
visualizing the subject property improvements. Copies of floor plans from the
subject are provided at the end of this section.
OPERATOR
The subject property is operated as a Super 8 Motel franchise.
GENERAL DESCRIPTION OF IMPROVEMENTS
The Federal Way Super 8 Motel is a 90-room, three-story, average class motel.
The building includes a small meeting room, but limited other common areas or
amenities. The gross building area is 37,809sf (420sf/room) and the property was
constructed in 1982. Typical of other Super 8 properties, the subject has fairly
small rooms and limited common areas, and a functional layout with an interior
entrance configuration. On-site parking is paved for approximately 120 cars.
There is also an unpaved truck parking area on the subject site which
accommodates about 30 trucks.
GUEST ROOMS
There are a total of 90 guest rooms. There are two basic room sizes at the
subject, with smaller rooms that are either 12' x 20'4" or 12'6" x 20'4". The
larger rooms are either 12' x 21'7" or 12'4" x 21'7". This results in an average
room size for the subject of about 258sf. This would be considered typical for a
property of this type, with the subject having moderately small room sizes but a
fairly large proportion of double rooms. There are a total of 52 singles and 38
doubles, with 5 of the rooms being HC-accessible. All of the guest rooms have
either one or two queen beds. Please see the building plans at the end of this
section for specific measurements of the individual rooms.
INTERNAL LAYOUT, PUBLIC CIRCULATION & FACILITIES
The motel building is three stories, with the lobby and registration area
located in the central portion of the first floor. Guest rooms are laid out on
either side of a central corridor. The second floor and basement floor are
accessed via internal stairways at both ends of the building, as well as one in
the middle of the building. Due to the slope of the site the west entrance is
at-grade with the basement floor, and the east entrance is at-grade with the
second floor. Other public areas consist of one 30-person conference room, a
seating area near the lobby, guest laundry area and a vending area. The general
layout is as follows:
<PAGE> 46
Basement Level: 30 guest rooms, motel laundry room, vending area,
employee room, and supply room.
First Floor: 28 guest rooms, managers apartment, lobby, front desk,
administrative offices, tenant laundry, and vending.
Second Floor: 32 guest rooms, storage, and vending rooms.
The second floor also includes a 525sf meeting room.
STRUCTURE
The foundation and subsurface structure is steel-reinforced, 4" concrete slab on
mat and spread footing, over a 2" sand base on 6-millimeter vinyl. The building
is wood flame. The floors consist of a finished flooring material over 1-1/2"
lightweight concrete poured over 5/8" plywood, set on internal joists with 3"
thermal blanket insulation.
EXTERIOR WALLS
Masonite "stuccato" hardboard siding and 1" by 4" wood trim on 1/2" gypsum
wallboard, on 1/2" plywood, with internal batt insulation.
INTERIOR WALLS & PARTITIONS
The plumbing walls (between the corridors and the rooms) consist of 1/2" gypsum
wallboard over 1/2" soundboard covered with 1/8" thin wall plaster, with a 3"
thermal blanket on one side. The party walls (between the rooms) consist of 1/2"
gypsum wallboard on 1/2" soundboard, covered with 1/8" thin wall plaster.
FLOOR COVERINGS, CEILINGS & LIGHTING
Average quality wall-to-wall carpet in guest rooms and public areas, including
the lobby and registration area, stairs and hallways, conference room, and
manager's apartment. There is vinyl flooring in the guest bathrooms, laundry
rooms, and other motel service areas. The ceilings on the first and second
floors are gypsum wallboard, with thin plaster covering in most areas. The
basement level has suspended acoustical tile ceiling with fluorescent lighting.
Lighting on the first and second floors is ceiling-mounted fluorescent lighting.
Lighting fixtures are generally incandescent m the guest rooms, with both
incandescent and fluorescent lighting in the public areas.
ROOF
The roof surface consists of fiberglass shingles which are reported to be in
good condition.
DOORS & WINDOWS
Entrance doors are self-closing plate glass doors at the front entrance, and
solid core wood doors at the other entrances. All interior doors are solid core,
wood doors with metal frames. All interior doors include hydraulic closures.
Exterior windows are double-paned glass in aluminum frames. All of the guest
rooms were retro-fitted with
<PAGE> 47
Ving key-card lock systems about two years ago.
FIRE PROTECTION
Heat sensors connected to a central alarm system, with individual smoke
detectors in each guest room. The building is not sprinklered.
HEATING, VENTILATION & AIR-CONDITIONING
Guest rooms are provided with heating and air-conditioning by General Electric
individual electric through-wall heat pumps.
ROOM FURNISHINGS
Typical room furnishings include beds with frames and headboards, a
straight-back seat, one or two armchairs, a combination vanity unit with two to
three dresser drawers, a color television set with remote, fixed and movable
lights, artwork, and an oak-framed mirror. The single rooms also include a
table. As previously discussed, 20 rooms were renovated in 1995. Further, 42
rooms were renovated in 1998. The renovation included replacement of carpet,
repainting, and new case and soft goods. Thus about 68% of the rooms furnishings
are from 1-4 years old, while the remainder are considerably older. These
furnishings are of average quality but appear to be attractive and durable. Some
of the older furnishings are nearing the end of their useful lives, however, and
will need to be replaced within the next few years in order for the property to
remain competitive. This also applies to the interior corridors, although
overall the interior and exterior is in fairly good condition.
OTHER FEATURES
Open, paved parking is provided for 120 cars, including five handicap vehicles.
This includes the main parking lot on the north side adjacent to the main
entrance, as well as parking areas to the east and west of the building. There
is also an unpaved truck parking area located at the eastern end of the
property. This can accommodate approximately 30 trucks, and is extensively
utilized.
Signage for the property includes a 30' lighted sign oriented towards S. 348th
St, as well as a sign near the main entrance to the property.
Landscaping includes perimeter garden beds with small shrubs and plants, with
small trees located along the north edge of the building. The property is fenced
along the south and east property boundaries.
The subject improvements are generally of good quality and are attractive in
appearance. Although Super 8 Motels offer relatively low room rates and basic
amenities compared with full-service motels and hotels, the quality of
construction and detailed amenities are superior to that of budget-class motels.
The lack of an elevator and an indoor pool represent functional deficiencies in
that most developers of a new hotel would provide these features.
<PAGE> 48
RENOVATION AND CAPITAL IMPROVEMENT HISTORY
The subject improvements appear to be in very good condition and we are not
aware of any areas of deferred maintenance. According to the property manager,
42 rooms have been recently rehabbed. We have been provided with a summary of
expenditures on the property over the last four years. The following table
summarizes these amounts.
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1995 $ 49,175.61
1996 $ 30,260.35
1997 $ 843.87
1998 $221,901.24
-----------
Total $302,481.07
Per Room $ 3,360.90
</TABLE>
Based on our analysis of cost new and the information above, we have estimated
the contributory value of F,F&E at $340,000 or about $3,777/Room, including
$240,000 in personal property value.
EFFECTIVE AGE/REMAINING ECONOMIC LIFE
The improvements were constructed and opened for business in 1982. The property
has been renovated a few times since it opened making the effective age of the
property somewhat lower than the actual age. We have estimated the effective age
consistent with the physical age at 15 years, and the remaining economic life at
about 20 years. With continued upgrade and maintenance, the actual life could
extend beyond this time frame.
SUMMARY
The improvements consist of a Super 8 Motel which with a fairly standard
configuration for a limited-service motel, with three floors of guest rooms on
either side of a central corridor. The property, is generally attractive in
exterior appearance and includes adequate parking, as well as a fairly extensive
truck parking area. Guest rooms have a standard configuration and moderately
small sizes which are typical for a property with this orientation. The property
appears to be in typical condition for a motel of this age. About 42 rooms were
recently renovated increasing the competitiveness of this property. This would
result in an expectation for fairly modest short-term capital expenditures. With
continuing ongoing maintenance and gradual F,F,&E replacement, it is our
conclusion that the should continue to be functional and competitive within its
market segment.
<PAGE> 49
[4 PAGES OF FLOOR PLAN BY RICHERT & ASSOCIATES - FEDERAL WAY SUPER 8 MOTEL]
<PAGE> 50
HIGHEST AND BEST USE
"Highest & Best Use" is defined by the Appraisal Institute as:
1) The reasonable and probable use that supports the highest present
value of vacant land or improved property, as defined, as of the
date of the appraisal.
2) The reasonably probable and legal use of land or site: as though
vacant, found to be physically possible, appropriately supported,
financially feasible, and that results in the highest present
land value.
3) The most profitable use.
The concept of Highest and Best Use is based on the most profitable and valuable
use. The Highest and Best Use must meet four criteria: it must be physically
possible, legally permissible, financially feasible, and maximally productive.
HIGHEST AND BEST USE AS IF VACANT AND UNIMPROVED
The subject site is a rectangular, 2.91 acre site which is moderately sloping
but fully usable. It has a fairly unrestrictive BC (Community Business) zoning
designation. This allows a wide variety of commercial uses including retail,
office, restaurant, service establishments, schools, and many other commercial
uses. There is a 35 foot basic height limit and minimal setback or other
requirements. The property is located adjacent to South 348th Street, directly
west of an Interstate-5 freeway interchange. The site does not have any legal
access from this major four-lane arterial, but does have good street visibility
and reasonably good access via a minor road adjacent to the north. This
neighborhood is well established with a variety of commercial uses including
numerous family and fast-food restaurants and service stations. There have also
been several large retail developments in the immediate vicinity,: over the past
several years, and this neighborhood is considered one of the two primary retail
locations in Federal Way. Both the locational and physical characteristics at
the site would thus allow a wide variety of potential uses which would likely be
feasible.
Due to the specific location adjacent to Interstate-5 however, a use which would
benefit most strongly from this proximity would be indicated. The fact that the
property does not have direct legal access from South 348th Street essentially
rules out uses such as a service station however, as well as reducing the
viability, of a multi-tenant strip retail center. After consideration of all
these factors, it is our conclusion that the highest and best use for the
subject site would either be as a lodging facility and/or a restaurant. There is
ample evidence of both types of uses in the immediate vicinity of the subject.
This includes a Denny's and Shari's restaurant located in the vicinity of the
subject, as well as limited-service motels located at this general highway
interchange. Given the current status of the lodging market, this use would
likely be most feasible with a limited-service, budget, or mid-priced
orientation. This is partly due to the dynamics of this market, which have
relatively high occupancy levels but low room rates making the
<PAGE> 51
feasibility of a property, with a higher replacement cost questionable. The site
is quite large for a lodging facility or a restaurant, however, the site could
possibly be short platted to accommodate both property types.
HIGHEST AND BEST USE AS CURRENTLY IMPROVED
The site is currently improved with a 90-room, 3-story limited-service motel.
The improvements are about 17 years old, and have substantial remaining economic
life. The property has had fairly stable occupancy levels over the past few
years and about 68% of the rooms have been renovated. Given the subject's
specific location and position within this lodging market, it is likely to
continue to exhibit relatively strong operating statistics for the foreseeable
future. The truck parking on the east side of the site generates additional
business that helps maintain occupancy rates in the winter. The improvements are
in reasonably good condition with no major items of deferred maintenance noted,
and the property has a value greatly in excess of the current land value for the
site. It is therefore our opinion that the highest and best use for subject
property as currently improved is for continued maintenance and operation as
franchise affiliated, limited-service lodging facility.
Although recent and future additions in supply will likely result in a slightly
reduced occupancy at the subject, the property will likely maintain moderately
strong operating statistics and generate income greatly in excess of the current
land value of the site. Despite the age of the property it is still fully
functional in design, and differs relatively little from newer limited-service
facilities of this price classification that have been recently constructed. The
improvements are in reasonably good condition with no major items of deferred
maintenance noted. With continued ongoing maintenance and periodic F,F,&E
upgrades, the improvements should continue to remain competitive within its
market segment for the foreseeable future.
The site is considerably larger than that which is required for a typical motel
operation of this size however. Included in the 2.91 acre site is a relatively
large truck parking area at the eastern end of the property. We have therefore
considered whether the current use of this portion of the site represents the
highest and best use, or would be exceeded by the value for an alternate use. In
considering this question, we have researched and analyzed numerous commercial
land transactions in the Federal Way area. This includes several properties
purchased for the development of retail or mixed-use improvements, including
retail, office and other hotel sites.
Based on this information, we have estimated the value of the entire subject
site in about the $10/sf range, although the contributory, value of the excess
truck parking would be somewhat less on a pro-rata basis. This is due to the
fact that it is not a legally segregated site, and also is located well above
grade of South 348th Street with inferior visibility and access relative to the
entire site. After consideration of this, we have estimated the contributory
land value at about $350,000. We have then considered whether the current use of
this land for truck parking generates revenue that contributes to the property
value m excess of this figure.
<PAGE> 52
As previously noted, about 26% of the subject's room sales have historically
been attributable to the trucking segment, the vast majority of which would not
stay here without this parking. We note the actual magnitude is somewhat reduced
due to the lower ADR achieved for this segment as well as some nights of full
occupancy when trucker rooms would otherwise be sold to others. With about 5,550
room nights annually sold to this segment however, the magnitude of the impact
on the subject's net operating income is clearly substantial. Even using fairly
conservative figures with regards to the additional room revenue generated and
marginal operating costs, the clear indication is a value greatly in excess of
the contributory value of this excess land. It is therefore our conclusion that
the highest and best use is to continue to use this land for truck parking
consistent with the current operations at the property.
<PAGE> 53
[THREE PAGES SALE COMPARISON PHOTOGRAPHS AND SALE
COMPARISON MAP AND ON BACK OF MAP, FEDERAL
WAY SUPER 8 SALE COMPARISON SUMMARY]
<PAGE> 54
SALE COMPARISON APPROACH
The Sale Comparison Approach uses analysis of sales of comparable improved
properties to derive units of comparison that are then used to indicate value
for the subject. Our search for sales was broad, including most major markets in
Washington State. Our selection of comparisons included considerable emphasis
and understanding from the sales of properties we have previously appraised. The
primary units of comparison in this analysis are price per room, price per
square foot, and gross income multiplier. In addition, we have analyzed the
capitalization rates for these transactions, which will be used in the
subsequent Income Approach analysis.
Please refer to the exhibit on the facing page, which summarizes five
transactions involving Washington State hotel properties. All of these
transactions occurred from 1996 to 1998, and all represent transactions of
limited service motels. All are highway-oriented properties that bracket the
subject in terms of size, age and quality. Photographs of these comparisons and
a map showing their location relative to the subject is found on the preceding
pages, and additional details regarding these transactions is included in the
Addenda.
SALE COMPARISONS
Sale Comparison No. 1 is the 1996 sale of the 54-room Holiday Inn Express in
Federal Way. This is one of only four competitive properties in Federal Way, and
represents one of the subject's most direct competitors. It is located along
Pacific Highway south just south of 348th St, about 1/2 mile SW of the subject.
This location is further from the freeway interchange and would be considered
inferior overall. This is a small 2-story, exterior entrance property which sold
about 1-1/2 years after opening in 1994. The seller was an experienced motel
developer who subsequently constructed the Holiday Inn Express at the SeaTac
Airport and a Holiday Inn Express along Aurora Avenue North in Seattle. This
comparison was purchased by an owner operator and the transaction appeared to be
based on the construction costs as much as the actual achieved income at sale.
The property, had a 60% reported occupancy for the 12 months prior to sale, but
would be expected to stabilize at slightly higher levels. For these reasons the
stabilized capitalization rate is probably considerably higher than the 10.6%
indicated by this transaction. The property itself would be considered similar
to the subject with similar room sizes and similarly aged F,F,&E. The property
also has a larger lobby area, but also has no pool or significant other
amenities. The exterior entrance configuration is a negative factor relative to
interior corridor properties like the subject. This comparison has higher
achievable room rates, but the inferior location and lack of truck parking
likely result in slightly lower achievable occupancy. Overall, we believe the
value indication at about $43,500/room needs to be adjusted upward for market
conditions since February 1996. Otherwise the sale indication is compelling.
Comparison No. 2 is the mid-1997 transaction of the Best Western Landmark hotel
located north of the subject in Lynnwood. This property was a 20-year old,
5-story reinforced concrete hotel. The property was purchased in July 1997 by
Sunstone Hotel Investors, who were very active in acquiring properties
throughout the Pacific Northwest
<PAGE> 55
at this time. This property was purchased for $7,200,000, which is the
equivalent of about $70,000 per hotel room. This property had considerable
excess land, however, and is located in an intensively developed retail location
in Lynnwood with a high land value component. The purchasers of the property
intend to demolish about 20,000sf of meeting space at this property and
construct additional hotel rooms. It is our understanding that this will include
the near-term construction of 150-room Courtyard by Marriott hotel, a mid-price
business oriented limited-service facility. Subsequent to the demolition the
purchasers valued this excess land at $2,000,000, which is the equivalent of
about $14/sf of excess land. After considering the demolition costs and
contribution to overall property value, we have estimated the contributory value
of this excess at $1,750,000. This is the equivalent of about $12/sf of land
area, or about $11,700 per hotel room. Deducting this results in a value for the
hotel improvements only at $5,450,000, or about $52,900/room. Although this is a
full-service facility, subsequent to this transaction the purchasers closed the
restaurant and lounge area, which had historically never been profitable. It is
not unlikely that at some point in the future this property would be renovated
and reflagged to a different franchise affiliation. The current owners have an
extensive network of Holiday Inns.
At the time of sale this property had a similar occupancy as the subject at
66.4%. Combining this with a much higher ADR results in a 1996 revenue per room
about 30% higher than the subject's most recent 12 months. Overall, because of
the higher achievable income, we believe the $52,900/room indicated by this
comparison is considerably higher than the value for the subject.
Sale Comparison No. 3 is a very recent transaction of the Nendel's Renton, which
sold in November 1998. This 130 room three-story interior entrance facility was
built in 1986, and has historically not performed well and had previously been
foreclosed upon. The property was purchased by an experienced Puget Sound area
motel developer earlier in 1998, who subsequently purchased the land lease,
performed about $125,000 in renovations, and re-sold the property to an
owner-operator. The most recent fee simple purchase price at $4,900,000 was the
equivalent of about $38,000/room, or about $99/sf. Like the subject this
property exists in the submarket which is in the midst of substantial increases
in supply, including a new hotel proposed for development directly adjacent. The
1997 occupancy for this property was about 60% at an ADR of about $46,
indicating a RevPar that is lower than that of the subject. Despite the modest
renovations prior to sale (at about $1,000/room) this property was still in
below-average condition at the time of sale and would be considered inferior to
the subject in terms of physical characteristics. The income prospects are
inferior and are expected to decline further as the new competition stabilizes.
Overall we believe this comparison needs significant upward adjustment for the
condition of the property at the time of sale and inferior income generating
capabilities. In addition the approximately 10.5% to 1!.5% capitalization rate
is a good indication of current required capitalization rates for a relatively
large owner operated property.
Sale Comparison No. 4 represents the recent sale of a Howard Johnson hotel
located in Auburn northeast of the subject property. This property is a two
story limited service hotel in a secondary, location. The property is inferior
to the subject in that it has
<PAGE> 56
exterior corridors and was constructed in 1979. This property does however have
a sauna and heated pool. The property was purchased by a private party from a
major hotel group who had purchased the property just months earlier. The
selling party is an experienced hotel operator in the area who had purchased the
facility inn May 1997 for $2,775,000 and affiliated it with the Howard Johnson
franchise. The owner then received an unsolicited offer he could not refuse
which was the $3,700,000 sales price or $56,061/room. We do not have good income
information on the property as the seller had only held the property for a few
months in which he was renovating it. Primary adjustments required to the
indications of this sale include slight upward adjustments for the inferior
location and age of the property.
Sale Comparison No. 5 is another September 1998 sale of a Comfort Inn hotel
located south of the subject property in Fife. This property is much smaller
than the subject at just 21,888sf or 313sf of area per room. This property is an
exterior entrance hotel that was built in 1991. Like the subject, there are very
limited amenities. This property was purchased by an owner operator from another
owner operator. This sale was part of a 1031 exchange. The broker reported that
the average occupancy at the time of sale was about 65% which is very similar to
that of the subject. Room rates also were averaging about $46/day which is
slightly lower than the room rates at the subject resulting in a lower RevPar.
The Using a 60% estimated expense ratio, this would imply a 9.5% capitalization
rate, which we have considered in our capitalization analysis. Primary
adjustments required to the indications of this sale include a slight downward
adjustment for the age of the improvements. This would be countered by upward
adjustments for the lower net operating income potential.
FEE SIMPLE SALE COMPARISON APPROACH CONCLUSIONS
The subject property is a limited service property with basic amenities. It has
a well-established income and caters heavily to the highway truckers. Positive
factors include the significant renovation of rooms in and common areas in the
last year, and the good highway visibility and access. Negative factors include
the limited income potential due to a substantial portion of the clientele
(truckers) being price sensitive.
Most recent purchasers of limited service hotels have been individual
owner-operators, who may own one or several facilities. They often buy
properties based on the gross income characteristics, and subsequently
self-operate and manage the properties, sometimes with and sometimes without
franchise affiliation. Thus a motel property represents an employment
opportunity and a business venture of a manageable scale. Individually, the
subject is too small to appeal to an institutional investor. Although the
interest from the institutional and REIT segments in purchasing hotels has
diminished substantially in the last year, other market interest in smaller
lodging properties has remained fairly strong resulting in a stable and active
market throughout 1998. Based on all of this evidence we have concluded that the
subject would be marketable if available for sale.
The sale transactions bracket the property in terms of physical characteristics,
market characteristics and income characteristics. Sale No. 3 appears too low at
<PAGE> 57
$37,700/Room. This property is near the subject, however, the condition of the
improvements and lower net operating income potential indicate the need for
significant upward adjustments. Comparisons Nos. 2 and 4 both indicate a higher
value than we would expect for the subject. Comparison No. 2 is was a
full-service facility at the time of sale with a much greater RevPar. Comparison
No. 4 is a recently renovated facility that was purchased just four months prior
to this transaction for about $42,000/room. The other two properties provide
much more consistent indications, however, all of the indications are meaningful
after appropriate adjustments.
Many hotel owners refer to Gross Income Multipliers (GIM), as they are most
interested in the gross income characteristics. In urbanized areas, newer
limited service properties are purchased on a GIM of about 4.2. Properties of
about 10 years old may have a value of about 4.0 GIM, while properties older
than 15 or 20 years may have a GIM of 3.7 or less. Older properties require a
greater level of maintenance, and often require immediate capital expenditure
for deferred maintenance, and thus the gross income is than less valuable than
for a new property. Finally, in secondary non-urbanized locations, the GIM may
be reduced by .2 - .5.
All of the sales provide some meaningful indications. Comparison No. 1 is most
similar in terms of location and market factors. Comparison Nos. 3 is the most
physically similar to the subject with regard to layout, but is in inferior
condition. All of these transactions occurred between 1996 and 1998, and all are
generally similar limited-service facilities. In addition, we had good
information regarding the income characteristics at most of these properties,
which gives greater reliability both to the market value conclusions and the
indications for required capitalization rates.
The sale comparisons indicate a fee simple value of about $45,000/room, or about
$4,050,000 in total or about $107/sf. We have also considered the GIM which is
about 4 for properties similar in age as the subject. Using last year's RevPar,
this would indicate a value of $4,030,000. In the final analysis, we have
reconciled between these two indications and have estimated the subject's fee
simple Sale Comparison Approach value at $4,030,000.
In summary,, the value indicated by the Sale Comparison Approach value as if
owned in fee simple is $4,030,000.
CAPITALIZATION RATE
In the subsequent Income Approach analysis, the value has been estimated based
on a capitalization of forecast year I net operating income (NOI). The
capitalization rate expresses the relationship between the property's NOI and
sale price. For determining the appropriate capitalization rate for the subject
we have considered the indications from the sale comparisons as previously
described.
The appropriate capitalization rate to be applied to a specific property depends
on a wide variety of factors. These include the age of the property and expected
near-term future capital costs, which are not reflected in any one year's net
operating income.
<PAGE> 58
These rates are also affected by longer term income characteristics relative to
the actual or forecast income at the time of sale. In addition, the required
capitalization rate is strongly impacted by a potential purchaser's perception
of volatility or risk in the future income characteristics, as well as the
likely future marketability of the property.
For the subject, positive factors include the modest overall dollar value, which
is low enough to be feasible for purchase by many owner-operators. There
continues to be very strong demand from this market segment, and the subject
would likely be quite marketable to this segment if available for sale. This is
due to the strong physical characteristics, good specific location near a
freeway interchange, and low-to-mid-priced limited service orientation. As
numerous recent sales throughout the region demonstrate, these types of
transactions often have relatively low capitalization rates after typical
expenses for outside ownership are considered. Other positive factors include
the subject's recent renovations (which totaled over $300,000 over the last four
years) and lack of deferred maintenance. This should result in low required
near-term capital expenditures for the property. The other positive factors
relate to the relatively modest occupancy in year 1 which has been forecast, at
63.0%. This is due to substantial increases in supply in this market which make
significant increases unlikely in the short-term, but in a longer term context
represents up-side potential in future NOI. Another positive factor relates to
the substantial excess land located on the east side of the property.
Negative factors which would tend to increase the required capitalization rate
include the location outside of the main SeaTac, Southcenter and Kent Valley
market, which would not be as attractive to potential income-oriented investors
as more urbanized locations throughout the region. In addition, the future large
increases in supply this market has experienced is coupled only with modest
future room revenue growth, leading to a relatively stabile income rather than
increasing income. Finally, because a substantial portion of the business at the
subject is from a price-sensitive group, the future room rate increases are
limited to some extent if occupancies are to remain at similar levels.
In specific terms, the sale comparisons have indicated capitalization rates in a
range from about 9.5% to 12.1%. The bottom of the range is represented by a sate
to an owner-operator with a low overall property, value, while the top of the
range represents the purchase of the largest magnitude. In conjunction with this
appraisal we have also reviewed extensive sales information from about 20 recent
lodging facility transactions throughout the Pacific Northwest. As a data set
these had a somewhat higher typical capitalization rate relative to the specific
comparisons utilized in this appraisal.
After consideration of all of these factors, we have estimated 10.25% as the
appropriate capitalization rate to be applied to the subject's income before
reserves.
<PAGE> 59
[3 PAGES RENTAL COMPARISON PHOTOGRAPHS, HOLIDAY INN
EXPRESS, BEST WESTERN EXECUTEL, SUPER 8 MOTEL, COMFORT
INN, AND DAYS INN. MAP CALLED RENT COMPARISON MAP WITH
SUBJECT ARROW WITH RENTAL COMPARISONS TABLE, SUPER 8
FEDERAL WAY, ON BACK OF PAGE]
<PAGE> 60
INCOME APPROACH
The purpose of the Income Approach is to value an income property, by analyzing
likely future income and expenses to the property. In this case we have employed
a Direct Capitalization Analysis, by dividing a annual forecast Year 1 net
operating income (NOD by an appropriate capitalization rate.
We have relied on a variety of sources as the basis of the forecast NOL,
including an analysis of the subject's historical income and expenses. Please
refer to exhibits on the following pages, which summarize the detailed expenses
for the subject over the past two years, as well as a breakdown of the income on
a month-by-month basis from 1994 to the present. We have also specifically
compared the subject's operations with other properties in this market. We have
also used expense comparisons for forecasting individual expense items, which
are also summarized in an exhibit on a following page. Finally, we have
considered the broader supply and demand forces at work within this specific
lodging market and throughout the region. Please refer to the Lodging Market
section for a detailed discussion regarding the factors which influence room
sales, as well as historic and likely future trends in this area. Based on this
evidence we have made a forecast of income and individual expense items for the
subject property, which is found at the end of this section.
Please refer to the exhibit on the facing page. This shows the relevant details
regarding the five other properties we have used for direct comparison. These
include the three other competitive properties at the subject's interchange, as
well as one facility south of the subject in Fife and the nearest other Super 8
Motel in SeaTac. Photographs of these properties as well as a map showing their
location relative to the subject are found on the previous pages.
RENTAL COMPARISONS
Rental Comparison No. 1 is the Holiday Inn Express, previously described as Sale
Comparison No. 1. This 54-room property, was built about four years ago, and
represents one of the newer facilities in this lodging market. This is a
3-story, exterior entrance limited-service facility which like the subject has
relatively small rooms. Both the age and quality of the rooms furnishings as
well as the exterior appearance are superior to the subject and the property has
a more extensive lobby with room rates inclusive of free continental breakfast.
Like the subject, this property has no pool or significant other amenities, and
essentially represents a newer and slightly superior product within the same
market segment. It is located about 1/2 mile to the southwest of the subject on
the west side of Pacific Highway South, just south of 348th Street. This
location is further from freeway interchange and is in a mixed-use area that
would generally be considered inferior. It is located adjacent to a Burger King
restaurant and has good street visibility, but other surrounding uses are older
and less retail or interchange-oriented than the subject's surroundings. Current
rack rates at this property are $68 single and $68 double, with a $61 commercial
rate. This is considerably higher than the subject's current rack rates and this
owner-operated facility exhibits more variation in peak and off-season rates
than the subject. This property had a reported
<PAGE> 61
occupancy of about 75%. The property does not have any truck parking and does
not generate significant business from this segment. Room sales at this property
come from a mix of commercial business and freeway tourism, with a fairly high
level of group business also reported here. The King County Aquatics Center has
also been a significant factor, and this is the closest lodging facility to the
center, which attracts a significant number of groups and events annually.
Rental Comparison No. 2 is the Best Western Executel, located north of 320th
Street about two miles north of the subject property. This location is near the
other main Federal Way freeway interchange, which has historically been the
primary focus of retail development and commercial activity in Federal Way. This
property is located two blocks north of the Sea-Tac Mall, and also has a wide
variety of restaurants and other service-oriented establishments in fairly close
proximity. It does not have good visibility from 320th Street however, and does
have a location that would be considered equivalent to that at the subject. This
112-room facility was constructed in 1984, and includes a restaurant, lounge,
and outdoor pool. This property has a much more extensive lobby and other common
areas including meeting rooms, and it is essentially oriented toward a different
market segment. The guestrooms are considerably larger and have superior
furnishings, and this combination of factors is reflected in the much higher
room rates. Current rack rates are $109 single and $119 double, with a $99
commercial rate. As the only full-service lodging facility in Federal Way, this
property appears to have endured fairly strong occupancy levels historically.
Due to the location and different orientation of this property, changes at this
facility are not expected to have a significant impact on the operations at the
subject.
Comparison No. 3 is the Super 8 Motel located at 3100 South 192nd Street in
SeaTac. This is about eight miles north of the subject in a lodging submarket
oriented around SeaTac International Airport. In some respects, this market is
quite similar to the subject's market, particularly in terms of demographics of
the surrounding population base and South King County location oriented towards
primarily transient traffic without a strong central business district. The
SeaTac market has the advantage of a strong built-in demand segment (SeaTac
Airport), and recent increases in demand have resulted in substantially higher
room rates than the subject's Federal Way location. Although somewhat larger,
this property is physically quite similar to the subject, being a 3-story Super
8 motel property, built at nearly the same time to the same specifications, and
owned and operated by the same entity. This property recently received a
substantial renovation however, including the guestrooms finishes, furnishings,
and much of the common areas as well. This factor combined with the location has
resulted in significantly higher achievable room rates. The Super 8 SeaTac has a
current single rack rate of $64.88 and a double rate of $76.88. Like the
subject, the only discounting is the 10% VIP discount offered. Recent operating
statistics at this facility showed an occupancy level of only 68% and relatively
high ADR of about $66.
Comparison No. 4 is the Comfort Inn located at 31622 Pacific Highway S. in
Federal Way a few miles north of the subject. As discussed in the market
analysis section, this is the newest facility in Federal Way opening m December
1998. Although somewhat larger and offering more amenities, this property is
physically quite similar to the
<PAGE> 62
subject, being a multi-story wood framed facility in the same general market.
The Comfort Inn has a current single rack rate of $69.00 and a double rate of
$79.00. The single commercial rate is $69.00. Because of the recent opening of
this facility, no operating statistics have been compiled.
Comparison No. 5 is the Days Inn located at 3021 Pacific Highway E. in Fife
several miles south of the subject. This facility has more amenities than the
subject but is considered an inferior location further from the major commercial
center of Seattle. Amenities include meeting rooms, a heated pool, guest laundry
area and a bar and grill. The Days Inn has a current single rack rate of $35.00
and a double rate of $40.00. There is no commercial rate as their rates are
already quite low.
SUBJECT ROOM RATES
The subject property currently has rack or asking rates of $48.88 for a 1-person
single room, and $57.88 for a 2-person double room. The only standard discount
offered is the VIP plan, which results in a 10% discount off rack rates to a
rate of $43.99 single. Since enrolling in the VIP plan has a nominal cost that
is about commensurate with the discount the first time it is used, most rooms
are sold at the 10% discounted rates. Truckers represent about 25% of the rooms
sold, and are strong ongoing business, with a further discounted rate of $39.00.
These rates are generally lower than those offered by the nearby competitive
properties, allowing some room for increases. However, the room rate increases
are somewhat limited by what the price sensitive truckers are able to pay.
MONTHLY ROOMS REVENUE HISTORY
The figures on the facing page indicate the average occupancy, average daily
rate, and revenue per available room on a month-by-month basis for the property
since January 1994. Below each table are the figures for the one-year period
November 1997 through October 1998 as well as for the previous 12-month period.
Over the last year, the subject averaged 64.4% occupancy at an ADR of $47.64,
with a calculated RevPar of $30.67. For a 90-room limited service property in a
secondary market in the Northwest, these figures are about typical and economic.
However, the occupancy has fluctuated significantly over the last 4 years while
the RevPar has generally been increasing. The fluctuating occupancy can be
attributed to new supply while the increasing RevPar can be attributed to rising
room rates.
We do anticipate substantial additional new construction in the near term in
this market, which will likely affect occupancy rates to some degree. However,
the affect on the subject property will be less pronounced as the subject
property already represents the lower end of the market for room rates and new
properties will likely have higher asking rates more commensurate with the costs
to develop these properties. Therefore, the subject is essentially stabilized
and may experience a slightly lower occupancy rate due to the new supply,
however, there is room to increase the room rates which would more than offset
any decrease to net operating income.
<PAGE> 63
FORECAST OF ADR AND OCCUPANCY
Please refer to the Market Analysis, in which the broader supply and demand
forces and factors which influence room sales in this market are discussed. The
current rates and recent history of the subject are consistent with these forces
and with the empirical indications from other similar properties. After
considering the specific history at the subject property, supply and
<PAGE> 64
SUPER 8 FEDERAL WAY
INCOME & EXPENSE HISTORY
[not included]
<PAGE> 65
demand forces within this market, evidence from other Super 8 motels, and
indications from the competitors, we have made the forecast of Year I ADR and
occupancy for the subject as follows; For the year 1999 we have forecast the
subject's ADR at $49.00. This represents an increase of 2.9% over the most
recent 12 months figures. We have forecast occupancy for this time period at
64.0%. This represents a slightly reduction from the current most recent 12
months occupancy at 64.4%. This is due to the fact that a 116-room competitive
facility just opened and additional new supply is being added to this market in
the coming year. This combination of factors results in a RevPar of $31.36, up
only slightly from the last year.
INCOME AND EXPENSE FORECAST
Please note the figures on the facing page which summarize the income and
expenses for the subject over the past two years. An exhibit on the following
page summarizes individual income and expense items for two other similar Super
8 motels, and an average for a survey of similar properties in the United States
in 1997. These properties bracket the subject in terms of ADR and occupancy, as
well as in terms of age and overall quality. Together, these indications and the
preceding discussion form the basis for our income and expense estimate for
1999.
The subject history is summarized from detailed accounting provided by
management. Expenses exclude interest, depreciation, and professional fees
(generally accounting and legal), which are related to ownership and not real
estate interests. The subject property is essentially owned and managed by a
central organization that also operates about 25 other Super 8 Motels in the
Northwest. Thus it is not only part of the Super 8 franchise chain, but is also
centrally operated and locally managed along with other properties. Certain
expense items, such as many administrative expenses, marketing, and professional
management are recurred off-site, and directly charged to the subject property
and to the other properties under the same management. This allows for the good
and cost-effective central administration, and quality control of operations.
The subject history and the comparison properties are analyzed not only on total
dollars, but also on $/room, $/Room Sold, and % of Total Income. All of these
units of comparison are considered and used in our following forecast. As
previously discussed, we have forecast an ADR of $49.00 and a 64% occupancy,
which results in a 1999 rooms revenue forecast of $1,030,176. Telephone income
has been forecast at $0.65/room sold, while telephone expense has been estimated
at $0.50/room sold, for a slight gain for this operated department. Other Income
includes vending income, faxes, guest laundry, etc., and represents less than 3%
of total income at a forecast of $1.15/room sold.
Rooms expenses accounts for cleaning, supplies and front desk labor. Although
this expense category is mostly variable with occupancy, larger properties are
more efficient in this category because of the fixed cost of front desk labor.
Also, some hotels account for on-site management and other labor in this
category instead of in Administrative and General, where we have accounted for
on-site management. These two expense categories should be viewed and analyzed
together for full understanding of operations.
<PAGE> 66
We have forecast Rooms expenses at $2,400/room, or about $10.27/room sold.
Administrative and General expenses include on-site managers, credit card
discounts, supplies, business taxes, and direct reimbursement charges for
<PAGE> 67
SUPER 8 FEDERAL WAY
EXPENSE COMPARISON
[not included]
<PAGE> 68
offsite administration, training, hotel accounting quality control and other
charges. Some of these offsite expenses relate to ownership accounting and would
be expected to decline under generic individual ownership. The level of quality
control and administrative management for the subject is somewhat higher than
typical. Although this maintains the long-term viability of the property, many
purchasers would plan on incurring less expense in the short term, and our
slightly diminished forecast at 13% of total income considers these issues. The
combined total of Rooms and Administrative & General appears reasonable and
consistent with other properties.
Franchise fees are currently 5% of Rooms revenue. However, current fees for
Super 8 and other similar franchises are higher, and the rates at the subject
are "grandfathered" at a historically lower level. A new purchaser would incur a
total franchise fee of 8% of Rooms, which is our forecast. A strong franchise
affiliation is important in order to maintain market share in this competitive
lodging market. Much of the subject's room sales come from the central
reservations system, and the subject's strong name recognition and repeat
business are significant factors that would not be possible without such
affiliation. The forecast income implicitly assumes that such affiliation will
continue, and would be lower if this expense item were reduced or eliminated.
Marketing has been estimated at $150/room, or $13,500 in total. This is somewhat
higher than the recent historical expenses at the subject of less than
$10,000/year. Given the increased competition in this market, it is our opinion
that the subject will have to increase their marketing efforts in order to
prevent further erosion of a market share. Operations and Maintenance have been
estimated at $450/room. This is an item which varies considerably from property
to property and from year to year. This expense forecast assumes ongoing
maintenance on a stabilized basis, and accounts for the effective age of the
property and the current condition of the improvements. Because of the good
condition and recent renovation of the subject, a new purchaser may forecast
less maintenance in the near term, but this stabilized forecast is consistent
with a longer-term perspective. Energy and Utilities have been estimated at $700
/room.
Management is forecast at 4.0% of effective gross income, or about $42,000
annually. This accounts for professional management on top of direct charges,
and is considered to be a typical level required for competent professional
management for a property of this size and complexity. Taxes for real and
personal property have been estimated based on the current tax assessment.
Insurance for property has been estimated at $100/room, or $9,000.
The sum total of this expense forecast is $666,489, or $7,405/room. This is
slightly higher than the reported expenses for the property in the last 12
months. Overall, the expense ratio is about 62%, which is at the higher end of
the range for hotel properties.
NET OPERATING INCOME BEFORE LAND LEASE
Please note the exhibit on the following page, which summarizes the forecast of
income and expenses for the property as previously discussed. The Year 1 net
operating income, before land lease or reserves, is forecast at $401,530.
<PAGE> 69
FEDERAL WAY SUPER 8
INCOME AND EXPENSE FORECAST & CAPITALIZATION ANALYSIS
[not included]
<PAGE> 70
ADDENDA
AUTHORIZATION LETTER
HOTEL SALE COMPARISON DETAILS
SEATTLE METROPOLITAN AREA DESCRIPTION
APPRAISERS' EXPERIENCE & QUALIFICATIONS
<PAGE> 71
CAPITALIZATION ANALYSIS - FEE SIMPLE ESTATE
The anticipated net operating income is divided by a capitalization rate which
has been derived from an analysis of the sale comparisons. This rate as
previously derived in the Sale Comparison Approach is 10.25%. Applying this rate
to the forecast NOI results in an indicated Income Approach value of $3,917,364.
This rounds to $3,920,000.
REPLACEMENT RESERVES
Although net income from motel properties is often capitalized prior to
deductions for replacement reserves, reserves are an important factor in motel
ownership and requires careful consideration as it significantly impacts net
cash flow. Reserves are required to replace items with shorter lives than the
building itself. In the case of motels it relates primarily to the replacement
of the furnishings, fixtures, and equipment (F,F,&E), carpet and flooring. A
large portion of this takes the form of rooms furnishings which have a
relatively short economic life span. In order for facilities to remain
competitive, the economic life of these components would generally be considered
to be in the range of five to ten years. The remainder of the F,F,&E costs
involve items such as common area furnishings, front desk and administrative
equipment, pool and spa equipment, etc. These items generally have a longer
economic life than the room furnishings, but shorter than the building as a
whole. Other required reserve items include roof replacement, parking lot
re-paving, and HVAC equipment. In consideration of these factors we have
estimated required replacement reserves at 3% of total income, or $31,540
initially. This is the equivalent of about $350/room annually. Subtracting this
figure from the forecast net operating income would result in a net cash flow of
$369,489. We note that based on the Income Approach fee simple value conclusion,
the capitalization rate after reserves have been deducted is 9.4%
<PAGE> 72
RECONCILIATION AND FINAL VALUE ESTIMATE
The values indicated by the two approaches used in this report are as follows:
<TABLE>
<S> <C>
SALE COMPARISON APPROACH - FEE SIMPLE ESTATE $4,030,000
INCOME APPROACH - FEE SIMPLE ESTATE $3,920,000
</TABLE>
Reconciliation is the process of assigning different weight or emphasis to each
of the approaches to valuation used in the report to arrive at a final value
estimate. The primary considerations are the reliability of the data and the
applicability, of each method for valuing the particular property.
In this case we had fairly good information regarding the sales of numerous
lodging facilities to use for comparison. These included five sales of
limited-service properties that are generally similar physically to the subject.
All of these transactions occurred between 1996 and 1998. The sales resulted in
a fairly wide range in each of the units of comparison. After adjustment, the
indications from this approach are considered fairly compelling with the subject
within the range indicted by the comparisons. Overall, we have given this
approach significant weight in the final value conclusion. This approach also
provides indications of general marketability and required income
characteristics.
For lodging facilities, investors typically place a great deal of emphasis on
the income producing capabilities of the property. This is particularly true as
the properties get larger and the nature of likely purchasers tend to become
more institutional. In this instance the physical characteristics of the subject
would place it at the lower end of this spectrum with more likely desirability
to potential owner operators. We have excellent detailed information regarding
the subject's historical operating performance. This factor combined with
confidential information from other similar properties and analysis of the
broader supply and demand forces in this market results in a fairly reliable
forecast of future net operating income. This, combined with strong information
regarding required capitalization rates from the sale comparisons results in a
fairly reliable Income Approach value estimate as well. Because of the
reliability of the information considered in this approach as well as the
relevance of the approach to many potential purchasers of the property we have
placed a significant amount of weight on the indications of this approach in the
final value conclusion.
<PAGE> 73
In the final analysis we believe that both approaches were relevant and
compelling, and have placed a considerable weight on the indications of each.
<TABLE>
<CAPTION>
EFFECTIVE VALUE
DESCRIPTION VALUATION DATE CONCLUSION
- ----------- -------------- ----------
<S> <C> <C>
MARKET VALUE - FEE SIMPLE ESTATE 1/1/99 $4,000,000
</TABLE>
The above value estimate is commensurate with a reasonable marketing and
exposure time of one year. The market value includes furnishings, fixtures, and
equipment (F,F,&E), including both permanently affixed real estate, and personal
property. The contributory value of F,F,&E is estimated to be $300,000, which
includes personal property of $210,000.
<PAGE> 74
AUTHORIZATION LETTER
<PAGE> 75
[U.S. BANCORP LETTERHEAD]
December 9, 1998
E. Bates McKee, M.A.I.
McKee and Schaika
701 Fifth Avenue, Suite 5750
Seattle, WA 98104
RE: Super 8 Motels
USBADW Files A98-529 through 534
Dear Mr. McKee,
This letter will confirm our telephone conversation in which you agreed to
prepare complete self-contained appraisal reports on the captioned properties.
These reports should comply with Regulation I2 CFR Part 34 of the Office of the
Comptroller of the Currency titled Real Estate Appraisals as revised in Federal
Register Vol. 59, No. 108, dated June 7, 199__ [sic: off bad photocopy], and
must comply at a minimum to the current Uniform Standards of Professional
Appraisal Practice of the Appraisal Standards Board, which the regulation adopts
in full.
Please note that your timely responses to issues raised in the review process is
considered part of this appraisal assignment.
The subject property consists of existing Super 8 Motels located Federal Way,
Sea-Tac, Bremerton, and Yakima, Washington and Portland, Oregon.
The purpose of this appraisal is to estimate market value for mortgage lending
purposes.
Your report should provide the following values of the subject's fee simple and
leasehold values as appropriate:
Market Value "as-is"
A copy of this engagement letter must be included within the addenda of the
appraisal report. Please include the license or certification numbers of all
signatory appraisers on the letter of transmittal. Additionally, please state
the registration number of any appraisal assistants who provide significant
contribution to the analysis in the report.
If your appraisal report includes a Discounted Cash Flow model, please provide
the name of your program and include a copy of your computer disk as part of
your submission.
For additional subject property information please contact the following
individuals:
<TABLE>
<CAPTION>
Name Phone Number
---- ------------
<S> <C> <C>
Property Background: Karl Schaffer 206-344-4551
Access Instructions Jerry Whitcomb 360-943-8000
(Owner)
</TABLE>
You agreed to deliver the completed appraisal report by December 31, 1998 and
you estimated your fee not to exceed
Please inform me within five business days from the date of this letter if any
subject property information needed to complete the assignment is not available.
If you do not contact me within five business days, it will be assumed that you
hay. all the required subject property information needed.
The placement of this appraisal assignment was partially based on your agreed
delivery date. The Appraisal Division reserves the right to impose a penalty of
$100 per day for each business day the appraisal is late. This penalty may be
incurred unless you receive advance written authorization revising the delivery
date.
Your fee will be paid upon the satisfactory review of the submitted appraisal
report. If the appraisal report is cancelled at any time, you will be paid for
your services to date,
Please send 10 original copies of the appraisal report, along with your invoice
to rile address shown below:
U.S. BANCORP APPRAISAL DEPARTMENT
1301 Fifth Avenue, Mezzanine Level, WWH-411
Seattle, WA 98101
You are not authorized to release any information regarding the content or
conclusion of the appraisal report to anyone without prior written approval from
U.S. Bancorp.
Any modification of this agreement, or necessary, deviation, must be
specifically approved by the Appraisal Division.
As confirmation of receipt of this package and agreement with the aforementioned
terms, please sign below and return to my attention.
Sincerely,
/s/
- ----------------------------------
Karl Schaffer
Senior Review Appraiser
U.S. BANCORP APPRAISAL DEPARTMENT
cc: Don Henry, WWH-784
Agreed and approved:
- ---------------------------- ----------------------
(Signature) (Date)
<PAGE> 76
HOTEL SALE COMPARISON DETAILS
<PAGE> 77
HOTEL SALE COMPARISON NUMBER: 1
<TABLE>
<S> <C>
Name: Holiday Inn Express - 34827 Pacific Highway S.
City: Federal Way County: King State: WA
Location: West side of Pacific Highway S. 1/2 block south of 348th
Ave., 1/2 mile west of Interstate 5 in Federal Way.
Legal Desc: King County APN #202104-9045
Rooms: 54 Gross SF Area: 18,000
Age: 1994 Stories: 2
Description: Two story wood frame exterior entrance motel. Small lobby
with breakfast/meeting room but limited common areas or
other amenities. Small rooms in good condition with
average quality furnishings.
Income Data: According to seller operating statistics in year prior to
sale were occupancy of 60% at ADR of about $50.00. Based
on growth of about 3%, + 3% other income, at 60% expenses
including management excluding reserves, capitalization
rate is estimated at about 10.6%. RevPar was $30.00.
Document Price: $2,350,000 Analysis Price: $2,350,000
Date: 02-09-96 Document No: 960209-1112
Buyer: Kwan and Young Cho
Seller: Hotel Concepts
Source: Faruq Ramzenalli for seller and Kwan Cho (buyer)
Sales Data: Sold about 1 1/2 years after opening. Seller experienced
motel developer; buyer appeared to have limited
experience. Property not listed for sale.
Per Room: $43,519 Per sf GBA: $130.56
Cap. Rate: 10.6% EGIM: 3.97
Remarks: Located in Federal Way lodging market with only 1 direct
competitor (Super 8). Good location along Pacific Highway
S. near I-5 and closest motel to King County Aquatic
Center.
6100-1
</TABLE>
<PAGE> 78
HOTEL SALE COMPARISON NUMBER: 2
<TABLE>
<S> <C>
Name: Best Western Landmark Hotel -- 4300 200th St. SW
City: Lynnwood County: King State: WA
Location: 1 block west of I-5 at 44th St freeway interchange in
Lynnwood
Legal Desc: APN #3726-007-021-0601, 022-0105, 023-005
Rooms: 103 Gross SF Area: 54,144
Age: 1977 Stories: 5
Description: 5 story concrete hotel with interior entrance
configuration. Also includes restaurant, lounge, extensive
meeting space. Guest rooms in average condition at time of
sale.
Income Data: 1996 ADR $60.48 at 66.4% occupancy. Total 1996 revenue
$1,646,000, reported NOI including 3.5% management
fee prior to reserves was $726,890.
Document Price: $7,200,000 Analysis Price: $5,450,000
Date: 07-17-97 Document No: 97071-70338
Buyer: Sunstone Hotel Investors
Seller: Markland Hotel Inc.
Source: Craig Schaefer, seller
Sales Data: Buyer intends to demolish 20,000sf of meeting space
(excluded from GBA), which will result in about 3.4 acres
of excess land on site. Buyer intends to construct 150
room Courtyard by Marriott Hotel, and place a value on
this site of $2,000,000. After consideration of demolition
costs we have estimated current contributory value of
$1,750,000, which is the equivalent of about $12.00/sf of
land area, or $11,666/room.
Per Room: $52,913 Per sf GBA: $100.66
Cap. Rate: 10.1% EGIM: 3.31
Remarks: Restaurant and lounge had not been profitable
historically, and were shut down subsequent to
transaction. Estimate of achievable NOI after removal of
meeting space is $656,890, which results in capitalization
rate after exclusion of contributory land value of 12.1%.
97155-1
</TABLE>
<PAGE> 79
HOTEL SALE COMPARISON NUMBER: 3
<TABLE>
<S> <C>
Name: Nendel's Renton - 3700 East Valley Road
City: SeaTac County: King State: WA
Location: Located on the east side of East Valley Road in south
Renton. Located in close proximity to Valley Medical
Center Hospital.
Legal Desc: King County APN 302305-9117
Rooms: 130 Gross SF Area: 49,260
Age: 1986 Stories: 4
Description: Four story, wood frame limited service lodging facility.
Building has a covered entryway. Fairly standard
configuration with guest rooms centered around a common
corridor. The only significant guest amenity is an indoor
spa room with exercise equipment. Building was in poor to
average condition at the time of sale. Building exterior
is CMU block and cedar siding.
Income Data: The 1997 occupancy for this property was about 60%
at an ADR of about $46, indicating RevPar of $27.60.
Document Price: $4,700,000 Analysis Price: $4,900,000
Date: 11-12-98 Document No: 1650850
Buyer: Chong S. Yi
Seller: Golden Treasury LLC
Source: Bill An, previous seller
Sales Data: This property was purchased by an experienced Puget Sound
area motel developer in early 1998 who subsequently
purchased the land lease, performed $125,000 in
renovations, and resold the property to an owner operator.
Recorded price is less than total transaction price per
seller.
Per Room: $37,692 Per sf GBA: $99.47
Cap. Rate: Confid. EGIM: 3.7
Remarks: Projected reasonable cap rate in the range of 10.5%-11.5%
98218-3
</TABLE>
<PAGE> 80
HOTEL SALE COMPARISON NUMBER: 4
<TABLE>
<S> <C>
Name: Howard Johnson, 1521 "D" Street NE
City: Auburn County: King State: WA
Location: Property is located .3 miles east of SR-167 off of the
15th Street NW exist near Auburn municipal airport and
Emerald Downs Racetrack.
Legal Desc: APN 000080-0025
Rooms: 66 Gross SF Area: 25,388
Age: 1979 Stories: 2
Description: Two story exterior entry hotel with a sauna and heated
pool. Building is situated on a 62,275sf site. Each room
is equipped with a microwave and refrigerator.
Income Data: Room rates are $75 for a single and $85 for a double
peak season and $10/room less in non-peak season. No real
income information was provided as the seller had only
owned the property four months prior to selling to another
party.
Document Price: $3,515,000 Analysis Price: $3,700,000
Date: 09-19-97 Document No: 9709191393
Buyer: M/M Jong Soo & Kyung Ho Lee
Seller: 85th Street Associates LP, c/o Lawrence Horowitz
Source: Laura Cleman, Director of Assets for seller.
Sales Data: Although the document price was $3,515,000, the seller
reported that the sales price was $3,700,000. The seller
is a major hotel renovator who purchased the property in
May 1997 for $2,775,000. The purchaser then affiliated
the property with the Howard Johnson name and received an
unsolicited offer to purchase the property for the sales
price.
Per Room: $56,061 Per sf GBA: $145.74
Cap. Rate: EGIM:
Remarks:
98222-2
</TABLE>
<PAGE> 81
HOTEL SALE COMPARISON NUMBER: 5
<TABLE>
<S> <C>
Name: Comfort Inn, 5601 Pacific Highway East
City: Fife County: Pierce. State: WA
Location: Located near the Port of Tacoma and Interstate-5. Several
hotels and other services are located in this vicinity.
Legal Desc: APN 405500-0074, -0010, -0120
Rooms: 70 Gross SF Area: 21,888
Age: 1991 Stories: 2
Description: Wood frame two story motel with exterior entrances.
Typical exterior entrance configuration with canopy.
Building is situated on a 62,726sf site. Minimal amenities
at this limited service property.
Income Data: The broker reported that the average occupancy at
the time of sale was 65% with room rates averaging
$46/day. This resulted in an implied effective gross
income of $763,945. Using an estimated 60% expense ratio,
the resulting net operating income is $305,578. This
results in a 9.5% capitalization rate and a 4.2 gross
income multiplier.
Document Price: $3,200,000 Analysis Price: $3,200,000
Date: 09-11-98 Document No: PIC-51989
Buyer: Han's Motel Investment, Inc. (et al)
Seller: M/M Albert W. & Un Sil Kim
Source: Public record, COMPS. Attempted to confirm with broker.
Sales Data: Sale was part of a 1031 exchange.
Per Room: $45,714 Per sf GBA: $146.20
Cap. Rate: 9.5% EGIM: 4.2
Remarks:
98221-1
</TABLE>
<PAGE> 82
SEATTLE METROPOLITAN AREA DESCRIPTION
<PAGE> 83
[FOLLOWING PREVIOUS ADDENDUM TITLE PAGE WAS McKEE & SCHALKA'S PUGET SOUND AREA
MAP WITH A POINTER INDICATING THE "SUBJECT" PROPERTY, ON THE BACK OF WHICH WAS A
MAP ENTITLED "1990-2010 POPULATION FORECAST BY COMMUNITY PLANNING AREA - KING
COUNTY"]
<PAGE> 84
SEATTLE METROPOLITAN AREA DESCRIPTION
INTRODUCTION
The Seattle Metropolitan Area is located in the middle of a 5-county area often
referred to as the Central Puget Sound Region. Seattle is the central focus of
economic activity for the entire Western Washington region. Seattle has a
reputation as a desirable place to live and work. It is located in King County
and is both the largest city and largest metropolitan area in the state.
Washington marked its 15'h straight year of economic expansion leading the
Northwest region (Oregon, Idaho, Nevada, Utah, Northern California, and
Washington). The major force behind this growth is the Seattle Metropolitan
area.
In the Seattle area unemployment is down, retail sales are up, and the economy
is experiencing significant growth. As of August 1998 unemployment,, [sic] for
the Seattle PMSA was 2.8 percent this is a 30 year low. Retail sales in 1997 for
King County are up 10.2% over 1996. And in the first 6 months of 1998 retail
sales in King County are up 7.1% over the first 6 months in 1997. Office vacancy
rates are as low as 2 percent in Bellevue and Seattle CBDs, with asking rents
increasing significantly and industrial and other commercial vacancy rates not
much higher. Residential housing costs are increasing at 7-10 percent a year.
The rental market, with vacancies ranging from 1-2 percent in many areas to as
high as 6-8 percent in other areas, is experiencing rent increase from 5-12
percent per year. This is the same economic boom that the county is experiencing
but at a larger magnitude.
POPULATION
The population history and the State Office of Financial Management estimates of
the current populations of the five counties in the Central Puget Sound Region
are shown in the table below. King, Snohomish and Island Counties make up the
Seattle/Bellevue/Everett Primary Metropolitan Statistical Area (PMSA) as
designated by the U.S. Department of Labor. Kitsap County makes up the Bremerton
PMSA and Pierce County the Tacoma PMSA. Island County was added to the
Seattle/Bellevue/Everett PMSA in 1994 because of the large number of Island
County residents who commute to jobs in King and Snohomish Counties.
[ABOVE REFERENCED TABLE HERE]
[ON THE BACK OF THIS PAGE WERE TABLES AND A GRAPH SHOWING (1) "CENSUS
INFORMATION AND POPULATION ESTIMATES", (2) "POPULATION GROWTH BY DECADE"
[TABLE], AND (3) "POPULATION GROWTH BY DECADE" [GRAPH]]
<PAGE> 85
Most of the growth that has occurred in King County has been in the communities
and unincorporated areas surrounding the incorporated City of Seattle. The
population in the City of Seattle declined from 530,831 in 1970 to 493,846 in
1980. In the 1980s, this trend reversed, and the 1990 census was 516,259. The
1998 estimate is 539,700.
A population forecast for King, Snohomish, Pierce, and Kitsap, Counties was done
in August of 1995 by the Puget Sound Regional Council, and can be found on the
facing page. This shows the 4 County region is experiencing continued population
growth through the end of the decade then slowing and stabilizing growth for the
next 20 years. The largest percentage of growth will focus in areas outside of
the Seattle City limits, due to the lower cost and availability of housing.
EMPLOYMENT
The Seattle metropolitan area is experiencing the lowest unemployment rate in 30
years at 2.8 percent. This is mainly due the high-tech and aerospace industries.
The Seattle area is a regional center for the Pacific Northwest and should
remain in that position. This translates into regional offices for the federal
government, as well as for businesses and financial institutions. The Seattle
area is a major medical center for health care, research, and biomedical
engineering firms. Seattle and Tacoma also have major seaports. Together the
Port of Seattle and Tacoma operates two of the country's largest containerized
cargo ports.
An employment forecast for King, Snohomish, Pierce, and Kitsap, Counties was
done in August of 1995 by the Puget Sound Regional Council, and can be found on
the following page. This shows the 4 County region is experiencing a slowing in
job growth as a percentage, but the total new jobs creation over the next two
decades will be only slightly less than the new jobs created over the past two
decades. The growth of new jobs is spread evenly as a growth percentage through
out the 4 counties, but as a raw number King County will create nearly 60% of
the new jobs in the 4 County region.
The local economy is strong, driven to a degree by rapid employment in the high
tech industries. Boeing is the largest economic engine in the area, directly and
indirectly accounting for one fifth of the regional economy. Non-aircraft
manufacturing is widely distributed over a number of industries, with no
one-industry group with more than 15,000 employees. Aircraft and Parts jobs make
up the largest category of manufacturing employment at about 107,400 jobs.
Boeing is currently experiencing a slowing in airplane orders and production due
to several factors. In 1996, Boeing hired an estimated 21,000 employees. Boeing
also recently acquired McDonnell Douglas, its only remaining U.S. competitor.
The demand for jets domestically is increasing due to airline passenger growth
and the need to replace aging jets that fail to meet new federal noise standards
that go into effect at the end of 1999. Internationally Boeing is seeing slowing
of orders cancellations of existing orders. This is due to the economic problems
in Asia. Boeing is expected to cut 48,000 jobs by year-end 2000. The job cuts
are due to several factors including mergers and acquisitions, production
problems, and the Asian economic downturn. The Seattle
<PAGE> 86
[ON THE REVERSE OF THE PREVIOUS PAGE WERE 2 TABLES AND A GRAPH SHOWING (1)
"TOTAL JOBS AND ESTIMATES", (2) "JOB GROWTH PERCENTAGE BY DECADE", AND (3) "JOB
GROWTH BY DECADE" [GRAPH]]
<PAGE> 87
metropolitan area will see about 24,000 jobs lost due to these factors. Of the
24,000 jobs lost 10,000 will be through attrition and the other 14,000 will be
actual job losses. With the extremely low unemployment rate these workers are
predicted to be absorbed into the work force quickly.
Boeing is the largest commercial airplane manufacture in the world. Boeing sells
about 60 %of the world's airplanes, with about 70% of those sold to
international customers. According to state economist, the economic troubles in
the Asia Pacific region will impact the state of Washington to the tune of
36,000 jobs over the next two years.
23,000 of these jobs will come from the Seattle area focusing on the aerospace
and wood products industries. This is projected to level off Boeing employment
over the few years. Overall, Boeing is expected to play a decreasing roll in the
economy as the primary engine in the Seattle area economy.
Microsoft is the regions second largest private employer with 13,300 employees
in Washington State and 25,000 worldwide. In the middle of 1997 Microsoft
announced that they plan to hire 3000 employees over the next two years. They
are have hired approximately 1300 and have another 1700 more to hire over the
next 14 months. According to Microsoft spokesman John Pinnate each Microsoft job
will create an additional 2.3 jobs in the area. With wages and benefits
averaging $58,860 per employee, this addition to Microsoft will add $176.6
million annually to the regional economy. Microsoft's net income for 1997 was
$3.45 billion. Their net income has grown over 50% annually for the previous 2
years.
Seattle is also home to many other expanding small to medium size high-tech and
biotech companies. WRQ and Adobe are a few of the medium sized high-tech
companies headquartered in the Seattle area. Fred Hutchinson, Immunex and the
University of Washington have some of the leading biotech research facilities in
the world and all are located in the city of Seattle.
The port of Seattle is a major economic force for the Seattle metropolitan area
as well as the state of Washington and the West Coast. In a study done by Martin
O'Connell Associates in 1994 they found that the waterfront and airport
activities support or benefit more that 275,000 local jobs. Specifically 90,000
jobs were directly supported by the marine and airport activity at the Port's
marine terminals and Seattle-Tacoma International Airport. The majority of the
foreign trade done with the port of Seattle is done with Asian countries. The
Port recently announced that exports to Asia are up for the first time in two
years. Exports to Asia rose 13% in the first 10 month of 1998 over the same
period in 1997. The Port has also announced that is going to spend $140 million
on the marine division for capital improvements for 1999. Overall, The Port is
expecting increase in port activity over the long haul.
Overall, aircraft and aircraft parts manufacturing jobs make up about 8.1% of
the total non-agricultural jobs in the Seattle/Bellevue/Everett PMSA and make up
about 48% of the total manufacturing jobs. These percentages have been
increasing recently although other sectors are continuing to grow and the
regional economy is diversifying.
<PAGE> 88
Aside from the general growth in the "service" and "trade" sectors, future
expansion of the manufacturing base is also likely.
[ON THE REVERSE OF THE PREVIOUS PAGE WAS A TWO-COLUMN TABLE SHOWING "TAXABLE
RETAIL SALES - SIC CODES 52-59" FOR SEATTLE AND FOR KING COUNTY]
<PAGE> 89
Taiwan Semiconductor is considering a new chip-manufacturing plant in Thurston
County, with other high-tech industrial facilities likely to be attracted to the
region over the next several years, Washington State's new tax laws that went
into effect in 1996 fuel this likely expansion. These changes exempt factory
investment from sales tax of about 8.0%, which results in Washington becoming a
much more competitive location for manufacturing plants.
Unemployment increased in the Seattle PMSA from 1990-1994, as the rate of job
growth slowed but the population continued to increase at fairly strong rates.
This trend reversed in 1995, and unemployment has declined since that time.
Current unemployment rates are at a very low rate compared to the previous 6
years. The recent history of average annual unemployment rates is:
<TABLE>
<CAPTION>
AUGUST
1990 1991 1992 1993 1994 1995 1996 1997 1998
==== ==== ==== ==== ==== ==== ==== ==== ========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3.7% 5.1% 6.5% 6.4% 6.7% 5.3% 5.0% 3.5% 2.8%
</TABLE>
The statewide not seasonally adjusted August 1998 preliminary figures are 4.2%.
The Seattle metro area is much lower that the state. Unemployment over the last
two years has decreased drastically. Last year the state saw a 5 percent growth
in employment, according to Sohn Washington's chief economist, employment is
expected to grow between 2.5% and 3% in 1998 statewide. This is a total of
100,000 new jobs in the state, the majority of which are the Seattle
metropolitan area.
On the facing page we have summarized the recent taxable retail sales history
for Seattle and King County. The region experienced very strong retail sales
increases in the years 1989 and 1990, then slowed dramatically in 1991. From
1992 to the present retail sales have grown in King County except for a slight
dip in 1995. 1997 was the strongest year since 1989. The fist [sic] 6 months of
1998 show a 7.2% gain from the same period in 1997. Economic researcher and
consultant Dick Conway recently stated that the retail sales growth would drop
off sharply to five percent for 1999. In general, the sales growth figures have
been somewhat higher in King County as a whole than for the city of Seattle.
This is partly a reflection of the continued population growth, which has
occurred primarily in the areas outside of Seattle where there is greater
availability of residential land.
TRENDS
The greater Seattle area is likely to continue to experience increases in both
population and economic activity. The strong net in-migration that has recently
been experienced is likely to continue, due to the attractiveness of the region
for both workers and companies. Continued employment growth is expected which
will generally keep pace with the population increases, leaving unemployment
close to or slightly above their current structural levels. Much of this job
growth will come in the high technology,
<PAGE> 90
computer software, and biotech fields, as well as the lower paying, high-tech
manufacturing sector.
The Seattle metropolitan area is projected to have both population and
employment growth. The population growth will be focused in areas outside of the
city limits of Seattle. The growth will be focused in the areas with available
land. Some of the areas are south central Snohomish County from the King
Snohomish county line North to Marysville and Lake Stevens, the central part of
King County from the King Snohomish County line south to Issaquah and as far
east as Carnation, the southern part of King County from Renton south to
Enumclaw, the northeastern parts of Pierce county (Buckley, Bonney Lake, and
Orting) will experience high population growths. On the Peninsula eastern Kitsap
county, with efficient transportation to Seattle via the ferry system, will also
experience rapid population growth.
The employment growth will focus primarily in the Seattle and Bellevue CBD for
office and retail space. Both Seattle and Bellevue had multiple office buildings
planned for the future. The industrial expansion will focus in the Kent valley
from Kent to Auburn. This area has industrial sites still available, but the
supply is running out and is expected to become very tight within the next 10
years.
Overall the Seattle metropolitan area has a finite amount of buildable area
available. This points to the inevitable fact of increasing land values due to
the unavailability of more land. Along with high land values is a strong
redevelopment trend for urban locations.
Other trends in the area are also positive, including the current revitalization
of the downtown Seattle area. Several major retailing projects have recently
been finished and more are currently underway, the downtown area appears to be
succeeding and re-establishing itself as a primary retailing location for the
region. Other positive factors include numerous planned downtown hotel and
residential developments, as well as the tight Seattle and Bellevue CBD office
market
The largest challenges for the region will be affordable housing and
transportation. The housing market has been increasing at 5-12 percent over the
past 2 years, for both purchase and rentals. Increase are expected, but at
slightly lower levels. Areas outside of the city limits of Seattle are seeing
the greatest growth because there is more residential land available. The
available land is shrinking rapidly with only 14,000 buildable lots in the
pipeline for King County. Seattle has been combating the housing crunch with
redevelopment of older properties to properties with higher densities. The
density issue will also need to be addressed in cities outside of Seattle.
Seattle metro area has the 6th worst traffic congestion in the nation. On
November 5th 1997 the citizens in the Puget Sound area approved a $3.9 billion,
10-year transit plan. This plan includes using 81 miles of existing rail to
serve the areas from Everett to South Tacoma. As well as building 25 miles of
light rail from Northgate to the Seattle-Tacoma airport. Improving the bus
system in the greater King county area, HOV lanes and HOV access for carpools
and buses, and improving the scheduling of the bus system.
<PAGE> 91
Overall, prospects for growth in the local economy appear very strong, with
continued increases in population and employment likely and corresponding
strength in real estate markets in the near to medium term future. Housing and
transportation as well as other infrastructure requirements will need to be
addressed in the coming years. The current expected strength of the economy
suggest that these needs will be met with a minimal impact on the economy.
[ON THE REVERSE OF THE PREVIOUS PAGE WAS A TABLE ENTITLED "NONAGRICULTURAL WAGE
AND SALARY WORKERS EMPLOYED IN THE SEATTLE-BELLEVUE-EVERETT PMSA (KING,
SNOHOMISH AND ISLAND COUNTIES)". THIS TABLE WAS CONTINUED ONTO THE FRONT OF THE
NEXT PAGE]
<PAGE> 92
APPRAISERS' EXPERIENCE AND QUALIFICATIONS
<PAGE> 93
[McKEE & SCHALKA LETTERHEAD]
EXPERIENCE & QUALIFICATIONS
----------------------
E. BATES MCKEE, MAI
Mr. McKee graduated from the Massachusetts Institute of Technology in Cambridge,
Massachusetts, in 1979. He received a Bachelor of Science Degree in Geology,
with a Minor in Writing. He additionally completed the O-Degree program in
Geology at Edinburgh University, Scotland, in 1978.
Mr. McKee received the MAI (Member of Appraisal Institute) designation in 1988.
Mr. McKee founded the firm of McKee & Schalka in 1990. McKee & Schalka is a
comprehensive commercial appraisal company currently employing ten professional
appraisers. Mr. McKee previously joined the Seattle office of Shorett & Riely as
a commercial appraiser in 1984. In 1989 he co-founded and managed the Shorett &
Riely office in Bellevue, Washington.
Mr. McKee was previously employed as a Geologist with Roger Lowe Associates,
Bellevue, Washington, from 1979 to 1980. His work included site evaluation of
geologic and hydrologic conditions and hazards, economic feasibility analysis,
and construction inspection. Mr. McKee was employed as an investment manager and
analyst from 1981 to 1983. During this time he authored Optival, a computer
program for analyzing stock options. Mr. McKee was subsequently employed as an
investment software designer with Expert Systems, Inc., Redmond, Washington, in
1983. This position entailed design of software for analysis of real estate,
stocks, bonds, options, annuities and insurance.
Mr. McKee is a Certified General Real Estate Appraiser (Washington State
Certificate No. 270-11 MCKE-EE-B443RF). Mr. McKee has also completed the
requirements of the continuing education program of the Appraisal Institute. In
his appraisal experience, Mr. McKee has appraised and analyzed a wide variety of
commercial property types, and provided critical consultation and litigation
services to a diversified range of clients.
<PAGE> 1
EXHIBIT 99.(b)(4)
RAGEN MACKENZIE
INCORPORATED
MEMBER NEW YORK STOCK EXCHANGE
FAIRNESS OPINION TO THE GENERAL PARTNER OF
SUPER 8 MOTELS NORTHWEST I & II
Ragen MacKenzie Incorporated
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
-------
<S> <C>
Executive Summary 1
Background of the Analysis 2
Valuation Summary 3
Summary Valuation Matrix 4
Discounted Cash Flow Valuation 5
Comparable Company Analysis 6
Comparable Transaction Analysis 7
Market Test 8
Appraisals 9
Historical and Projected Financial Statements 10
Opinion Letter 11
Engagement Letter 12
</TABLE>
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<PAGE> 3
EXECUTIVE SUMMARY
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<PAGE> 4
EXECUTIVE SUMMARY
Based on our analysis, the consideration to be paid is fair to the unitholders
from a financial point of view.
o Ragen MacKenzie has been engaged by Super 8 Motels Northwest I ("Super 8
I") and Super 8 Motels Northwest II ("Super 8 II" and collectively the
"Partnerships") to render an opinion as to the fairness from a financial
point of view, of the price to be paid per unit to the limited partners.
o Under the terms of the proposed transaction Columbus LLC will pay $1,609
per unit to the limited partners of Super 8 I and $1,343 per unit to the
limited partners of Super 8 II.
o Based on our analysis we are of the opinion that the consideration to be
paid by Columbus LLC is fair to the unitholders of Super 8 I and Super 8
II from a financial point of view.
o This opinion is necessarily based on economic, monetary and market
conditions existing as of the date of the delivery of the opinion.
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<PAGE> 5
BACKGROUND OF THE ANALYSIS
In preparation for this Opinion Ragen MacKenzie, among other things, performed
the following.
o Reviewed the most current draft of the Merger Agreement dated December
31, 1998;
o Reviewed certain other documents including a draft Proxy Statement
relating to the merger into Columbus LLC.;
o Reviewed the Annual Reports to unitholders on Form 10K for the years 1995
through 1997 and certain interim reports to unitholders and Quarterly
Reports on Form 10Q of the Partnerships;
o Reviewed with the General Partner, the operations, historical financial
performance, financial condition and future prospects of the
Partnerships;
o Reviewed certain financial results provided by the Partnerships and
certain other relevant financial and operating data of the Partnerships
made available from the internal records of the Partnerships;
o Reviewed certain financial analyses and forecasts for the Partnerships
prepared by the General Partner;
o Reviewed the trading history of the units;
o Compared to the Partnerships certain publicly available financial data of
companies whose securities are publicly traded, which Ragen MacKenzie
deemed generally comparable to the business of the Partnerships;
o Reviewed the financial terms, to the extent publicly available, of
certain other business combinations that Ragen MacKenzie deemed generally
relevant;
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<PAGE> 6
BACKGROUND OF THE ANALYSIS (cont.)
o Reviewed the appraisal methodology prepared by McKee & Schalka Appraisal
Services and the values assigned to each of the properties;
o Analyzed the indications of interest for the Partnerships and affiliated
companies during their recent marketing by Exvere;
o Reviewed the competitive landscape and new entrants into the market;
o Performed and/or considered such other information, financial studies,
analyses, inquiries, investigations, market and economic criteria as
Ragen MacKenzie deemed appropriate.
Ragen MacKenzie assumed and relied upon, without independent verification, the
accuracy and completeness of the information it reviewed for purposes of its
opinion. With respect to the Partnerships' financial forecasts provided to Ragen
MacKenzie by the General Partner, Ragen MacKenzie assumed that such forecasts
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments, at the time of preparation of the separate future
operating and financial performances of the Partnerships. Ragen MacKenzie did
not assume any responsibility for or make or obtain any independent evaluation,
appraisal or physical inspection of the assets or liabilities of the
Partnerships.
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<PAGE> 7
VALUATION SUMMARY
Using assumptions provided to us by the General Partner of the Partnerships,
Ragen MacKenzie conducted the following analyses:
DISCOUNTED CASH FLOW ANALYSIS
Using discounted cash flow analysis, Ragen MacKenzie estimated the present value
of the future streams of after-tax cash flows that the Partnerships could
produce over the years 1998-2003 on a stand-alone basis, under various
circumstances. The analysis assumed that the Partnerships performed in
accordance with the earnings forecasts of the General Partner for the full year
1998 and for the projected years 1999 through 2001. Assumptions for the outlying
years were developed by Ragen MacKenzie based on discussions held with
management. The terminal values were calculated using the perpetuity method
projecting a perpetual stream of after-tax cash flows at real growth rates
ranging from 0.0% to 1.0%. The cash flow streams and terminal values were then
discounted to present values using different discount rates from 12.0% to 16.0%.
COMPARABLE TRANSACTION ANALYSIS
Ragen MacKenzie also analyzed selected transactions (the "Comparable Motel/Hotel
Acquisitions") in which certain public and private companies (the "Acquiring
Motel/Hotel Companies") acquired a single or multiple motel and/or hotel
properties (the "Target Motel/Hotel Portfolios"). Ragen MacKenzie compared the
purchase price paid in each Comparable Motel/Hotel Acquisitions with the latest
twelve months or reported period, on an annualized basis, as a multiple of
revenues and as a price per room. These calculations created the following range
of multiples; a range of purchase price to Target Motel/Hotel Portfolios
revenues of 2.5x to 4.1x, with a mean of 3.1x; a range of purchase price per
Target Motel/Hotel Portfolios per room price of $22,900 to $51,000 ,with a mean
of $28,100.
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<PAGE> 8
VALUATION SUMMARY (cont.)
COMPARABLE COMPANY ANALYSIS
Using publicly available information, Ragen MacKenzie compared selected
financial information for the Partnerships with similar information for selected
publicly-traded companies that Ragen MacKenzie deemed comparable (see
"Comparable Company Descriptions"). This analysis showed aggregate values that
resulted in an average (i) LTM Sales multiple of 2.3x; (ii) LTM EBITDA multiple
of 7.0 x; (iv) LTM EBIT multiple of 7.3x. The reference range established based
on this analysis does not factor in the management fees received by the
Affiliated Companies.
CAPITALIZATION RATE ANALYSIS
Ragen MacKenzie also compared certain financial information relating to the
Properties to certain publicly available information on recent purchase prices
in the limited-service sector of motel and hotels in particular markets in which
the Properties are located. Ragen MacKenzie analyzed the prevailing purchase
capitalization rate (calculated by dividing property net operating income for
the applicable trailing twelve month period by the purchase price paid) for the
limited service sector. Ragen MacKenzie believes that these markets closely
resemble the respective markets in which the Properties are located and are an
appropriate basis for the comparison of values.
Applying this selected data to the applicable Properties' net operating income
for the twelve months ended September, 30 1998, as adjusted to reflect
management's pro forma adjustments and certain additional adjustments that Ragen
MacKenzie deemed appropriate, yielded an aggregate range of values for the
Properties of $8.1 million to $9.7 million with the mean being $8.8 million.
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<PAGE> 9
VALUATION SUMMARY (cont.)
MARKET TEST
Ragen MacKenzie also reviewed indications of interest received by the
Partnership and the Affiliated Companies during the attempt to sell the
Partnership to an unaffiliated third-party ("Potential Acquirers"). Ragen
MacKenzie analyzed a pro-rata share of the proceeds to be received from such
transaction by the Limited Partners. Ragen MacKenzie was not involved in
determining the allocation. The allocation methodology is based upon the Exvere
Valuations of the individual partnerships in relation to the entire portfolio of
Affiliated Companies. Based upon these valuations Super 8 I represents 11.31% of
the portfolio and Super 8 II represents 11.39% of the portfolio. The proceeds
were then allocated to the Limited Partners in accordance with the Partnership
Agreement.
APPRAISALS
Ragen MacKenzie also reviewed the appraisals of the Partnership properties
prepared by McKee & Schalka Appraisal Service.
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<PAGE> 10
SUMMARY VALUATION MATRIX
($'s in 000's)
BELOW IS A SUMMARY OF THE AGGREGATE VALUES FOR THE TWO PARTNERSHIPS DERIVED
USING THE VARIOUS VALUATION METHODOLOGIES.
<TABLE>
<CAPTION>
Discounted Comparable Precedent Capitalization
Cash Flow Companies Transactions Rate Market Test Appraisals
--------- --------- ------------ ---- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Super 8 Northwest I $9,400 - $13,200 $7,000 - $8,900 $4,800 - $12,600 $8,100 - $9,700 $8,500 - $9,600 $12,300
Super 8 Northwest II 6,600 - 9,300 7,400 - 9,200 5,800 - 13,200 5,900 - 7,300 8,500 - 9,700 8,800
</TABLE>
BELOW IS A SUMMARY OF THE FINANCIAL AND OPERATING DATA USED IN OUR ANALYSIS. SEE
HISTORICAL AND PROJECTED FINANCIAL STATEMENTS FOR MORE DETAILED INFORMATION.
SUPER 8 NORTHWEST I
<TABLE>
<CAPTION>
LTM LTM LTM
REVENUE EBITDA EBIT ROOMS
------- ------ ---- -----
<S> <C> <C> <C> <C>
SeaTac $2,023 $918 $865 120
Federal Way $1,042 $348 $305 90
------ ------ ------ ---
Total NW I $3,065 $1,267 $1,170 210
====== ====== ====== ===
</TABLE>
SUPER 8 NORTHWEST II
<TABLE>
<CAPTION>
LTM LTM LTM
REVENUE EBITDA EBIT ROOMS
------- ------ ---- -----
<S> <C> <C> <C> <C>
Portland $1,515 $698 $683 80
Bremerton $744 $210 $175 77
Yakima $969 $363 $268 95
------ ------ ------ ---
Total NW II $3,228 $1,271 $1,125 252
====== ====== ====== ===
</TABLE>
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<PAGE> 11
DISCOUNTED CASH FLOW
Ragen MacKenzie prepared a discounted cash flow analysis of the projected
performance of Super 8 Northwest I and II as summarized below. This model has
been prepared based on 1998 through 2003 projections prepared by the General
Partner and provided to Ragen MacKenzie. The projections are based on the
assumption that Super 8 Northwest I and II are operated on a stand-alone basis.
Ragen MacKenzie has relied on the General Partner to assess the achievability of
these forecasts.
The discounted cash flow model was developed using the following key
assumptions:
<TABLE>
<CAPTION>
ASSUMPTION COMMENTS
---------- --------
<S> <C>
PLANNING PERIOD Cash Flows were projected for the years 1998
through 2003.
REVENUE GROWTH Revenue growth beyond 2001 has been projected
at 0% for the planning period based on
discussions with management.
FRANCHISE FEES After the consummation of the transaction
the franchise fees for the properties will
increase to 8% of revenues from the current
5%.
TERMINAL VALUE In estimating the terminal value, Ragen
MacKenzie used the Perpetuity Method. This
method assumes that free cash flows grows in
perpetuity by some rate which usually is
reflective of the long-term assessment of GDP
growth. Ragen MacKenzie projected the real
growth rate at from 0.0% to 1.0%.
DISCOUNT RATE Ragen MacKenzie employed a range of
discount rates based on an analysis of the
company's weighted average cost of capital
("WACC"). The average Beta of the comparable
companies is 0.75 with a range of .65 to 1.01.
Assuming a standard risk premium and including
a premium for size and liquidity, the range of
discounts assumed was 12.0% to 16%.
</TABLE>
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<PAGE> 12
DISCOUNTED CASH FLOW (cont.)
($'s in 000's)
Based upon the Discounted Cash Flow Analysis, the implied equity value range for
the Super 8 I is $9.4 to $ 13.2 million.
SUPER 8 NORTHWEST I
<TABLE>
<CAPTION>
PRESENT VALUE OF TERMINAL VALUE
DISCOUNT PRESENT VALUE -----------------------------------
RATE CASH FLOWS 0.0% 0.5% 1.0%
---- ---------- ---- ---- ----
<S> <C> <C> <C> <C>
12.0% $5,765 6,795 7,091 7,413
13.0% $5,624 5,947 6,185 6,442
14.0% $5,488 5,238 5,432 5,641
15.0% $5,358 4,639 4,799 4,970
16.0% $5,232 4,129 4,262 4,404
</TABLE>
<TABLE>
<CAPTION>
TOTAL NET PRESENT VALUE
DISCOUNT PRESENT VALUE ----------------------------------
RATE CASH FLOWS 0.0% 0.5% 1.0%
---- ---------- ---- ---- ----
<S> <C> <C> <C> <C>
12.0% $5,765 12,560 12,856 13,178
13.0% $5,624 11,571 11,809 12,066
14.0% $5,488 10,862 11,056 11,265
15.0% $5,358 9,997 10,157 10,328
16.0% $5,232 9,361 9,494 9,636
</TABLE>
Based upon the Discounted Cash Flow Analysis, the implied equity value range for
the Super 8 II is $6.6 to $ 9.3 million.
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<PAGE> 13
DISCOUNTED CASH FLOW (cont.)
($'s in 000's)
Based upon the Discounted Cash Flow Analysis, the implied equity value range for
the Super 8 II is $6.6 to $ 9.3 million.
SUPER 8 NORTHWEST II
<TABLE>
<CAPTION>
PRESENT VALUE OF TERMINAL VALUE
DISCOUNT PRESENT VALUE --------------------------------
RATE CASH FLOWS 0.0% 0.5% 1.0%
---- ---------- ---- ---- ----
<S> <C> <C> <C> <C>
12.0% $3,976 4,891 5,104 5,336
13.0% $3,881 4,281 4,452 4,637
14.0% $3,789 3,770 3,910 4,060
15.0% $3,700 3,339 3,454 3,578
16.0% $3,615 2,972 3,068 3,170
</TABLE>
<TABLE>
<CAPTION>
TOTAL NET PRESENT VALUE
DISCOUNT PRESENT VALUE --------------------------------
RATE CASH FLOWS 0.0% 0.5% 1.0%
---- ---------- ---- ---- ----
<S> <C> <C> <C> <C>
12.0% $3,976 8,868 9,080 9,312
13.0% $3,881 8,161 8,333 8,518
14.0% $3,789 7,651 7,791 7,941
15.0% $3,700 7,471 7,610 7,761
16.0% $3,615 6,587 6,683 6,786
</TABLE>
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<PAGE> 14
COMPARABLE TRANSACTION ANALYSIS
($'s in 000's)
Based upon the Comparable Transaction Analysis, the implied equity value range
for the Super 8 I is $4.8 to $12.6 million.
SUPER 8 NORTHWEST I - AGGREGATE VALUES BASED ON PRICE PER ROOM AND REVENUE
MULTIPLES.
<TABLE>
<CAPTION>
Comparable Transactions
--------------------------------------------------------------------------------------------------
Private Transactions(a)
--------------------------------------------------------- ---------------------------------------
All Economy Hotel/Motels Super 8 Public Transactions(b)
------------------------- ---------------------------- ---------------------------------------
Aggregate
Selling Price Per Selling Price Per Selling Price Per Value/
Rooms Price Room Rooms Price Room Rooms Price Room Revenue
----- ----- ---- ----- ----- ---- ----- ----- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High 93 $3,600 $38.71 93 $3,600 $38.71 239 $39,761 $51.09 4.1
Median 99 $2,395 $25.18 61 $1,430 $28.13 126 $7,500 $37.65 3.1
Low 78 $1,892 $22.91 49 $1,367 $26.93 92 $4,700 $33.60 2.5
</TABLE>
<TABLE>
<CAPTION>
Aggregate Value
------------------------------------------------------------------------------------------------
Private Transactions - Price Per Room(a) Public Transactions(b)
--------------------------------------------- ----------------------------------
All Economy Hotel/Motels Super 8 Price Per Room Revenue
------------------------ ------- -------------- -------
<S> <C> <C> <C> <C>
High $8,129 $8,129 $10,730 12,565
Median $5,287 $5,907 $7,906 9,347
Low $4,811 $5,656 $7,056 7,662
</TABLE>
(a) Purchases by private companies. Source : Lodging Econometrics survey of
1998 Limited Service/Economy Hotel Sales
(b) Purchases by public companies. Source: ComScan M&A Desk - public company
transactions 1993-1998. Note: a discount was taken on the public company
transactions due to the size, type and age of the properties.
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<PAGE> 15
Comparable Transaction Analysis
($'s in 000's)
Based upon the Comparable Transaction Analysis, the implied aggregate value
range for the Super 8 II is $5.7 to $13.2 million.
SUPER 8 NORTHWEST II - AGGREGATE VALUES BASED ON PRICE PER ROOM AND REVENUE
MULTIPLES.
<TABLE>
<CAPTION>
Comparable Transactions
--------------------------------------------------------------------------------------------------
Private Transactions(a)
--------------------------------------------------------- ---------------------------------------
All Economy Hotel/Motels Super 8 Public Transactions(b)
------------------------- ---------------------------- ---------------------------------------
Aggregate
Selling Price Per Selling Price Per Selling Price Per Value/
Rooms Price Room Rooms Price Room Rooms Price Room Revenue
----- ----- ---- ----- ----- ---- ----- ----- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High 93 $3,600 $38.71 93 $3,600 $38.71 239 $39,761 $51.09 4.1
Median 99 $2,395 $25.18 61 $1,430 $28.13 126 $ 7,500 $37.65 3.1
Low 78 $1,892 $22.91 49 $1,367 $26.93 92 $ 4,700 $33.60 2.5
</TABLE>
<TABLE>
<CAPTION>
Aggregate Value
------------------------------------------------------------------------------------------------
Private Transactions - Price Per Room(a) Public Transactions(b)
--------------------------------------------- ----------------------------------
All Economy Hotel/Motels Super 8 Price Per Room Revenue
------------------------ ------- -------------- -------
<S> <C> <C> <C> <C>
High $9,755 $9,755 $12,875 13,234
Median $6,344 $7,088 $ 9,487 9,845
Low $5,774 $6,787 $ 8,467 8,070
</TABLE>
(a) Purchases by private companies. Source : Lodging Econometrics survey of
1998 Limited Service/Economy Hotel Sales
(b) Purchases by public companies. Source: ComScan M&A Desk - public company
transactions 1993-1998.
Note: a discount was taken on the public company transactions due to
the size, type and age of the properties.
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<PAGE> 16
COMPARABLE COMPANY DESCRIPTIONS
Ragen MacKenzie identified a group of comparable companies. These companies were
selected based on the similar room offering.
The following table provides a summary description of the companies used:
<TABLE>
<S> <C>
AMERIHOST PROPERTIES, INC. Amerihost Properties Inc. is engaged in the
development, construction, operation and
management of AmeriHost Inn and other hotels.
CANDLEWOOD HOTEL Candlewood Hotel Company, Inc. develops,
COMPANY constructs, owns, operates, manages and
franchises a nationwide hotel chain under the name
Candlewood Hotel.
CHOICE HOTELS CHH is engaged in the business of franchising
INTERNATIONAL hotels under the Clarion, Quality, Comfort, Sleep
Inn, Rodeway, Econo Lodge and Mainstay brands in
all 50 states and 32 additional countries.
RED ROOF INNS RRI is an owner/operator of economy hotels in the
United States, with 259 inns containing over
29,600 rooms in 35 states, located throughout the
Midwest, East, South and Gulf Coast regions.
SHOLODGE Sholodge Inc. develops, owns and operates
all-suites hotels under the Sumner Suites brand
name, and is an operator and the exclusive
franchiser of Shoney's Inns.
SUBURBAN LODGES SLAM develops, owns, manages and franchises
OF AMERICA Suburban Lodge facilities, which are economy
extended stay lodging facilities.
Sunburst HOSPITALITY CORP. SNB owns and operates hotels in the United States.
As of 2/98, SNB's portfolio Included 81 hotels
open with 11,380 rooms in 28 states and 16 hotels
under construction.
SUPERTEL HOSPITALITY Supertel Hospitality develops, acquires,
constructs and operates economy-class motels as a
franchisee of Super 8 Motels, Comfort Inn Motels,
River Valley Suites and Wingate Inns.
</TABLE>
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<PAGE> 17
COMPARABLE COMPANY ANALYSIS
The companies were chosen based among other things on their participation in the
limited service sector, size and quality of assets.
ANALYSIS OF COMPARABLE COMPANIES
<TABLE>
<CAPTION>
AGGREGATE VALUE AS
MULTIPLE OF LTM
STOCK PRICE --------------------------
COMPANY NAME (12/29/98) SALES EBIT EBITDA
- ------------ ---------- ----- ---- ------
<S> <C> <C> <C> <C>
Amerihost 3.25 1.2 NMF 9.7
Candlewood Hotel Co. 5.50 1.1 NMF NMF
Choice Hotels Int'l 12.94 4.3 NMF NMF
Red Roof Inns 16.13 2.6 9.1 6.7
ShoLodge 5.75 2.2 7.2 5.3
Signature Inns, Inc. 3.00 1.4 5.3 3.7
Suburban Lodges of America 7.75 2.0 NMF 10.4
Sunburst Hospitality 3.94 1.8 NMF 7.3
Supertel Hospitality 9.38 1.9 7.7 5.7
High 4.3 9.1 10.4
Low 1.1 5.3 3.7
Mean 2.3 7.3 7.0
Mean (excl. High & Low) 1.9 7.4 6.9
</TABLE>
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<PAGE> 18
COMPARABLE COMPANY ANALYSIS (Cont.)
($'s in 000's)
Based upon the Comparable Company Analysis, the implied aggregate value range
for the Super 8 I is $7.0 to $8.9 million and the value range for the Super 8 II
is $7.4 to $9.2 million.
Note that the Comparable Companies are operating companies and not stand-alone
properties. The operating companies would typically warrant a premium.
VALUATION BASED ON COMPARABLE COMPANIES' RESPECTIVE MEAN MULTIPLES.
<TABLE>
<CAPTION>
Revenue EBITDA EBIT
-------------------- -------------------- --------------------
LTM Value LTM Value LTM Value
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NW I $3,065 $7,031 $1,267 $8,866 $1,170 $8,530
NW II $3,228 $7,406 $1,308 $9,153 $1,124 $8,192
</TABLE>
Note: The comparable Company Analysis values the partnerships based on
historical performance only. Future performance is not taken into consideration.
This fact leads to a similar valuation between the two partnerships.
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<PAGE> 19
CAPITALIZATION RATE ANALYSIS
($'s in 000's)
Ragen MacKenzie used a range of capitalization rates deemed applicable and
applied them at the property level to determine a valuation.
Based on the Capitalization Rate analysis, the implied aggregate value range for
Super 8 I is $8.1 to $9.7 million.
SUPER 8 NORTHWEST I
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITALIZATION RATES
-------------------------------------------------------------------
SEA-TAC 10.5% 11.0% 11.5% 12.0% 12.5%
-------------------------------------------------------------------
NOI VALUATION
--------------------------------------------------------------------------------
1997 726.1 6,914.8 6,600.5 6,313.5 6,050.4 5,808.4
LTM 1998 778.1 6,860.7 6,548.9 6,264.1 6,003.1 5,763.0
CAPITALIZATION RATES
-------------------------------------------------------------------
FEDERAL WAY 10.5% 11.0% 11.5% 12.0% 12.5%
-------------------------------------------------------------------
NOI VALUATION
--------------------------------------------------------------------------------
1997 292.0 2,781.0 2,654.5 2,539.1 2,433.3 2,336.0
LTM 1998 252.0 2,813.2 2,685.3 2,568.5 2,461.5 2,363.0
CAPITALIZATION RATES
-------------------------------------------------------------------
TOTAL SUPER 8 NORTHWEST I 10.5% 11.0% 11.5% 12.0% 12.5%
-------------------------------------------------------------------
NOI VALUATION
----------------------------------------------------------------------------------
1997 1,018.1 9,695.7 9,255.0 8,852.6 8,483.8 8,144.4
LTM 1998 1,015.8 9,673.9 9,234.2 8,832.7 8,464.6 8,126.1
</TABLE>
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<PAGE> 20
CAPITALIZATION RATE ANALYSIS
($'s in 000's)
Based on the Capitalization Rate analysis, the implied aggregate value range for
Super 8 II is $5.9 to $7.3 million.
SUPER 8 NORTHWEST II
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITALIZATION RATES
-------------------------------------------------------------------
PORTLAND 10.5% 11.0% 11.5% 12.0% 12.5%
-------------------------------------------------------------------
NOI VALUATION
--------------------------------------------------------------------------------
1997 596.8 5,683.8 5,425.5 5,189.6 4,973.3 4,774.4
1998 638.1 6,077.1 5,800.9 5,548.7 5,317.5 5,104.8
CAPITALIZATION RATES
-------------------------------------------------------------------
YAKIMA 10.5% 11.0% 11.5% 12.0% 12.5%
-------------------------------------------------------------------
NOI VALUATION
--------------------------------------------------------------------------------
1997 47.5 452.4 431.8 413.0 395.8 380.0
1998 53.5 509.5 486.4 465.2 445.8 428.0
CAPITALIZATION RATES
-------------------------------------------------------------------
BREMERTON 10.5% 11.0% 11.5% 12.0% 12.5%
-------------------------------------------------------------------
NOI VALUATION
--------------------------------------------------------------------------------
1997 87.3 831.4 793.6 759.1 727.5 698.4
1998 69.3 660.0 630.0 602.6 577.5 554.4
CAPITALIZATION RATES
-------------------------------------------------------------------
TOTAL SUPER 8 NORTHWEST II 10.5% 11.0% 11.5% 12.0% 12.5%
-------------------------------------------------------------------
NOI VALUATION
--------------------------------------------------------------------------------
1997 731.6 6,967.6 6,650.9 6,361.7 6,096.7 5,852.8
1998 766.9 7,303.9 6,971.9 6,668.8 6,390.9 6,135.3
</TABLE>
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<PAGE> 21
MARKET TEST
($'s in 000's)
Based on Market Test and the allocation formula developed independently by
Exvere, the implied aggregate value range for Super 8 I is $8.5 to $9.6 million
and for Super 8 II is $8.5 to $9.7 million.
The Partnerships and affiliated companies received several indications of
interest from potential acquirers during the most recent marketing phase. Ragen
MacKenzie analyzed these indications of interest collected by Exvere and
provided to Ragen MacKenzie by the General Partner and developed a range of
implied values for the Partnerships based on the pro rata valuations of the
Partnerships developed by Exvere.
SEATTLE NORTHWEST I
<TABLE>
<CAPTION>
EXVERE VALUATION
---------------------------
Total
Portfolio NWI %
--------- ------ -----
<S> <C> <C>
$92,300 10,439 11.3%
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE PRO RATA PRO RATA
POTENTIAL PURCHASER PURCHASE PRICE VALUE DEBT EQUITY VALUE
- ------------------- -------------- ----- ---- ------------
<S> <C> <C> <C> <C>
ROYOP $85,000 $ 9,614 $ 1,306 $ 8,308
AROSA 85,000 9,614 1,306 8,308
VAGABOND 75,000 8,483 1,306 7,177
PACIFICA HOST 75,000 8,483 1,306 7,177
</TABLE>
SEATTLE NORTHWEST II
<TABLE>
<CAPTION>
EXVERE VALUATION
---------------------------
Total
Portfolio NWII %
--------- ------ -----
<S> <C> <C>
$ 92,300 10,500 11.4%
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE PRO RATA PRO RATA
POTENTIAL PURCHASER PURCHASE PRICE AGGR. VALUE DEBT EQUITY VALUE
- ------------------- -------------- ----------- ---- ------------
<S> <C> <C> <C> <C>
ROYOP $85,000 $ 9,670 $ 2,266 $ 7,404
AROSA 85,000 9,670 2,266 7,404
VAGABOND 75,000 8,532 2,266 6,266
PACIFICA HOST 75,000 8,532 2,266 6,266
</TABLE>
Ragen MacKenzie Incorporated
Investment Banking
20
<PAGE> 22
APPRAISALS
The appraisals of each of the properties was conducted by McKee & Schalka
Appraisal Services. For this analysis Ragen MacKenzie relied without independent
verification, on the accuracy and completeness of all information in the
appraisals. Ragen MacKenzie did not conduct any independent appraisals.
<TABLE>
<CAPTION>
SEATTLE NORTHWEST I SEATTLE NORTHWEST II
- ------------------- --------------------
Property Appraisal Property Appraisal
- -------- --------- -------- ---------
<S> <C> <C> <C>
Sea-Tac $ 8.3 million Portland $5.3 million
Federal Way $ 4.0 million Yakima $2.1 million
------------- Bremerton $1.4 million
------------
TOTAL $12.3 MILLION TOTAL $8.8 MILLION
</TABLE>
Ragen MacKenzie Incorporated
Investment Banking
21
<PAGE> 23
HISTORICAL AND PROJECTED INCOME STATEMENTS
SUPER 8 MOTELS NORTHWEST I (CONSOLIDATED) FINANCIALS
COMPANY'S STATEMENTS OF ANNUAL EARNINGS ($ THOUS.)
<TABLE>
<CAPTION>
HISTORICAL SEPT. 30
---------------------------------------------------
1995 1996 1997 1998
---------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE 2,701.3 2,976.4 2,980.6 3,064.6
rooms 2,544.7 2,859.3 2,857.1 2,946.1
other motel related 156.5 117.1 123.5 118.5
DIRECT OPER. EXP. 1,054.8 952.2 1,032.8 1,122.8
payroll & related 539.4 495.9 548.7 590.7
supplies & maintenance 132.0 134.2 145.0 180.0
utilities 160.1 154.2 159.2 160.2
other motel related 223.3 167.9 179.9 191.9
GROSS PROFIT 1,646.4 2,024.2 1,947.8 1,941.8
Gross Margin 60.9% 68.0% 65.3% 63.4%
INDIRECT OPER. EXP. 471.5 403.1 446.1 402.1
taxes & fees 230.2 172.8 201.5 198.5
advertising & promo. 175.1 156.2 167.9 143.9
bank & credit card chgs 0.0 0.0 0.0 0.0
other motel related 66.2 74.2 76.7 59.7
% of sales 17.5% 13.5% 15.0% 13.1%
MGMT. & FRANCHISE FEES 236.9 263.0 262.1 273.1
% of sales 8.8% 8.8% 8.8% 8.9%
EBITDA 938.0 1,358.1 1,239.6 1,266.6
% of sales 34.7% 45.6% 41.6% 41.3%
DEPREC./AMORT. 131.8 150.0 87.2 96.2
EBIT 806.2 1,208.1 1,152.4 1,170.4
% of sales 29.8% 40.6% 38.7% 38.2%
INTEREST EXPENSE 105.1 127.8 123.4 129.4
INTEREST INCOME 0.0 2.9 0.0 0.0
LEASE EXPENSE 0.0 0.2 0.0 1.0
OTHER INC/EXP 0.0 (5.4) (10.9) (9.9)
EBT 701.1 1,077.6 1,018.1 1,030.1
TAXES FED/ST. 0.0 0.0 0.0 0.0
EXTRAORDINARY 0.0 0.0 0.0 0.0
EAT 701.1 1,077.6 1,018.1 1,030.1
% ROS 26.0% 36.2% 34.2% 33.6%
PROGRAMMED MAINTENANCE 460.3 105.2 53.0 221.7
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PROJECTED YEAR-END DECEMBER 31,
-----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE 3,054.9 3,124.0 3,168.0 3,212.0 3,255.2 3,299.1
rooms 2,931.4 3,000.5 3,044.5 3,088.5 3,131.7 3,175.6
other motel related 123.5 123.5 123.5 123.5 123.5 123.5
DIRECT OPER. EXP. 1,136.1 1,056.5 1,069.2 1,092.7 1,114.6 1,136.9
payroll & related 603.5 561.3 568.0 580.5 592.1 604.0
supplies & maintenance 159.5 148.4 150.1 153.4 156.5 159.6
utilities 175.2 162.9 164.9 168.5 171.9 175.3
other motel related 197.9 184.0 186.2 190.3 194.1 198.0
GROSS PROFIT 1,918.8 2,067.5 2,098.8 2,119.3 2,140.6 2,162.2
Gross Margin 62.8% 66.2% 66.2% 66.0% 65.8% 65.5%
INDIRECT OPER. EXP. 446.1 397.4 400.1 404.4 408.4 412.5
taxes & fees 201.5 182.6 183.5 185.2 186.7 188.3
advertising & promo. 167.9 153.5 154.2 155.5 156.7 157.9
bank & credit card chgs 0.0 0.0 0.0 0.0 0.0 0.0
other motel related 76.7 61.3 62.5 63.7 65.0 66.3
% of sales 14.6% 12.7% 12.6% 12.6% 12.5% 12.5%
MGMT. & FRANCHISE FEES 262.1 262.1 262.1 262.1 262.1 262.1
% of sales 8.6% 8.4% 8.3% 8.2% 8.1% 7.9%
EBITDA 1,210.6 1,408.0 1,436.6 1,452.8 1,470.1 1,487.6
% of sales 39.6% 45.1% 45.3% 45.2% 45.2% 45.1%
DEPREC./AMORT. 80.7 80.7 80.7 80.7 80.7 80.7
EBIT 1,129.9 1,327.3 1,355.9 1,372.1 1,389.4 1,406.9
% of sales 37.0% 42.5% 42.8% 42.7% 42.7% 42.6%
INTEREST EXPENSE 114.2 114.2 114.2 114.2 114.2 114.2
INTEREST INCOME 0.0 0.0 0.0 0.0 0.0 0.0
LEASE EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INC/EXP 0.0 0.0 0.0 0.0 0.0 0.0
EBT 1,015.8 1,213.1 1,241.7 1,257.9 1,275.3 1,292.7
TAXES FED/ST. 0.0 0.0 0.0 0.0 0.0 0.0
EXTRAORDINARY 0.0 0.0 0.0 0.0 0.0 0.0
EAT 1,015.8 1,213.1 1,241.7 1,257.9 1,275.3 1,292.7
% ROS 33.3% 38.8% 39.2% 39.2% 39.2% 39.2%
PROGRAMMED MAINTENANCE 152.7 156.2 158.4 160.6 162.8 165.0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Ragen MacKenzie Incorporated
Investment Banking
22
<PAGE> 24
HISTORICAL AND PROJECTED INCOME STATEMENTS
SUPER 8 MOTELS NORTHWEST II (CONSOLIDATED) FINANCIALS
COMPANY'S STATEMENTS OF ANNUAL EARNINGS ($ THOUS.)
<TABLE>
<CAPTION>
HISTORICAL SEPT. 30
----------------------------------------------------
1995 1996 1997 1998
----------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE 0.0 3,600.4 3,245.9 3,227.9
rooms 0.0 3,500.0 3,132.8 3,118.8
other motel related 0.0 100.4 113.1 109.1
DIRECT OPER. EXP. 1,054.8 1,201.4 1,210.0 1,228.0
payroll & related 539.4 657.4 659.3 669.3
supplies & maintenance 132.0 171.3 176.1 179.1
utilities 160.1 195.4 192.2 192.2
other motel related 223.3 177.3 182.4 187.4
GROSS PROFIT (1,054.8) 2,399.0 2,035.9 1,999.9
Gross Margin 0.0% 66.6% 62.7% 62.0%
INDIRECT OPER. EXP. 471.5 403.5 455.1 427.1
taxes & fees 230.2 173.1 210.9 198.9
advertising & promo. 175.1 187.9 202.9 199.9
bank & credit card chgs 0.0 0.0 0.0 0.0
other motel related 66.2 42.5 41.3 28.3
% of sales 0.0% 11.2% 14.0% 13.2%
MGMT. & FRANCHISE FEES 355.4 319.6 287.5 265.2
% of sales 0.0% 8.9% 8.9% 8.2%
EBITDA (1,881.7) 1,675.9 1,293.3 1,307.6
% of sales 0.0% 46.5% 39.8% 40.5%
DEPREC./AMORT. 65.9 191.1 190.7 182.7
EBIT (1,947.6) 1,484.8 1,102.6 1,124.9
% of sales 0.0% 41.2% 34.0% 34.8%
INTEREST EXPENSE 105.1 244.0 224.5 216.5
INTEREST INCOME 0.0 1.4 0.0 0.0
LEASE EXPENSE 0.0 143.9 146.5 147.5
OTHER INC/EXP 0.0 0.0 0.0 0.0
EBT (2,052.7) 1,098.3 731.6 760.9
TAXES FED/ST. 0.0 0.0 0.0 0.0
EXTRAORDINARY 0.0 0.0 0.0 0.0
EAT (2,052.7) 1,098.3 731.6 760.9
% ROS 0.0% 30.5% 22.5% 23.6%
PROGRAMMED MAINTENANCE 460.3 77.5 105.2 342.2
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PROJECTED YEAR-END DECEMBER 31,
---------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE 3,245.9 3,238.0 3,283.0 3,329.0 3,329.0 3,329.0
rooms 3,132.8 3,124.9 3,169.9 3,215.9 3,215.9 3,215.9
other motel related 113.1 113.1 113.1 113.1 113.1 113.1
DIRECT OPER. EXP. 1,331.0 1,237.8 1,252.7 1,280.2 1,305.8 1,332.0
payroll & related 725.2 674.5 682.6 697.6 711.5 725.8
supplies & maintenance 193.7 180.2 182.3 186.3 190.0 193.9
utilities 211.4 196.6 199.0 203.4 207.4 211.6
other motel related 200.6 186.6 188.8 193.0 196.8 200.8
0.0 0.0 0.0 0.0 0.0 0.0
GROSS PROFIT 1,914.9 2,000.2 2,030.3 2,048.8 2,023.2 1,997.0
Gross Margin 59.0% 61.8% 61.8% 61.5% 60.8% 60.0%
INDIRECT OPER. EXP. 464.2 473.5 483.0 492.6 502.5 512.5
taxes & fees 215.1 219.4 223.8 228.3 232.9 237.5
advertising & promo. 207.0 211.1 215.3 219.6 224.0 228.5
bank & credit card chgs 0.0 0.0 0.0 0.0 0.0 0.0
other motel related 42.1 43.0 43.8 44.7 45.6 46.5
% of sales 14.3% 14.6% 14.7% 14.8% 15.1% 15.4%
MGMT. & FRANCHISE FEES 287.5 287.5 287.5 287.5 287.5 287.5
% of sales 8.9% 8.9% 8.8% 8.6% 8.6% 8.6%
EBITDA 1,163.2 1,239.2 1,259.9 1,268.6 1,233.2 1,197.0
% of sales 35.8% 38.3% 38.4% 38.1% 37.0% 36.0%
DEPREC./AMORT. 176.4 176.4 176.4 176.4 176.4 176.4
EBIT 986.8 1,062.8 1,083.5 1,092.2 1,056.8 1,020.6
% of sales 30.4% 32.8% 33.0% 32.8% 31.7% 30.7%
INTEREST EXPENSE 229.0 286.2 294.8 299.2 305.2 311.3
INTEREST INCOME 0.0 0.0 0.0 0.0 0.0 0.0
LEASE EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INC/EXP 0.0 0.0 0.0 0.0 0.0 0.0
EBT 757.8 776.5 788.6 793.0 751.6 709.3
TAXES FED/ST. 0.0 0.0 0.0 0.0 0.0 0.0
EXTRAORDINARY 0.0 0.0 0.0 0.0 0.0 0.0
EAT 757.8 776.5 788.6 793.0 751.6 709.3
% ROS 23.3% 24.0% 24.0% 23.8% 22.6% 21.3%
PROGRAMMED MAINTENANCE 162.3 161.9 164.2 166.5 166.5 166.5
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Ragen MacKenzie Incorporated
Investment Banking
23
<PAGE> 25
OPINION LETTER
Ragen MacKenzie Incorporated
Investment Banking
24
<PAGE> 26
ENGAGEMENT LETTER
Ragen MacKenzie Incorporated
Investment Banking
25
<PAGE> 1
EXHBIIT 99.(d)(1)
[LETTERHEAD OF SUPER 8 MOTELS NORTHWEST I]
February [__], 1999
To Our Unitholders:
You are cordially invited to attend a special meeting (the "Meeting")
of limited partners ("Unitholders") of Super 8 Motels Northwest I, a Washington
limited partnership ("Northwest I"). The Meeting will be held at the offices of
Graham & James LLP/Riddell Williams P.S., 1001 Fourth Avenue Plaza, Suite 4500,
Seattle, Washington 98154 on March [ ], 1999 at 11:00 a.m.
Gerald L. Whitcomb ("Whitcomb"), as the sole general partner of Northwest I
and on its behalf, has entered into an Agreement and Plan of Merger and
Reorganization dated December 31, 1998, as amended, (the "Merger Agreement")
with Columbus Properties L.L.C., a Washington limited liability company
("Columbus"), beneficially owned by Gerald and Maryanne Whitcomb and family
members (collectively "Whitcomb"). At the Meeting, you will be asked to consider
and vote upon the proposed Merger Agreement which provides for the merger of
Northwest I with and into Columbus (the "Merger"). If the Merger is approved,
each outstanding limited partnership unit ("Unit") of Northwest I held by
unaffiliated Unitholders will be converted into the right to receive $1,609 in
cash (the "Merger Consideration") and unaffiliated Unitholders will have no
further interest in Northwest I.
The attached proxy statement provides a detailed description of the terms of
the Merger. The Merger Agreement is attached as Annex I to the proxy statement.
Please read these materials carefully. Approval of the Merger requires the
affirmative vote of 66% of the outstanding Units at the Meeting.
Because Whitcomb is both the proposed purchaser (through Columbus) and the
general partner of Northwest I, Ragen MacKenzie Incorporated, Investment Bankers
and Brokers, Seattle, Washington ("Ragen MacKenzie") has been retained by
Northwest I to render an opinion concerning the fairness of the Merger
Consideration offered to unaffiliated Unitholders in the Merger. In the opinion
of Ragen MacKenzie, the Merger Consideration to be paid to unaffiliated
Unitholders is fair from a financial point of view. The full text of the Ragen
MacKenzie opinion is attached as Annex II to the proxy statement.
In addition, McKee & Schalka ("McKee"), Seattle, Washington, Independent
Real Estate Appraisers & Consultants, Seattle, Washington, have appraised the
motel properties owned by Northwest I and have issued their report dated
December 31, 1998. The McKee appraisals are described in greater detail in the
proxy statement.
On the basis of the Ragen MacKenzie opinion and the McKee appraisals,
Whitcomb, on behalf of Northwest I, has approved the proposed Merger. Whitcomb
and Columbus each believe that the Merger and the Merger Consideration is fair
to unaffiliated Unitholders.
Your vote is important. Even if you plan to attend the Meeting, please
date, sign and promptly return the proxy card in the enclosed envelope. If you
were a Unitholder as of January 6, 1999 and attend the Meeting, you may change
your vote in person even if you have previously mailed a proxy card. You may
also change your vote by sending us a later dated properly executed proxy card.
<PAGE> 2
Unitholders may exercise dissenters' rights of appraisal by
complying with the procedural requirements of the Revised Code of Washington,
including not voting in favor of the Merger Agreement.
Promptly after the Merger, a letter of transmittal, along with the required
transmittal forms required for the Unitholder to receive the Merger
Consideration, will be mailed by Columbus, the surviving company in the Merger,
to each Northwest I Unitholder as of January 6, 1999. Upon receipt of the
required transmittal forms, the paying agent will mail the Merger Consideration
to the Unitholders.
We look forward to seeing as many of you as possible at the Meeting.
- --------------------
Gerald L. Whitcomb,
General Partner
<PAGE> 3
SUPER 8 MOTELS NORTHWEST I
7515 Terminal Street, S.W.
Tumwater, Washington 98501
(360) 943-5000
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
To be held March [__], 1999
A special meeting (the "Meeting") of limited partners (the
"Unitholders") of Super 8 Motels Northwest I ("Northwest I"), a Washington
limited partnership, will be held at the offices of Graham & James LLP/Riddell
Williams P.S., 1001 Fourth Avenue Plaza, Suite 4500, Seattle, Washington 98154
on March [ ], 1999 at 11:00 a.m. for the following purposes:
1. To vote on the adoption of an Agreement and Plan of Reorganization and Merger
dated December 31, 1998, as amended, (the "Merger Agreement"), by and among
Gerald L. Whitcomb ("Whitcomb"), the sole general partner of Northwest I on
behalf of Northwest I and Columbus Properties L.L.C., a Washington limited
liability company ("Columbus"), owned by Gerald and Maryanne Whitcomb and family
members (collectively "Whitcomb"). If the transaction is approved, Northwest I
will be merged into Columbus (the "Merger") and you will receive cash in the
amount of $1,609 for each limited partnership unit ("Unit") you own. Approval of
the Merger Agreement will also constitute an amendment to the Certificate and
Agreement of Limited Partnership to provide that gain, if any, realized by
Northwest I in this Merger will be allocated to the unaffiliated Unitholders
receiving the Merger consideration.
2. To transact such other business as may be properly presented at the Meeting
including and any adjournment or postponement thereof, none of which other
business is currently anticipated.
The Merger Agreement is attached to the proxy statement as Annex I.
Unitholders as of the close of business on January 6, 1999 (the date of
the first public announcement of the proposed merger) are entitled to notice of
and to vote at the Meeting. As of the January 6, 1999 record date, there
were 6,000 Units outstanding. A list of Unitholders entitled to vote at the
Meeting will be available at the executive offices of Northwest I commencing
February ___, 1999. You may inspect the list for purposes germane to the
Meeting.
If the Merger is consummated, Unitholders who do not vote to approve the
Merger Agreement and who otherwise comply with the requirements of Article 14 of
Chapter 25.10 of the Revised Code of Washington, have statutory dissenters'
rights of appraisal. A complete copy of Article 14 is attached to the proxy
statement as Annex III. A description of the procedures to be followed to
perfect dissenters' appraisal rights is set forth in the proxy statement
beginning on page 32.
Units represented by valid unrevoked proxies will be voted as specified
therein. If no specification is made, Units covered by proxies will be voted (i)
"FOR" approval and adoption of the Merger Agreement and approval of the
transactions contemplated thereby; and (ii) in the discretion of the persons
named as proxies on such other matters as may properly come before the Meeting.
Pursuant to the authority granted to Whitcomb by the Northwest I
Certificate and Agreement of Limited Partnership, Whitcomb will not consent to
any assignee of Units becoming a substituted Unitholder in place of the assignor
between January 6, 1999 through the date of the Meeting, including any
adjournment or postponement thereof.
- ---------------------
Gerald L. Whitcomb,
General Partner
<PAGE> 4
PROXY STATEMENT
SUPER 8 MOTELS NORTHWEST I
7515 Terminal Street. S.W.
Tumwater, Washington 98501
SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON MARCH [ ], 1999
This proxy statement is being furnished to the limited partners
("Unitholders") of Super 8 Motels Northwest I, a Washington limited partnership
("Northwest I"), in connection with the solicitation of proxies by Gerald L.
Whitcomb, the general partner of Northwest I ("Whitcomb"), from Unitholders for
use at the special meeting of Unitholders to be held at the offices of Graham &
James LLP/Riddell Williams P.S., 1001 Fourth Avenue Plaza, Suite 4500, Seattle,
Washington 98154 on March [ ], 1999 at 11:00 a.m. including any adjournment or
postponement thereof ("Meeting").
At the Meeting, Unitholders as of January 6, 1999, the record date, will
consider and vote upon a proposal to approve and adopt an Agreement and Plan of
Reorganization and Merger, dated December 31, 1998, as amended, ("Merger
Agreement"), pursuant to which Northwest I will merge (the "Merger") with and
into Columbus Properties L.L.C., a Washington limited liability company
("Columbus") beneficially owned by Gerald and Maryanne Whitcomb and family
members (collectively "Whitcomb"). If the Merger is approved, each outstanding
unit ("Unit") held by unaffiliated Unitholders will be converted into the right
to receive $1,609 in cash ("Merger Consideration"). The Units were initially
sold by Northwest I for $1,000 each. Columbus will be the surviving company and
Northwest I will cease to be a public company.
Whitcomb deems it advisable to require approval of this affiliated
transaction by 66% of the outstanding Units, 98% of which are owned by
unaffiliated Unitholders.
As you read through this proxy statement, note the following issues which
are discussed in detail in the proxy statement:
o Whitcomb faces substantial conflicts of interest in proposing to purchase
your Units. These conflicts can be mitigated but cannot be eliminated.
o The Merger proposal was not reviewed by an independent committee.
o You will pay federal income tax on gain from the sale of your Units.
o If the Merger is approved, you will have no further interest in Northwest
I including the right to quarterly distributions and potential
appreciation of assets over time.
Your vote is important. Even if you plan to attend the Meeting, please
date, sign and promptly return the proxy card in the enclosed envelope. If you
were a Unitholder as of January 6, 1999 and attend the Meeting, you may change
your vote in person even if you have previously mailed a proxy card. You may
also change your vote by sending us a later dated properly executed proxy card.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN GIVEN BY NORTHWEST I OR ITS AFFILIATES.
Whitcomb knows of no other additional matters that will be presented at the
Meeting.
THE DATE OF THIS PROXY STATEMENT IS FEBRUARY __, 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY ................................................................................... 2
Super 8 Motels Northwest I......................................................... 2
The Buyer - Columbus Properties L.L.C.............................................. 2
Affiliated Parties................................................................. 2
Offers by Columbus for Motel Properties Owned by Northwest II, Lacy, Anchorage
and Tongass................................................................. 3
Date, Time and Place of Meeting.................................................... 3
Purpose of the Meeting............................................................. 4
Merger Consideration............................................................... 4
Required Vote by Unitholders; Beneficial Ownership................................. 4
Persons Making the Solicitation; Expenses.......................................... 4
Revocability of Proxy.............................................................. 4
Effect of the Merger............................................................... 4
Effective Time of the Merger....................................................... 5
Payment of Merger Consideration; Loan Commitment................................... 5
Opinion of Financial Advisor....................................................... 5
Independent Appraisal of Motel Properties.......................................... 5
Material Federal Income Tax Consequences........................................... 5
Dissenters' Rights of Appraisal.................................................... 5
Market Information................................................................. 6
WHERE YOU CAN FIND MORE INFORMATION........................................................ 7
SPECIAL FACTORS............................................................................ 8
Conflicts of Interest; Procedural Safeguards....................................... 8
Fairness of the Transaction........................................................ 9
An Independent Committee Did Not Review the Merger Proposal........................ 11
Source and Amounts of Merger Consideration and Expenses............................ 11
Plans or Proposals By Issuer Or Affiliates Following Merger........................ 11
Opinion of Financial Advisor....................................................... 11
Interest of Affiliates in Matters to Be Acted Upon; Past Contracts and
Agreements.................................................................. 12
Management and Operations of Northwest I Following Merger.......................... 12
Business Valuation of Northwest I by Exvere........................................ 12
Appraisal of Sea-Tac and Federal Way Properties by McKee & Schalka................. 15
BACKGROUND OF THE TRANSACTION.............................................................. 18
Reasons for the Merger............................................................. 18
</TABLE>
i
<PAGE> 6
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Background of the Merger; Alternatives Considered; Attempted Sale of Motel
Properties to Unaffiliated Third Party...................................... 18
Acquisition of Motel Properties by Columbus........................................ 19
Acquisition of Northwest I by Columbus; Approach to Determination of Merger
Consideration............................................................... 20
OPINION OF FINANCIAL ADVISOR............................................................... 21
THE MERGER AGREEMENT....................................................................... 26
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................................... 30
DISSENTERS' RIGHTS OF APPRAISAL............................................................ 32
INFORMATION ABOUT THE SELLER - NORTHWEST I................................................. 35
INDEX TO FINANCIAL STATEMENTS.............................................................. F-1
</TABLE>
<TABLE>
<CAPTION>
ANNEXES
<S> <C>
Merger Agreement...................................................................... ANNEX I
Opinion of Financial Advisor.......................................................... ANNEX II
Dissenters' Rights Statute............................................................ ANNEX III
Comparison of Values.................................................................. ANNEX IV
</TABLE>
ii
<PAGE> 7
SUMMARY
The following is a summary of the proposed Merger of Northwest I with and
into Columbus, as described below, and contains information about the Meeting.
While complete in all material respects, this summary is qualified by reference
to the detailed information appearing elsewhere in this proxy statement and the
attached annexes. You should carefully read all of these materials.
SUPER 8 MOTELS NORTHWEST I
Northwest I is in the business of owning two Super 8 Motels in the Sea-Tac
and Federal Way areas of King County, Washington. Gerald L. Whitcomb is its sole
general partner. The Unitholders are the owners of the limited partnership
interests in Northwest I. Pursuant to the terms of the limited partnership
agreement, Northwest I's existence would terminate on December 31, 2020 unless
earlier terminated under the limited partnership agreement or as otherwise
provided by law.
THE BUYER - COLUMBUS PROPERTIES L.L.C.
The proposed buyer is Columbus (formerly Whitcomb Family L.L.C.), a
privately-owned Washington limited liability company formed in 1995. Columbus is
100% owned by Whitcomb. Columbus currently owns and operates four Super 8
Motels: Ferndale Super 8 Motel, in Ferndale, Washington; Redmond Super 8 Motel,
in Redmond, Oregon; Roseburg Super 8 Motel in Roseburg, Oregon; and Woodburn
Super 8 Motel, in Woodburn, Oregon. The principal executive office of Columbus
is located at 7515 Terminal Street, S.W., Tumwater, Washington 98501.
Its telephone number (360) 943-8000.
AFFILIATED PARTIES
Whitcomb and Peninsula Development Services, Inc. ("PDS") (formerly The
Peninsula Group Incorporated), which is 100% owned by Whitcomb, are also the
general partners of five other limited partnerships engaged in the business of
owning and operating Super 8 Motels. PDS was formed in 1976 to develop the Super
8 Motel franchise system in the states of Washington, Oregon, and Alaska.
Whitcomb and/or PDS are the general partners of the following five additional
limited partnerships: Peninsula Motel Associates, a Washington limited
partnership ("Peninsula"); Super 8 Motels Northwest II, a Washington limited
partnership ("Northwest II"); Super 8 Motels of Lacey Associates, a Washington
limited partnership ("Lacey"); Anchorage Motel Associates, a Washington limited
partnership ("Anchorage"); and Juneau Motel Associates, a Washington limited
partnership ("Juneau"). Peninsula, which owns 13 Super 8 Motels, is 100% owned
by the Whitcombs. Lacey (1 Super 8 Motel), Anchorage (1 Super 8 Motel), and
Juneau (1 Super 8 Motel) are privately-owned and have unaffiliated limited
partners. Northwest I (2 Super 8 Motels) and Northwest II (3 Super 8 Motels) are
public companies with approximately 1,050 and 900 limited partners,
respectively. Whitcomb is also a partner in Tongass Motel Associates, an Alaska
general partnership ("Tongass"), which owns 1 Super 8 Motel and Peninsula
Properties Partnership, a Washington general partnership ("Peninsula
Properties"), which owns 1 Super 8 Motel.
Whitcomb has served as a general partner of Northwest I since inception. Mr.
Whitcomb, who leads the day-to-day operations of the various partnerships, has
20 years of experience in the hospitality industry, owning and operating motels
and serving as general partner of limited partnerships that own and operate
motels.
Peninsula Management Northwest Inc., a Washington corporation ("Peninsula
Management"), was formed in 1979 to provide administrative and motel management
services for the 27 motels owned by the various partnerships and by the
Whitcombs. Prior to January 31, 1999 Peninsula Management was 100% owned by PDS
and on that date it was merged into PDS.
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The services that Peninsula Management (now part of PDS) provides include
business and marketing services, accounting and payroll, maintenance, and human
resources. Prior to its merger into PDS, Peninsula Management did not own any
real estate and did not own any interest in any of the limited partnerships,
including Northwest I.
Peninsula Development Services, Inc., a Washington corporation ("Peninsula
Development"), was formed in 1976 as a general contractor and was licensed in
Washington, Oregon and Alaska. Peninsula Development was responsible for the
development, new construction, and some renovations of motels managed by
Peninsula Management. Prior to January 31, 1999 Peninsula Development was 100%
owned by PDS and on that date was merged into PDS.
[FLOWCHART]
OFFERS BY COLUMBUS FOR MOTEL PROPERTIES OWNED BY NORTHWEST II, LACY, ANCHORAGE,
TONGASS AND PENINSULA PROPERTIES
Contemporaneous with the proposed Merger, Columbus is making proposals to
the limited partners of Northwest II, Lacey, Anchorage Peninsula Properties and
Tongass for the acquisition of a total of 7 additional Super 8 Motels. Other
than the consideration per unit, the terms of the proposals for the acquisition
of the Super 8 Motels owned by these partnerships are substantially the same.
DATE, TIME AND PLACE OF MEETING
The Meeting will be held at the offices of Graham & James LLP/Riddell
Williams P.S., 1001 Fourth Avenue Plaza, Suite 4500, Seattle, Washington 98154
on March [ ], 1999 at 11:00 a.m. Unitholders as of January 6, 1999 will
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be entitled to notice of and to vote at the Meeting.
PURPOSE OF THE MEETING
The Whitcombs, through Columbus, propose to purchase Units owned by
Unitholders of Northwest I in exchange for the Merger Consideration. To
accomplish this, Unitholders are being asked to approve the proposed Merger.
MERGER CONSIDERATION
The Merger Consideration is $1,609 per Unit for each Unit exchanged in the
Merger. The Merger Consideration was determined solely by Whitcomb on behalf of
Columbus.
REQUIRED VOTE BY UNITHOLDERS; BENEFICIAL OWNERSHIP
The limited partnership agreement of Northwest I does not specifically
address the vote required in the event of a merger. The Northwest I limited
partnership agreement does, however, require that transactions between Northwest
I and Whitcomb with respect to partnership property be approved by 66% of the
outstanding Units. Whitcomb therefore deems it advisable to require approval of
the Merger by 66% of outstanding Units at the Meeting. Each Unit counts as one
vote at the Meeting. Nonvotes and abstentions count as votes "AGAINST" the
Merger.
As of January 6, 1999 there are approximately 1,050 Unitholders and 6,000
outstanding Units. As of December 31, 1998 no person or group of related persons
was known by Northwest I to be the beneficial owner of more than 5% of the
Units. Whitcomb owns 2% of Northwest I, comprised of 1% in Whitcomb's capacity
as general partner and 1% in Whitcomb's individual capacity. The remaining Units
of Northwest I are owned by unaffiliated Unitholders. Whitcomb intends to vote
his 2% beneficial ownership "FOR" the Merger.
PERSONS MAKING THE SOLICITATION; EXPENSES
This solicitation is being made by Whitcomb. Employees of Northwest I and
Whitcomb may also solicit proxies. Solicitation may be made either in person, by
telephone, or by other electronic means. Solicitation may be made by paid
solicitors. Costs of solicitation, estimated to be less than $5,000, will be
borne by Columbus.
REVOCABILITY OF PROXY
If you are an Unitholder as of January 6, 1999 and attend the Meeting,
you may change your vote in person even if you have previously mailed a proxy
card. You may also change your vote by sending us a later dated properly
executed proxy card.
EFFECT OF THE MERGER
If 66% of the outstanding Units are voted to approve the Merger, and all
required conditions are satisfied or waived, the Merger will be consummated and
Northwest I will be merged into Columbus. Unitholders will receive the Merger
Consideration in exchange for their Units, which Units will then be cancelled.
Unaffiliated Unitholders will no longer have any interest in Northwest I.
Northwest I will cease to be a public company. Northwest I will not file reports
under the Securities and Exchange Act of 1934 and will not be subject to other
provisions such as the short swing profits provisions of Section 16 and the
proxy rules. The benefits of the Merger to Unitholders are (1) that you will
have an immediate exit strategy, whereas previously there has been no public
market for your Units, and (2) that you will be paid a price for your Units in
cash. The detriment of the transaction to
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Unitholders is that you will forego the opportunity to continue to participate
as an investor in Northwest I, including the right to quarterly distributions
and potential appreciation of its assets over time.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
This is a taxable transaction. The receipt of cash in exchange for Units
pursuant to the Merger will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction under applicable state, local and
foreign tax laws. Accordingly, you will recognize a gain or loss on the
conversion of Units in the Merger to cash to the extent of the difference
between the amount realized and your adjusted basis in the Units sold. See
"Material Federal Income Tax Consequences" beginning on page 30 of this proxy
statement.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective following the Meeting if all required
conditions have been satisfied or waived, upon filing the required documents
with the Secretary of State of the State of Washington. It is anticipated that
the required documents will be filed at the earliest on the first business day
following the Meeting and at the latest on the last business day of the month in
which the Meeting occurs.
PAYMENT OF MERGER CONSIDERATION; LOAN COMMITMENT
As soon as practicable after the effective date of the Merger, Columbus will
mail a letter of transmittal, along with any required forms, to you requesting
that you send in such completed forms. Upon receipt of the required forms,
Columbus will send you the Merger Consideration, without interest. The entire
process should take less than 30 days.
Columbus has obtained a commitment letter from U.S. Bank, subject to
customary conditions, to lend Columbus sufficient funds to consummate the Merger
and to pay the Merger Consideration to unaffiliated Unitholders.
OPINION OF FINANCIAL ADVISOR
Ragen MacKenzie Incorporated ("Ragen MacKenzie"), has been retained by
Northwest I to act as its financial advisor. Ragen MacKenzie has delivered its
opinion to the effect that the Merger Consideration is fair to unaffiliated
Unitholders from a financial point of view.
INDEPENDENT APPRAISAL OF MOTEL PROPERTIES
The appraisal firm of McKee & Schalka ("McKee"), Independent Real Estate
Appraisers & Consultants, Seattle, Washington, have appraised the Northwest I
motel properties and have issued their report dated December 31, 1998.
DISSENTERS' RIGHTS OF APPRAISAL
You have statutory dissenters' rights of appraisal with respect to your
Units. You may demand an appraisal of the fair value of your Units and payment
in cash according to the procedures as described in Article 14, Chapter 25.10 of
the Revised Code of Washington in lieu of accepting the Merger Consideration.
"Fair value" may be greater than, less than, or the same as the Merger
Consideration. If you desire to preserve your dissenter's rights, you must
either not vote, or if
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you execute a proxy you must vote "AGAINST" approval of the Merger or "ABSTAIN"
from voting. Voting "FOR" or delivering an unmarked proxy will, unless revoked
prior to the vote on approval of the Merger, constitute a waiver of your
statutory dissenter's rights. See Annex III to this proxy statement which
contains the full text of Article 14.
MARKET INFORMATION
Northwest I went public in 1980 through a $6 million, best efforts,
offering that closed after full subscription in 1982. Northwest I files annual
and quarterly reports with the SEC. Northwest I did not apply to have the
Units quoted on Nasdaq or on an exchange as it was never intended that an
active trading market for the Units would develop. Accordingly, there has never
been an active trading market in the Units and there have been no significant
transactions between private parties that would establish an accurate market
price for the Units. Over the past 18 months, Whitcomb has repurchased 58
units from 9 investors on a voluntary basis, at prices ranging between $1,100
and $1,369 per unit.
The limited partnership agreement of Northwest I provides for an
agreed-upon rate of return of 10% per year which has been paid to the limited
partners including distributions of cash in the amount of $600,000 ($100.00 per
Unit) per year in 1997, 1996, and 1995, respectively. Pursuant to the Merger
Agreement Northwest I made an additional distribution to Unitholders of
$225,000 ($37.50 per Unit) for 1998 on January 31, 1999, with the aggregate
distributions to Unitholders relating to 1998 being $900,000 ($150.00 per
Unit). Since inception of the Northwest I, Unitholders have received, in the
aggregate, distributions totaling $375,121 ($62.52 per Unit) more than the
required 10% per year return.
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WHERE YOU CAN FIND MORE INFORMATION
Northwest I files reports with the SEC on a regular basis. You may read or
copy any document that Northwest I files with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information about the Public Reference Room by calling the SEC for further
information at 1-800-SEC-0330. Northwest I's SEC filings are also available from
the SEC's web site at www.sec.gov.
Whitcomb and Columbus are affiliates of Northwest I. Accordingly, they have
jointly filed with the SEC a Schedule 13E-3. This proxy statement does not
contain all of the information contained in the Schedule 13E-3, some of which is
omitted as permitted by SEC rules. Statements made in this proxy statement,
while complete in all material respects, are qualified by reference to documents
filed as exhibits to the Schedule 13E-3. The Schedule 13E-3, including exhibits,
is available for inspection and copying at the SEC as described above.
Columbus is not a public company and is not required to file reports of any
type with the SEC.
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SPECIAL FACTORS
Unitholders are urged to consider a number of special factors that apply to
the Merger in addition to other information in this proxy statement.
CONFLICTS OF INTEREST; PROCEDURAL SAFEGUARDS
Whitcomb faced substantial conflicts of interest in proposing, negotiating
and structuring the Merger. On the one hand, as the general partner of Northwest
I, he owes unaffiliated Unitholders certain fiduciary duties. On the other hand,
Columbus, as the prospective acquiror of Northwest I, which is owned by
Whitcomb, has an interest in not paying more than is fair for the Units acquired
in the Merger. Whitcomb selected Ragen MacKenzie and, although McKee was
commissioned by U.S. Bank, McKee has performed appraisal services for Whitcomb
in the past. Limited partners were not independently represented in the
negotiation of the Merger Agreement. While these conflicts cannot be eliminated,
to deal with and mitigate the conflicts of interest, a number of procedural
safeguards were implemented:
o Ragen MacKenzie was retained to act as financial advisor to Northwest I
and has rendered its opinion as to the fairness to the Unitholders, from
a financial point of view, of the Merger Consideration.
o An independent appraisal by McKee of the two Super 8 Motels owned by
Northwest I was commissioned by U.S Bank in November 1998. The McKee
appraisal of these two motels is part of a larger appraisal of 26 Super
8 Motels, and will be relied upon by U.S. Bank to determine its loan to
value ratio in connection with Columbus' acquisition of the limited
partnerships.
o The law firm of Foster Pepper & Shefelman ("Foster Pepper"), 1111 Third
Avenue, Suite 3400, Seattle, Washington, 98101, (206) 447-4400, was
retained by Northwest I to act as independent counsel with respect to
the Merger and to advise Unitholders concerning the terms of the Merger
Agreement. Mr. David R. Wilson, a partner in Foster Pepper will be
available at the Meeting to answer questions by Unitholders and will
also be available on March __, 1999, from _____ to ______ p.m. to meet
with or to take phone calls from Unitholders having questions about the
Merger. Foster Pepper has not been retained to render any opinion or to
otherwise pass upon the fairness of the transactions contemplated by the
Merger Agreement.
o Unitholders have statutory dissenters' rights of appraisal under
Washington law.
o Northwest I, Whitcomb and Columbus deem it advisable to require that the
Merger be approved by 66% of the Unitholders.
The procedural safeguards described above are listed in descending order of
importance, i.e., the first safeguard listed was given the most weight in the
determination that the proposed transaction is procedurally fair, although, as a
practical matter, this process is an approximation of the weight given to each
safeguard because each safeguard is relevant. While the conflicts of interest
cannot be eliminated, Northwest I, Whitcomb and Columbus believe that the steps
taken and to be taken constitute sufficient procedural safeguards for
Unitholders' interests and that the proposed transaction is procedurally fair.
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FAIRNESS OF THE TRANSACTION
Columbus and Whitcomb believe that the proposed Merger and the Merger
Consideration to be paid are substantively fair to unaffiliated Unitholders. The
material factors considered are generally listed below in descending order of
importance, i.e., the first factor listed was given the most weight in the
determination that the proposed transaction is substantively fair. As a
practical matter, however, this process is an approximation of the weight given
to each factor because each factor is relevant, some factors are of nearly equal
importance, and it is impossible to weigh each factor precisely:
o There is no established trading market for Northwest I Units, except as
created through sale or merger of Northwest I, which Whitcomb has been
unsuccessful in arranging to date. The average life of a limited
partnership investment is 10-12 years. Unitholders that have held their
Units since the beginning, have held their Units for almost 18 years,
with most Unitholders having held their Units for 15+ years. Whitcomb
believes that the circumstances of many Unitholders have changed over
the life of Northwest I and believes that Unitholders want an
opportunity to liquidate their investments. Heretofore, since there is
no trading market, to dispose of their Units, Unitholders have had to
arrange private sales. The lack of current and historical market prices
for the Units was considered important because, in considering the
alternatives to the Merger, it emphasizes that there are limited
opportunities available to create an exit strategy for Unitholders.
o Through December 31, 1998, Unitholders have received in excess of $10.3
million ($1,716.67 per Unit) in the form of quarterly distributions. In
addition, Unitholders received an additional distribution from Northwest
I in the aggregate amount of $225,000 ($37.50 per Unit) on January 31,
1999. Upon the sale of their Units as described herein, investors will
receive Merger Consideration of $1,609 per Unit. Whitcomb considered
this important because the Merger Consideration is greater than the
September 30, 1998 $489 net book value per Unit and the $1,000 per Unit
initially paid by Unitholders in the 1980 initial public offering.
o Whitcomb considered going concern value, as that term is commonly
understood to relate to income producing property, to be important in
concluding that the transaction was fair to unaffiliated Unitholders. In
his efforts in 1998 to sell all of the motel properties owned by the
various partnerships, including those owned by Northwest I, to an
unaffiliated third party, Whitcomb did not secure any offers which he
deemed sufficient. As described in "Background of the Transaction,"
beginning on page 18 of this proxy statement, the best proposal received
by Exvere, Inc. ("Exvere") on Whitcomb's behalf for all of the Super 8
Motels was an aggregate cash amount of $80,000,000 ($84,000,000
including additional contingent purchase price based upon five year
future performance), which, if allocated on the basis of the Exvere
assigned values for the Northwest I motels set forth in the Exvere
valuation report described beginning on page 12 of this proxy statement,
would have resulted in a per Unit value, after costs of sale and payment
of Northwest I's liabilities, of $1,148 ($1,210 if the contingent
purchase price was earned) for the Northwest I Unitholders. Based upon
this method of allocating the best proposal received by Exvere, the
Merger Consideration offered by Whitcomb is greater than the amount that
might have been received from this proposal. However, Whitcomb believes
that a purchaser of all of the motel properties may have adjusted the
Exvere assigned values when negotiating the allocation of the purchase
price, as a result of various factors affecting individual properties.
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Whitcomb believes that the McKee appraisals, which recognize the value
of the motel properties on an ongoing basis as income producing
property, represent a more current assessment of the values of the
respective motel properties.
o Whitcomb does not believe that liquidation value, as that term is
commonly understood, is relevant to the sale of a limited partnership
owning and operating motel property. Consequently, liquidation value did
not pay a role in determining that the Merger was fair to unaffiliated
Unitholders.
o The Merger Consideration offered to Unitholders is higher than the
$1,547 per Unit which Whitcomb estimates could be obtained, after costs
of sale and payment of Northwest I's liabilities, if Northwest I were to
individually sell the Sea-Tac and Federal Way motels to unaffiliated
third parties at the McKee appraised values. Whitcomb considered this
important because it illustrates that the Merger Consideration is higher
than might be obtained through other transactions.
o The $1,609 per Unit Merger Consideration is greater than the prices paid
by Whitcomb over the last 18 months to Unitholders seeking to liquidate
their investment.
o The Merger Consideration will be paid in cash;
o Northwest I has received a fairness opinion from Ragen MacKenzie that
the Merger Consideration is fair to the unaffiliated Unitholders from a
financial point of view. Whitcomb considered the Ragen MacKenzie opinion
important for its independent analysis of the Merger Consideration;
o Whitcomb believes that liquidation of the interests of Unitholders,
rather than continued public ownership, is consistent with the
investment objectives of Northwest I.
o Unitholders have statutory dissenters' rights of appraisal under
Washington law.
o Although the motels are in good condition, they are now more than 16
years old and will soon require additional refurbishing. Whitcomb
believes that the funds for such expenditures would not be available
from Northwest I's cash flow without reducing future distributions to
limited partners.
o Northwest I's intention has always been to sell the properties when
market conditions warranted sale. It was never an investment objective
of Northwest I to hold the properties permanently.
Notwithstanding the foregoing, Unitholders should note that Whitcomb may
benefit from the Merger. This is most likely to occur if the value of the
properties increases beyond the appraised value or by improving cash flow from
the properties. Therefore, it is possible that Unitholders would receive a
greater return on their investment if Northwest I continued to own and operate
the properties and sold them at a later date, instead of consummating a sale
under the Merger proposal. It is also possible that Unitholders would fare worse
if they kept their Units and the value of the properties declined.
There were no factors that led Whitcomb or Columbus to believe that the
Merger was unfair to unaffiliated Unitholders. Factors that militate against
the proposed Merger, however, are Whitcomb's decision not to initiate another
marketing process, the lack of an independent committee to review the Merger
Consideration offered by Columbus, and the possibility that the continued
ownership of the Units could be more economically beneficial than a sale if the
value of the properties were to rise or cash flow from the properties were to
increase.
Whitcomb believes that the Merger, even though it is an affiliated
transaction that was not initiated by the Unitholders, is consistent with
Unitholders' desire for a broad-based exist strategy. Therefore, Whitcomb and
Columbus believe that the factors listed above in favor of the transaction
outweigh negative considerations.
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AN INDEPENDENT COMMITTEE DID NOT REVIEW THE MERGER PROPOSAL
Northwest I does not have its own governing body, similar to a board of
directors, that manages its day-to-day business and operations. The business and
operations of Northwest I have been managed by Peninsula Management, which is
now part of PDS, which is wholly-owned by Whitcomb who also owns Columbus, the
proposed buyer. Although there are approximately 1,050 investors of record,
Northwest I does not have any single Unitholder or groups of related Unitholders
that own significant amounts of Units from which to readily identify a suitable
independent committee. Therefore, an independent committee was not reasonably
available and, considering the size of the transaction, the prior offers, the
valuation by Exvere, the appraisals by McKee, the fairness opinion by Ragen
MacKenzie and the other procedural safeguards described above, an independent
committee was not considered warranted in this case.
SOURCE AND AMOUNTS OF MERGER CONSIDERATION AND EXPENSES
The total amount necessary to pay the Unitholders the Merger Consideration
is approximately $9.6 million. As described above, Columbus is also making
similar proposals to acquire for cash the partnership interests in Anchorage,
Northwest II, Lacey, Peninsula Properties and Tongass, subject to any required
approvals under state law. Columbus expects to fund the Merger, and the other
proposed acquisitions, through secured bank loans from U.S. Bank.
On behalf of Columbus, Whitcomb has entered into a loan commitment letter
with U.S. Bank, subject to customary terms and conditions. The loan commitment
letter provides for a fixed rate and variable rate option, of which Whitcomb has
selected the fixed rate option. Pursuant to the loan commitment letter, U.S.
Bank agrees to lend up to 75% of the appraisal value of property that is owned
and up to 60% to 75% of property that is leased. Each loan is secured. Under the
fixed rate option interest would be at the Treasury Rate plus 3%, but not less
than 7.5%. Under the variable rate option interest would be at the Prime Rate
plus .25%. Whitcomb entered into a separate rate lock agreement with U.S. Bank,
which will provide the necessary financing at approximately 7.5% interest,
provided the transaction closes by April 2, 1999. The loan transaction covers 26
motels, 23 as part of a loan package, with separate loans for Lacey, Bremerton
and Yakima. The 23 motels in the large loan package include eleven in Oregon,
three in Alaska and nine in Washington, owned by Peninsula (13), Columbus (4),
Anchorage (1), Tongass (1), Northwest I (2), Northwest II (1), and Peninsula
Properties (1). The loans with U.S. Bank will be based on real estate appraisals
recently made by McKee. Columbus will pay the costs and expenses incident to the
loans. The total amount of costs and expenses incurred in connection with the
Merger and the other mergers with the other partnerships and the transactions
contemplated thereby, including costs and expenses incident to the U.S. Bank
loans, is estimated to be an aggregate of approximately $1.9 million. The U.S.
Bank commitment is not conditioned on completing all of the acquisitions
contemplated by Columbus, but is expected to be available to finance any
acquisitions that are made.
The loans are expected to be repaid out of cash flows from the properties,
unless a sale or sales of the properties or businesses is consummated. There are
no specific plans or arrangements in this regard, however.
PLANS OR PROPOSALS BY ISSUER OR AFFILIATES FOLLOWING MERGER
As general partner, Whitcomb unsuccessfully attempted in early 1998 to
arrange the sale of Northwest I's Super 8 Motels, along with those owned by the
other partnership, in an arm's length transaction with an unaffiliated buyer.
The primary purpose of the Merger is for Whitcomb to provide an exit strategy
for Unitholders by acquiring the outstanding Units of Northwest I. Neither
Columbus nor Whitcomb have any specific plans for the sale or disposition of the
assets or any material change in the business of Northwest I following the
Merger. Columbus will, however, continue to evaluate any proposals and may sell
or dispose of assets if attractive terms are offered. There are presently no
arrangements or proposals to do so, however.
EFFECTS OF TRANSACTION
Following the Merger, Northwest I will cease to be a public company.
Northwest I will not file reports under the Securities and Exchange Act of 1934
and will not be subject to other provisions such as the short-swing profits
provisions of Section 16 and the proxy rules. Unitholders will forego the
opportunity to continue to participate as investors in Northwest I, including
the right to quarterly distributions and potential appreciation of its assets
over time.
Unitholders will recognize a gain or loss on the conversion of Units into
cash in the Merger to the extent of the difference between the amount realized
and the adjusted basis in the Units sold. See "Material Federal Income Tax
Consequences" beginning on page 30 of this proxy statement.
OPINION OF FINANCIAL ADVISOR
Ragen MacKenzie was retained by Northwest I to act as its financial advisor
for Unitholders in connection with the Merger. Ragen MacKenzie delivered its
opinion to Northwest I dated December
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31, 1998, to the effect that, as of that date and based on the procedures
followed, factors considered and assumptions made by Ragen MacKenzie as set
forth therein, the Merger Consideration to be paid to unaffiliated Unitholders
pursuant to the Merger Agreement is fair from a financial point of view. See
"Opinion of Financial Advisor" beginning on page 21 of this proxy statement. The
full text of the Ragen MacKenzie opinion is attached as Annex II to this proxy
statement. Read the opinion carefully.
INTEREST OF AFFILIATES IN MATTERS TO BE ACTED UPON; PAST CONTRACTS AND
AGREEMENTS
Beneficial Ownership
The Whitcombs beneficially own approximately 2% of the Units of Northwest
I, 1% in his capacity as general partner and 1% in his individual capacity.
General Partner Fee to Whitcomb
Under the limited partnership agreement, Northwest I agrees to pay fees for
Whitcomb's management services. In accordance with the agreement, the obligation
to provide management and to recoup management fees was assigned by Whitcomb to
Peninsula Management. Peninsula Management (now part of PDS) receives a fee
equal to 5% of the partnership's gross revenues from motel operations in
addition to reimbursement of certain out-of-pocket cost incurred by Peninsula
Management in connection with management of the property. Payment of fees to
Peninsula Management is subordinated to receipt by investors of a cumulative,
pre-tax return on their adjusted capital investment of 10% per annum. Effective
July 1, 1992, Northwest I began paying monthly the current management fees.
Unpaid management fees relating to 1990 and prior years, totaling $605,348, were
paid in 1997. In fiscal years ended December 31, 1995, 1996 and 1997, and the
nine-months ended September 30, 1998, the management fees paid to Peninsula
Management were $115,938, $148,864, $149,011 and $123,274, respectively.
Peninsula Management also receives reimbursement for direct operating expenses
of motels under a pooling arrangement, whereby each motel is billed directly for
its pro rata share of operating expenses.
License Fee Rebate
PDS has a license agreement with Super 8 Motels, Inc. under which it
acquired the exclusive territorial rights to develop Super 8 Motels and
franchises in the states of Washington, Oregon, and in four cities in Alaska
through November 2006. Super 8 Motels developed within this three state area
enter into franchise agreements directly with Super 8 Motels, Inc. As owner of
this exclusive territorial license, PDS receives a franchise fee rebate from
Super 8 Motels, Inc. on each motel. The franchise fee rebates paid on the
Sea-Tac and Federal Way motels owned by Northwest I are equal to 1% of room
revenues. In fiscal years ended December 31, 1995, 1996 and 1997, and the
nine-months ended September 30, 1998, franchise fee rebates paid to PDS with
respect to these two motels was $22,224, $28,548, $28,292 and $23,768,
respectively.
MANAGEMENT AND OPERATIONS OF NORTHWEST I FOLLOWING MERGER
In connection with the consolidation of the various entities owned or
managed by Whitcomb or Columbus and their affiliates, it is anticipated that an
independent property management company will be engaged to manage Northwest I
and the other motel properties.
BUSINESS VALUATION OF NORTHWEST I BY EXVERE
The following is a summary of the material methodologies, conclusions, and
assumptions used by Exvere in its business valuation report on Northwest I dated
February 27, 1998. The information and
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conclusions in the report were as of June 30, 1997. The Exvere valuation report
was obtained for the purpose of deciding whether or not to attempt to market the
motel properties. As indicated above, the marketing effort to sell the motel
properties to an unaffiliated third party did not result in any offers that
Whitcomb considered sufficient. Although the Exvere business valuation was
provided to Whitcomb in connection with the marketing effort, it was not used by
Columbus as the basis for determining the Merger Consideration and Northwest I
has not used such report in determining whether or not the Merger Consideration
is fair to Unitholders. Nevertheless, because the Exvere valuation report was
received by Whitcomb, under applicable SEC rules the valuation report must be
disclosed and described herein.
The appraisal was based on information obtained by Exvere during
conversations with key individuals, copies of financial statements, and
estimates of costs furnished by Northwest I. The appraisal also included
consideration of other information, such as that related to transactions in the
private and public markets.
Exvere's approach was to arrive at Total Invested Capital (TIC), and then
arrive at a "net equity value" by backing out of TIC cash and cash equivalents,
current liabilities and certain interest bearing indebtedness and preferred
stock. Under this approach, TIC is the sum of the market equity of the company
(determined through one of the methods described below) and the fair market
value of interest-bearing debt both short-term and long-term. If TIC is being
valued, it assumes that seller receives TIC value for the company and takes the
company's cash and cash equivalents, but is obligated to pay off all
interest-bearing debt and preferred stock, and buyer assumes the adjusted net
operating working capital position in non-current liabilities. Net operating
working capital is defined as "all current assets except cash, less all current
liabilities except interest-bearing debt."
Exvere initially considered eight valuation methods for Northwest I, which
ranged in value from $6.7 million to $12.0 million. Those eight approaches were:
Capitalization of Earnings Approach, Discounted Future EBIT Approach, Discounted
Future Cash Flow Approach, Discounted Future Debt-Free Cash Flow Approach,
Comparative Publicly Traded Companies Approach, Market Data Approach,
Capitalization of Dividend-Paying Capacity, and Asset Accumulation Approach.
Exvere considered the four most appropriate methods to be: (i) Comparative
Publicly Traded Companies Approach; (ii) Market Data Approach; (iii)
Capitalization of Earnings Approach; and (iv) Asset Accumulation Approach.
Exvere believed these four to be the most appropriate because they gave Exvere
the greatest confidence in qualifications and appropriateness for use, as well
as methodology and resulting value.
Publicly Traded Comparatives Method
Under the Publicly Traded Comparatives Approach, a relationship was drawn
between a publicly traded company's stock price in the market place as it
relates to its revenue, earnings, cash flow and/or book value, and then the
compared figures of the comparable companies were applied against the figures of
Northwest I to arrive at a proportional estimation of value based upon the
comparable companies. Using the Publicly Traded Comparatives Approach, the
calculation of value on a debt-free basis resulted in a total pre-adjusted TIC
of $11,702,000. After deducting interest-bearing debt at market of $1,319,000
and normalized non-current liabilities of $442,000, this approach resulted in a
pre-adjusted net equity value of $9,941,000. Similar calculations using weighted
averages, a regression trend analysis, and a forecast yielded values of $9.6
million, $8.5 million, and $9.1 million, respectively.
Market Data Approach
Exvere compiled a list of 46 businesses with statistics similar to Northwest
I. Equal weight was applied to the median, historic and expected revenue, and
the normalized EBIT multiples, as the weighting is fairly consistent with the
Publicly Traded Comparatives Approach described above. Additionally, the
multiples were chosen to conform with that derived from a regression analysis of
earnings and multiples derived from two alternate, private transaction sources.
Multiples
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of book were excluded, to deal with the uncertainty of how many of the private
transactions included the land component. Under the Market Data Approach, the
calculation of pre-adjusted net equity value was determined by Exvere to be
$11,100,000.
Capitalization of Earnings Approach
The Capitalization of Earnings approach assumes that an equally desirable
substitute for the business being valued would be one that had similar
investment characteristics but not necessarily one that was similar from a
physical or operational standpoint.
Exvere followed the following sequence of steps: first, to determine the
appropriate earnings based capitalized, and then the amount of return
attributable to the business or property to be appraised; second, identify other
types of investments that are similar with regard to investment criteria,
including liquidity, expectation of growth or shrinkage of principal amount,
burden of management, and risk; and third, use the rate of return actually
provided by comparable investments to capitalize the amount of return from the
business to be appraised, thus arriving at an estimate of the value of the
business. Under the Capitalization of Earning Approach, and assuming a
capitalization rate of 16.5%, Exvere arrived at a pre-adjusted net equity value
of $6,128,000. This conclusion assumes that a reasonable long-term compound
annual growth rate (CAGR) for Northwest I over the next 20 years is 5.7%.
Asset Accumulation Approach
The Asset Accumulation Approach was used to arrive at an estimate of the
total value by estimating the cost of duplicating (replacing) the individual
elements of the business or other property being appraised, item by item, asset
by asset. In the case of Northwest I, however, premiums were derived from market
data provided by industry sources, which made an estimate of goodwill possible.
The average premium for the economy and budget class motels was determined to be
23.5%. Considering replacement cost of an initial investment in a 60-room new
construction facility, Exvere arrived at a net equity value under the Asset
Accumulation Approach of $10,720,000.
Reconciliation and Conclusions of Exvere
The final step in the valuation process was to reconcile the various
valuation techniques and coming to conclusions on the fair market value of
Northwest I. Here, Exvere gave 25% weight to each of the Comparative Publicly
Traded Companies Approach, Market Data Approach, Capitalization of Earnings
Approach, and the Asset Accumulation Approach. Based upon Exvere's analysis, it
was determined that a gross fair market value of a 100% interest in Northwest I
was $10.5 million. After elimination of cash and debt the net equity was $9.22
million.
Qualifications of Appraiser and Availability of Report
Exvere is a financial advisory firm that was founded in 1992 to advise
Northwest businesses on capital transactions such as mergers, acquisitions, and
in areas of corporate finance. Exvere was selected to provide an independent
valuation in connection with a possible sale of the business to an unaffiliated
third party on the strength of its reputation in the Northwest in the field of
valuation analysis. During the past two years, Exvere and Northwest I have not
had any material relationship.
A copy of the Exvere valuation is available for inspection and copying at
the principal executive offices of Northwest I during regular business hours by
any interested Unitholder or his designated
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representative. A copy of the Exvere business valuation will be sent to you, at
cost, upon your written request for us to do so.
APPRAISAL OF SEA-TAC AND FEDERAL WAY PROPERTIES BY MCKEE & SCHALKA
In connection with extending credit for the acquisition of Northwest I and
the other motel properties, U.S. Bank commissioned an independent appraisal of
26 of the Whitcomb/PGI-managed motel properties, including the SeaTac and
Federal Way motel properties owned by Northwest I. U.S. Bank selected McKee &
Schalka ("McKee"), Real Estate Appraisers & Consultants, Inc. of Seattle,
Washington, to appraise the 23 properties located in Washington and Oregon. This
appraisal firm was selected based upon their expertise in the field of
commercial real estate appraisals, with specific experience in the appraisal of
lodging properties.
The following is a summary of the material, methodologies, conclusions,
and assumptions used by McKee in its appraisal reports to the U.S. Bank. No
limitations were placed on the McKee appraisals. The appraisals use both the
Sale Comparison Approach and Income Approach to value. The Cost Approach was
not employed in the valuation process since it would not have significant
bearing on the reconciled market value of the properties. For existing
established motel properties of the size and age of the SeaTac and Federal Way
motel properties, purchasers are primarily interested in the income
characteristics and market price for similar properties. For the Sale
Comparison Approach, McKee reviewed a wide variety of hotel transactions in
Washington and Oregon, and used at least four sale comparisons in each report
for direct comparison to the motel properties. The McKee appraisals considered
the Income Approach compelling based on a detailed income and expense history
for each property over the past several years, as well as a recent local and
regional market analysis. The Income Approach also considered income and
expense comparisons, and market rent comparisons in the estimate of net
operating income. Emphasis was also placed on the Income Approach because of
the reliability of the data and the fact that hotel properties are income
properties.
In the course of conducting their appraisal, McKee conducted a physical
inspection of the motel properties. McKee also evaluated the local neighborhood
and surrounding areas; surveyed the competitive lodging facilities within the
markets; and reviewed historical data and income and expenses for other similar
properties. McKee spoke with the owner of the properties, managers and other
property managers, owners and government officials within this market. McKee
researched and evaluated the sales of other lodging facilities, both locally
and throughout the Pacific Northwest.
In comparison to the Exvere business valuation which focused on the business
of Northwest I as a whole without addressing the individual underlying
properties of the SeaTac and Federal Way motel properties, the McKee appraisal
focused solely upon the individual properties of the Sea-Tac and Federal Way
motels.
Sale Comparison Approach
The Sale Comparison Approach uses analysis and sales of comparable improved
properties to derive units of comparison that are then used to indicate a value
for the subject property. McKee
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conducted a broad search for sales of comparable improved properties,
including most major markets in Washington State. The selection of comparisons
included considerable emphasis and understanding of the sales of properties
McKee previously appraised. The primary units of comparison used in this
analysis were price per room, price per square foot and gross income multiplier
(GIM). In addition McKee analyzed the capitalization rates for comparable
transactions, which were also used in the subsequent Income Approach Analysis.
The most comparable transactions (based on size and similar financial
characteristics) involving Washington State motel/hotel properties considered
comparable by McKee were then analyzed and adjusted relative to the subject
properties. The SeaTac sales indicated a range of values on a price per room
from approximately $51.000/room to $70.000/room, price /sf from $101/sf to
$200/sf, and GIM indications from 3.6 to 4.2. The Federal Way sales indicated
a range of values on a price per room from approximately $38,000/room to
$56,000/room price /sf from $99/sf to $146/sf, and GIM indications from 3.6 to
4.2. The majority of these transactions occurred in 1997 or 1998, and typically
represented transactions of limited service motels, or full service motels
where applicable within a specific market. The appraisal conclusions are
consistent with the ranges indicated by these companies.
Income Approach
The purpose of the Income Approach is to value an income property by
analyzing likely future income and expenses to the property. In this case, McKee
employed a Direct Capitalization Analysis by dividing an annual forecast Year 1
net operating income (NOI) by an appropriate capitalization rate, which McKee
believed to be 11.5% for the SeaTac property and 10.25% for the Federal Way
property. McKee relied on a variety of sources as the basis of the forecast of
NOI, including an analysis of each of SeaTac and Federal Way historical income
and expenses. McKee also used expense comparisons for estimating individual
expense items. Based upon an average room rate of $65 and 66% occupancy, the
Income Approach value of the SeaTac motel property is $7,600,000. Based upon an
average room rate of $49 and 63% occupancy, the fee simple Income Approach
value of the Federal Way motel property is $3,870,000.
Reconciliation and Conclusions of McKee
The final step in the McKee appraisal process was to reconcile the Sale
Comparison Approach and the Income Approach values to arrive at a final value
conclusion. The primary consideration to reconcile the two approaches are the
reliability of the data used and the applicability of each method for valuing a
particular property. Here, after reconciling the various factors, McKee arrived
at a final appraised value for the SeaTac property of $8,300,000, and the
Federal Way property of $4,000,000.
The value estimates are commensurate with a reasonable marketing and
exposure time of one year. The market values include furnishings, fixtures, and
equipment (F,F,&E), including both permanently affixed real estate, and
personal property. The contributory value of F,F,&E for the SeaTac property is
estimated to be $260,000, which includes personal property of $180,000. The
contributory value of F,F,&E for the Federal Way property is estimated to be
$300,000, which includes personal property of $210,000.
Qualifications of Appraiser and Availability of Report
McKee is a real estate appraisal and consulting firm specializing in
providing valuations for commercial real estate. This appraisal firm has a very
strong reputation in the appraisal of complex commercial real estate including
lodging facilities. McKee was selected by U.S. Bank to provide an independent
appraisal of all of the Whitcomb/PGI managed motels in Washington and Oregon in
connection with extending financing for the acquisitions. The McKee & Schalka
Appraisal firm has prepared a number of appraisals of Super 8 properties over
the last eight years. Almost all of these appraisals were conducted at the
request of various lending institutions. The total amount of this appraisal
work was a nominal percentage of the firm's work during this period and no
employee at the appraisal firm has any financial interest in any of these
properties.
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A copy of each of the McKee appraisals has been filed with the SEC as an
exhibit to the Schedule 13E-3 filed by Whitcomb and Columbus. Copies of the
McKee real estate appraisals for the SeaTac and Federal Way motel properties are
also available for inspection and copying at the principal executive offices of
Northwest I during regular business hours by any interested Unitholder or his
designated representative. Copies of the McKee appraisals will be sent to you,
at cost, upon your written request for us to do so.
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BACKGROUND OF THE TRANSACTION
REASONS FOR THE MERGER
Northwest I was formed in 1980 and was capitalized through a $6 million best
efforts, minimum/maximum offering with the assistance of selected broker-dealers
in the Northwest. The offering commenced in 1980 and was successfully completed
after full subscription in 1982. Since October 1982, Northwest I has made
distributions to Unitholders which, in the aggregate, exceed the 10% return per
year required by the partnership agreement. Northwest I did not apply to have
its units quoted on Nasdaq, as it was never intended that an active trading
market would develop. At the same time, Northwest I bears the significant
expenses of annually filing required documents and financial statements with the
SEC.
Whitcomb believes that the typical life of a limited partnership investment
in motels is 10-12 years. Most of Northwest I's Unitholders have held their
Units for more than 15 years. While Northwest I has met its objective of paying
investors a 10% annual return on their investment, other investment
opportunities may offer a rate of return that is as good or better than that
offered by Northwest I. Since the Units are not quoted on Nasdaq or listed on an
exchange, Unitholders are unable to sell their Units except under limited
circumstances. Accordingly, in response to unsolicited inquiries from
Unitholders seeking to liquidate their investment, Whitcomb has occasionally
purchased Units from Unitholders on a voluntary basis and, recently, Whitcomb
has been encouraged by some limited partners to create an exit strategy for all
Unitholders. While Whitcomb believes that the Merger proposal responds to
Unitholders' desire for liquidity, the Merger proposal was not initiated by
Unitholders. The primary purpose of the Merger proposal is to provide all
Unitholders with an opportunity to liquidate their investment in Northwest I at
a price that is fair to unaffiliated Unitholders, yet still attractive to
Columbus and Whitcomb.
BACKGROUND OF THE MERGER; ALTERNATIVES CONSIDERED; ATTEMPTED SALE OF MOTEL
PROPERTIES TO UNAFFILIATED THIRD PARTY
To facilitate an exit strategy for all Unitholders, Whitcomb first
considered a sale of all the limited and general partnerships' properties to an
unaffiliated third-party in an arm's length transaction.
To that end, there being no public market to value the units, Whitcomb
arranged for the valuation of all of the Whitcomb/PGI-managed partnerships,
including Northwest I, by Exvere in late 1997, which was completed in early
1998. Exvere concluded that, as of June 30, 1997, a reasonable range of value
for all 27 motels and the other assets described below was between approximately
$72 million and approximately $127 million. Exvere also concluded that the
Northwest I properties had a value within a range of $6.6 million to $12.1
million with a selected gross value of $10.5 million. For a description of the
factors considered by Exvere in making its valuation, see "Business Valuation of
Northwest I by Exvere" beginning on page 12 of this proxy statement.
Based upon the Exvere valuations, Whitcomb authorized Exvere to begin
marketing the portfolio of motels for sale. The assets offered for sale included
the 27 Super 8 Motels, as well as the stock of PGI and its subsidiary, Peninsula
Management, an Exclusive Territorial Agreement (aka "Master Franchise
Agreement") with Super 8 Motels and certain other assets. The terms of the
offering stipulated that any acquisition should be structured as a stock
purchase for PGI and its subsidiary, Peninsula Management, although the
acquisition of the partnership motels could be structured as an
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asset purchase. Each bidder was asked to indicate what the bidder would pay for:
(a) the motels and the stock of PGI and its subsidiary, Peninsula Management,
excluding the Exclusive Territory Agreement or (b) the motels and the stock of
PGI and its subsidiary, Peninsula Management with the Exclusive Territory
Agreement. Bidders were also told to assume that all existing debt would be paid
at closing, the sellers and purchaser would have to agree on the allocation of
purchase price, the sale would require the consent of the various entities'
partners, and that a purchaser would either have to enter into a new franchise
agreement with Super 8 Motels, Inc. or pay franchise termination fees.
Exvere prepared a confidential offering memorandum and sent it to
approximately 77 recipients. It received indications of interest from several of
the recipients, which led to receipt of two proposals that it considered to be
worthy of consideration. One of the proposals indicated an interest in buying
the motels, the PGI and Peninsula Management stock and the Exclusive Territory
Agreement) for $80 million in cash at closing, plus the potential of an
additional $4 million in contingent payments based on future performance of the
motels over a five year period. If the proposed purchase price was allocated on
the basis of the Exvere assigned values for the Northwest I motels the allocated
proposed purchase price for the Northwest I motels would be approximately $9.0
million (excluding the contingent purchase price). That bidder indicated that it
was also willing to pay $1 million in cash and $2 million in a promissory note
for the Exclusive Territory License owned by a Whitcomb affiliate. The second
proposal was from an entity which proposed $61 million in cash and $26 million
in securities to be issued by a REIT that was in the process of formation, for a
total price of $87 million for the motels and the Peninsula Management stock,
excluding the Exclusive Territory Agreement. Neither prospective buyer provided
any indication as to how it would propose to allocate the purchase price among
the various motel properties.
Whitcomb concluded that it was not in the best interests of the various
partnerships to sell their assets for less than an aggregate of $87 million in
cash, excluding the stock he owned in PGI and its subsidiaries (which own the
Exclusive Territory Agreement). He asked Exvere to try to get the offers
increased to $87 million for the motels only, but none of the interested parties
were willing to meet that price.
Accordingly, Whitcomb concluded that he should look for alternative ways to
achieve liquidity for the limited partners. After reviewing the options,
Whitcomb concluded that the partnerships would receive the best net return if he
could obtain financing to purchase all of the interests held by the other
investors in the partnerships. He believes that, as the general partner, he
could avoid certain transaction costs that a third party buyer would incur, and
that he could achieve certain economies of scale by structuring the acquisitions
in a manner that would result in a single ownership entity that was privately
held.
ACQUISITION OF MOTEL PROPERTIES BY COLUMBUS
Having concluded that the partnerships would receive the best net return if
he could obtain financing to purchase all of the interests held by the investors
in the partnerships, in a manner that would result in a single ownership entity
that was privately held, Whitcomb began working with bankers to secure financing
that would enable Whitcomb to purchase the unaffiliated partners' units in
Northwest I, Northwest II, Lacey, Anchorage, Peninsula Properties, and Tongass
based on the appraised price of the properties at the end of 1998.
Selling the various motel properties individually was not seriously
considered because it would be too expensive, too time consuming and Whitcomb
did not believe that it would yield the best results for investors in the
various partnerships.
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Accordingly, Whitcomb negotiated with U.S. Bank the terms of a loan
commitment dated November 18, 1998, under which U.S. Bank will provide a secured
loan to Whitcomb of up to 75% of the appraised value of the motel properties
owned in fee and 60% to 75% of the motel properties located on leased land.
The McKee appraisals, dated December 31, 1998, appraised various Super 8
Motels, including those owned by Northwest I, which they appraised at $12.3
million gross value ($8.3 million Sea-Tac and $4.0 million Federal Way) before
any reduction for liabilities or cost of sale. For a description of the factors
considered by McKee in making its appraisals, see "Appraisal of Sea-Tac and
Federal Way Properties by McKee & Schalka," beginning on page 15 of this proxy
statement.
ACQUISITION OF NORTHWEST I BY COLUMBUS; APPROACH TO DETERMINATION OF MERGER
CONSIDERATION
Whitcomb's attempts to sell the Super 8 Motels owned by the various
partnerships in a package sale to an unaffiliated third party were unsuccessful
because none of the expressions of interest or offers were sufficient to
generate a gross sales price of $87 million for the motel assets alone.
Accordingly, Whitcomb concluded that it would be in the best interest of the
various partnerships, including Northwest I, to structure a proposal whereby
Columbus would acquire the various motel properties pursuant to the proposed
mergers. Whitcomb believes that the proposed Merger will provide a higher net
value to Unitholder than could have been obtained for the Unitholders through a
sale of all of the motel properties as a package to an unaffiliated third party
or which could be obtained if each partnership were to undertake the sale of the
various motels on an individual basis based upon the McKee appraisals. In
formulating the offer by Columbus for the Northwest I properties, Whitcomb
concluded that the Merger Consideration offered to the Unitholders of Northwest
I should be higher than that which could have been obtained based upon the best
offer received by Exvere or which could be obtained through individual motel
sales based on the McKee appraisals, after consideration of the transaction
expenses which would be incurred in either alternative, such as commissions,
title insurance, real estate excise taxes, appraisals, fairness opinions, legal
fees and partnership wind-up cost.
Attached to this proxy statement as Annex IV is a schedule setting forth
Columbus' estimate of the net amount which would have been received per unit,
after costs of sale, for both the best offer received by Exvere and if Northwest
I were to sell the two Super 8 Motels owned by it in individual sales. For
purposes of comparison, current assets and liabilities and long-term debt of
Northwest I are as of September 30, 1998. The estimates of transaction costs for
the various alternatives are based upon Columbus' best estimates after
consultation with its advisors.
As shown on Annex IV to this proxy statement, the best offer received by
Exvere would have yielded an estimated per Unit value of $1,148 ($1,210 if the
contingent purchase price was earned) after transaction costs and payment of
liabilities. A sale of the motels on an individual basis by Northwest I at the
values determined by the McKee appraisals would yield an estimated per Unit
value of $1,547, after transaction costs and payment of liabilities as compared
to the $1,609 per Unit Merger Consideration.
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OPINION OF FINANCIAL ADVISOR
Whitcomb, on behalf of Northwest I and the Unitholders requested Ragen
MacKenzie to render its opinion as to whether the consideration to be paid by
Columbus pursuant to the Merger Agreement is fair, from a financial point of
view, to the Unitholders of Northwest I. Whitcomb retained Ragen MacKenzie based
upon its prominence as an investment banking and financial advisory firm with
experience in the valuation of businesses, their properties and their securities
in connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and valuations for corporate
purposes.
On December 31, 1998, Ragen MacKenzie delivered its written opinion to
Northwest I that, as of the date of the opinion, based on Ragen MacKenzie's
review and subject to the assumptions, limitations, procedures followed and
qualifications described below and set forth in the opinion, the consideration
to be received by the Unitholders from the Merger is fair to the Unitholders,
from a financial point of view. Ragen MacKenzie is not making, and the opinion
should not be construed as, a recommendation to any Unitholder as to whether or
not a Unitholder should approve the Merger. Additionally, the fairness opinion
does not compare the relative merits of the Merger with those of any other
transactions or business strategies available to Northwest I as alternatives to
the Merger, and Ragen MacKenzie was not requested to, and did not, solicit the
interest of any other party in acquiring the motel properties.
THE FULL TEXT OF THE FAIRNESS OPINION WHICH CONTAINS A DESCRIPTION OF THE
MATERIAL ASSUMPTIONS AND QUALIFICATIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
IMPOSED ON THE REVIEW AND ANALYSIS IS SET FORTH IN ANNEX II AND SHOULD BE READ
IN ITS ENTIRETY. THE PARTNERSHIP IMPOSED NO CONDITIONS OR LIMITATIONS ON THE
SCOPE OF RAGEN MACKENZIES' INVESTIGATION OR THE METHODS OR PROCEDURES TO BE
FOLLOWED IN RENDERING THE FAIRNESS OPINION.
In rendering the fairness opinion, Ragen MacKenzie, among other things: (i)
reviewed the Merger Agreement; (ii) reviewed and analyzed consolidated historic
and projected financial and operating data of Northwest I and the motel
properties, including audited and unaudited financial statements for Northwest I
and unaudited cash-basis estimates prepared by management for the motel
properties; (iii) reviewed and analyzed other internal information concerning
the business and operations of Northwest I and the motel properties furnished to
it by management; (iv) reviewed and analyzed publicly available information
concerning Northwest I and the motel properties; (v) reviewed and analyzed
publicly available information concerning the terms of selected merger and
acquisition transactions that Ragen MacKenzie deemed relevant to its inquiry
(based on size and similar financial characteristics); (vi) reviewed and
analyzed selected market purchase price data that Ragen MacKenzie considered
relevant to its inquiry; (vii) held meetings and discussions with Whitcomb and
employees of Northwest I concerning the operations, financial condition and
prospects of the motel properties; and (viii) conducted such other financial
studies, analyses and investigations, including visits to the Sea-Tac and
Federal Way motels, and considered such other information as Ragen MacKenzie
deemed appropriate.
In arriving at its opinion, Ragen MacKenzie relied, without independent
verification, on the accuracy and completeness of all of the financial and other
information that was publicly available, supplied or otherwise communicated to
it by Northwest I. Ragen MacKenzie assumed that the financial estimates
(including the underlying assumptions and bases thereof) examined by it were
reasonably prepared and reflected the best currently available estimates and
good faith judgments of Northwest I as to the future performance of the motel
properties. Ragen MacKenzie expressed no
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opinion with respect to any forecasts or the assumptions on which they were
based. Ragen MacKenzie did not make an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of Northwest I (including
the motel properties). However, Ragen MacKenzie was furnished with independent
appraisals on each property prepared by McKee in conjunction with U.S. Bank's
financing. The fairness opinion is based upon financial, economic, market and
other conditions and circumstances existing and disclosed to it as of the date
of its opinion. As background for its analyses, Ragen MacKenzie held discussions
with Whitcomb regarding the history, current business operations, financial
condition and future prospects of the motel properties.
In conjunction with rendering its fairness opinion, Ragen MacKenzie
considered a variety of financial and comparative analyses, including:
o a discounted cash flow analysis;
o an analysis of certain transactions pursuant to which selected public
and private companies have acquired motel or hotel properties similar to
those in the partnerships;
o an analysis of selected publicly traded companies;
o an analysis of third party indications of interest obtained during the
marketing of Northwest I during the Spring and Summer of 1998 (the
"Market Test"); and
o an analysis of the appraisals conducted by McKee for the U.S. Bank
financing.
For purposes of its analysis, Ragen MacKenzie relied upon audited financial
statements for Northwest I for the year ended December 31, 1997, unaudited
financial statements for Northwest I for the nine months ended September 30,
1998 and unaudited cash basis estimates for the motel properties for the years
ending December 31, 1998 through 2003, inclusive, as provided by Northwest I.
Ragen MacKenzie's opinion is directed only to the fairness to Northwest I
and to the Unitholders, from a financial point of view, of the consideration to
be received by the Unitholders from the Merger, and does not address any other
aspect of the Merger. The summary set forth below does not purport to be a
complete description of the analyses used by Ragen MacKenzie rendering its
fairness opinion.
Discounted Cash Flow Analysis
Ragen MacKenzie analyzed the financial terms of the Merger using a
discounted cash flow analysis. The discounted cash flow approach assumes, as a
basic premise, that the intrinsic value of any business or property is the
current value of the future cash flow that the business or property will
generate for its owners. To establish a current implied value under this
approach, future cash flow must be estimated and an appropriate discount rate
determined. Ragen MacKenzie used estimates and other information provided by
Northwest I and Whitcomb to estimate the free cash flows, defined as total
projected cash revenue (including base rent and expense recoveries net of
certain free rent and vacancy allowances) minus total projected cash property
expenses (including utility expense, repair and maintenance expense, property
management fees, insurance, real estate taxes, tenant improvements, leasing
commissions and capital improvements ("Free Cash Flows")), for years ending
December 31, 1998 through the year ending December 31, 2003, inclusive. To
determine a
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perpetuity value, growth rates were applied to the year ending December 31, 2003
ranging from 0.00% to 1.0%. Based on the forecasts provided by management of the
General Partner, Ragen MacKenzie assumed revenue growth ranging from 1.4% to
2.6% which resulted in revenues of $3,055,000, $3,124,000, $3,168,000,
$3,212,000, $3,255,000, and $3,299,000 for the years ending 1998-2003
respectively. Expenses were assumed to increase from 0.0% to 2.0% which yielded
earnings before taxes of $1,016,000. $1,213,000, $1,242,000, $1,258,000,
$1,275,000, and $1,293,000 for the years ending 1998-2003 respectively.
The Free Cash Flows and perpetuity values were then discounted to the
present, using discount rates ranging from 12.0% to 16.0%. These discount rates
reflected Ragen MacKenzie's assessment of real estate investments in general,
and the specific risks of the motel properties, in particular. Ragen MacKenzie's
calculations resulted in a range of aggregate imputed values of the motel
properties of $9.4 million to $13.2 million.
Selected Comparable Acquisition Analysis
Ragen MacKenzie also analyzed more than 100 acquisitions that it believed to
be comparable based on size and other financial characteristics in which public
and private companies acquired a single or multiple motel and/or hotel
properties. Ragen MacKenzie compared the purchase price paid in each comparable
motel/hotel acquisitions with the latest twelve months or reported period, on an
annualized basis, as a multiple of revenues and price per room. These
calculations created the following range of multiples: a range of purchase price
to target motel/hotel portfolios revenues of 2.5x to 4.1x, with a mean of 3.1x;
a range of purchase price per target motel/hotel portfolios room of $22,900 to
$51,000, with a mean of $28,100. Applying the applicable range of these
acquisition multiples to the partnership properties' revenues for the trailing
twelve month period ended September 30, 1998, as adjusted to reflect
management's pro forma adjustments and certain additional adjustments that Ragen
MacKenzie deemed appropriate, and to the number of rooms yielded an implied
aggregate range of values of the Partnership Properties of approximately $4.8
million to $12.6 million. The comparable acquisitions (targets) included
hotels/motels from the following: Super 8 Motels, Embassy Suites, Fairfield Inn,
Hampton Inn, Residence Inn, Holiday Inn, Hawthorne Suites, Knights Inn,
Travelodge, Comfort Suites, Fountain Suites, Homewood Suites, Studio Plus,
Allstar Inns, Best Western, Beverly Suites, Courtyard Inn, Sumner Suites,
Columbia Inn, Cross Keys Inn, Knights Inn, Country Inn, Bavarian Inn, Econo
Lodge, Deluxe Inn Motel, Dutch Country Inn, Cobblestone Inn, Red Roof Inn,
Natchez Eola, Waves Motor Inn, Sleep Inn, Airport Inn, Lone Palm Motel, Turnpike
Motel, Bismark Inn, Country Club Motel, Fervis Inn and Amerisuites.
Selected Comparable Company Analysis
Ragen MacKenzie also analyzed public companies that are deemed to be
comparable based on size and other financial characteristics. Such comparable
companies included Amerihost Properties, Inc., Candlewood Hotel Company, Choice
Hotels International, Red Roof Inns, Sholodge, Signature Inns, Inc., Suburban
Lodges of America, Sunburst Hospitality Corp., and Supertel Hospitality. Ragen
MacKenzie compared the aggregate value of the Comparable Companies with the
latest twelve months or reported period, on an annualized basis, as a multiple
of revenues, EBITDA and EBIT. These calculations created the following range of
multiples: a range of revenue multiples of 1.1x to 4.3x, with a mean of 2.3x; a
range of EBITDA multiples of 3.7x to 10.4x, with a mean of 7.0x; and a range of
EBIT multiples of 5.3x to 9.1x,with a mean of 7.3x. Applying the applicable
range of these multiples to the partnership properties' revenues, EBITDA and
EBIT for the trailing twelve month period ended September 30, 1998, as adjusted
to reflect management's pro forma adjustments and certain additional adjustments
that Ragen MacKenzie deemed appropriate, yielded an implied aggregate range of
values of the partnership properties of approximately $7.0 million to $8.7
million.
Selected Comparable Market Purchase Price Analysis
Ragen MacKenzie also compared financial information relating to the motel
properties to publicly available information on recent purchase prices of the
limited-service sector of motel and hotels in particular markets in which the
motel properties are located.
Ragen MacKenzie analyzed the prevailing purchase capitalization rate
(calculated by dividing property net operating income for the applicable
trailing twelve month period by the purchase price paid) for the limited service
sector. Ragen MacKenzie believes that these markets closely resemble the
respective markets in which the motel properties are located and are an
appropriate basis for the comparison of values.
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Applying this selected data to the applicable motel properties' net
operating income for the twelve months ended September, 30 1998, as adjusted to
reflect management's pro forma adjustments and additional adjustments that Ragen
MacKenzie deemed appropriate, yielded an aggregate range of values for the motel
properties of $8.1 million to $9.7 million.
Market Test
Ragen MacKenzie also reviewed indications of interest received by Northwest
I and the affiliated partnership during the attempt to sell Northwest I to an
unaffiliated third party ("Potential Acquirors"). Ragen MacKenzie analyzed a
pro-rata share of the proceeds to be received from such transaction by the
Unitholders. The pro-rata share was based on a percentage determined by
historical appraisals and a third-party valuation. Ragen MacKenzie did not
develop a separate pro-rata methodology for allocating the proceeds and relied
solely on the formula provided by Northwest I. The proceeds were then allocated
to the Unitholders in accordance with the Partnership Agreement. It should be
noted that these offers did not result in the consummation of a transaction and
should be viewed accordingly.
Based on the range of values received from the Potential Acquirors, Ragen
MacKenzie calculated an implied aggregate range of values of the Partnership
Properties of approximately $8.5 million to $9.6 million.
Appraisals
Ragen MacKenzie also reviewed the appraisals of the Partnership properties
prepared by McKee. For this analysis Ragen MacKenzie relied without independent
verification, on the accuracy and completeness of all information in the
appraisals. Ragen MacKenzie did not conduct any independent appraisals. Based on
the McKee appraised values, the implied aggregate of value of the partnership
properties is $12.3 million.
The summary set forth above describes the material analyses made by Ragen
MacKenzie. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances. Each of the
analyses was performed by Ragen MacKenzie to provide a different perspective on
the transaction and contribute to the total mix of information available to
Northwest I. Ragen MacKenzie did not form a conclusion as to whether any one of
the analyses, considered in isolation, supported or failed to support an opinion
as to the fairness from a financial point of view of the Merger Consideration.
Instead Ragen MacKenzie, in reaching its conclusion, considered the results of
the analyses taken as a whole. Ragen MacKenzie's conclusion involved significant
elements of judgement and qualitative analyses as well as a financial and
quantitative analyses. Ragen MacKenzie did not place particular emphasis or
weighting on any individual factor, but instead concluded that its analysis
taken as a whole supported its opinion. Accordingly, notwithstanding the
separate factors summarized above, Ragen MacKenzie believes that its analyses
must be considered as a whole and that selecting portions of its analysis and
the factors it considered without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinion. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the values of real estate properties are not appraisals and
may not reflect the prices at which such properties may actually be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty and Ragen MacKenzie does not assume responsibility for any future
variations from such analyses or estimates.
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The following paragraphs summarize the significant quantitative and qualitative
analyses performed by Ragen MacKenzie in arriving at the fairness opinion. In
performing these analyses, Ragen MacKenzie noted that the partnership only
represented ownership in specific properties. This differentiates these
properties from hotel operating companies that are managed for growth.
Consequently Ragen MacKenzie noted lower multiples of historic earnings to
individual properties. In performing its analyses, Ragen MacKenzie made numerous
assumptions with respect to industry performance, general business, financial,
economic, and market conditions and other matters, many of which are beyond the
control of Northwest I. Furthermore, events occurring after the date of the
Ragen MacKenzie fairness opinion may materially affect the assumptions used in
preparing the Ragen MacKenzie fairness opinion and accordingly the Ragen
MacKenzie fairness opinion is necessarily based upon market, economic, and other
conditions that exist and can be evaluated as of the date of the opinion, and on
information available to Ragen MacKenzie as of such date. In addition, analyses
relating to the value of the business or securities do not purport to be
appraisals, or to reflect the prices at which such businesses or securities can
actually be sold. Analyses based on future results are not necessarily
indicative of actual future results that may be significantly more or less
favorable that suggested by such analyses.
Pursuant to an engagement letter dated December 14, 1998, Ragen MacKenzie
will receive $125,000 for its services in rendering fairness opinions to
Northwest I, Northwest II, Anchorage and Lacey. Ragen MacKenzie will also be
reimbursed for certain of its expenses. Columbus has agreed to indemnify Ragen
MacKenzie, its affiliates and each of its directors, officers, employees,
agents, consultants and attorneys, and each person or form, if any, controlling
Ragen MacKenzie or any of the foregoing, against certain liabilities, including
liabilities under federal securities, law, that may arise out of Ragen
MacKenzie's engagement.
Ragen MacKenzie has, from time to time, provided securities brokerage
services to Whitcomb and affiliates, and may do so in the future, but the
compensation paid by Whitcomb and affiliates to Ragen MacKenzie is not material,
constituting less than 1% of Ragen MacKenzie's total 1998 commission revenue.
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THE MERGER AGREEMENT
The Merger Agreement is between Gerald L. Whitcomb, the sole general partner
of Northwest I, on behalf of Northwest I and Columbus. The material provisions
of the Merger Agreement are summarized below.
Pursuant to the Merger Agreement and the Articles of Merger attached
thereto, the Washington Uniform Limited Partnership Act and the Washington
Limited Liability Company Act, at the effective time, Northwest I will be merged
with and into Columbus, with Columbus continuing as the Surviving Company.
CLOSING DATE; EFFECTIVE TIME OF THE MERGER
The Merger will become effective on the closing date when the Articles of
Merger are filed with the Secretary of State of the State of Washington. At the
earliest, this will take place on the first business day following the Meeting
and at the latest will take place on the last business day of the month in which
the Meeting occurs. The closing will take place at the administrative offices of
Northwest I located at 7515 Terminal Street S.W., Tumwater, Washington 98501,
unless otherwise agreed by the parties.
EFFECTS OF THE MERGER
At the effective time by virtue of the Merger, and without any further
action on the part of anyone, each Unitholder's Units outstanding immediately
prior to the effective time will be cancelled. Each Unit will be automatically
converted into a right to receive the Merger Consideration, without interest.
Immediately before the effective time, the Whitcombs' partnership interests
(whether general or limited) will be contributed to Columbus for additional
interests therein. Approval of the Merger by Unitholders will also constitute an
amendment to the limited partnership agreement providing that gain, if any,
realized by Northwest I in the Merger will be allocated to the unaffiliated
Unitholders receiving the Merger Consideration. This allocation will not change
the amount of Merger Consideration received or the amount or timing of income or
gain allocated to Unitholders.
PAYMENT
Promptly after the effective time, Columbus will mail to each Unitholder as
of January 6, 1999 a form of transmittal letter, any other required forms, and
instructions. Delivery will be effected, and the risk of loss to Units will
pass, only upon delivery of these documents and receipt of the Merger
Consideration for each Unit. Upon the surrender of such transmittal documents
and the payment by Columbus of the Merger Consideration in exchange for the
Units, the Units owned by Unitholders will then be immediately cancelled. Until
surrendered and exchanged, the Units owned by Unitholders represent only the
right to receive the Merger Consideration multiplied by the number of Units
owned by such Unitholder. Upon the surrender of Units, each Unitholder will
receive the Merger Consideration, without interest. If any cash is to be paid to
a name other than the name in which the Units are registered, it will be a
condition to payment that the Unitholder requesting payment will pay to Columbus
any transfer or other taxes required by reason of payment to a person other than
the registered Unitholder. Notwithstanding the foregoing, neither Columbus nor
any other party will be liable to any Unitholder for any Merger Consideration or
other payments made to a public official pursuant to applicable abandoned
property laws. Columbus will be entitled to deduct and withhold from the Merger
Consideration any taxes or other amounts required by law, including Sections
3406 and 1445 of the Internal Revenue Code of 1986, as amended. Pursuant to
federal law,
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to the extent that amounts are withheld, these amounts will be treated as having
been paid to a Unitholder for purposes of the Merger Agreement. Beginning at the
effective time, there will be no further transfers of any Units on the books of
Northwest I. Each Unitholder that has converted Units will be deemed to have
withdrawn as a limited partner of Northwest I. Unitholders will then have no
further interest in Northwest I or Columbus, including any allocations or
distributions of income, property or otherwise, other than the right to receive
the Merger Consideration.
Following the effective time, Whitcomb, on behalf of Northwest I, will
deregister the Units and terminate Northwest I's reporting obligations under
Section 12 of the Exchange Act by filing a Form 15 with the SEC, in Washington,
D.C.
Unitholders will have dissenters' rights of appraisal in connection with the
Merger, as set forth in Article 14 of Chapter 25.10 of the Revised Code of
Washington. See "Dissenters' Rights of Appraisal" beginning on page 32 of this
proxy statement.
ACTIONS OF COLUMBUS NORTHWEST I AND WHITCOMB
Under the Merger Agreement, Columbus consents to the Merger, agrees in all
respects with the terms of the Merger Agreement and, subject to the terms and
conditions of the Merger Agreement, the consummation of the transactions
contemplated by the Merger Agreement. Pursuant to the Washington Limited
Partnership Act and Article VI of the limited partnership agreement, by
executing the Merger Agreement, Whitcomb, as the sole general partner of
Northwest I, subject to the requisite approval of Unitholders at the Meeting,
consents to and approves the Merger Agreement and transactions contemplated
thereby on behalf of Northwest I.
REPRESENTATIONS AND WARRANTIES OF PARTIES
The Merger Agreement contains customary representations and warranties. In
addition, Columbus represents and warrants that it has obtained a commitment
letter from U.S. Bank, subject to customary conditions, that U.S. Bank will lend
Columbus sufficient funds to consummate the Merger and Northwest I represents
and warrants that it has received the fairness opinion from Ragen MacKenzie and
that it has not paid or agreed to pay any fee or commission to any broker,
finder or intermediary in connection with the Merger.
LEGAL CONDITIONS TO THE MERGER
Whitcomb (on behalf of Northwest I and Columbus) agrees to take all
reasonable steps necessary to promptly comply with all legal requirements with
respect to the Merger and to take all reasonable action necessary to promptly
furnish information to the other parties in connection with any such
requirements. Columbus will take all reasonable actions necessary (i) to obtain
any consent, authorization, order, approval, or exemption of any governmental or
administrative agencies or third parties; (ii) to lift, rescind or mitigate the
effect of any injunction or restraining order or other similar order adversely
affecting the Merger; (iii) to fulfill all conditions pursuant to the Merger
Agreement; and (iv) to prevent the entry of any temporary, preliminary or
permanent injunction or court order.
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EXPENSES
Columbus will bear all costs and expenses of each party in connection with
the Merger, including the real estate excise tax payable by the Unitholders with
respect to the transfer of their Units; such costs and expenses having been
taken into consideration by Columbus in determining the Merger Consideration.
CONDITIONS PRECEDENT
Completion of the Merger is subject to customary conditions precedent. It
will be a condition precedent that the loan commitment from U.S. Bank will
remain available to Columbus, such that Columbus may borrow sufficient funds on
or before the closing date in order to pay the Merger Consideration to the
Unitholders as provided in the Merger Agreement. The parties to the Merger
Agreement agree that in exercising its discretion to waive or require
fulfillment of conditions precedent, Columbus will not be required to consider
the interest of any person or entity that may be affected by the Merger, other
than Columbus. Columbus will have no obligation, fiduciary or otherwise, to the
limited partners of Northwest I in exercising such discretion.
The respective obligations of each party, generally, to effect the Merger is
subject to a number of customary conditions. It is a condition of each party
generally that Ragen MacKenzie will not have withdrawn or modified in any
material respect its opinion that the Merger Consideration is fair to the
unaffiliated Unitholders from a financial point of view.
TERMINATION
The Merger Agreement may be terminated by mutual consent of Columbus and
Northwest I. The Merger Agreement may also be terminated by Northwest I if
Columbus is in material breach of any term of the agreement. The Merger
Agreement may be terminated by Columbus if Northwest I is in material breach of
any term of the agreement. The Merger Agreement may be terminated by either
Columbus or Northwest I if the Merger has not been completed by March 31, 1999,
or a final order prohibiting the Merger has been entered by a court or
government agency. In the event of termination of the Merger Agreement, it will
become void and there will be no liability on the part of Columbus or Northwest
I for failure to complete the Merger or otherwise.
AMENDMENT
The Merger Agreement may be amended only in writing. No amendment may be
made without the approval of Unitholders holding at least 66% of the outstanding
Units, if the proposed amendment would either (a) change the type or reduce the
amount of the Merger Consideration, or (b) alter or change any other terms and
conditions of the Merger Agreement if any of such alterations or changes, alone
or in the aggregate, would materially adversely affect the Unitholders.
EXTENSION; WAIVER
At any time prior to the effective time of the Merger, whether before or
after this proxy statement is mailed, any party may (i) extend the time for the
performance of any of the obligations or other acts of any other party to the
Merger Agreement; (ii) waive any inaccuracies and representations and warranties
contained in the Merger Agreement; and (iii) waive compliance with any of the
agreements of the other parties or conditions to its own obligations contained
in this agreement. Any agreement with respect to extension or waiver must be in
writing. No consent or waiver of
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compliance given by any of the parties to the Merger Agreement will operate as a
consent or waiver of compliance in respect to any subsequent default, breach, or
nonobservance.
NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
The respective representations and warranties of Northwest I and Columbus
will expire with, and will be terminated and extinguished upon, consummation of
the Merger. Thereafter, neither Northwest I nor Columbus, or any officer,
director or principal of such entities, will be under any liability whatsoever
with respect to any representation or warranty in the Merger Agreement.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Merger. This discussion does not discuss all of the federal income tax
consequences that may be relevant to Unitholders that are subject to special
treatment under the federal income tax laws, including foreign persons,
tax-exempt entities, life insurance companies, or S corporations. The discussion
set forth below is based on the Internal Revenue Code of 1986, as amended
(hereinafter, the "Code"), Treasury Regulations, announcements promulgated
thereunder, published rulings and court decisions, all as in effect on the date
of this proxy statement and without giving effect to changes in the federal tax
laws, if any, enacted after the date of this proxy statement. Unitholders are
assumed to hold their Units as capital assets.
Gain or Loss Will Be Recognized
Unitholders will recognize gain or loss on the sale of Units in the Merger
to the extent of the difference between the amount realized and his or her
adjusted basis in the Units sold. The amount realized is the amount of cash
received plus the Unitholder's share of Northwest I's liabilities (determined
under Code Section 752 and the Treasury Regulations thereunder). The adjusted
tax basis of a Unitholder's Units is generally equal to the cost of the Units to
such Unitholder, decreased by the Unitholder's cumulative share of Northwest I
distributions and losses, and increased by the Unitholder's cumulative share of
Northwest I income and Northwest I liabilities, as determined under Code and the
Treasury Regulations thereunder. If a Unitholder's share of the Northwest I's
liabilities exceeds the adjusted tax basis of his or her Units, the Unitholder's
realized gain will include the excess.
The amount of cash received by Unitholders in exchange for their Units that
is attributable to unrealized receivables or inventory items ("Section 751
property") of Northwest I will be considered as an amount realized from the sale
or exchange of property other than a capital asset. The remainder of the gain or
loss realized by an Unitholder who has held the Units as capital assets will be
capital gains or loss, and will be long term capital gain or loss if the Units
have been held for more than one year.
Unitholders who have held their Units for more than one year may be entitled
to a lower long-term capital gains tax rate on that portion of their gain, if
any, that is not attributable to Section 751 property. Capital losses generally
are deductible only to the extent of capital gains plus, in the case of
non-corporate Unitholders, up to $3,000 of ordinary income. Capital losses
realized from the sale of Units may be utilized to offset capital gains from
other sources and may be carried forward, subject to applicable limitations.
Pursuant to Code Sections 708, 721, 731(b), the Merger is not expected to be
a taxable event to Northwest I.
Statement Required to Be Attached to Selling Unitholders' Federal Income
Tax Returns.
Selling Unitholders are required to submit with their income tax return
for the year in which the Units are sold a statement that sets forth, among
possible other things, the following information: (1) the date of the sale, the
amount of the selling Unitholder's adjusted basis in his or her Units, and the
portion thereof attributable to Code Section 751 property pursuant to Code
Section 732; and (2) the amount of any money and the fair market value of any
other property received or be received for the transferred Units in Northwest
I, and the portion thereof attributable to Section 751 property.
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In general, the portion of the selling Unitholders' adjusted basis for
his Units to be allocated to Section 751 property is an amount equal to the
basis such property would have had under Code Section 732 if the selling
Unitholder had received his share of such properties in a current distribution
made immediately before the sale. The payment agent will provide selling
Unitholders with Northwest I's basis in Section 751 property. SELLING
UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR ASSISTANCE IN
DETERMINING THE PORTION OF THEIR ADJUSTED BASIS IN THEIR UNITS ATTRIBUTABLE TO
SECTION 751 PROPERTY.
The Agreement and Plan of Merger provides that the selling Unitholders'
amount realized is to be allocated between Northwest I's Section 751 property
and non-Section 751 property based on the relative fair market values of
Northwest I's Section 751 property and non-Section 751 property and that such
relative fair market values are agreed to be as determined by Columbus. The
paying agent will distribute this information to the selling Unitholders.
Foreign Investment in Real Property Tax Act Withholding
Units are considered United States real property interests for purposes of
Code Section 897, the Foreign Investment in Real Property Tax Act ("FIRPTA").
Consequently, pursuant to Code Section 1445 of the Internal Revenue Code,
Columbus, as buyer of the Units, must deduct and withhold a tax equal to 10% of
the total consideration paid for such Units unless it receives a nonforeign
person affidavit. A suitable nonforeign person affidavit will be included as
part of the transaction documents mailed to the Unitholders by the payment
agent.
Washington State Real Estate Excise Tax
Washington State imposes an excise tax on sales of real property.
Acquisitions of controlling interests in partnerships are considered sales
subject to this real estate excise tax. This real estate excise tax is imposed
on the seller; in this case, the Unitholders. This real estate excise tax is
imposed at rates ranging from 1.53% to 2.78%. Pursuant to the terms of the
Merger Agreement, Columbus is responsible for payment of the real estate excise
tax since the tax has been taken into consideration by Columbus in determining
the Merger Consideration. Unitholders will not be required to pay this tax out
of the Merger Consideration received.
EACH UNITHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE
THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES OF SELLING UNITS IN THE MERGER, AS
WELL AS THE EFFECTS OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
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DISSENTERS' RIGHTS OF APPRAISAL
You have dissenters' rights of appraisal under Article 14 of Chapter 25.10
of the Revised Code of Washington ("Article 14") with respect to your Units. The
following summary of the material dissenters' right procedures is qualified in
its entirety by reference to Article 14, a copy of which is attached as Annex
III to this proxy statement. Unitholders thinking about exercising their
dissenters' rights are urged to review the full text of Article 14. The
procedures set forth in such chapter must be followed exactly or dissenters'
rights may be lost.
A Unitholder who properly follows the procedures for dissenting and
demanding payment for his or her Units pursuant to Article 14 (as summarized
below) may be entitled to receive in cash the "fair value" of his or her Units
in lieu of the Merger Consideration provided in the Merger Agreement. The "fair
value" of a dissenter's Units will be the value of such Units immediately before
the effectuation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger, unless exclusion would be inequitable. The "fair
value" could be greater than, less than, or the same as the $1,609 per share
Unit Merger Consideration the Unitholder would have received if the Unitholder
had not dissented. In the event the dissenting Unitholder and Columbus (referred
to in this section as the "Surviving Company") cannot agree on the "fair value"
of the dissenter's partnership interest, a court in an appraisal proceeding may
ultimately determine "fair value."
To properly exercise dissenters' rights with respect to the Merger and to be
entitled to payment under Article 14, a Unitholder must (a) not challenge the
Merger unless the Merger fails to comply with the procedural requirements
imposed by Article 14, the partnership agreement, or is fraudulent with respect
to an investor or Northwest I; (b) not vote in favor of or approve the Merger;
and (c) demand payment by the date set in the dissenters' notice to be sent by
the Surviving Company (as described below). Thus, any Unitholder who wishes to
dissent must either vote "against" the merger or "abstain" from voting such
partnership interest. A vote "AGAINST" the Merger, without satisfying the
requirement of clause (c) above, is not a proper exercise of dissenters' rights.
The right of a dissenting Unit holder to obtain payment of the fair value of
the Unitholder's partnership interest shall terminate upon the occurrence of any
of the following events:
a. The Merger is abandoned or rescinded;
b. A court having jurisdiction permanently enjoins or sets aside the
Merger; or
c. The Unitholder's demand for payment is withdrawn with the written
consent of Northwest I.
Within 10 days after the approval of the Merger by the Unitholders, the
Surviving Company will deliver a written dissenters' rights notice to all
dissenting Unitholders who did not vote in favor of or the Merger. The
dissenters' rights notice will:
a. State where the payment demand must be sent;
b. Inform Unitholders as to the extent transfer of the Units will be
restricted as permitted by RCW 25.10.930 after the payment demand is
made;
c. Supply a form for demanding payment;
d. Set a date by which the Surviving Company must receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty
(60) days after the date the notice is delivered; and
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e. Include a copy of Article 14.
A Unitholder who demands payment retains all other rights of a Unitholder
until the Merger becomes effective. A Unitholder sent a dissenters' notice who
does not demand payment by the date set in the dissenters' notice is not
entitled to payment for the Unitholder's Units under Article 14.
Northwest I may restrict the transfer of Units from the date the demand for
their payment is received until the Merger becomes effective or the restriction
is released under Article 14.
Within 30 days of the later of the date the Merger becomes effective, or the
payment demand is received, the Surviving Company will pay each dissenter who
properly demanded payment the amount that the Surviving Company estimates to be
the fair value of the Units, plus accrued interest. The payment will be
accompanied by, among other things,
a. Copies of Northwest I's financial statements for the most recent fiscal
year maintained as required by RCW 25.10.050;
b. An explanation of how the Surviving Company estimated the fair value of
the Units and how the accrued interest was calculated;
c. A statement of the dissenter's right to demand payment; and
d. A copy of Article 14.
If the Merger does not become effective within sixty days after the date set
for demanding payment, Northwest I shall release any transfer restrictions
imposed as permitted by RCW 25.10.930. If, after releasing transfer
restrictions, the Merger becomes effective, the Surviving Company must send a
new dissenters' notice as provided in RCW 25.10.910(2) and 25.10.920 and repeat
the payment demand procedure.
A dissenter may notify the Surviving Company in writing of the dissenter's
own estimate of the fair value of the dissenter's Units and the amount of
interest due and demand payment of the dissenter's estimate, less any payment
under RCW 25.10.935, if:
a. The dissenter believes that the amount paid is less than the fair value
of the dissenter's Units or that the interest due is incorrectly
calculated;
b. The Surviving Company fails to make payment within 60 days after the
date set for demanding payment; or
c. Northwest I, having failed to effectuate the Merger, does not release
the transfer restrictions imposed on Units as permitted by RCW 25.10.930
within sixty days after the date set for demanding payment.
A dissenter will be deemed to have waived the right to demand payment of the
dissenter's estimate of fair value unless the dissenter notifies the Surviving
Company of the dissenters' demand in writing within thirty (30) days after the
Surviving Company made payment for the dissenter's units.
If a demand for payment remains unsettled, the Surviving Company will
commence a proceeding in the Superior Court of Thurston County, Washington
within 60 days after receiving the payment demand and petition the court to
determine the fair value of the units and accrued interest. If the Surviving
Company does not commence such proceeding within the sixty-day period, it will
pay each dissenter whose demand remains unsettled the amount demanded by the
dissenter. The Surviving
33
<PAGE> 39
Company will make all dissenters whose demands remain unsettled, whether or not
residents of Washington State, parties to the proceeding as in an action against
their Units, and will serve all parties with a copy of the petition. The
Surviving Company will be able to serve nonresidents by registered or certified
mail or by publication as provided by law. The Surviving Company may join as a
party to the proceeding any Unitholder who claims to be a dissenter but who has
not, in the Surviving Company's opinion, complied with the provisions of Article
14. If the court determines that such Unitholder has not complied with the
provisions of Article 14, the court will dismiss the Unitholder as a party. The
jurisdiction of the court in which the proceeding is commenced will be plenary
and exclusive. The court may appoint one or more persons as appraisers to
receive evidence and recommend decisions on the question of fair value. The
appraisers will have the powers described in the order appointing them or in any
amendment to it. Dissenters will be entitled to the same discovery rights as
parties in other civil proceedings. Each dissenter made a party to the
proceeding who is not dismissed will be entitled to judgment for the amount, if
any, by which the court finds the fair value of the Units, plus interest,
exceeds the amount paid by the Surviving Company.
In a proceeding commenced to determine the fair value of Units, the court
shall determine all costs of the proceeding, including reasonable compensation
and expenses of appraisers appointed by the court. The court will assess the
costs against the Surviving Company, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment. The court may also assess the fees and
expenses of counsel and experts for the respective parties, in the amounts the
court finds equitable:
(1) Against the Surviving Company and in favor of any or all dissenters if
the court finds the Surviving Company did not substantially comply with the
requirements of Article 14; or
(2) Against either the Surviving Company or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by Article 14.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the Surviving Company, the
court may award to these counsel reasonable fees to be paid out of amounts
awarded the dissenters who were benefited.
Failure to follow the steps required by Article 14 for perfecting
dissenters' rights may result in the loss of such rights.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF WASHINGTON LAW, ANY
UNITHOLDER WHO IS CONSIDERING DISSENTING FROM THE MERGER SHOULD CONSULT A LEGAL
ADVISOR.
34
<PAGE> 40
INFORMATION ABOUT NORTHWEST I
BUSINESS
Northwest I is a Washington limited partnership formed to invest in and
operate two "economy" motels located in Washington State. Northwest I operates
its motels as a franchise of Super 8 Motels, Inc., the national franchiser of
the "Super 8" trade name. The sole general partner of Northwest I is Whitcomb.
Northwest I was formed in March 1980. Units of the Northwest I were offered
and sold in its initial public offering by selected broker-dealers on a best
efforts basis in Washington, Oregon, Montana, Idaho and Alaska. Northwest I's
total offering of $6 million (6,000 units at $1,000 each) was fully subscribed
and the offering closed in February 1982.
Northwest I operates in a single industry (motels) and within that industry
only in the economy motel category.
The motel properties were developed and are being operated as economy motels
in the locations described below. Both properties are franchisees of the
national "Super 8" motel chain. The economy motel concept provides for a clean,
comfortable average-size motel room that has all the basic amenities required by
the traveling public at a price lower than that of most surrounding motel
properties of equal quality.
The 119-room Super 8 Motel at Sea-Tac is located near the Seattle/Tacoma
International Airport and provides additional special services to the traveling
public including exercise room, guest laundry facilities, long-term parking
privileges, airport courtesy telephone, and free transportation to and from the
airport.
The 90-room Super 8 Motel at Federal Way provides a special parking area for
commercial trucks, guest laundry facilities and a travelers lounge. Adjacent to
the property are two family style restaurants owned and operated by
non-affiliated companies. Both motels historically experience seasonal
fluctuations in occupancy, the low point occurring in the winter months and the
peak occurring in late summer.
All guest rooms are equipped with direct-dial telephone, color television
and tub/shower combination, and are fully carpeted, sound proofed and insulated.
Guests are allowed to use major national credit cards and cash checks with Super
8's proprietary VIP Club membership. Vending machines are also available. Each
property has interior hallways, a lobby with a manager's office, an employee
lounge, and in-house laundry. No restaurants are located on either property.
The two motels provide full or part-time employment for approximately 45
people (Sea-Tac 28, Federal Way 17).
MOTEL PROPERTIES
The Northwest I motels were constructed on two parcels of real property
purchased in 1981. Construction commenced on the Sea-Tac parcel in August 1981
and it opened in March 1982. The Sea-Tac facility occupies approximately 43,850
square feet. Construction commenced on the Federal Way parcel in March 1982 and
it opened in September 1982. The Federal Way facility occupies approximately
37,800 square feet.
35
<PAGE> 41
Both motels underwent major renovations in 1987 at an aggregate approximate
total cost of $328,000. An approximately $1,000,000 renovation of the Sea-Tac
property commenced in February 1995, with one-half of the property closed for a
substantial period of time. The Sea-Tac renovation was completed in February
1996. Additional renovations at the Federal Way property were completed in June
1998. Both motels are of frame construction with stucco exteriors, tile roofs
and have full fire alarm systems. Heating and cooling is by individual room
through the wall heat pumps.
Both motels are in operation as economy motels. The capacity and utilization
of these properties is discussed in Management's Discussion and Analysis, below.
LEGAL PROCEEDINGS
Northwest I is not party to any material legal proceedings.
MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
As of January 6, 1999, the Units are owned of record by approximately
1,050 Unitholders. There is no established public trading market for the Units
and no significant transactions in Units have occurred since the original
offering of the Units. Because of this, Northwest I is unable to determine a
fair market value for the Units based on market price.
Distributions of $600,000 in cash ($100.00 per Unit) were made to investors
during each of 1997, 1996 and 1995.
SELECTED FINANCIAL DATA OF NORTHWEST I
For the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Total Sales .................. $ 2,319,042 $ 2,975,925 $ 2,980,665
Net Income (Loss) ............ $ 132,423 $ 948,910 $ 1,089,393
Net Income (Loss) per Unit ... $ 18.76 $ 134.43 $ 154.33
Total Assets** ............... $ 4,389,769 $ 4,637,276 $ 4,449,796
Long-Term Debt ............... $ 1,985,797 $ 1,937,139 $ 1,284,675
Cash Distribution Per Unit ... $ 100.00 $ 100.00 $ 100.00
</TABLE>
**Net of amortization and depreciation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
At December 31, 1997, 1996, and 1995, Northwest I's current assets exceeded
its current liabilities by $320,855, $414,088, and $48,802 respectively
resulting in the current ratios noted below. The variance in the current ratio
from year to year is largely attributable to the relative cash position of the
partnership at December 31. Based on recent history, the months of January,
February, and March are the slowest season of occupancy requiring Northwest I to
carefully manage its cash during those months.
The interest rate on the Northwest I's primary mortgage was 8.5% in 1997 and
1996 and 7.5% in 1995. This adjustable rate loan provides for an interest rate
each year equal to the monthly median cost of funds index for SAIF insured
institutions plus 3.575%; or 8.5%, if less.
36
<PAGE> 42
The interest rate on the long term loan funding the Sea-Tac renovation is
variable, based on the lender's prime rate plus 1% per annum and is payable in
monthly payments of $9,768 plus interest. The bank's prime rate of interest at
December 31, 1997, was 8.50% per annum.
BALANCE SHEET DATA
For the years ended December 31, 1995, 1996, and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Current Assets .......... $ 296,905 $ 615,507 $ 528,881
Current Liabilities ..... $ 248,103 $ 201,419 $ 208,026
Current Ratio ........... 1.20:1 3.06:1 2.54:1
</TABLE>
At December 31, 1997, both the Sea-Tac and Federal Way properties completed
their fifteenth full years of operation.
Comparative operational statistics follow:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Sea-Tac
Occupancy .......... 52% 66% 65%
Rented rooms ....... 22,411 28,696 28,264
Gross room rate* ... $ 56.77 $ 62.46 $ 65.28
Federal Way
Occupancy .......... 64% 70% 64%
Rented Rooms ....... 21,183 22,944 21,030
Gross room rate* ... $ 44.73 $ 46.13 $ 45.62
Total
Occupancy .......... 57% 68% 65%
Rented rooms ....... 43,594 51,640 49,294
Gross room rate* ... $ 50.92 $ 55.37 $ 57.96
</TABLE>
*"Gross Room Rate" is defined as total room revenue divided by total rooms
sold.
Total 1997 room sales revenue decreased $2,096 to $2,857,164 down from
$2,859,260 in 1996 but still $637,309 higher than 1995 revenue levels. Occupancy
levels at the SeaTac motel rose 14% from 1995 to 1996 while the average room
rate climbed 9%. A slight drop in occupancy levels in 1997 was offset by a 5%
increase in the average room rate resulting in relatively flat room revenues.
Federal Way average occupancy levels and room rates rose moderately in 1996 but
retreated to 1995 levels in 1997.
Net income in 1997 increased $140,483 to $1,089,393 up from $948,910 in 1996
and substantially higher than the $132,423 net income posted in 1995. The
increases have been primarily due to the decrease in supplies and maintenance
expenses as major renovations were completed in 1996 and 1997. Supplies and
maintenance expense will increase further due to the completion in June 1998 of
the renovation in Federal Way.
37
<PAGE> 43
Direct operating expenses decreased $103,507 to $869,464 in 1997, down from
$972,971 in 1996 and significantly lower than the $1,246,793 expensed in 1995.
The decrease was again primarily due to lower supplies and maintenance expenses
which were offset in 1997 by higher payroll and related expenses. Indirect
operating expenses remained relatively flat, with a net decrease of $7,517 from
1995 to 1997.
An increase in labor rates in Washington coupled with increased staffing
levels resulted in higher administrative service fees. The 28% increase in
property management and franchise fees is in direct correlation with the 28%
increase in room revenues from 1995 to 1996. Coupled with a $17,188 decrease in
professional service expenditures, administrative and general expenditures rose
14% in 1996. These expense variations have flattened out during 1997 and show an
increase of 2.5% this year.
The $71,254 increase in fixed charges in 1996 resulted from higher interest
and lease expenses. The decrease of $28,364 in 1997 resulted from decreases in
depreciation and interest expense.
SELECTED QUARTERLY FINANCIAL DATA OF NORTHWEST I
For the quarters ended September 30, June 30, and March 31, 1998:
<TABLE>
<CAPTION>
MARCH 31 , 1998 JUNE 30, 1998 SEPTEMBER 30, 1998
--------------- ------------- ------------------
<S> <C> <C> <C>
Total Sales ................. $ 624,086 $ 794,180 $ 1,047,213
Net Income (Loss) ........... $ 101,010 $ 177,692 $ 438,941
Net Income (Loss) per Unit .. $ 16.84 $ 29.62 $ 73.16
Total Assets** .............. $ 4,290,843 $ 4,250,559 $ 4,543,050
Long-Term Debt .............. $ 1,143,266 $ 1,105,038 $ 1,306,202
Cash Distribution Per Unit .. $ 37.50 $ 37.50 $ 37.50
</TABLE>
**Net of amortization and depreciation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE FIRST THREE QUARTERS OF 1998.
As in the past, Northwest I experienced lower occupancy levels in the first
three months of the year. In addition, extensive renovations at the Federal Way
motel were not completed until well into the second quarter of 1998 resulting in
lower than usual occupancy levels through June 30, 1998.
Current assets exceeded current liabilities by $125,497, $15,817, and
$406,721 in the first, second, and third quarters of 1998 respectively resulting
in the current ratios noted below. The increase in current assets in third
quarter 1998 was due largely to an increase in cash reserves. Accounts payable
dropped $54,587 while current portion of long-term debt and accrued expenses
rose a combined $135,290 in the second quarter resulting in an overall $84,959
increase in current liabilities. Liabilities related to the Federal Way
renovation were paid in the third quarter causing accounts payable to decrease
by $72,523 and are the main component of the $82,908 decrease in current
liabilities.
38
<PAGE> 44
QUARTERLY BALANCE SHEET DATA
For the quarters ended September 30, June 30, and March 31, 1998:
<TABLE>
<CAPTION>
MARCH 31, 1998 JUNE 30, 1998 SEPTEMBER 30, 1998
-------------- ------------- ------------------
<S> <C> <C> <C>
Current Assets ......... $ 426,733 $ 402,012 $ 710,008
Current Liabilities .... $ 301,236 $ 386,195 $ 303,287
Current Ratio .......... 1.42:1 1.04:1 2.34:1
</TABLE>
Total sales for the third quarter of 1998 were $1,047,213, an increase of
$253,033 from second quarter 1998 and $423,127 higher than the first three
months of the year. As in the past, occupancy figures and, in turn, revenue
figures are significantly lower in the first quarter of the year. Average
occupancy figures posted strong gains in the third quarter helping to boost
total room revenues.
Renovations at the Federal Way motel began in the first quarter and, as a
result, Supplies and Maintenance expenses increased significantly. This increase
coupled with higher Payroll and Related expenditures were the main cause of the
28% increase in Direct Operating Expenses in the second quarter of 1998.
Indirect Operating expenses remain relatively flat with slight increases in
Advertising and "Other" expenses accounting for much of the $14,721 increase in
the third quarter.
Property Management and Franchise Fee expenses continue to parallel room
revenue in their steady increase from the first through third quarters.
Northwest I operates the motels as a franchise of Super 8 Motels, Inc.
Nationwide the Super 8 motel chain continues to grow, increasing the name
familiarity of the chain.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, NUMBER OF SUPER 8 MOTELS INCREASE
------------------ ------------------------ --------
<S> <C> <C>
1997 1,614 122
1996 1,492 92
1995 1,400 180
1994 1,220 159
1993 1,060 119
1992 941 78
</TABLE>
The Super 8 "Superline" national reservation system and "VIP Club"
(approximately 5,000,000 members) continue to be improved.
Prior to 1985, Northwest I had been accruing the motels' property management
fees. Though the obligation to pay those fees existed, the terms of the
partnership agreement of Northwest I did not allow them to be paid until such
time as the limited partners had received a cumulative annual 10% return on
their adjusted capital investment. For the period 1986 through 1993, upon the
advice of Northwest I's prior accounting firm, Northwest I's accounting policy
regarding these fees was changed to expense them when paid (instead of when
incurred) and to not accrue unpaid property management fees as a liability on
the face of the balance sheet.
39
<PAGE> 45
In 1994, Northwest I again changed its accounting policy for property
management fees to reflect, on Northwest I's income statement, the expense when
the obligation to pay the fee was incurred and to accrue the corresponding
liability on the face of Northwest I's balance sheet. Thus, the financial
information contained in this report conforms with that reporting position.
Previously incurred but unpaid management fees totaling approximately $605,000
were paid in 1997. Attention is directed to Note 6 in the notes to accompanying
audited December 31, 1997 financial statements, for a discussion of property
management fees.
YEAR 2000 COMPLIANCE ISSUE
Currently, equipment and software which handle motel reservations, and
credit card approvals are provided respectively by Super 8 Motels, Inc. and the
individual banking institutions with which the properties do business.
Currently, internal property accounting (with the exception of call accounting)
is completed manually. Pursuant to the POWER-UP program being designed,
instituted and paid for by Super 8 Motels, Inc., all motels will be provided a
PC-based property management system which integrates all reservations, credit
card approvals, call accounting, security and motel accounting into a single
system.
This fully integrated system is to be in place at every motel within the
Super 8 System by the third quarter of 1999. The equipment and software is new
and has been designed and developed by Super 8 Motels, Inc., and all franchisees
(including Northwest I) will be required to utilize it. Northwest I has been
assured by Super 8 Motels, Inc. that the total system will be year 2000
compliant. The total cost of this conversion, which may be borne by the motels
owned by the partnership, should not exceed $5,000 per motel.
Internally, the general partner of Super 8 Motels Northwest I and the
affiliated management company have undertaken the task of totally replacing the
current corporate accounting system to ensure that it will fully integrate with
the new property management system being installed by Super 8 Motels, Inc. It is
anticipated that this conversion will be completed by the year end 1999. Part of
the hardware and software will be provided by the POWER-UP initiative at no cost
to the company. For those systems purchased by the general partner or
affiliates, all software, hardware and systems vendors will be required to
certify that their products are year 2000 compliant. The cost attributed to each
motel in the partnership for this conversion should not exceed $5,000 per motel.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sole general partner of the Northwest I is Gerald L. Whitcomb.
Gerald L. Whitcomb, age 55, was educated at the University of Nebraska with
majors in economics and business finance. Mr. Whitcomb earned his J.D. from the
University of Nebraska in 1969, following which he practiced law until 1979.
Since 1979, he has been involved in the management of PGI and its affiliates.
Mr. Whitcomb is the principal organizer and stockholder of PDS. Mr.
Whitcomb is the general partner of Super 8 Motels Northwest I. He is also a
partner in Super 8 Motel Developers, which is the general partner of Super 8
Motel of Lacey Associates, a general partner of Super 8 Motels Northwest II,
Juneau Motel Associates, Anchorage Motel Associates and Peninsula Motel
Associates, all Washington limited partnerships. Mr. Whitcomb is the Managing
partner of Tongass Motel Associates, an Alaska general partnership, Mr. Whitcomb
is also a partner in Peninsula Properties Partnership, a Washington general
partnership.
40
<PAGE> 46
EXECUTIVE COMPENSATION
The general partner received no salary or bonus compensation from
Northwest I during the fiscal year ended December 31, 1997. See "Certain
Relationships and Related Transactions," below.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
TITLE NAME PERCENT
----- ---- -------
<S> <C> <C>
General partner Gerald L. Whitcomb 1
Limited partners 1,050 various 99
</TABLE>
As of December 31, 1998, Whitcomb owned 62 Northwest I Units in addition to his
1% interest as general partner. Those Units have been acquired from time-to-time
on a voluntary basis from investors seeking to liquidate their investment. See
Note 3 of Notes to the "Financial Statements" for a discussion of distributions
and allocations of profits and losses.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions between the partnership and the general partner, Gerald L.
Whitcomb, and affiliates of the general partner are as follows:
<TABLE>
<CAPTION>
TRANSACTION 1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Purchases of supplies and equipment ... $ 68,447 $ 279,632 $ 106,529
Administrative service fees ........... $ 171,741 $ 159,779 $ 152,275
Property management fees .............. $ 149,011 $ 148,864 $ 115,938
</TABLE>
Northwest I has a management agreement with Peninsula Management (now part
of PDS) to employ it for a period of 20 years as manager of the motels owned by
Northwest I. The agreement provides for payment of a property management fee to
the affiliate equal to 5% of the partnership's gross revenues from motel
operations in addition to reimbursement of certain out-of-pocket cost incurred
by the affiliate in connection with management of the property. The 5% base fees
are recorded as property management fees. The reimbursements of out-of-pocket
costs are recorded as administrative service fees.
Payment of property management fees is subordinated to receipt by the
limited partners of a cumulative, pre-tax return on their adjusted capital
investment of 10% per annum. This 10% was achieved during 1992. Effective July
1, 1992, management began paying monthly the current management fees. Unpaid
management fees relating to 1990 and before totaling $605,348 were paid in 1997.
Management believes that these transactions were made on terms at least as
favorable as could have been obtained from unaffiliated third parties.
41
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANT'S................................................ F-2
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1996, 1997 and September 30, 1998
(unaudited) .................................................................. F-3
Statements of Income for the years ended December 31, 1995, 1996 and 1997
and for the nine months ended September 30, 1997 and 1998
(unaudited) .................................................................. F-5
Statements of Changes in Partners' Equity for the years ended December 31,
1996 and 1997 and for the nine months ended September 30, 1998
(unaudited) .................................................................. F-6
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and for the nine months ended September 30, 1997 and 1998
(unaudited) .................................................................. F-7
Notes to Financial Statements ................................................ F-8
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the General and Limited Partners
Super 8 Motels Northwest I
We have audited the accompanying balance sheets of Super 8 Motels Northwest I as
of December 31, 1997 and 1996, and the related statements of income, changes in
partners' equity, and cash flows for the three years ended December 31, 1997,
1996 and 1995. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Super 8 Motels Northwest I as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the three years ended December 31, 1997, 1996 and 1995, in conformity
with generally accepted accounting principles.
MOSS ADAMS LLP
Tacoma, Washington
January 29, 1998
F-2
<PAGE> 49
SUPER 8 MOTELS NORTHWEST I
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
------------------------------ ------------------
1996 1997 (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash ............................ $ 544,684 $ 463,238 $ 638,984
Accounts receivable, trade ...... 21,518 10,623 17,768
Accounts receivable, affiliates . -- 5,932 --
Inventory ....................... 42,093 43,931 43,931
Prepaid expenses ................ 7,212 5,157 9,325
----------- ----------- -----------
Total current assets ........ 615,507 528,881 710,008
----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost
Land ............................ 2,053,409 2,036,056 2,036,057
Land improvements ............... 79,671 79,671 81,410
Buildings ....................... 2,836,155 2,836,155 2,836,155
Equipment, furniture and fixtures 1,021,108 1,021,108 1,032,110
----------- ----------- -----------
5,990,343 5,972,990 5,985,732
Less accumulated depreciation ... (2,022,417) (2,105,168) (2,167,415)
----------- ----------- -----------
Total property and equipment .... 3,967,926 3,867,822 3,818,317
----------- ----------- -----------
OTHER ASSETS
Loan fees ....................... 15,000 15,000 15,000
Franchise fees .................. 30,000 30,000 30,000
----------- ----------- -----------
45,000 45,000 45,000
Less accumulated amortization ... (25,500) (30,000) (33,375)
----------- ----------- -----------
19,500 15,000 11,625
Deposits ........................ 34,343 38,093 3,100
----------- ----------- -----------
Total other assets .......... 53,843 53,093 14,725
----------- ----------- -----------
$ 4,637,276 $ 4,449,796 $ 4,543,050
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 50
SUPER 8 MOTELS NORTHWEST I
BALANCE SHEET
LIABILITIES AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
--------------------------- ------------------
1996 1997 (UNAUDITED)
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade .............. $ 37,503 $ 34,373 $ 49,270
Accounts payable, affiliates ......... 29,609 36,432 30,412
Accounts payable, partners ........... 88,307 88,221 95,686
Current portion of long-term debt .... 46,000 49,000 127,919
---------- ---------- ----------
Total current liabilities ............ 201,419 208,026 303,287
---------- ---------- ----------
LONG-TERM DEBT, net of current portion shown
above ......................................... 1,331,791 1,284,675 1,306,202
---------- ---------- ----------
ACCRUED PROPERTY MANAGEMENT FEES
605,348 -- --
COMMITMENTS (Notes 7 and 9)
PARTNERS' EQUITY
General partner's equity ................. 329,065 461,460 457,929
Limited partners' equity (authorized,
issued and outstanding 6,000 units) . 2,169,653 2,495,635 2,475,632
---------- ---------- ----------
2,498,718 2,957,095 2,933,561
---------- ---------- ----------
$4,637,276 $4,449,796 $4,543,050
========== ========== ==========
Book value per unit ...................... $ 416.45 $ 492.85 $ 488.93
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 51
SUPER 8 MOTELS NORTHWEST I
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
YEARS ENDED DECEMBER 31 1997 1998
-------------------------------------------- ---------- ----------
1995 1996 1997 (UNAUDITED) (UNAUDITED)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SALES
Rooms ...................... $2,219,855 $2,859,260 $2,857,164 $2,288,637 $2,376,747
Other ...................... 99,187 116,665 123,501 93,754 88,732
---------- ---------- ---------- ---------- ----------
2,319,042 2,975,925 2,980,665 2,382,391 2,465,479
---------- ---------- ---------- ---------- ----------
DIRECT OPERATING EXPENSES
Payroll and related expenses 474,549 497,037 548,646 418,814 460,675
Supplies and maintenance ... 598,914 285,864 124,634 95,179 349,845
Utilities .................. 142,569 154,073 159,214 119,365 120,588
Other ...................... 30,761 35,997 36,970 21,195 36,481
---------- ---------- ---------- ---------- ----------
1,246,793 972,971 869,464 654,553 967,589
---------- ---------- ---------- ---------- ----------
INDIRECT OPERATING EXPENSES
Taxes (principally property
taxes) and fees ........ 126,524 124,915 133,364 55,908 97,206
Advertising and promotion .. 94,555 68,958 71,101 36,324 56,594
Bank and credit card .......
charges ................ 35,972 46,174 46,005 23,421 43,164
Insurance .................. 29,250 29,144 29,501 101,444 20,912
Other ...................... 10,718 10,866 9,531 12,079 5,910
---------- ---------- ---------- ---------- ----------
297,019 280,057 289,502 229,176 223,786
---------- ---------- ---------- ---------- ----------
ADMINISTRATIVE AND
GENERAL EXPENSES
Administrative service fees 152,275 159,779 171,741 129,958 109,578
Property management fees ... 115,938 148,864 149,011 91,545 123,274
Franchise fees ............. 88,894 114,192 113,167 119,120 95,070
Professional services ...... 66,574 49,386 42,471 25,227 25,514
Other ...................... 20,710 34,304 42,943 34,001 21,799
---------- ---------- ---------- ---------- ----------
444,391 506,525 519,333 399,851 375,235
---------- ---------- ---------- ---------- ----------
FIXED CHARGES
Depreciation ............... 103,390 106,116 82,752 3,375 62,246
Interest expense ........... 88,797 128,631 123,416 62,064 99,191
Amortization ............... 2,251 4,500 4,500 94,402 3,375
Current Lease .............. 13,725 40,170 40,385 30,305 31,402
---------- ---------- ---------- ---------- ----------
208,163 279,417 251,053 190,146 196,214
---------- ---------- ---------- ---------- ----------
INCOME FROM
OPERATIONS ................. 122,676 936,955 1,051,313 908,665 702,655
OTHER INCOME .................... 9,747 11,955 38,080 20,439 14,988
---------- ---------- ---------- ---------- ----------
NET INCOME ...................... $ 132,423 $ 948,910 $1,089,393 $ 929,104 $ 717,643
========== ========== ========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT ........... $ 18.76 $ 134.43 $ 154.33 $ 96.67 $ 119.62
========== ========== ========== ========== ==========
Earnings to fixed charges ....... $.64:1 $3.40:1 $4.34:1 $4.89:1 $3.66:1
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 52
SUPER 8 MOTELS NORTHWEST I
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
General Limited
Partner Partner Total
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1995 ........... $192,789 $1,963,080 $2,155,869
Distributions paid ........... (6,061) (600,000) (606,061)
Net income ................... 142,337 806,573 948,910
----------- ----------- -----------
BALANCE, December 31, 1996 ............ 329,065 2,169,653 2,498,718
Distributions paid ........... (31,016) (600,000) (631,016)
Net income ................... 163,411 925,982 1,089,393
----------- ----------- -----------
BALANCE, December 31, 1997 ............ 461,460 2,495,635 2,957,095
Distributions paid ........... (141,177) (600,000) (741,177)
Net income ................... 137,646 579,997 717,643
----------- ----------- -----------
BALANCE, September 30, 1998 (unaudited) $ 457,929 $ 2,475,632 $ 2,933,561
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 53
SUPER 8 MOTELS NORTHWEST I
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED DECEMBER 31, 1997 1998
1995 1996 1997 (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Revenues and other income received in cash $ 2,345,287 $ 2,985,522 $ 3,011,125 $ 2,386,891 $ 2,479,254
Operating expenses paid in cash .......... (1,929,863) (1,847,462) (2,323,835) (1,851,054) (1,548,152)
Interest paid ............................ (89,744) (128,471) (123,539) (94,402) (101,884)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities 325,680 1,009,589 563,751 441,435 829,218
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ...... (653,803) (43,332) -- (270) (12,742)
Proceeds from sale of asset .............. -- 3,000 29,935 26,606 --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities ........................... (653,803) (40,332) 29,935 26,336 (12,742)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan ....................... 999,999 -- -- -- 196,225
Payment of appraisal and loan fees ....... (15,000) -- -- -- --
Principal payments on long-term debt ..... (86,990) (40,658) (44,116) (35,236) (95,808)
Distributions to:
Limited partners ..................... (600,000) (600,000) (600,000) (450,000) 600,000
General partner ...................... (6,061) (6,061) (31,016) (4,545) (141,177)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
financing activities ................. 291,948 (646,719) (675,132) (489,781) (640,730)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................... (36,175) 322,538 (81,446) (22,011) 175,746
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
beginning of year ........................ 258,321 222,146 544,684 544,684 463,238
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year .............................. $ 222,146 $ 544,684 $ 463,238 $ 522,673 $ 638,984
=========== =========== =========== =========== ===========
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES
Net income ............................... $ 132,423 $ 948,910 $ 1,089,393 $ 929,104 $ 717,643
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income to
net
cash provided by operating activities:
Depreciation and amortization ............ 105,641 110,616 87,252 65,439 64,497
(Gain) loss on sale of asset ............. -- 1,444 (12,583) -- --
Change in assets and liabilities
Accounts receivable ...................... 16,498 (2,358) 4,963 (15,939) (1,213)
Inventory ............................ 6,664 184 (1,838) -- --
Prepaid expenses ..................... (9,135) 6,110 2,055 (2,826) (4,168)
Deposits ............................. (1,240) (633) (3,750) (10,778) 34,993
Accounts payable ..................... 73,397 (58,692) 3,693 60,981 8,877
Accrued expenses ..................... 1,432 4,008 (86) 20,802 8,589
Accrued management fees .............. -- -- (605,348) (605,348) --
----------- ----------- ----------- ----------- -----------
193,257 60,679 (525,642) (487,669) 111,575
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES ........................... $ 325,680 $ 1,009,589 $ 563,751 $ 441,435 $ 829,218
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 54
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - PARTNERSHIP OPERATIONS
Super 8 Motels Northwest I is a Washington limited partnership. The
partnership owns and operates two motels: one in Federal Way,
Washington, and one in the vicinity of the Seattle-Tacoma International
Airport.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS - Cash equivalents are investments with maturity at
date of purchase of three months or less.
INVENTORY - Inventory consists of various operating supplies which have
been valued at cost.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
are depreciated using straight-line and accelerated methods over
estimated useful lives as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Land improvements 28
Buildings 25 and 30
Equipment, furniture and fixtures 5 and 7
</TABLE>
Expenditures for maintenance and repairs and minor renewals and
betterments are charged to expense when incurred. Renewals and
betterments which extend the lives of the assets involved, if material
in amount, are capitalized.
LOAN FEES - Loan fees incurred in connection with financing for
remodeling the Sea-Tac motel are amortized over a 5 year period.
FRANCHISE FEES - Initial franchise fees are stated at cost;
amortization of this amount is provided using the straight-line method
over 20 years.
ACCRUED VACATION - It is the partnership's policy to expense vacation
pay as paid rather than as earned as required by generally accepted
accounting principles. The effect upon the financial statements is not
significant.
INCOME TAXES - No provision has been made in the accompanying financial
statements for federal or state income taxes as taxable income or loss
of the partnership is allocated to and included in the taxable income
of the partners. See Note 5 for additional discussion.
INCOME PER LIMITED PARTNERSHIP UNIT - Net income per limited
partnership Unit is computed by dividing the limited partners' share
of net income by the limited partners' Units outstanding for each year.
CONCENTRATION OF CREDIT RISK - The partnership has bank deposits in
excess of federal deposit insurance limits. The partnership's
management does not anticipate any adverse effect on its financial
position resulting from the credit risk.
F-8
<PAGE> 55
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
- (CONTINUED) -
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION - The unaudited financial
statements at September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 have been prepared on the same basis as the
audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
(consisting of only normal recurring adjustments) necessary to present
fairly the information set forth therein. The results for the nine
months ended September 30, 1998 and 1997 are not necessarily indicative
of results to be expected for the full year or for any other interim
period.
NOTE 3 - DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES
DISTRIBUTIONS - Under the partnership agreement, on a quarterly basis,
the general partner determines the amount, if any, of cash available
for distribution and distributes cash as follows:
1% to the general partner and 99% to the limited partners until the
limited partners have received a cumulative pretax return on their
adjusted capital investment equal to 10% per year through the end of
the partnership year for which the distribution is being made, then:
Payment of unpaid balance of property management fees, if any. (See
Note 6.)
Any remaining cash will be distributed 15% to the general partner and
85% to the limited partners.
PROFIT AND LOSSES - Profits and losses are allocated 1% to the general
partner and 99% to the limited partners until the limited partners have
received a cumulative pretax return of 10% per year on their adjusted
capital investment; and thereafter, 15% to the general partner and 85%
to the limited partners. At the years ended December 31, 1995, 1996 and
1997, the limited partners received a cumulative pretax return of 10%
and the partnership's net income for these years has been allocated 15%
to the general partner and 85% to the limited partners.
F-9
<PAGE> 56
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
- (CONTINUED) -
NOTE 4 - LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Note payable to bank, collateralized by real property; interest at 8.5%
for 1997 and 1996. The rate is adjustable each year based on an
amount equal to the monthly median cost of funds index for FSLIC
insured savings and loan associations plus 3.575%; or, if less, 1%
plus such amount; payable in monthly installments of
$4,204 including interest; due January 2010. $397,511 $380,193
Line of credit, collateralized by deed of trust on real property. The
rate is variable at lender's prime rate plus 1%, payable in monthly
interest only payments through March 31, 1996, changing to monthly
installments of $9,768 plus interest; due February 2001. The bank's
prime rate of interest at December 31, 1997 is 8.5%. 980,280 953,482
----------- -----------
1,377,791 1,333,675
46,000 49,000
Less current portion ----------- -----------
$ 1,331,791 $ 1,284,675
=========== ===========
</TABLE>
Based on the December 31, 1997 interest rates, principal payments
required on these notes during each of the next five years and
thereafter are as follows:
<TABLE>
<S> <C>
1998 $49,000
1999 52,000
2000 57,000
2001 62,000
2002 68,000
Thereafter 1,045,675
-----------
$ 1,333,675
===========
</TABLE>
NOTE 5 - INCOME TAXES
The cost of certain assets and the amount of certain expenses reported
for federal income tax purposes are different from the amounts reported
under generally accepted accounting principles in the accompanying
financial statements. The differences arise primarily from:
Depreciating land improvements and buildings for financial reporting
purposes using the straight-line method over a 30 year life,
and for federal income tax purposes using the straight-line
method over 15, 18, or 31.5 year life.
Depreciating furniture and equipment for financial reporting purposes
using accelerated and straight-line methods over a 5 or 7 year
life, and for federal income tax purposes using the
accelerated cost recovery method or the modified accelerated
cost recovery method over a 5 or 7 year life.
F-10
<PAGE> 57
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
- (CONTINUED) -
Deducting sales tax incurred prior to 1987 on property and equipment
acquisitions as an expense for federal income tax purposes and
capitalizing it for financial reporting purposes.
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax reporting purposes:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income as shown in the statement of income ..... $ 132,423 $ 948,910 $ 1,089,393
Additional depreciation and amortization for income (59,171) (61,153) (6,116)
tax purposes
Accrued property management fees .............. -- -- (605,348)
Other ......................................... 1,380 349 3,769
----------- ----------- -----------
Net income for federal income tax reporting purposes
$ 74,632 $ 888,106 $ 481,698
=========== =========== ===========
</TABLE>
NOTE 6 - RELATED PARTY TRANSACTIONS
Transactions between the partnership and the general partner, Gerald L.
Whitcomb, and affiliates of the general partner are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Purchases of supplies and equipment $106,529 $279,632 $68,447
Administrative service fees $152,275 $159,779 $171,741
Property management fees $115,938 $148,864 $149,011
</TABLE>
The partnership has a management agreement with an affiliate of the
general partner to employ the affiliate for a period of 20 years as
manager of the motels owned by the partnership. The agreement provides
for payment of a property management fee to the affiliate equal to 5%
of the partnership's gross revenues from motel operations in addition
to reimbursement of certain out-of-pocket cost incurred by the
affiliate in connection with management of the property. The 5% base
fees are recorded as property management fees. The reimbursements of
out-of-pocket costs are recorded as administrative service fees.
Payment of property management fees is subordinated to receipt by the
limited partners of a cumulative, pretax return on their adjusted
capital investment of 10% per annum. This 10% was achieved during 1992.
Effective July 1, 1992, management began paying monthly the current
management fees. Unpaid management fees relating to 1990 and before
totaling $605,348 were paid in 1997.
NOTE 7 - COMMITMENTS
FRANCHISE LIMITED PARTNERSHIP AGREEMENTS - The partnership has
purchased franchise rights to provide motel services to the general
public using a system commonly known as Super 8 Motels. An initial
franchise fee of $15,000 was paid for each motel and the partnership is
committed to pay additional fees equal to 4% of gross room revenue for
the 20 year term of the respective agreements. In addition, 1% of gross
room revenue is
F-11
<PAGE> 58
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
- (CONTINUED) -
remitted to Super 8 Motels for advertising and participation in the
national reservation system. This amount is included in advertising and
promotion.
LEASE COMMITMENTS - The partnership has an operating lease for
equipment at the Sea-Tac motel. The remaining term of the operating
lease is 1.5 years as of December 31, 1997.
Future minimum lease payments based on current rents are as follows:
<TABLE>
<S> <C>
1998 $37,126
1999 6,188
-------
$43,314
=======
</TABLE>
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS - The carrying amount approximates fair value
because of the short-term maturity of those instruments.
LONG-TERM DEBT - The carrying amounts of the partnership's borrowings
under its long-term revolving credit agreement and notes payable
approximate fair value.
NOTE 9 - YEAR 2000 COMPLIANCE
Currently, motel reservations and credit card approvals are handled by
equipment and software provided respectively by Super 8 Motels, Inc.
and the individual banking institutions with which the properties do
business. Currently, internal accounting (with the exception of call
accounting) is completed manually. Pursuant to the POWER-UP program
being designed, instituted, and paid for by Super 8 Motels, Inc. all
motels will be provided a PC-based property management system which
integrates all reservations, credit card approvals, call accounting,
security, and motel accounting into a single system.
This fully integrated system is to be in place at every motel within
the Super 8 System by the third quarter of 1999. The new equipment and
software have been designed and developed by the franchisor, and the
franchisee will be required to utilize it. The partnership has been
assured by Super 8 Motels, Inc. that the total system will be year 2000
compliant. The total cost of this conversion, which may be borne by the
motels owned by the partnership, should not exceed $5,000 per motel.
Internally, the general partner and the affiliated management company
have undertaken the task of totally replacing the current corporate
accounting system to ensure that it will fully integrate with the new
Property Management Systems being installed by Super 8 Motels, Inc. It
is anticipated that this conversion will be completed by year end 1998.
Part of the hardware and software will be provided by the POWER-UP
initiative at no cost to Northwest I. For those systems purchased by
the general partner or affiliates, all software, hardware, and systems
vendors will be required to certify that their products are year
F-12
<PAGE> 59
SUPER 8 MOTELS NORTHWEST I
NOTES TO FINANCIAL STATEMENTS
- (CONTINUED) -
2000 compliant. The cost attributed to each motel in the partnership
for this conversion should not exceed $5,000 per motel.
NOTE 10 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures About Segments of an Enterprise and Related Information,"
which is required to be adopted for annual periods beginning after
December 15, 1997 and interim periods beginning in fiscal year 1999.
SFAS No. 131 establishes standards for the way that public companies
report information about operating segments in an annual financial
statements and requires that those companies report information about
segments in interim financial reports issued to shareholders. The
partnership's management believes this new standard will not have
significant effect on the partnership's financial position or results
of operations.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use,"
which establishes new accounting and reporting standards for the costs
of computer software developed or obtained for internal use. This
statement will be applied prospectively and is effective for fiscal
years beginning after December 15, 1998. The partnership's management
believes that implementation of this new standard will not have a
significant effect on its financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be
expensed as incurred. This statement is effective for fiscal years
beginning after December 15, 1998. The statement requires capitalized
costs related to start-up activities to be expensed as a cumulative
effect of a change in accounting principle when the statement is
adopted. The partnership's management believes that the adoption of
this new standard will not have a significant effect on its financial
position or result of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new
accounting and reporting standards requiring that all derivative
instruments (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
This statement is effective for all fiscal years beginning after June
15, 1999. The partnership's management believes that the adoption of
this new standard will not have a significant effect on its financial
position or result of operations.
F-13
<PAGE> 60
ANNEX I
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this
"Agreement") dated as of December 31, 1998, as amended on February 5, 1999,
between GERALD L. WHITCOMB (the "General Partner") on behalf of SUPER 8 MOTELS
NORTHWEST I, a Washington limited partnership ("NWI"), and COLUMBUS PROPERTIES
L.L.C., a Washington limited liability company ("Columbus").
RECITALS
WHEREAS, NWI has heretofore issued limited partnership units (the
"Units"), each representing limited partner interests in NWI;
WHEREAS, the General Partner is the sole general partner of NWI;
WHEREAS, NWI wishes to merge with and into Columbus (the
"Merger") pursuant and subject to the terms and conditions of this Agreement,
whereby each issued and outstanding Unit will be converted into the right to
receive $1,609.00 (the "Merger Consideration");
WHEREAS NWI has retained the services of Ragen McKenzie
Incorporated to render its opinion as to the fairness of the Merger
Consideration to the holders of the Units (the "Unitholders") from a financial
point of view;
WHEREAS, the General Partner has also retained the services of
McKee & Schalka, an MAI Appraiser to appraise the real property and/or leasehold
interests owned by NWI;
WHEREAS, the General Partner, on behalf of NWI, has duly approved
this Agreement and the Merger pursuant hereto; and
WHEREAS, this Agreement and the Merger will be submitted to the
Unitholders for approval and adoption at a meeting of Unitholders called for
such purpose (the "Merger Meeting") pursuant to Section 16.2 of the Amended
Certificate and Agreement of Limited Partnership of SUPER 8 MOTELS NORTHWEST I,
dated March 31, 1980, as amended, (the "Partnership Agreement").
NOW THEREFORE, in consideration of the mutual benefits to be
derived from this Agreement and of the representations, warranties, agreements
and conditions contained in this Agreement, the parties agree as follows.
ARTICLE I
The Merger
1.1 The Merger. In accordance with and subject to (a) the provisions of
this Agreement, (b) the Articles of Merger (as hereinafter defined), and (c) the
Washington
A-1
<PAGE> 61
Uniform Limited Partnership Act (the "Washington Limited Partnership Act") and
the Washington Limited Liability Company Act (the "Washington Limited Liability
Company Act"), at the Effective Time (as hereinafter defined), NWI shall be
merged with and into Columbus in the Merger. As a result of the Merger, the
separate existence of NWI shall cease and Columbus shall continue as the
surviving company. Columbus is hereinafter sometimes referred to as the
"Surviving Company."
1.2 Effective Time of the Merger. Subject to the provisions of this
Agreement, Articles of Merger, a form of which is attached hereto as Exhibit A,
(the "Articles of Merger"), including the Plan of Merger, a form of which is
attached hereto as Exhibit B (the "Plan of Merger") shall be duly executed and
filed by NWI and Columbus on the Closing Date (as hereinafter defined) in the
manner provided in Section 25.10.820 of the Washington Limited Partnership Act
and Section 25.15.405 of the Washington Limited Liability Company Act. The
Merger shall become effective at such time on the Closing Date as the Articles
of Merger are filed with the Secretary of State of the State of Washington (or
such later time as may be specified in the Articles of Merger) (the "Effective
Time").
1.3 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement shall have been abandoned pursuant
to the provisions of Article VIII, and subject to the provisions of Sections 7.1
and 7.2 hereof, the closing of the Merger (the "Closing") will take place at the
earliest 10:00 a.m., Tumwater, WA. time, on the first Business Day (as
hereinafter defined) occurring after the Merger Meeting and at the latest on the
last business day of the month in which the Merger Meeting occurs, or, if all of
the conditions set forth in Section 7.1 and 7.2 hereof shall not have been
satisfied (or waived in accordance with Section 9.2 hereof), at such later date
and time which is agreed to in writing by the parties (the "Closing Date"). The
Closing shall take place at the offices of NWI at 751 Terminal Street SW,
Tumwater, Washington 98501, unless another place is agreed to by the parties.
For purposes of this Agreement, "Business Day" shall mean any day except
Saturday, Sunday or any day on which banks are generally not open for business
in Tumwater, Washington.
1.4 Effects of the Merger. The Merger shall, from and after the
Effective Time, have the effects provided for in the Washington Limited
Partnership Act and the Washington Limited Liability Company Act.
(a) Conversion of Units. At the Effective Time, by virtue of the
Merger and without any action on the part of NWI, Columbus, or any holder of any
of the Units, each Unit that is issued and outstanding immediately prior to the
Effective Time shall be canceled, extinguished and retired, and be converted
into and become a right to receive, without interest, the Merger Consideration.
A-2
<PAGE> 62
(b) The Whitcombs' Interests. Notwithstanding Section 1.4(a),
immediately before the Effective Time, by virtue of this Agreement and without
any action on the part of NWI, Columbus, or Gerald L. and/or Maryanne Whitcomb,
any partnership interest (general or limited) in NWI owned by Gerald L. and/or
Maryanne Whitcomb shall be contributed to Columbus in exchange for units in
Columbus.
1.5 Payment.
(a) Promptly after the Effective Time, the Surviving Company
shall mail to each record holder of Units a form of letter of transmittal and
any other required forms (the "Transmittal Documents") (which shall specify that
delivery shall be effected, and risk of loss and title to such Units shall pass,
only upon delivery of the Transmittal Documents to the Surviving Company) and
instructions for use in delivering the Transmittal Documents and receiving the
Merger Consideration for each Unit owned by the Unitholder. Upon the surrender
of such Transmittal Documents and the payment by the Surviving Company of the
Merger Consideration in exchange therefor, the Units owned by such Unitholder
shall forthwith be canceled. Until so surrendered and exchanged, the Units owned
by such Unitholder shall represent solely the right to receive the Merger
Consideration multiplied by the number of Units owned by such Unitholder, and
the holder thereof shall have no rights whatsoever as a Unitholder of NWI or the
Surviving Company. Upon the surrender of such Units, the holder shall receive
such Merger Consideration, without any interest thereon. If any cash is to be
paid to a name other than the name in which the Units surrendered in exchange
therefor is registered, it shall be a condition to such payment that the person
requesting such payment shall pay to the Surviving Company any transfer or other
taxes required by reason of the payment of such cash to a name other than that
of the registered holder of the Units surrendered, or such person shall
establish to the satisfaction of the Surviving Company that such tax has been
paid or is not applicable. Notwithstanding the foregoing, neither the Surviving
Company nor any other party hereto shall be liable to a holder of Units for any
Merger Consideration or other payments made to a public official pursuant to
applicable abandoned property laws. The Surviving Company shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable to a holder
of Units pursuant to the Merger any taxes or other amounts as are required by
applicable law, including without limitation Sections 3406 and 1445 of the
Internal Revenue Code of 1986. To the extent that amounts are so withheld by the
Surviving Company, they shall be treated for all purposes of this Agreement as
having been paid to the holder of the Units in respect of which such deduction
and withholding was made.
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(b) At and after the Effective Time, there shall be no transfers
on the books of the Surviving Company of any Units. As of the Effective Time,
each holder of a Unit which was converted into the right to receive cash
pursuant to Section 1.4(a) hereof shall be deemed to have withdrawn as a limited
partner and shall have no further interest in NWI or the Surviving Company or
any allocations or distributions of income, property or otherwise, other than
the right to receive the Merger Consideration as provided in this Article I.
1.6 Deregistration of Units. Following the Effective Time, the General
Partner, on behalf of NWI, shall take all actions necessary to effect the
deregistration of the Units with the Securities and Exchange Commission (the
"Commission").
1.7 Dissenters' Rights. Unitholders shall have dissenters' rights in
connection with the Merger as set forth in Article 14 of Chapter 25.10 of the
Revised Code of Washington.
ARTICLE II
Approval of the Merger
2.1 Actions of NWI and the General Partner.
(a) The General Partner hereby consents to the Merger, agrees in
all respects with the terms of this Agreement and, subject to the terms and
conditions of this Agreement, the consummation of the transactions contemplated
hereby. In connection therewith, pursuant to the Washington Limited Partnership
Act and Article VI of the Partnership Agreement, by executing this Agreement,
the General Partner, as the sole general partner of NWI, subject to the
requisite approval of the Unitholders at the Merger Meeting, consents to and
approves in all respects this Agreement and the transactions contemplated hereby
(including, without limitation, the Merger) on behalf of NWI.
(b) The General Partner shall submit this Agreement and the
Merger to a vote by the Unitholders in person or by proxy, at the Merger Meeting
which will be held not less than twenty (20) nor more than forty (40) calendar
days from and after the mailing of the Proxy Statement to the Unitholders.
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2.2 Proxy Statement. Promptly following the execution of this Agreement,
NWI shall prepare (and Columbus shall cooperate in preparing) and as soon as
reasonably practicable thereafter shall file with the Commission a preliminary
proxy statement with respect to the Merger. Subject to compliance with the rules
and regulations of the Commission, NWI shall thereafter file with the Commission
and mail to Unitholders a definitive proxy statement with respect to the Merger
(the "Proxy Statement"). The term "Proxy Statement" shall mean such Proxy
Statement at the time it initially is mailed to the Unitholders and all
amendments or supplements thereto, if any, similarly filed and mailed. Columbus
and NWI each agree to correct any information provided by it for use in the
Proxy Statement which shall have become false or misleading in any material
respect.
ARTICLE III
Representations and Warranties of Columbus
Columbus represents and warrants at the date hereof to NWI and
the General Partner as follows:
3.1 Organization and Qualification. Columbus is a limited liability
company duly formed, validly existing and in good standing under the laws of the
State of Washington, with the requisite power and authority to carry on its
respective business as now conducted. Columbus is duly qualified to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not, in the aggregate, have a material adverse effect on
Columbus. Copies of the certificate of formation and operating agreement of
Columbus (such documents, the "Columbus Organizational Documents") previously
delivered to NWI and the General Partner are accurate and complete as of the
date hereof.
3.2 Authority Relative to this Agreement. Columbus has the requisite
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by Columbus
and the consummation by Columbus of the transactions contemplated hereby have
been duly authorized by Columbus' managers and members as is necessary and no
other action or proceeding on the part of Columbus is necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Columbus and constitutes a valid and binding obligation of
Columbus, enforceable in accordance with its terms, except to the extent that
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
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3.3 Compliance.
(a) Neither the execution and delivery of this Agreement by
Columbus, nor the consummation of the transactions contemplated hereby nor
compliance by Columbus with any of the provisions hereof will (i) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Columbus under any of the
terms, conditions or provisions of (x) the Columbus Organizational Documents (y)
any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which it or any of its properties
or assets, may be subject, or (ii) subject to compliance with the statutes and
regulations referred to in the next paragraph, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to
Columbus or any of its properties or assets, except, in the case of each of
clauses (i) and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests, charges
or encumbrances, which in the aggregate, would not have a material adverse
effect on the transactions contemplated hereby or on the condition (financial or
other), business or operations of Columbus (a "Material Adverse Effect on
Columbus").
(b) Other than in connection with or in compliance with the
provisions of the Washington Limited Partnership Act, the Washington Limited
Liability Company Act, the Exchange Act or "blue sky" laws ("Blue Sky Laws") or
other similar statutes and regulations, no notice to, filing with, or
authorization, consent or approval of, any domestic or foreign public body or
authority is necessary for the consummation by Columbus of the transactions
contemplated by this Agreement, except where failure to give such notice, make
such filings, or obtain such authorizations, consents or approvals would not, in
the aggregate, have a Material Adverse Effect on Columbus.
3.4 Documents and Information. The information supplied by Columbus
expressly for inclusion in the Proxy Statement shall not, (i) at the time of the
mailing thereof and (ii) at the Closing Date, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.5 Financing. Columbus has obtained a commitment letter from U.S. Bank
(the "Commitment"), subject to customary conditions, to lend Columbus sufficient
funds to consummate the Merger and to pay the Merger Consideration to the
Unitholders.
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ARTICLE IV
Representations and Warranties of NWI
NWI represents and warrants at the date hereof to Columbus as follows:
4.1 Organization and Qualification. NWI is a limited partnership duly
formed, validly existing and in good standing under the laws of the State of
Washington and has the requisite power and authority to carry on its business as
it is now being conducted. A copy of the Partnership Agreement (the
"Organizational Documents of NWI") which has heretofore been delivered to
Columbus is accurate and complete as of the date hereof.
4.2 Authority Relative to this Agreement. Subject to approval of this
Agreement and the transactions contemplated herein by Unitholders owing in the
aggregate at least sixty-six percent (66%) of the issued and outstanding Units
("Unitholder Approval") at the Merger Meeting, NWI has the requisite power and
authority to enter into this Agreement and to perform its obligations hereunder.
Subject to Unitholder Approval, the execution, delivery and performance of this
Agreement by NWI and the General Partner and the consummation by NWI and the
General Partner of the transactions contemplated hereby have been duly
authorized by NWI and the General Partner and no other action or proceeding on
the part of NWI or the General Partner is necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby. Subject to Unitholder Approval, this Agreement
has been duly executed and delivered by NWI and the General Partner and
constitutes a valid and binding obligation of NWI, enforceable in accordance
with its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equitable principles.
4.3 Capitalization. As of the date hereof, there are six thousand
(6,000) Units issued and outstanding. All such Units have been validly issued.
Other than such Units and the General Partner's general partnership interest,
there are no equity securities of NWI authorized or outstanding, and, no
outstanding options, warrants, rights to subscribe to (including any preemptive
rights), calls or commitments of any character whatsoever to which NWI is a
party or may be bound, requiring the issuance or sale of any Units or other
equity securities of NWI or securities or rights convertible into or
exchangeable for such Units or other equity securities of NWI, and there are no
contracts, commitments, understandings or arrangements by which NWI is or may
become bound to issue additional Units or other equity securities of NWI or
options, warrants or rights to purchase or acquire any additional Units or other
equity securities or securities convertible into or exchangeable for such Units
or other equity securities of NWI. None of the Units are held by NWI in
treasury.
4.4 Fees. NWI has not paid or agreed to pay any fee or commission to any
broker, finder or intermediary in connection with the transactions contemplated
hereby.
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4.5 Documents and Information. The information supplied by NWI expressly
for inclusion in the Proxy Statement shall not, (i) at the time of the mailing
thereof and (ii) at the Closing Date, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.6 Opinion of Financial Advisor. Ragen MacKenzie Incorporated, the
financial advisor to NWI (the "Financial Advisor"), has delivered to NWI its
written opinion, dated December 31, 1998, to the effect that the Merger
Consideration to be received by the Unitholders pursuant to the Merger is fair,
from a financial point of view, to the Unitholders.
4.7 Compliance.
(a) Neither the execution and delivery of this Agreement by NWI
and the General Partner nor the consummation of the transactions contemplated
hereby nor compliance by NWI and the General Partner with any of the provisions
hereof will (i) violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of NWI under any of
the terms, conditions or provisions of (x) the Organizational Documents of NWI
(y) any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which it or any of NWI's
properties or assets, may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable NWI or the General Partner or any of NWI's properties or assets,
except, in the case of each of clauses (i) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances, which in the aggregate,
would not have a material adverse effect on the transactions contemplated hereby
or on the condition (financial or other), business or operations of NWI (a
"Material Adverse Effect on NWI").
(b) Other than in connection with or in compliance with the
provisions of the Washington Limited Partnership Act, the Washington Limited
Liability Company Act, the Exchange Act or "blue sky" laws ("Blue Sky Laws") or
other similar statutes and regulations, no notice to, filing with, or
authorization, consent or approval of, any domestic or foreign public body or
authority is necessary for the consummation by NWI and the General Partner of
the transactions contemplated by this Agreement, except where failure to give
such notice, make such filings, or obtain such authorizations, consents or
approvals would not, in the aggregate, have a Material Adverse Effect on NWI and
the General Partner.
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ARTICLE V
Covenants
5.1 Legal Conditions to the Merger. NWI and Columbus shall take all
reasonable actions necessary to comply promptly with all legal requirements with
respect to the Merger and shall take all reasonable action necessary to
cooperate promptly with and furnish information to the other parties in
connection with any such requirements. NWI and Columbus shall take all
reasonable actions necessary (i) to obtain (and will take all reasonable actions
necessary to promptly cooperate with the other parties in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
administrative agency or commission or other governmental authority or
instrumentality (a "Governmental Entity"), or other third party, required to be
obtained or made (or cooperate in the obtaining of any thereof required to be
obtained) in connection with the Merger or the taking of any action contemplated
by this Agreement; (ii) to lift, rescind or mitigate the effect of any
injunction or restraining order or other order adversely affecting the
consummation of the transactions contemplated hereby; (iii) to fulfill all
conditions pursuant to this Agreement; and (iv) to prevent, with respect to a
threatened or pending temporary, preliminary or permanent injunction or other
order, decree or ruling, the entry thereof.
ARTICLE VI
Additional Agreements
6.1 Distributions to Partners Prior to the Merger. On or before January
31, 1999, NWI shall distribute an aggregate amount of $264,706.00 to the
partners of NWI, such amount to be allocated between the Unitholders and the
General Partner in accordance with Section 10.2 of the Partnership Agreement.
6.2 Expenses. Columbus shall bear all costs and expenses of each party
hereto and/or pay all costs and expenses on behalf of each party hereto incurred
in connection with the transactions contemplated by this Agreement, having taken
such costs and expenses, including any real estate excise taxes payable by the
Unitholders in connection with their transfer of Units, into consideration in
determining the amount of the Merger Consideration.
6.3 Allocation of Amount Realized Between Internal Revenue Code Section
751 Property and Non-Section 751 Property. Pursuant to Section 751 of the
Internal Revenue Code of 1986, as amended, (the "Code") Columbus and NWI agree
that the amount realized is to be allocated between Code Section 751 property
and non-Code Section 751 property based on the relative fair market value of
NWI's Code Section 751 property and non-Code Section 751 property as determined
by Columbus.
6.4 Allocation of Gain. Approval of this Merger Agreement by Unitholders
will also constitute an amendment of the Partnership Agreement of Northwest I in
order to allocate the gain, if any, realized by Northwest I in the Merger to the
Unitholders receiving the Merger Consideration.
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ARTICLE VII
Conditions Precedent
7.1 Certain Conditions on the Obligation of Columbus to Consummate the
Merger.
(a) The obligations of Columbus to effect the Merger shall be
subject to the fulfillment of the following conditions, any or all of which may
be waived by Columbus in its sole discretion:
(i) except for changes in the business or conditions of
NWI, financial or otherwise, or in the results of operations of NWI, occurring
prior to the date of this Agreement, or expected by the General Partner to occur
based on events occurring prior to the date of this Agreement, there shall not
have occurred any Material Adverse Effect on NWI from that set forth in or
contemplated by the financial statements of NWI for the nine months ended
September 30,1998;
(ii) there shall not be pending or threatened against NWI
or the General Partner, any action, suit or proceeding involving a claim at law
or in equity or before or by any Governmental Entity, domestic or foreign, that
would be reasonably likely to have a Material Adverse Effect on NWI; and
(iii) there shall not be pending or threatened against
NWI, the General Partner, Columbus or their respective properties or businesses,
any other action, suit or proceeding involving a claim at law or in equity or
before or by any federal, state, or municipal or other court of competent
jurisdiction or other Governmental Entity, relating to the Merger or this
Agreement that would be reasonably likely to have a Material Adverse Effect on
NWI.
(iv) the Commitment shall remain available to Columbus,
such that Columbus may borrow sufficient funds on or before the Closing Date in
order to transfer the Merger Consideration to the Payment Agent for payment to
the Unitholders pursuant to Section 1.4(a).
(b) The parties hereto agree that in exercising its discretion to
waive or require the fulfillment of the conditions prescribed in Section 7.1(a)
above, Columbus shall not be required to consider the interests of any person or
entity that may be affected by the Merger other than Columbus, and that Columbus
shall have no obligation, fiduciary or otherwise, to the limited partners of NWI
or the General Partner in exercising its discretion under Section 7.1(a).
7.2 Obligation of Each Party to Effect the Merger. The respective
obligations of each party generally to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(a) This Agreement and the Merger shall have received the
required Unitholder Approval.
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(b) Neither the execution and delivery of this Agreement by the
General Partner on behalf of NWI nor the consummation of the transactions
contemplated hereby nor compliance by NWI with any of the provisions hereof
shall (i) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of NWI under any of
the terms, conditions or provisions of (x) the Organizational Documents of NWI
or (y) any material note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which NWI is a party, or
to which it or any of its respective properties or assets, may be subject, or
(ii) violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to NWI or any of NWI's properties or assets,
except, in the case of each of clauses (i) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances, which would not, in the
aggregate, have a material adverse effect on the transactions contemplated
hereby or on the condition (financial or other), business or operations of NWI
(a "Material Adverse Effect on NWI");
(c) The Financial Advisor shall not have withdrawn or modified in
any manner materially adverse to NWI or any Unitholder its opinion as described
in Section 4.6; and
(d) No preliminary or permanent injunction or other order, decree
or ruling issued by a court of competent jurisdiction or by a Governmental
Entity nor any statute, rule, regulation or executive order promulgated or
enacted by any Governmental Entity shall be in effect, which would make the
acquisition of NWI by Columbus illegal or otherwise prevent the consummation of
the Merger or make the consummation of the Merger illegal.
ARTICLE VIII
Termination
8.1 Termination. This Agreement may be terminated, and the Merger
contemplated herein may be abandoned, at any time prior to the Effective Time,
whether prior to or after approval of the Merger by the Unitholders:
(a) by mutual written consent of Columbus and NWI; or
(b) by NWI if Columbus breaches in any material respect any of
its representations, warranties, covenants or agreements contained in this
Agreement (other than any breach caused by NWI) or if the Financial Advisor
shall have withdrawn or modified in any manner adverse to NWI, the Unitholders,
or Columbus its opinion as described in Section 4.6; or
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(c) by Columbus, if NWI breaches in any material respect any of
their representations, warranties, covenants or agreements contained in this
Agreement (other than any breach caused by Columbus) or if the Financial Advisor
shall have withdrawn or modified in any manner adverse to NWI, the Unitholders,
or Columbus its opinion as described in Section 4.6; or
(d) by either Columbus or NWI:
(i) if the Merger has not been consummated prior to March
31, 1999; or
(ii) if any court of competent jurisdiction or other
Governmental Entity shall have issued an order, decree or ruling, or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable.
8.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1 hereof, this Agreement shall forthwith
become void, and there shall be no liability on the part of Columbus or NWI.
ARTICLE IX
General Provisions
9.1 Amendment. This Agreement may not be amended except by (i) an
instrument in writing signed on behalf of each of the parties hereto; provided,
however, that after approval of the Merger by the Unitholders at the Merger
Meeting, no amendment may be made without the further approval of Unitholders
holding in the aggregate at least sixty-six percent (66%) of the issued and
outstanding Units which would either (a) change the type or reduce the amount of
the Merger Consideration or (b) alter or change any other terms and conditions
of this Agreement, if any of such alterations or changes, alone or in the
aggregate, would materially adversely affect the Unitholders.
9.2 Extension; Waiver. At any time prior to the Effective Time, whether
before or after the mailing of the Proxy Statement, any party hereto may (i)
extend the time for the performance of any of the obligations or other acts of
any other party hereto; (ii) waive any inaccuracies in the representations and
warranties contained in this Agreement; and (iii) waive compliance with any of
the agreements of the other parties or conditions to its own obligations
contained in this Agreement. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party by a duly authorized person. No such
consent or waiver of compliance given by any of the parties hereto shall operate
as a consent or waiver of compliance in respect of any subsequent default,
breach or non-observance, whether of the same or any other nature.
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9.3 Nonsurvival of Representations, Warranties and Agreements. The
respective representations and warranties of NWI and Columbus contained herein
shall expire with, and be terminated and extinguished upon, consummation of the
Merger, and thereafter neither NWI nor Columbus or any officer, director or
principal thereof, shall be under any liability whatsoever with respect to any
such representation or warranty. This Section 9.3 shall have no effect upon any
other obligation of the parties, whether to be performed before or after the
consummation of the Merger.
9.4 Entire Agreement; Counterparts.
(a) This Agreement contains the entire agreement among NWI and
Columbus with respect to the subject matter hereof and supersedes all prior
arrangements and understandings, both written and oral, among such parties with
respect thereto.
(b) This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
9.5 Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would be
held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, the
parties shall adopt an amendment hereto in accordance with the provisions of
Section 9.1 hereof in which such provision, as to such jurisdiction, is so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
9.6 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to be sufficient if contained in a written
instrument and shall be deemed to have been duly given if delivered personally,
telecopied, sent by nationally recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other addresses as shall be
specified by a party by like notice):
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(a) If to NWI:
Gerald L. Whitcomb
7515 Terminal Street S.W.
Tumwater, WA 98501
with a copy to:
Bruce Bjerke
Graham & James LLP/Riddell Williams, P.S.
1001 Fourth Ave., #4500
Seattle, WA 98154
(b)If to Columbus:
Gerald L. Whitcomb
7515 Terminal Street S.W.
Tumwater. WA 98501
with a copy to:
Bruce Bjerke
Graham & James LLP/Riddell Williams, P.S.
1001 Fourth Ave., #4500
Seattle, WA 98154
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery if received
prior to 5:00 p.m. Tumwater, Washington time on such date, (b) in the case of a
telecopy, when the party receiving such telecopy shall have confirmed receipt of
the communication, (c) in the case of delivery by nationally recognized
overnight courier, on the Business Day following dispatch and (d) in the case of
mailing, on the third Business Day following such mailing.
9.7 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.8 Assignment. This Agreement is not intended to confer upon any person
other than the parties any rights or remedies hereunder. This Agreement shall
not be assigned by operation of law or otherwise; provided, however, that
notwithstanding the foregoing, the parties hereto acknowledge that Columbus
shall have the unrestricted right to assign all of its respective rights
hereunder to a wholly owned affiliate of Columbus; provided, further, that
notwithstanding such assignment, Columbus shall not be released from its
obligations hereunder nor shall such assignment prejudice the rights of
Unitholders entitled to receive payment pursuant to Section 1.4(a) hereto to
receive such payment for Units properly delivered to the Payment Agent and
accepted for payment.
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9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, without reference to the
conflicts of laws provisions thereof.
9.10 Consent to Jurisdiction; Service of Process.
(a) The parties hereto irrevocably submit to the jurisdiction of
the Superior Court of Thurston County of Washington or the U.S. District Court
for the Western District of Washington over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby and
each party hereby irrevocably agrees that all claims in respect of such dispute
or proceeding shall be heard and determined in such court. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process being
served by any party to this Agreement in any suit, action or proceeding of the
nature specified in subsection (a) above by mailing a copy thereof in accordance
with the provisions of Section 9.6 hereof.
9.11 Limitation of Liability. In no event shall any partner (other than
the General Partner) or representative of NWI or any other such person, be
personally liable for any obligation of NWI or the General Partner under this
Agreement. In no event shall recourse with respect to the obligations under this
Agreement of NWI or the General Partner be had to the assets or business of any
person other than NWI or the General Partner, respectively.
9.12 Limitation of Remedies. The sole remedy of any party hereto for
breach by any other party of a covenant, representation or warranty made under
this Agreement shall be limited to termination of this Agreement.
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IN WITNESS WHEREOF, General Partner, on behalf of NWI, and Columbus have
caused this Agreement to be executed as of the date first written.
SUPER 8 MOTELS NORTHWEST I
By: /s/ Gerald L. Whitcomb
GERALD L. WHITCOMB
General Partner
COLUMBUS PROPERTIES L.L.C.
By: /s/ Gerald L. Whitcomb
GERALD L. WHITCOMB
Its Manager
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EXHIBIT A
ARTICLES OF MERGER
OF
SUPER 8 MOTELS NORTHWEST I, A WASHINGTON LIMITED PARTNERSHIP
AND
COLUMBUS PROPERTIES L.L.C., A WASHINGTON LIMITED LIABILITY COMPANY
THESE ARTICLES OF MERGER are executed for the purpose of merging Super 8
Motels Northwest I, a Washington limited partnership ("NWI") with an into
Columbus Properties L.L.C., a Washington limited liability company ("Columbus").
1) The plan of merger is attached hereto and made a part hereof.
2) The merger was duly approved by the partners of NWI pursuant
to RCW 25.10.810 and the members of Columbus pursuant to RCW 25.15.400.
Dated: March __, 1999.
Columbus Properties L.L.C.
-------------------------------
By Gerald L. Whitcomb
Its Manager
<PAGE> 77
EXHIBIT B
PLAN OF MERGER
OF
SUPER 8 MOTELS NORTHWEST I, A WASHINGTON LIMITED PARTNERSHIP,
AND
COLUMBUS PROPERTIES L.L.C., A WASHINGTON LIMITED LIABILITY COMPANY
Super 8 Motels Northwest I, a Washington limited partnership
("NWI"), and Columbus Properties L.L.C., a Washington limited liability company
("Columbus"), hereby certify that:
FIRST: NWI and Columbus are planning to merge, with Columbus
being the surviving limited liability company into which NWI plans to merge.
SECOND: The terms and conditions of the merger were advised,
authorized and approved by the sixty-six percent (66%) of the partners of NWI
and the requisite vote of Columbus' members as set forth in its operating
agreement.
THIRD: The manner and basis of converting the partnership
interests of NWI into member interests in Columbus or cash is as follows. Except
as provided below, each unit of NWI shall be converted into $1,609.00 cash.
Partnership interests (general or limited) in NWI owned by Gerald L. and/or
Maryanne Whitcomb shall be contributed immediately before the effective time of
the merger to Columbus in exchange for units in Columbus.
Dated: _______, 19__.
Super 8 Motels Northwest I
----------------------------------
By Gerald L. Whitcomb, General Partner
Columbus Properties L.L.C.
----------------------------------
By Gerald L. Whitcomb, Its Manager
<PAGE> 78
ANNEX II
[Ragen MacKenzie Letterhead]
December 31, 1998
Gerald L. Whitcomb
General Partner
Super 8 Motels Northwest I
7515 Terminal St. S.W.
Tumwater, WA 98501
Dear Mr. Whitcomb:
We understand that Columbus Properties L.L.C. ("Columbus")(formerly
Whitcomb Family L.L.C.) has entered into a Merger Agreement, dated as of
December 31, 1998, (the "Merger Agreement") which provides, among other things,
for the merger of Super 8 Motels Northwest I, a Washington limited partnership
("Northwest I"), into Columbus, with Columbus as the surviving company
("Merger"). Pursuant to the Merger Agreement, at the effective time of the
Merger Columbus will i) pay $1,609.00 ("Merger Consideration") per limited
partnership unit ("Unit") to the holders thereof ("Unitholders") and ii) as a
result of the Merger will acquire all the assets of the Partnership
("Properties") and will assume the outstanding debt of the Partnership which
stood at approximately $1.4 million as of September 30, 1998 (together referred
to herein as the "Transaction"). The terms of the Transaction are set forth more
fully in the Merger Agreement. You have requested our opinion on behalf of
Northwest I and the Unitholders (the "Fairness Opinion") as to whether the
Merger Consideration to be paid by Columbus pursuant to the Merger Agreement is
fair, from a financial point of view, to the Unitholders of Northwest I Units.
In connection with rendering this Fairness Opinion, Ragen MacKenzie,
among other things: (i) reviewed the Merger Agreement; (ii) reviewed and
analyzed consolidated historic and projected financial and operating data of
Northwest I and the Properties, including audited and unaudited financial
statements for Northwest I and unaudited cash-basis estimates prepared by
management for the Properties; (iii) reviewed and analyzed other internal
information concerning the business and operations of Northwest I and the
Properties furnished to it by management; (iv) reviewed and analyzed publicly
available information concerning Northwest I and the Properties; (v) reviewed
and analyzed publicly available information concerning the terms of selected
merger and acquisition transactions that Ragen MacKenzie deemed relevant to its
inquiry; (vi) reviewed and analyzed selected market purchase price data that
Ragen MacKenzie considered relevant to its inquiry; (vii) held meetings and
discussions with Mr. Whitcomb and employees of Northwest I concerning the
operations, financial condition and prospects of the Properties; and (viii)
conducted such other financial studies, analyses and investigations, including
visits to SeaTac and Federal Way, and considered such other information as Ragen
MacKenzie deemed appropriate.
In preparing its Fairness Opinion, Ragen MacKenzie relied, without
independent verification, on the accuracy and completeness of all information
that was publicly available, supplied or otherwise communicated to Ragen
MacKenzie by the General Partner or Northwest I. Ragen MacKenzie assumed that
the financial estimates (including the underlying assumptions and bases thereof)
examined by it were reasonably prepared and reflected the
<PAGE> 79
best currently available estimates and good faith judgments of the General
Partner as to the future performance of the Properties. Ragen MacKenzie did not
make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Northwest I (including the Properties). However,
Ragen MacKenzie was furnished with independent appraisals on each property
prepared by McKee & Schalka Seattle, Washington (the "McKee Appraisals") in
conjunction with U.S. Bank's financing. Ragen MacKenzie assumed without
independent verification that the amount being paid per limited partnership Unit
was determined consistent with the partnership agreement. This Fairness Opinion
necessarily is based upon financial, economic, market and other conditions and
circumstances existing and disclosed to it as of the date of this Fairness
Opinion.
Our Fairness Opinion is directed only to the fairness, from a financial
point of view, of the Merger Consideration to be paid by Columbus to the
Unitholders of Northwest I and does not constitute a recommendation concerning
how Unitholders should vote with respect to the Merger Agreement.
Ragen MacKenzie, as part of its investment banking business' is engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and valuations. We have acted as a financial
advisor to Northwest I in the preparation of this opinion and will receive a
fee for our services. In addition, Columbus, the surviving company pursuant to
the terms of the Merger Agreement, has agreed to indemnify us as to certain
liabilities arising out of the rendering of this Fairness Opinion.
This letter and the opinion expressed herein are provided at the
request of the General Partner and for the information of Northwest I and the
Unitholders and may not be referred to, quoted or used for any other purpose
without our prior written consent, except that this letter may be disclosed in
connection with a Proxy Statement used in connection with the Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the aggregate Merger Consideration being paid by Columbus to
the Northwest I Unitholders pursuant to the Merger Agreement is fair, from a
financial point of view, to the Unitholders of Northwest I.
Very truly yours,
Ragen MacKenzie Incorporated
By: /s/ Robert P. Davidson
--------------------------------------
Robert P. Davidson
Vice President
2
<PAGE> 80
ANNEX III
ARTICLE 14
DISSENTERS' RIGHTS
RCW 25.10.900 DEFINITIONS. As used in this article:
(1) "Limited partnership" means the domestic limited partnership in which
the dissenter holds or held a partnership interest, or the surviving limited
partnership or corporation by merger, whether foreign or domestic, of that
limited partnership.
(2) "Dissenter" means a partner who is entitled to dissent from a plan of
merger and who exercises that right when and in the manner required by this
article.
(3) "Fair value," with respect to a dissenter's partnership interest, means
the value of the partnership interest immediately before the effectuation of the
merger to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the merger unless exclusion would be
inequitable.
(4) "Interest" means interest from the effective date of the merger until
the date of payment, at the average rate currently paid by the limited
partnership on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
RCW 25.10.905 PARTNER--DISSENT--PAYMENT OF FAIR VALUE. (1) Except as
provided in RCW 25.10.915 or 25.10.925(2), a partner of a domestic limited
partnership is entitled to dissent from, and obtain payment of, the fair value
of the partner's partnership interest in the event of consummation of a plan of
merger to which the limited partnership is a party as permitted by RCW 25.10.800
or 25.10.840.
(2) A partner entitled to dissent and obtain payment for the partner's
partnership interest under this article may not challenge the merger creating
the partner's entitlement unless the merger fails to comply with the procedural
requirements imposed by this title, Title 23B RCW, the partnership agreement, or
is fraudulent with respect to the partner or the limited partnership.
(3) The right of a dissenting partner to obtain payment of the fair value
of the partner's partnership interest shall terminate upon the occurrence of any
one of the following events:
(a) The proposed merger is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
merger; or
(c) The partner's demand for payment is withdrawn with the written consent
of the limited partnership.
RCW 25.10.910 DISSENTERS' RIGHTS--NOTICE--TIMING. (1) Not less than ten
days prior to the approval of a plan of merger, the limited partnership must
send a written notice to all partners who are entitled to vote on or approve the
plan of merger that they may be entitled to assert dissenters' rights under this
article. Such notice shall be accompanied by a copy of this article.
1
<PAGE> 81
(2) The limited partnership shall notify in writing all partners not
entitled to vote on or approve the plan of merger that the plan of merger was
approved, and send them the dissenters' notice as required by RCW 25.10.920.
RCW 25.10.915 PARTNER--DISSENT--VOTING RESTRICTION. A partner who is
entitled to vote on or approve the plan of merger and who wishes to assert
dissenters' rights must not vote in favor of or approve the plan of merger. A
partner who does not satisfy the requirements of this section is not entitled to
payment for the partner's interest under this article.
RCW 25.10.920 PARTNERS--DISSENTERS' NOTICE--REQUIREMENTS. (1) If the plan
of merger is approved, the limited partnership shall deliver a written
dissenters' notice to all partners who satisfied the requirements of RCW
25.10.915.
(2) The dissenters' notice required by RCW 25.10.910(2) or by subsection
(1) of this section must be sent within ten days after the approval of the plan
of merger, and must:
(a) State where the payment demand must be sent;
(b) Inform holders of the partnership interest as to the extent transfer of
the partnership interest will be restricted as permitted by RCW 25.10.930 after
the payment demand is received;
(c) Supply a form for demanding payment;
(d) Set a date by which the limited partnership must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the notice under this section is delivered; and
(e) Be accompanied by a copy of this article.
RCW 25.10.925 PARTNER--PAYMENT DEMAND--ENTITLEMENT. (1) A partner who
demands payment retains all other rights of a partner until the proposed merger
becomes effective.
(2) A partner sent a dissenters' notice who does not demand payment by the
date set in the dissenters' notice is not entitled to payment for the partner's
partnership interest under this article.
RCW 25.10.930 PARTNERSHIP INTERESTS--TRANSFER RESTRICTIONS. The limited
partnership may restrict the transfer of partnership interests from the date the
demand for their payment is received until the proposed merger becomes effective
or the restriction is released under this article.
RCW 25.10.935 PAYMENT OF FAIR VALUE--REQUIREMENTS FOR COMPLIANCE. (1)
Within thirty days of the later of the date the proposed merger becomes
effective, or the payment demand is received, the limited partnership shall pay
each dissenter who complied with RCW 25.10.925 the amount the limited
partnership estimates to be the fair value of the partnership interest, plus
accrued interest.
2
<PAGE> 82
(2) The payment must be accompanied by:
(a) Copies of the financial statements for the most recent fiscal year
maintained as required by RCW 25.10.050;
(b) An explanation of how the limited partnership estimated the fair value
of the partnership interest;
(c) An explanation of how the accrued interest was calculated;
(d) A statement of the dissenter's right to demand payment; and
(e) A copy of this article.
RCW 25.10.940 MERGER--NOT EFFECTIVE WITHIN SIXTY DAYS--TRANSFER
RESTRICTIONS. (1) If the proposed merger does not become effective within sixty
days after the date set for demanding payment, the limited partnership shall
release any transfer restrictions imposed as permitted by RCW 25.10.930.
(2) If, after releasing transfer restrictions, the proposed merger becomes
effective, the limited partnership must send a new dissenters' notice as
provided in RCW 25.10.910(2) and 25.10.920 and repeat the payment demand
procedure.
RCW 25.10.945 DISSENTER'S ESTIMATE OF FAIR VALUE--NOTICE. (1) A dissenter
may notify the limited partnership in writing of the dissenter's own estimate of
the fair value of the dissenter's partnership interest and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
25.10.935, if:
(a) The dissenter believes that the amount paid is less than the fair value
of the dissenter's partnership interest or that the interest due is incorrectly
calculated;
(b) The limited partnership fails to make payment within sixty days after
the date set for demanding payment; or
(c) The limited partnership, having failed to effectuate the proposed
merger, does not release the transfer restrictions imposed on partnership
interests as permitted by RCW 25.10.930 within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the limited partnership of the dissenter's demand
in writing under subsection (1) of this section within thirty days after the
limited partnership made payment for the dissenter's partnership interest.
RCW 25.10.950 UNSETTLED DEMAND FOR PAYMENT--PROCEEDING--
PARTIES--APPRAISERS. (1) If a demand for payment under RCW 25.10.945 remains
unsettled, the limited partnership shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the partnership interest and accrued interest. If the limited
3
<PAGE> 83
partnership does not commence the proceeding within the sixty-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(2) The limited partnership shall commence the proceeding in the superior
court. If the limited partnership is a domestic limited partnership, it shall
commence the proceeding in the county where its office is maintained as required
by RCW 25.10.040(1). If the limited partnership is a domestic corporation, it
shall commence the proceeding in the county where its principal office, as
defined in *RCW 23B.01.400(17), is located, or if none is in this state, its
registered office under RCW 23B.05.010. If the limited partnership is a foreign
limited partnership or corporation without a registered office in this state, it
shall commence the proceeding in the county in this state where the office of
the domestic limited partnership maintained pursuant to RCW 25.10.040(1) merged
with the foreign limited partnership or foreign corporation was located.
(3) The limited partnership shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled parties to the
proceeding as in an action against their partnership interests and all parties
must be served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law.
(4) The limited partnership may join as a party to the proceeding any
partner who claims to be a dissenter but who has not, in the opinion of the
limited partnership, complied with the provisions of this chapter. If the court
determines that such partner has not complied with the provisions of this
article, the partner shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced is
plenary and exclusive. The court may appoint one or more persons as appraisers
to receive evidence and recommend decisions on the question of fair value. The
appraisers have the powers described in the order appointing them or in any
amendment to it. The dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of the
dissenter's partnership interest, plus interest, exceeds the amount paid by the
limited partnership.
RCW 25.10.955 UNSETTLED DEMAND FOR PAYMENT--COSTS--FEES AND EXPENSES OF
COUNSEL. (1) The court in a proceeding commenced under RCW 25.10.950 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the limited partnership, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the limited partnership and in favor of any or all dissenters
if the court finds the limited partnership did not substantially comply with the
requirements of this article; or
4
<PAGE> 84
(b) Against either the limited partnership or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the limited partnership, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
5
<PAGE> 85
ANNEX IV
Per Unit Proceeds to Unitholders if the Northwest I Motels Were Sold Based Upon
the Best Offer Received by Exvere
<TABLE>
<S> <C>
Northwest I's allocated share
of proposed $80 million Purchase Price $(9,048,0001)
Plus: Current Assets in excess
of Current Liabilities at
September 30, 1998 after
deduction of Cash Distributions
to Partners of $264,706 paid October 31, 1998
and $264,706 paid January 31, 1999 5,670
Less: Long-Term Debt at September 30, 1998 (1,434,121)
-----------
Amount Available for Distribution
Before Selling Costs $7,619,549
Less: Estimated selling costs and
expenses of winding down of Northwest I,
including 1% sales commission, title insurance,
real estate excise tax, appraisal fees
fairness opinion, legal, tax and accounting ($448,244)
----------
Net Available for Distribution to Partners $7,171,305
</TABLE>
Allocation of Net Available for
Distribution to Partners Between
Limited Partners and General Partner:
<TABLE>
<CAPTION>
Limited Partner General Partner Total
--------------- --------------- -----
<S> <C> <C> <C>
Priority Return of Net
Capital Contribution
Pursuant to Section 10 of
the Partnership Agreement $5,624,879 $ 56,817 $5,681,696
Remaining Net Available
For Distribution to Partners
Allocated 85% Limited
Partners and 15% General
Partner Pursuant to Section 10
of the Partnership Agreement 1,266,169 223,440 1,489,609
---------- ---------- ----------
TOTAL $6,891,048 $ 280,257 $7,171,305
---------- ---------- ----------
</TABLE>
Per Unit Distribution
To Limited Partners $6,891,048 (divided by) 6,000 = $1,148
- --------
1 Excludes the proposed $4 million contingent purchase price based upon the
performance of the 27 motel properties over a 5-year period which, if earned,
would result in an additional payment of $62 per unit to Northwest I
Unitholders.
1
<PAGE> 86
Per Unit Proceeds to Unitholders if the Northwest I Motels Were Sold
Individually at the McKee Appraised Values.
<TABLE>
<S> <C>
Appraised Values:
Sea-Tac $8,300,000
Federal Way 4,000,030
-----------
TOTAL $12,300,030
Plus: Current Assets in excess
of Current Liabilities at
September 30, 1998 after
deduction of Cash Distributions to Partners
of $264,706 paid October 31, 1998 and
$264,706 Paid January 31, 1999 5,670
Less: Long-Term Debt at September 30, 1998 (1,434,121)
----------
Amount Available for Distribution
Before Selling Costs $10,871,549
Less: Estimated selling costs and
expenses of winding down of Northwest I,
including 4% sales commission, title insurance,
real estate excise tax, appraisal fees,
fairness opinion, legal, tax and accounting ($886,552)
----------
Net Available for Distribution to Partners $9,985,027
</TABLE>
Allocation of Net Available for
Distribution to Partners Between
Limited Partners and General Partner:
<TABLE>
<CAPTION>
Limited Partner General Partner Total
--------------- --------------- -----
<S> <C> <C> <C>
Priority Return of Net
Capital Contribution
Pursuant to Section 10 of
the Partnership Agreement $5,624,879 $ 56,817 $5,681,696
Remaining Net Available for
Distribution to Partners
Allocated 85% Limited
Partners and 15% General
Partner Pursuant to Section 10
of the Partnership Agreement 3,657,832 645,499 4,303,331
---------- ---------- ----------
TOTAL $9,282,711 $ 702,316 $9,985,027
---------- ---------- ----------
</TABLE>
Per Unit Distributions
To Limited Partners $9,282,711 (divided by) 6,000 = $1,547
---------- ----- ------
2
<PAGE> 87
PROXY SUPER 8 MOTELS NORTHWEST I PROXY
7515 TERMINAL STREET, S.W., TUMWATER, WA 98501
----------------------------------------------
SPECIAL MEETING OF LIMITED PARTNERS -- MARCH [ ], 1999
THIS PROXY IS SOLICITED ON BEHALF OF NORTHWEST I
The undersigned hereby appoints Gerald L. Whitcomb and Maryanne
Whitcomb, and each of them, as proxies, each with full power of substitution,
and hereby authorizes each of them to represent and to vote, in such manner as
in their discretion shall be deemed appropriate to carry out the authority as
designated below, all of the limited partnership units of Super 8 Motels
Northwest I ("Northwest I") held of record by the undersigned on January 6,
1999, at the special meeting of limited partners to be held March [ ], 1999, or
any adjournments or postponements thereof.
1. Agreement and Plan of Merger and Reorganization, dated December 31,
1998, as amended, between Northwest I and Columbus Properties L.L.C.
("Merger").
___ FOR the Merger
___ AGAINST the Merger
___ ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
<PAGE> 88
THIS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED LIMITED PARTNER, AND WILL GRANT DISCRETIONARY
AUTHORITY TO VOTE ON OTHER MATTERS. EXCEPT AS OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR THE MERGER.
Please sign exactly as name appears below. When limited partnership
units are held by joint tenants, both should sign. When signing as an attorney,
executor, administrator, trustee, or guardian, please give full title as such.
If a corporation, please sign in full corporate name by president or other
authorized officer. If partnership, please sign in partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
DATED: ____________________, 1999
------------------------------------
Signature
------------------------------------
Signature, if held jointly
2
